Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 600 Organization and Functions

Subpart A Farm Credit Administration

§ 600.1 The Farm Credit Act.

§ 600.2 Farm Credit Administration.

§ 600.3 Farm Credit Administration Board.

§ 600.4 Organization of the Farm Credit Administration.

Subpart B Rules and Procedures for Service Upon the Farm Credit Administration

§ 600.10 Service of Process.

PART 600—ORGANIZATION AND FUNCTIONS

Authority: Secs. 5.7, 5.8, 5.9, 5.10, 5.11, 5.17, 8.11 of the Farm Credit Act (12 U.S.C. 2241, 2242, 2243, 2244, 2245,

2252, 2279aa–11).

Source: 53 FR 16693, May 11, 1988, unless otherwise noted.

Subpart A—Farm Credit Administration

Source: 70 FR 69645, Nov. 17, 2005, unless otherwise noted.

§ 600.1 The Farm Credit Act.

The Farm Credit Act of 1971, Public Law 92–181 recodified and replaced the prior laws under which the Farm Credit

Administration (FCA) and the institutions of the Farm Credit System (System or FCS) were organized and operated.

The prior laws, which were repealed and superseded by the Act, are identified in section 5.40(a) of the Act.

Subsequent amendments to the Act and enactment dates are as follows: Public Law 94–184, December 31, 1975;

Public Law 95–443, October 10, 1978; Public Law 96–592, December 24, 1980; Public Law 99–190, December 19,

1985; Public Law 99–198, December 23, 1985; Public Law 99–205, December 23, 1985; Public Law 99–509,

October 21, 1986; Public Law 100–233, January 6, 1988; Public Law 100–399, August 17, 1988; Public Law

100–460, October 1, 1988; Public Law 101–73, August 9, 1989; Public Law 101–220, December 12, 1989; Public

Law 101–624, November 28, 1990; Public Law 102–237, December 13, 1991; Public Law 102–552, October 28,

1992; Public Law 103–376, October 19, 1994; Public Law 104–105, February 10, 1996; Public Law 104–316,

October 19, 1996; Public Law 107–171, May 13, 2002; Public Law 110–246, June 18, 2008. The law is codified at 12

U.S.C. 2000, et seq.

[80 FR 68428, Nov. 5, 2015]

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 600 (up to date as of 3/07/2024)

Organization and Functions 12 CFR Part 600 (Mar. 7, 2024)

12 CFR 600.1 (enhanced display) page 1 of 4
§ 600.2 Farm Credit Administration.

1501 Farm Credit Drive, McLean, VA 22102–5090

7900 International Drive, Suite 200, Bloomington, MN 55425–2563

500 East John Carpenter Freeway, Suite 400, Irving, TX 75062–3906

8101 East Prentice Avenue, Suite 1200, Greenwood Village, CO 80111–2939

2180 Harvard Street, Suite 300, Sacramento, CA 95815–3323.

[70 FR 69645, Nov. 17, 2005, as amended at 80 FR 40897, July 14, 2015; 81 FR 47691, July 22, 2016]

§ 600.3 Farm Credit Administration Board.

§ 600.4 Organization of the Farm Credit Administration.

(a) Background. The Farm Credit Administration is an independent, non-appropriated fund agency in the

executive branch of the Federal Government. The FCA Board and employees carry out the FCA's functions,

powers, and duties.

(b) Locations. FCA's headquarters address is 1501 Farm Credit Drive, McLean, Virginia 22102–5090. The FCA

has the following field offices:

(a) FCA Board. The President appoints the three full-time Board members with the advice and consent of the

Senate. The Board manages, administers, and establishes policies for FCA. The Board promulgates the

rules and regulations implementing the Farm Credit Act of 1971, as amended, and provides for the

examination of Farm Credit System institutions.

(b) Chairman of the FCA Board. The Chairman of the Board is FCA's Chief Executive Officer. The Chairman

directs the implementation of the policies and regulations adopted by the Board and, after consulting the

Board, the execution of the administrative functions and duties of FCA. In carrying out the Board's

policies, the Chairman acts as the spokesperson for the Board and represents the Board and FCA in their

official relations within the Federal Government.

(a) Offices and functions. The primary offices of the FCA are:

(1) Office of Inspector General. The Office of Inspector General conducts independent audits,

inspections, and investigations of Agency programs and operations and reviews proposed

legislation and regulations.

(2) Secretary to the Board. The Secretary to the Board serves as the parliamentarian for the Board and

keeps permanent and complete records and minutes of the acts and proceedings of the Board.

(3) Equal Employment and Inclusion Director. The Office of Equal Employment and Inclusion manages

and directs the Agency-wide Diversity, Inclusion, and Equal Employment Opportunity Program for

FCA and FCSIC. The office serves as the chief liaison with the Equal Employment Opportunity

Commission and the Office of Personnel Management on all EEO, diversity, and inclusion issues. The

office provides counsel and leadership to Agency management to carry out its continuing policy and

program of nondiscrimination, affirmative action, and diversity.

12 CFR Part 600 (up to date as of 3/07/2024)

Organization and Functions 12 CFR 600.2

12 CFR 600.4(a)(3) (enhanced display) page 2 of 4
(4) Designated Agency Ethics Official. The Designated Agency Ethics Official is designated by the FCA

Chairman to administer the provisions of title I of the Ethics in Government Act of 1978, as amended,

to coordinate and manage FCA's ethics program and to provide liaison to the Office of Government

Ethics with regard to all aspects of FCA's ethics program.

(5) Office of Congressional and Public Affairs. The Office of Congressional and Public Affairs performs

Congressional liaison duties and coordinates and disseminates Agency communications.

(6) Office of Secondary Market Oversight. The Office of Secondary Market Oversight regulates and

examines the Federal Agricultural Mortgage Corporation for safety and soundness and compliance

with law and regulations.

(7) Office of the Chief Operating Officer. The Chief Operating Officer has broad responsibility for planning,

directing, and controlling the operations of the Offices of Agency Services, Chief Financial Officer,

Examination, Regulatory Policy, Information Technology, Data Analysis and Economics, and General

Counsel in accordance with the operating philosophy and policies of the FCA Board.

(8) Office of Agency Services. The Office of Agency Services, manages human capital and administrative

services for the Agency. This includes providing the following services to the Agency: Staffing and

placement, personnel security programs, job evaluation, compensation and benefits, payroll

administration, performance management and awards, employee relations, employee training and

development, contracting, acquisitions, records and property management, supply services, agency

purchase cards, design, publication, and mail service.

(9) Office of the Chief Financial Officer. The Office of the Chief Financial Officer, manages and delivers

timely, accurate, and reliable financial services to the Agency. The office establishes financial

policies and procedures and oversees the formulation and execution of the Agency's budget. The

office reports periodically on the status of the Agency's financial position, results of operations, and

budgetary resources. It also oversees the Agency's travel management and internal controls.

(10) Office of Regulatory Policy. The Office of Regulatory Policy develops policies and regulations for the

FCA Board's consideration; evaluates regulatory and statutory prior approvals; manages the Agency's

chartering activities; and analyzes policy and strategic risks to the System.

(11) Office of Examination. The Office of Examination evaluates the safety and soundness of FCS

institutions and their compliance with law and regulations and manages FCA's enforcement and

supervision functions.

(12) Office of Information Technology. The Office of Information Technology manages and delivers the

Agency's information technology, data analysis infrastructure, and the security supporting Agency

technology resources.

(13) Office of Data Analytics and Economics. The Office of Data Analytics and Economics evaluates

strategic risks to the System using data, analytics, economic trends, and other risk factors. The

Office serves as a steward for Agency data and as a provider of information for objective, evidencebased decision making across the Agency. The Office facilitates an agency wide strategy for

analytics and collaborates across Offices on business intelligence tools and development of models

to meet the strategic needs of the Agency.

(14) Office of General Counsel. The Office of General Counsel provides legal advice and services to the

FCA Chairman, the FCA Board, and Agency staff.

12 CFR Part 600 (up to date as of 3/07/2024)

Organization and Functions 12 CFR 600.4(a)(4)

12 CFR 600.4(a)(14) (enhanced display) page 3 of 4
[85 FR 6421, Feb. 5, 2020]

Subpart B—Rules and Procedures for Service Upon the Farm Credit Administration

§ 600.10 Service of Process.

[54 FR 50736, Dec. 11, 1989, as amended at 59 FR 21642, Apr. 26, 1994]

(b) Additional information. You may obtain more information on the FCA's organization by visiting our website

at http://www.fca.gov. You may also contact the Office of Congressional and Public Affairs:

(1) In writing at FCA, 1501 Farm Credit Drive, McLean, Virginia 22102–5090;

(2) By email at info-line@fca.gov; or

(3) By telephone at (703) 883–4056.

(a) Except as otherwise provided in the Farm Credit Administration regulations, the Federal Rules of Civil

Procedure or by order of a court with jurisdiction over the Farm Credit Administration, any legal process

upon the Farm Credit Administration shall be duly issued and served upon the Secretary to the Farm

Credit Administration Board, 1501 Farm Credit Drive, McLean, Virginia 22102–5090.

(b) Service of process upon the Secretary to the Farm Credit Administration Board may be effected by

personally delivering a copy of the documents to the Secretary or by sending a copy of the documents to

the Secretary by registered or certified mail.

(c) The Secretary shall promptly forward a copy of all documents to the General Counsel and to any Farm

Credit Administration personnel named in the caption of the documents.

12 CFR Part 600 (up to date as of 3/07/2024)

Organization and Functions 12 CFR 600.4(b)

12 CFR 600.10(c) (enhanced display) page 4 of 4
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 601 Employee Responsibilities and Conduct

§ 601.100 Cross-references to employee ethical conduct standards and financial disclosure

regulations.

PART 601—EMPLOYEE RESPONSIBILITIES AND CONDUCT

Authority: 5 U.S.C. 7301; 12 U.S.C. 2243, 2252.

§ 601.100 Cross-references to employee ethical conduct standards and financial disclosure

regulations.

Board members, officers, and other employees of the Farm Credit Administration are subject to the Standards of

Ethical Conduct for Employees of the Executive Branch at 5 CFR part 2635, the Farm Credit Administration

regulation at 5 CFR part 4101, which supplements the Executive Branch-wide Standards, and the executive branchwide financial disclosure regulations at 5 CFR part 2634.

[60 FR 30782, June 12, 1995]

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 601 (up to date as of 3/07/2024)

Employee Responsibilities and Conduct

12 CFR Part 601 (Mar. 7, 2024)

12 CFR 601.100 (enhanced display) page 1 of 1
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 602 Releasing Information

Subpart A Information and Records Generally

§ 602.1 Purpose and scope.

§ 602.2 Disclosing reports of examination and other non-public information.

Subpart B Availability of Records of the Farm Credit Administration

§ 602.3 Definitions.

§ 602.4 How to make a request.

§ 602.5 FCA response to requests for records.

§ 602.6 FOIA exemptions.

§ 602.7 Confidential business information.

§ 602.8 Appeals.

§ 602.9 Current FOIA index.

Subpart C FOIA Fees

§ 602.10 Definitions.

§ 602.11 Fees by type of requester.

§ 602.12 Fees.

§ 602.13 Fee waiver.

§ 602.14 Advance payments—notice.

§ 602.15 Interest on unpaid fees.

§ 602.16 Combining requests.

Subpart D Testimony and Production of Documents in Legal Proceedings in

Which FCA is Not a Named Party

§ 602.17 Policy.

§ 602.18 Definitions.

§ 602.19 Request for testimony or production of documents.

§ 602.20 Testimony of FCA employees.

§ 602.21 Production of FCA documents.

§ 602.22 Fees.

§ 602.23 Responses to demands served on FCA employees.

§ 602.24 Responses to demands served on non-FCA employees or entities.

Subpart E Release of Records in Public Rulemaking Files

§ 602.25 General.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR Part 602 (Mar. 7, 2024)

12 CFR Part 602 (Mar. 7, 2024) (enhanced display) page 1 of 12
PART 602—RELEASING INFORMATION

Authority: Secs. 5.9, 5.17, 5.59 of the Farm Credit Act (12 U.S.C. 2243, 2252, 2277a-8); 5 U.S.C 301, 552; 12 U.S.C.

1821(t); 52 FR 10012; E.O. 12600; 52 FR 23781, 3 CFR 1987, p. 235.

Source: 64 FR 41770, Aug. 2, 1999, unless otherwise noted.

Subpart A—Information and Records Generally

§ 602.1 Purpose and scope.

This part contains FCA's rules for disclosing our records or information; processing requests for records under the

Freedom of Information Act (5 U.S.C. 552, as amended)(FOIA); FOIA fees; disclosing otherwise exempt information

in litigation when FCA is not a party; and getting documents in public rulemaking files. Part 603 of this chapter tells

you how to get records about yourself under the Privacy Act of 1974, 5 U.S.C. 552a.

§ 602.2 Disclosing reports of examination and other non-public information.

[64 FR 41770, Aug. 2, 1999, as amended at 78 FR 77561, Dec. 24, 2013]

(a) Disclosure by FCA. Reports of examination are FCA property. We prepare them for our confidential use

and the use of the institution examined. We do not give reports of examination to the public. Except as

provided in this section, only the Chairman or the Chairman's designee may consent to disclosing reports

of examination of Farm Credit System institutions and other institutions subject to our examination. You

may send a written request to our General Counsel that explains why we should give permission.

(b) Disclosure by Farm Credit System institutions. An institution that we have examined may disclose its

report of examination to its officers, directors, and agents, such as its attorney or accountant, if they agree

to keep the report confidential. In addition, banks may disclose their reports of examination to their

affiliated associations, associations may disclose their reports to their supervisory bank, and service

corporations may disclose their reports of examination to the institutions that own them. An institution

may not disclose these institutions' reports of examination to any other person without our written

permission.

(c) Disclosure to the Farm Credit System Insurance Corporation. Without waiving any privilege or limiting any

of the requirements of section 5.59 of the Farm Credit Act of 1971, as amended, we may disclose reports

of examination and other examination and non-public information, including data from reports of System

accounts and exposures received pursuant to § 621.15 of this chapter, to the Farm Credit System

Insurance Corporation pursuant to confidentiality and data security agreements executed between the

agencies.

(d) Disclosure to governmental entities. Without waiving any privilege, we will disclose reports of examination

to other Federal government entities:

(1) In response to a Federal court order;

(2) In response to a request of either House or a Committee or Subcommittee of Congress; or

(3) When requested for confidential use in an official investigation by authorized representatives of other

Federal agencies.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602

12 CFR 602.2(d)(3) (enhanced display) page 2 of 12
Subpart B—Availability of Records of the Farm Credit Administration

§ 602.3 Definitions.

§ 602.4 How to make a request.

Appeal means a request under the FOIA asking for the reversal of a decision.

Business information means trade secrets or other commercial or financial information that is privileged or

confidential.

Business submitter means any person or entity that gives business information to the Government.

FOIA request means a written request for FCA records, made by any person or entity that either directly or

indirectly invokes the FOIA or this part.

Record means all documentary materials, such as books, papers, maps, photographs, and machine-readable

materials, regardless of physical form or characteristics (for example, electronic format) in our

possession and control when we receive your FOIA request.

(a) How to make and address a request. Your request for records must be in writing and addressed to the

FOIA Officer, Farm Credit Administration. You may send it:

(1) By mail to 1501 Farm Credit Drive, McLean, Virginia 22102–5090;

(2) By facsimile to (703) 790–0052; or

(3) By E-mail to foiaofficer@fca.gov.

(b) Description of requested records. You must describe the requested records in enough detail to let us find

them with a reasonable effort. If the description is inadequate, we will ask you to provide more

information and the 20-day response period under § 602.5(a) will not begin until we receive your reply.

(c) Faster response. You may ask for a faster response to your FOIA request by giving us a statement,

certified to be true, that you have a “compelling need.” The FOIA Officer will tell you within 10 calendar

days after receiving the request whether we will respond to it faster. If so, we will respond to your request

as soon as we can. A compelling need means:

(1) Someone's life or physical safety may be in danger if we do not respond to the request faster; or

(2) You urgently need to tell the public about Federal government activity as a representative of the news

media.

(d) Request for personal information. If you or your representative requests your personal information, we

may require you to give us a notarized request, identify yourself under penalty of perjury, or provide other

proof of your identity.

(e) Fees. When making a request, you must tell us the most you are willing to pay. Our charges are in the fee

tables in §§ 602.11 and 602.12. You may also want to tell us the purpose of your request so we can

classify your request for fee purposes.

(f) Other requests. To ensure the public has timely information about our activities, the Office of

Congressional and Public Affairs will make available copies of public documents, such as the FCA annual

report and media advisories.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.3

12 CFR 602.4(f) (enhanced display) page 3 of 12
§ 602.5 FCA response to requests for records.

§ 602.6 FOIA exemptions.

The FOIA allows agencies to withhold documents in certain categories. For instance, we do not have to give you

documents that relate to our examination of institutions or that would violate the personal privacy of an individual. If

we do not give you a document because the FOIA does not require us to, we will tell you which FOIA exemption

applies to our decision.

§ 602.7 Confidential business information.

(a) Response time. Within 20 business days of receiving your request, the FOIA Officer will tell you whether we

have granted or denied it. If you send your request to the wrong address, the 20-day response time will not

begin until the FOIA Officer receives your request.

(b) Extension of response time. In “unusual circumstances,” the FOIA Officer may extend the 20-day response

time for up to 10 more business days by telling you in writing why we need more time and the date we will

mail you our response. As used in this subpart, “unusual circumstances” means our need to:

(1) Search for and get the requested records from field offices or other locations;

(2) Search for, get, and review many records identified in a single request;

(3) Consult with another Federal agency having a substantial interest in the request; or

(4) Consult with two or more FCA offices having a substantial interest in the request.

(c) Referrals. If you ask for records we have that another Federal agency originated, we will refer the request

to the originating agency and tell you about the referral. If you should have sent your request to another

Federal agency, we will refer the request to that agency and so advise you.

(a) FCA disclosure. FCA may disclose business information from a business submitter only under this

section. This section will not apply if:

(1) We decide the business submitter has no valid basis to object to disclosure;

(2) The information has been published lawfully or made available to the public; or

(3) Law (other than the FOIA) requires disclosure of the information.

(b) Notice by FCA. When we receive a request for confidential business information, the FOIA Officer will

promptly tell the requester and the business submitter in writing that the responsive records may be free

from disclosure under the FOIA. We will give the business submitter a reasonable time to object to the

proposed disclosure of the responsive records and tell the requester whenever:

(1) The business submitter has in good faith labeled the information a trade secret or commercial or

financial information that is privileged or confidential. We will provide such notice for 10 years after

receiving the information unless the business submitter justifies the need for a longer period; or

(2) We believe that disclosing the information may result in commercial or financial injury to the

business submitter.

(c) Objection to release. A business submitter who objects to our releasing the requested information should

tell us in writing why the information is a trade secret or commercial or financial information that is

privileged or confidential.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.5

12 CFR 602.7(c) (enhanced display) page 4 of 12
§ 602.8 Appeals.

[64 FR 41770, Aug. 2, 1999, as amended at 70 FR 69645, Nov. 17, 2005; 81 FR 47692, July 22, 2016; 81 FR 63366, Sept. 15, 2016]

(d) FCA response.

(1) We will consider carefully a business submitter's objections. If we decide to disclose business

information over the submitter's objection, the FOIA Officer will explain to the submitter in writing

why we disagreed with the submitter's objection and describe the business information to be

disclosed.

(2) We will tell the requester and the submitter the proposed disclosure date at the same time.

(3) If a submitter sues to prevent release, we will promptly tell the requester and will not disclose the

business information until after the court's decision.

(4) If a requester sues to compel disclosure, we will promptly tell the business submitter.

(a) How to appeal. You may appeal a total or partial denial of your FOIA request within 90 calendar days of the

date of the denial letter. Your appeal must be in writing and addressed to the Director, Office of Agency

Services (OAS), Farm Credit Administration. You may send it:

(1) By mail to 1501 Farm Credit Drive, McLean, Virginia 22102–5090;

(2) By facsimile to (703) 893–2608; or

(3) By Email to foiaappeal@fca.gov. You also have the right to seek dispute resolution services from

FCA's FOIA Public Liaison and the Office of Government Information Services.

(b) FCA action on appeal. Within 20 business days of receiving your appeal, the OAS Director will tell you, in

writing, whether we have granted or denied it. If you send your appeal to the wrong address, the 20-day

response time will not begin until the OAS Director receives your appeal.

(c) Unusual circumstances. In unusual circumstances, the OAS Director may extend the 20-day response time

by telling you in writing why we need more time and the date we will mail you our response. All

extensions, including any extension of the response time for the first request, may not total more than 10

business days.

(d) How to seek dispute resolution services. Requesters may seek dispute resolution services from:

(1) FCA's FOIA Public Liaison;

(i) By mail addressed to FOIA Public Liaison, 1501 Farm Credit Drive, McLean, Virginia

22101–5090;

(ii) By facsimile at 703–790–3260; or

(iii) By Email at FOIAPublicLiaison@fca.gov.

(2) Office of Government Information Services;

(i) By mail to Office of Government Information Services, National Archives and Records

Administration, 8601 Adelphi Road—OGIS, College Park, Maryland, 20740–6001;

(ii) By facsimile at (202) 741–5769; or

(iii) By Email at ogis@nara.gov.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.7(d)

12 CFR 602.8(d)(2)(iii) (enhanced display) page 5 of 12
§ 602.9 Current FOIA index.

FCA will make a current index available for public inspection and copying, as required by the FOIA. We will give you

an index for the cost of copying it. Because we rarely receive requests for an index, we have not published one in the

FEDERAL REGISTER.

Subpart C—FOIA Fees

§ 602.10 Definitions.

§ 602.11 Fees by type of requester.

Depending on your identity and the purpose of your request, the FCA may charge you the direct costs of searching

for responsive records, reviewing the records, and reproducing them. If necessary, we will seek clarification before

classifying the request.

Commercial use request means an information request by an individual or entity seeking information for a use or

purpose that furthers the commercial, trade, or profit interests of that individual or entity.

Direct costs means the costs FCA incurs in searching for and reproducing documents to respond to a FOIA

request. For a commercial use request, it also means the costs we incur in reviewing documents to

respond to the request. Direct costs include the pro rated cost of the salary of the employee performing

the work (based on the basic rate of pay plus 16 percent to cover benefits) and the cost of operating

reproduction equipment. They do not include overhead expenses.

Educational institution means a preschool, a public or private elementary or secondary school, an institution of

undergraduate or graduate higher education, an institution of professional education, or an institution of

vocational education that runs a program of scholarly research.

Noncommercial scientific institution means a nonprofit institution that conducts scientific research that is not

intended to promote any particular product or industry.

Pages mean 8–1/2 × 11 inch or 11 × 14 inch paper copies.

Representative of the news media means any person actively gathering news for an entity that publishes or

broadcasts news to the public. News means information about current events or of current interest to the

public.

Reproduce (or reproduction) means copying a record.

Review means looking at documents found in response to a FOIA request to decide whether any portion should

be withheld. It does not include the time spent resolving legal or policy issues.

Search means all time spent looking for material responsive to a FOIA request, including page-by-page or lineby-line identification of material within documents.

(a) Educational institutions and noncommercial scientific institutions. We charge fees for reproduction costs

only. The first 100 pages are free. You must show that the request is sanctioned by an educational or

noncommercial scientific institution and that you seek the records for scholarly or scientific research, not

for a commercial use.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.9

12 CFR 602.11(a) (enhanced display) page 6 of 12
Fee Table

Type of requester

Charges for

Reproduction

Search time Review

time

•Educational

•Noncommercial

scientific users

•News media

No Charge No charge First 100 pages free, $ 0.15 a

page after that.

Commercial Users1 All direct costs All direct

costs

$0.15 a page.

All others1 First 2 hours free, all direct

costs after that

No charge First 100 pages free, $0.15 a

page after that.

1 You are responsible for fees even if we do not disclose any records.

[64 FR 41770, Aug. 2, 1999; 64 FR 45589, Aug. 20, 1999]

§ 602.12 Fees.

(b) Representatives of the news media. We charge fees for reproduction costs only. The first 100 pages are

free. You must be a representative of the news media, and the request must not be made for a

commercial use. A request for records supporting news distribution is not a request for a commercial

use.

(c) Commercial use. We charge the direct cost for search, review, and reproduction. Commercial use

requesters are not entitled to free search time or free reproduction. We will charge you even if we do not

disclose any records.

(d) All others. The first 2 hours of search time and the first 100 pages of reproduction are free. After that, we

will charge you for search and reproduction costs. We will charge you for a search even if we do not

disclose any records.

(e) Fee table. The fee information in paragraphs (a) through (d) of this section is presented in the table to this

paragraph. You may apply for a waiver if your request is not mostly in your commercial interest and the

disclosure is in the public interest. See § 602.13.

(a) FCA may charge:

(1) For manual searches for records and for review, the pro rated cost of the salary of the employee

doing the work.

(2) For computer searches for records, the direct costs of computer search time and supply or material

costs.

(3) For each page made by photocopy or similar method, fifteen cents a page, and for other forms of

copying, the direct costs.

(4) The direct costs of elective services, such as certifying records as true copies or sending records by

special methods.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.11(b)

12 CFR 602.12(a)(4) (enhanced display) page 7 of 12
Fee Amounts Table

Type of fee Amount of fee

Manual Search and Review Pro rated Salary Costs.

Computer Search Direct Costs.

Photocopy $0.15 a page.

Other Reproduction Costs Direct Costs.

Elective Services Direct Costs.

[64 FR 41770, Aug. 2, 1999, as amended at 81 FR 63366, Sept. 15, 2016]

§ 602.13 Fee waiver.

We may waive or reduce fees if disclosure is not mostly in your commercial interest but, instead, is in the public

interest because it will advance public understanding of the Federal government's operations or activities.

§ 602.14 Advance payments—notice.

(b) We will not charge fees when total assessed fees are less than $15.00.

(c) You must pay by personal check, bank draft drawn on a United States bank, or postal money order made

payable to the Treasury of the United States.

(d) We treat a request about yourself under Privacy Act fee rules.

(e) The information in paragraphs (a) and (b) of this section is presented in the table to this paragraph. Direct

costs means the costs FCA incurs in searching for, reviewing, and reproducing documents to respond to a

request. Direct costs include pro rated salary and reproduction costs. We will not charge fees when they

total less than $15.00.

(f) We will not assess fees if we fail to comply with any time limit under the FOIA or these regulations, and

have not timely notified the requester, in writing, that an unusual circumstance exists. If an unusual

circumstance exists, and timely, written notice is given to the requester, we may be excused an additional

10 working days before fees are automatically waived under this paragraph.

(g) If we determine that unusual circumstances apply and more than 5,000 pages are necessary to respond to

a request, we may charge fees if we provided a timely, written notice to the requester and discussed with

the requester via mail, Email, or telephone (or made at least three good-faith attempts to do so) how the

requester could effectively limit the scope of the request.

(h) If a court has determined that exceptional circumstances exist, a failure to comply with time limits

imposed by these regulations or FOIA shall be excused for the length of time provided by court order.

(a) If fees will be more than $25.00 and you have not told us in advance that you will pay estimated fees, we

will tell you the estimated amount and ask that you agree to pay it. Except as noted in this section, we will

begin processing the FOIA request when we receive your agreement to pay.

(b) If estimated fees exceed $250.00 and you have a history of promptly paying fees charged for information

requests, we may respond to your request based on your agreement to pay.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.12(b)

12 CFR 602.14(b) (enhanced display) page 8 of 12
§ 602.15 Interest on unpaid fees.

If you fail to pay fees on time, FCA may charge you interest starting on the 31st calendar day following the date we

bill you. We will charge you interest at the rate allowed by law (31 U.S.C. 3717) on the billing date.

§ 602.16 Combining requests.

You may not avoid paying fees by filing multiple requests at the same time. When FCA reasonably believes that you,

alone or with others, are breaking down one request into a series of requests to avoid fees, we will combine the

requests and charge accordingly.

[81 FR 63366, Sept. 15, 2016]

Subpart D—Testimony and Production of Documents in Legal Proceedings in Which FCA is Not a

Named Party

§ 602.17 Policy.

§ 602.18 Definitions.

(c) If estimated fees exceed $250.00 and you have no history of paying fees, we may require you to pay in

advance.

(d) If you have previously failed to pay fees for information requests or paid them late, you must pay any fees

still owed, plus interest calculated under § 602.15, and the estimated fees before we will respond to a new

or a pending request.

(e) If we require advance payment or an advance agreement to pay, we will not consider your request to be

received and will not respond to it until you meet the requirement.

(a) The rules in this subpart preserve the confidentiality of FCA's documents and information, conserve

employees' time for official duties, uphold fairness in litigation, and help the Chairman decide when to

allow testimony and to produce documents. This subpart does not affect access to documents under the

FOIA or the Privacy Act. See subpart B of this part and part 603 of this chapter.

(b) Generally, we will not produce documents voluntarily and employees will not appear as witnesses

voluntarily in any legal proceeding. However, in limited circumstances, the Chairman may allow the

production of documents or testimony when the Chairman decides it would be in the best interest of FCA

or the public. All privileged documents produced under this subpart remain our property. Any employee

having information or privileged documents may disclose them only as allowed by the Chairman.

Court means any entity conducting a legal proceeding.

Demand means any order, subpoena, or other legal process for testimony or documents.

Direct costs means FCA's costs to search for, review, and reproduce documents to respond to a request. Direct

costs include the pro rated cost of the salary of the employee performing the work (based on the basic

rate of pay plus 16 percent to cover benefits) and the cost of operating reproduction equipment.

Document means any record or other documentary materials, such as books, papers, maps, photographs, and

machine-readable materials, regardless of physical form or characteristics (for example, electronic

format) in our possession and control when we receive the request.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.14(c)

12 CFR 602.18 “Document” (enhanced display) page 9 of 12
§ 602.19 Request for testimony or production of documents.

§ 602.20 Testimony of FCA employees.

Employee means any present or former FCA employee, any present or former FCA Board member, any former

Federal Farm Credit Board member, any present or former FCA-appointed receiver or conservator, and any

present or former agent or contractor.

FCA Counsel means the General Counsel, a Department of Justice attorney, or counsel authorized by FCA to act

for the FCA or an employee.

General Counsel means the FCA's General Counsel or designee.

Legal proceeding means any administrative, civil, or criminal proceeding, including a discovery proceeding,

before a court when FCA is not a named party and has not instituted the legal proceeding.

(a) How to make and address a request. Your request for an employee's testimony about official matters or

the production of documents must be in writing and addressed to the General Counsel, 1501 Farm Credit

Drive, McLean, Virginia 22102–5090.

(b) Your request must contain the following:

(1) Title of the case;

(2) Forum;

(3) Your interest in the case;

(4) Summary of the litigation issues;

(5) Reasons for the request;

(6) Why the confidential information is important; and

(7) An explanation of why the testimony or document you want is not reasonably available from another

source. If you want testimony, you must also state how you intend to use the testimony, provide a

subject matter summary of the requested testimony, and explain why a document could not be used

instead.

(c) The General Counsel may ask you to limit your request to make it less burdensome or to give us

information to help us decide if providing documents or testimony is in the public interest.

(a) An employee may testify only as the Chairman approves in writing. Generally, an employee may testify

only by deposition or written interrogatory. An employee may give only factual testimony and may not give

opinion testimony.

(b) If, in response to your request, the Chairman decides that an employee may testify, you must serve the

employee with a subpoena under applicable Federal or State rules of procedure and at the same time

send a copy of the subpoena by registered mail to the General Counsel.

(c) Normally, depositions will be taken at the employee's office, at a time convenient to the employee and the

FCA. FCA counsel may represent FCA's interests at the deposition.

(d) If you request the deposition, you must give the General Counsel a copy of the deposition transcript at no

charge.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.18 “Employee”

12 CFR 602.20(d) (enhanced display) page 10 of 12
§ 602.21 Production of FCA documents.

§ 602.22 Fees.

§ 602.23 Responses to demands served on FCA employees.

§ 602.24 Responses to demands served on non-FCA employees or entities.

If you are not an employee and are served with a demand or a subpoena in a legal proceeding directing you to

produce or testify about an FCA report of examination, other document created or adopted by FCA, or any related

document, you must object and immediately tell the General Counsel of such service, the testimony or documents

described in the demand, and all relevant facts. You also must object to the production of any documents on the

basis that they are FCA's property and cannot be released without FCA's consent. You should tell the requester the

production of documents or testimony must follow the procedures in this part.

Subpart E—Release of Records in Public Rulemaking Files

(a) An FCA employee may produce documents only as the Chairman allows.

(b) Before we will release any documents, the requesting party must get an acceptable protective order from

the court before which the action is pending that will preserve the confidentiality of the documents to be

released.

(c) On request, we may provide certified or authenticated copies of documents.

(a) For documents released under this subpart, FCA will charge:

(1) The direct costs of searching for responsive records, including the use of a computer, reviewing the

records, and reproducing them. We also will charge for the direct costs of any other services and

materials that we provide at your request.

(2) Fifteen cents a copy for each page made by photocopy or similar process.

(3) The direct costs for each certification or authentication of documents.

(b) You must pay by personal check, bank draft drawn on a United States bank, or postal money order made

payable to FCA. We will waive fees of $15.00 or less. We will send the documents after we receive your

payment.

(a) An employee served with a demand or a subpoena in a legal proceeding must immediately tell the General

Counsel of such service, the testimony or documents described in the demand, and all relevant facts.

(b) When the Chairman does not allow testimony or production of documents, FCA Counsel will provide the

regulations in this subpart to the party or court issuing the demand and explain that the employee may

not testify or produce documents without the Chairman's prior approval.

(c) If the court rules the employee must comply with the demand regardless of the Chairman's instructions

not to do so, the employee must respectfully refuse to comply.

(d) FCA's decision under this subpart to comply or not to comply with any demand is not a waiver, an

assertion of privilege, or an objection based on relevance, technical deficiency, or any other ground. We

may oppose any demand on any legal ground.

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.21

12 CFR 602.24 (enhanced display) page 11 of 12
§ 602.25 General.

FCA has a public rulemaking file for each regulation. You may get copies of documents in the public rulemaking file

by sending a written request to the Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm

Credit Drive, McLean, Virginia 22102–5090. We will charge fifteen cents a copy for each page. We will waive fees of

$15.00 or less.

[64 FR 41770, Aug. 2, 1999, as amended at 81 FR 47692, July 22, 2016]

12 CFR Part 602 (up to date as of 3/07/2024)

Releasing Information 12 CFR 602.25

12 CFR 602.25 (enhanced display) page 12 of 12
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 603 Privacy Act Regulations

§ 603.300 Purpose and scope.

§ 603.305 Definitions.

§ 603.310 Procedures for requests pertaining to individual records in a record system.

§ 603.315 Times, places, and requirements for identification of individuals making requests.

§ 603.320 Disclosure of requested information to individuals.

§ 603.325 Special procedures for medical records.

§ 603.330 Request for amendment to record.

§ 603.335 Agency review of request for amendment of record.

§ 603.340 Appeal of an initial adverse determination of a request to amend a record.

§ 603.345 Fees for providing copies of records.

§ 603.350 Criminal penalties.

§ 603.355 Exemptions.

PART 603—PRIVACY ACT REGULATIONS

Authority: Secs. 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2243, 2252); 5 U.S.C. app. 3, 5 U.S.C. 552a (j)(2) and

(k)(2).

Source: 40 FR 40454, Sept. 2, 1975, unless otherwise noted.

§ 603.300 Purpose and scope.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41941, Nov. 20, 1986]

This content is from the eCFR and is authoritative but unofficial.

(a) This part is published by the Farm Credit Administration pursuant to the Privacy Act of 1974 (Pub. L.

93–579, 5 U.S.C. 552a) which requires each Federal agency to promulgate rules to establish procedures

for notification and disclosure to an individual of agency records pertaining to that person, and for review

of such records.

(b) The records covered by this part include:

(1) Personnel and employment records maintained by the Farm Credit Administration which are not

covered by §§ 293.101 through 293.108 of the regulations of the Office of Personnel Management (5

CFR 293.101 through 293.108), and

(2) Other records contained in record systems maintained by the Farm Credit Administration.

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR Part 603 (Mar. 7, 2024)

12 CFR 603.300(b)(2) (enhanced display) page 1 of 6
§ 603.305 Definitions.

For the purposes of this part:

[51 FR 41941, Nov. 20, 1986]

§ 603.310 Procedures for requests pertaining to individual records in a record system.

[51 FR 41941, Nov. 20, 1986, as amended at 61 FR 67185, Dec. 20, 1996]

(a) Agency means the Farm Credit Administration.

(b) Individual means a citizen of the United States or an alien lawfully admitted for permanent residence;

(c) Maintain includes maintain, collect, use, or disseminate;

(d) Record means any item, collection, or grouping of information about an individual that is maintained by an

agency including, but not limited to, that person's education, financial transactions, medical history, and

criminal or employment history, and that contains that person's name, or the identifying number, symbol,

or other identifying particular assigned to the individual, such as a finger or voice print or photograph;

(e) Routine use means, with respect to the disclosure of a record, the use of such record for a purpose that is

compatible with the purpose for which it was collected;

(f) Statistical record means a record in a system of records maintained for statistical research or reporting

purposes only and not used in whole or in part in making any determination about an identifiable

individual, except as provided by 13 U.S.C. 8;

(g) System of records means a group of any records under the control of any agency from which information

is retrieved by the name of an individual or by some identifying number, symbol, or other identifying

particular assigned to the individual.

(a) Any present or former employee of the Farm Credit Administration seeking access to that person's official

civil service records maintained by the Farm Credit Administration shall submit a request in such manner

as is prescribed by the Office of Personnel Management.

(b) Individuals shall submit their requests in writing to the Privacy Act Officer, Office of General Counsel, Farm

Credit Administration, McLean, Virginia 22102–5090, when seeking to obtain from the Farm Credit

Administration:

(1) Notification of whether the agency maintains a record pertaining to that person in a system of

records;

(2) Notification of whether the agency has disclosed a record for which an accounting of disclosure is

required to be maintained and made available to that person;

(3) A copy of a record pertaining to that person or the accounting of its disclosure;

(4) The review of a record pertaining to that person or the accounting of its disclosure. The request shall

state the full name and address of the individual, and identify the system or systems of records

believed to contain the information or record sought.

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR 603.305

12 CFR 603.310(b)(4) (enhanced display) page 2 of 6
§ 603.315 Times, places, and requirements for identification of individuals making requests.

The individual making written requests for information or records ordinarily will not be required to verify that

person's identity. The signature upon such requests shall be deemed to be a certification by the requester that he or

she is the individual to whom the record pertains, or the parent of a minor, or the duly appointed legal guardian of

the individual to whom the record pertains. The Privacy Act Officer, however, may require such additional verification

of identity in any instance in which the Privacy Act Officer deems it advisable.

[51 FR 41941, Nov. 20, 1986]

§ 603.320 Disclosure of requested information to individuals.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41941, Nov. 20, 1986]

§ 603.325 Special procedures for medical records.

Medical records in the custody of the Farm Credit Administration which are not subject to Office of Personnel

Management regulations shall be disclosed either to the individual to whom they pertain or that person's authorized

or legal representative or to a licensed physician named by the individual.

[51 FR 41942, Nov. 20, 1986]

(a) The Privacy Act Officer shall, within a reasonable period of time after the date of receipt of a request for

information of records:

(1) Determine whether or not such request shall be granted,

(2) Notify the requester of the determination and, if the request is denied, of the reasons therefor, and

(3) Notify the requester that fees for reproducing copies of records may be charged as provided in §

603.345 of this part.

(b) If access to a record is denied because the information therein has been compiled by the Farm Credit

Administration in reasonable anticipation of a civil or criminal action proceeding, the Privacy Act Officer

shall notify the requester of that person's right to judicial appeal under 5 U.S.C. 552a(g).

(c)

(1) If access to a record is granted, the requester shall notify the Officer whether the requested record is

to be copied and mailed to the requester or whether the record is to be made available for personal

inspection.

(2) A requester who is an individual may be accompanied by an individual selected by the requester

when the record is disclosed, in which case the requester may be required to furnish a written

statement authorizing the discussion of the record in the presence of the accompanying person.

(d) If the record is to be made available for personal inspection, the requester shall arrange with the Privacy

Act Officer a mutually agreeable time in the offices of the Farm Credit Administration for inspection of the

record.

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR 603.315

12 CFR 603.325 (enhanced display) page 3 of 6
§ 603.330 Request for amendment to record.

[51 FR 41942, Nov. 20, 1986]

§ 603.335 Agency review of request for amendment of record.

Upon receipt of a request for amendment of a record, the Privacy Act Officer shall:

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41942, Nov. 20, 1986]

§ 603.340 Appeal of an initial adverse determination of a request to amend a record.

(a) If, after disclosure of the requested information, an individual believes that the record is not accurate,

relevant, timely, or complete, that person may request in writing that the record be amended. Such a

request shall be submitted to the Privacy Act Officer and shall contain identification of the system of

records and the record or information therein, a brief description of the material requested to be changed,

the requested change or changes, and the reason for such change or changes.

(b) The Privacy Act Officer shall acknowledge receipt of the request within 10 days (excluding Saturdays,

Sundays, and legal holidays) and, if a determination has not been made, advise the individual when that

person may expect to be advised of action taken on the request. The acknowledgment may contain a

request for additional information needed to make a determination.

(a) Correct any portion of a record which the individual making the request believes is not accurate, relevant,

timely, or complete and thereafter inform the individual in writing of such correction, or

(b) Inform the individual in writing of refusal to amend the record and of the reasons therefor, and advise that

the individual may appeal such determination as provided in § 603.340 of this part.

(a) Not more than 10 days (excluding Saturdays, Sundays, and legal holidays) after receipt by an individual of

an adverse determination on the individual's request to amend a record or otherwise, the individual may

appeal to the Director, Office of Agency Services.

(b) The appeal shall be by letter, mailed or delivered to the Director, Office of Agency Services, Farm Credit

Administration, McLean, Virginia 22102–5090. The letter shall identify the records involved in the same

manner they were identified to the Privacy Act Officer, shall specify the dates of the request and adverse

determination, and shall indicate the expressed basis for that determination. Also, the letter shall state

briefly and succinctly the reasons why the adverse determination should be reversed.

(c) The review shall be completed and a final determination made by the Director not later than 30 days

(excluding Saturdays, Sundays, and legal holidays) from receipt of the request for such review, unless the

Director extends such 30-day period for good cause. If the 30-day period is extended, the individual shall

be notified of the reasons therefor.

(d) If the Director refuses to amend the record in accordance with the request, the individual shall be notified

of the right to file a concise statement setting forth that person's disagreement with the final

determination and that person's right under 5 U.S.C. 552a(g)(1)(A) to a judicial review of the final

determination.

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR 603.330

12 CFR 603.340(d) (enhanced display) page 4 of 6
[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41942, Nov. 20, 1986; 56 FR 2673, Jan. 24, 1991; 70 FR 69645, Nov. 17, 2005;

81 FR 47692, July 22, 2016]

§ 603.345 Fees for providing copies of records.

Fees for providing copies of records shall be charged in accordance with §§ 602.11 and 602.12 of this chapter.

[40 FR 40454, Sept. 2, 1975, as amended at 56 FR 28479, June 21, 1991; 71 FR 54900, Sept. 20, 2006]

§ 603.350 Criminal penalties.

Section 552a (i)(3) of the Privacy Act (5 U.S.C. 552a(i)(3)) makes it a misdemeanor, subject to a maximum fine of

$5,000, to knowingly and willfully request or obtain any record concerning any individual from an agency under false

pretenses. Sections 552a (i) (1) and (2) of the Act (5 U.S.C. 552a (i) (1), (2)) provide penalties for violation by agency

employees of the Act or regulations established thereunder.

[40 FR 40454, Sept. 2, 1975, as amended at 71 FR 54900, Sept. 20, 2006]

§ 603.355 Exemptions.

Farm Credit Bank loans—FCA.

Production Credit Association loans—FCA.

Agricultural Credit Association loans—FCA.

Federal Land Credit Association loans—FCA.

Agricultural Credit Bank loans—FCA.

Office of Inspector General Investigative Files—FCA.

(e) If an amendment of a record as requested upon review is refused, there shall be included in the disputed

portion of the record a copy of the concise statement filed by the individual together with a concise

statement of the reasons for not amending the record as requested. Such statements will be included

when disclosure of the disputed record is made to persons and agencies as authorized under 5 U.S.C.

552a.

(a) Specific. Pursuant to 5 U.S.C. 552a(k)(2), the investigatory material compiled for law enforcement

purposes in the following systems of records is exempt from subsections (c)(3), (d), (e)(1), (e)(4) (G), (H),

and (I) and (f) of 5 U.S.C. 552a and from the provisions of this part:

(b) General.

(1) In addition, pursuant to 5 U.S.C. 552a (j)(2), investigatory materials compiled for criminal law

enforcement in the system of records described in (b)(2) are exempt from all subsections of 5 U.S.C.

552a, except (b), (c) (1) and (2), (e)(4) (A) through (F), (e) (6), (7), (9), (10), and (11), and (i).

Exemptions from the particular subsections are justified for the following reasons:

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR 603.340(e)

12 CFR 603.355(b)(1) (enhanced display) page 5 of 6
[56 FR 2673, Jan. 24, 1991, as amended at 57 FR 32421, July 22, 1992]

(i) From subsection (c)(3) because making available to a record subject the accounting of

disclosures from records concerning him/her would reveal investigative interest on the part of

the OIG. This would enable record subjects to impede the investigation by, for example,

destroying evidence, intimidating potential witnesses, or fleeing the area to avoid inquiries or

apprehension by law enforcement personnel.

(ii) From subsection (c)(4) because this system is exempt from the access provisions of

subsection (d) pursuant to subsection (j)(2) of the Privacy Act.

(iii) From subsection (d) because the records contained in this system relate to official Federal

investigations. Individual access to those records might compromise ongoing investigations,

reveal confidential informants or constitute unwarranted invasions of the personal privacy of

third parties who are involved in a certain investigation. Amendment of the records would

interfere with ongoing criminal law enforcement proceedings and impose an impossible

administrative burden by requiring criminal investigations to be continuously reinvestigated.

(iv) From subsections (e) (1) and (5) because in the course of law enforcement investigations,

information may occasionally be obtained or introduced the accuracy of which is unclear or

which is not strictly relevant or necessary to a specific investigation. In the interests of effective

law enforcement, it is appropriate to retain all information that may aid in establishing patterns

of criminal activity. Moreover, it would impede the specific investigative process if it were

necessary to assure the relevance, accuracy, timeliness and completeness of all information

obtained.

(v) From subsection (e)(2) because in a law enforcement investigation the requirement that

information be collected to the greatest extent possible from the subject individual would

present a serious impediment to law enforcement in that the subject of the investigation would

be informed of the existence of the investigation and would therefore be able to avoid

detection, apprehension, or legal obligations or duties.

(vi) From subsection (e)(3) because to comply with the requirements of this subsection during the

course of an investigation could impede the information gathering process, thus hampering the

investigation.

(vii) From subsections (e)(4) (G), and (H), and (I), (e)(8), (f), (g) and (h) because this system is

exempt from the access provisions of subsection (d) pursuant to subsection (j) of the Privacy

Act.

(2) Office of Inspector General Investigative Files—FCA.

12 CFR Part 603 (up to date as of 3/07/2024)

Privacy Act Regulations 12 CFR 603.355(b)(1)(i)

12 CFR 603.355(b)(2) (enhanced display) page 6 of 6
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 604 Farm Credit Administration Board Meetings

§ 604.400 Definitions.

§ 604.405 Notice of public observation.

§ 604.410 Scope of application.

§ 604.415 Open meetings.

§ 604.420 Exemptive provisions.

§ 604.425 Announcement of meetings.

§ 604.430 Closure of meetings.

§ 604.435 Record of closed meetings or closed portion of a meeting.

§ 604.440 Requests for information.

PART 604—FARM CREDIT ADMINISTRATION BOARD MEETINGS

Authority: Secs. 5.9, 5.17 of the Farm Credit Act; 12 U.S.C. 2243, 2252.

§ 604.400 Definitions.

For purposes of this part:

This content is from the eCFR and is authoritative but unofficial.

(a) Agency means the Farm Credit Administration.

(b) Board means the Farm Credit Administration Board.

(c) Exempt meeting and exempt portion of a meeting mean, respectively, a meeting or that part of a meeting

designated as provided in § 604.430 of this part as closed to the public by reason of one or more of the

exemptive provisions listed in § 604.420 of this part.

(d) Meeting means the deliberations of at least two (quorum) members of the Board where such deliberations

determine or result in joint conduct or disposition of official Farm Credit Administration business.

(e) Member means any one of the members of the Board.

(f) Open meeting means a meeting or portion of a meeting which is not an exempt meeting or an exempt

portion of a meeting.

(g) Public observation means the right of any member of the public to attend and observe, but not participate

or interfere in any way in, an open meeting of the Board, within the limits of reasonable and comfortable

accommodations made available for such purpose by the Farm Credit Administration.

12 CFR Part 604 (up to date as of 3/07/2024)

Farm Credit Administration Board Meetings

12 CFR Part 604 (Mar. 7, 2024)

12 CFR 604.400(g) (enhanced display) page 1 of 5
[51 FR 41942, Nov. 20, 1986]

§ 604.405 Notice of public observation.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41942, Nov. 20, 1986]

§ 604.410 Scope of application.

The provisions of this part apply to meetings of the Board, and do not apply to conferences or other gatherings of

employees of the Farm Credit Administration who meet or join with others, except at meetings of the Board, to

deliberate official agency business.

[51 FR 41942, Nov. 20, 1986]

§ 604.415 Open meetings.

Every meeting and portion of a meeting of the Board shall be open to public observation unless the Board

determines that such meeting or portion of a meeting will involve the discussion of matters which are within one or

more of the exemptive provisions listed in § 604.420 of this part, and that the public interest is not served by the

discussion of such matters in an open meeting.

[51 FR 41943, Nov. 20, 1986]

§ 604.420 Exemptive provisions.

Except in a case where the Board determines that the public interest requires otherwise, a meeting or portion of a

meeting may be closed to public observation where the Board determines that the meeting or portion of the

meeting is likely to:

(a) A member of the public is not required to give advance notice to the Farm Credit Administration of an

intention to exercise the right of public observation of an open meeting of the Board. However, in order to

permit the Farm Credit Administration to determine the amount of space and number of seats which must

be made available to accommodate individuals who desire to exercise the right of public observation,

such individuals are requested to give notice to the Farm Credit Administration at least two business days

before the start of the open meeting of the intention to exercise such right.

(b) Notice of intention to exercise the right of public observation may be given in writing, in person, or by

telephone to the official designated in § 604.440 of this part.

(c) Individuals who have not given advance notice of intention to exercise the right of public observation will

not be permitted to attend and observe the open meeting of the Board if the available space and seating

are necessary to accommodate individuals who gave advance notice of such intention to the Farm Credit

Administration.

(a) Disclose matters that are:

(1) Specifically authorized under criteria established by an Executive order to be kept secret in the

interests of national defense or foreign policy, and

(2) In fact properly classified pursuant to such Executive order;

12 CFR Part 604 (up to date as of 3/07/2024)

Farm Credit Administration Board Meetings

12 CFR 604.405

12 CFR 604.420(a)(2) (enhanced display) page 2 of 5
[51 FR 41943, Nov. 20, 1986, as amended at 56 FR 2673, Jan. 24, 1991; 75 FR 35967, June 24, 2010; 78 FR 31831, May 28, 2013]

(b) Relate solely to the internal personnel rules and practices of the Farm Credit Administration;

(c) Disclose matters specifically exempted from disclosure by statute (other than 5 U.S.C. 552): Provided,

That such statute:

(1) Requires that the matters be withheld from the public in such a manner as to leave no discretion on

the issue, or

(2) Establishes particular types of matters to be withheld;

(d) Disclose trade secrets and privileged or confidential commercial or financial information obtained from a

person;

(e) Involve accusing any person of a crime, or formally censuring any person;

(f) Disclose information of a personal nature where disclosure would constitute a clearly unwarranted

invasion of personal privacy;

(g) Disclose investigator records compiled for law enforcement purposes, or information which if written

would be contained in such records, but only to the extent that the production of such records or

information would:

(1) Interfere with enforcement proceedings;

(2) Deprive a person of a right to a fair trial or an impartial adjudication;

(3) Constitute an unwarranted invasion of personal privacy;

(4) Disclose the identity of a confidential source and, in the case of a record compiled by a criminal law

enforcement authority in the course of a criminal investigation, or by an agency conducting a lawful

national security intelligence investigation, confidential information furnished only by the confidential

source;

(5) Disclose investigative techniques and procedures; or

(6) Endanger the life or physical safety of law enforcement personnel;

(h) Disclose information contained in or related to examination, supervision, operating, or condition reports

prepared by, on behalf of, or for the use of the Farm Credit Administration;

(i) Disclose information the premature disclosure of which would:

(1) Significantly endanger the stability of any Farm Credit System institution, including banks,

associations, service corporations chartered under the Act, or the Funding Corporation; or

(2) Be likely to significantly frustrate implementation of a proposed action of the Farm Credit

Administration: Provided, said Administration has not already disclosed to the public the content or

nature of its proposed action, or is not required by law to make such disclosure on its own initiative

prior to taking final action on such proposal; or

(j) Specifically concern participation by the Farm Credit Administration in a civil action or proceeding

otherwise involving a determination on the record before an opportunity for a hearing.

12 CFR Part 604 (up to date as of 3/07/2024)

Farm Credit Administration Board Meetings

12 CFR 604.420(b)

12 CFR 604.420(j) (enhanced display) page 3 of 5
§ 604.425 Announcement of meetings.

[74 FR 44727, Aug. 31, 2009, as amended at 85 FR 6422, Feb. 5, 2020]

§ 604.430 Closure of meetings.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, Nov. 20, 1986]

§ 604.435 Record of closed meetings or closed portion of a meeting.

(a) The Board meets in the offices of the Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia

22102–5090, on the second Thursday of each month, unless the Board fixes a different time and/or place

for a meeting and follows the requirements of paragraph (b) of this section.

(b)

(1) The Farm Credit Administration shall make available for public inspection the time, place, and

subject matter of the meeting, and whether it is to be open or closed, by posting notice on its public

notice board or on its public Web site except to the extent that such information is exempt from

disclosure under the provisions of § 604.420 of this part. The public announcement must be made

at least 1 week before the meeting, unless a majority of the FCA Board determines by a recorded

vote that agency business requires that a meeting be called on lesser notice, in which case the

announcement shall be made at the earliest practicable time.

(2) Once a meeting has been announced, the time, place, and subject matter of the meeting and whether

it is open or closed to the public may be changed following the requirements of the Government in

the Sunshine Act, 5 U.S.C. 552b.

(a) A majority of the meetings or portions of a majority of the meetings of the board are exempt by reason of

§ 604.420 (d), (h), (i)(1), or (j) of this part. An exempt meeting or an exempt portion of a meeting shall be

closed to the public when at least two members of the Board vote by a recorded vote of the Board at the

beginning of the exempt meeting or exempt portion of a meeting to close such meeting or such exempt

portion, and the General Counsel, Farm Credit Administration, publicly certifies that, in his or her opinion,

the meeting or portion of the meeting may be closed to the public stating each relevant exemptive

provision listed in § 604.420 of this part.

(b) A copy of the vote of the Board to close a meeting or an exempt portion thereof reflecting the vote of each

member on the question, and a copy of the certification of General Counsel, shall be made available for

public inspection in the offices of the Farm Credit Administration, or pursuant to telephonic or written

requests.

(c) A copy of the certification of the General Counsel, together with a statement from the presiding officer of

the meeting setting forth the time and place of an exempt meeting or an exempt portion of a meeting

which was closed and the persons present, shall be retained by the Farm Credit Administration for a

period of at least 2 years after the date of such closed meeting or closed portion of a meeting.

(a) The Farm Credit Administration shall maintain a complete transcript or electronic recording adequate to

record fully the proceedings of each closed meeting or closed portion of a meeting, except that in the

case of a meeting or portion of a meeting closed to the public pursuant to § 604.420 (d), (h), (i)(1), or (j) of

this part, the Farm Credit Administration shall maintain either such transcript, recording, or a set of

minutes.

12 CFR Part 604 (up to date as of 3/07/2024)

Farm Credit Administration Board Meetings

12 CFR 604.425

12 CFR 604.435(a) (enhanced display) page 4 of 5
[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, Nov. 20, 1986; 56 FR 2673, Jan. 24, 1991; 70 FR 69645,

Nov. 17, 2005]

§ 604.440 Requests for information.

Requests to the Farm Credit Administration for information about the time, place, and subject matter of a meeting,

whether it or any portion thereof is closed to the public, and any requests for copies of the transcript or minutes, or

of a transcript of an electronic recording of a closed meeting, or closed portion of a meeting, to the extent not

exempt from disclosure by the provisions of § 604.420 of this part, shall be addressed to the Secretary to the Board,

Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102–5090.

[85 FR 6422, Feb. 5, 2020]

(b) Any minutes so maintained shall fully and clearly describe all matters discussed and shall provide a full

and accurate summary of any actions taken, and the reasons therefor, including a description of each of

the views expressed on any item and the record of any roll call vote. All documents considered in

connection with any action shall be identified in the minutes.

(c) The Farm Credit Administration shall promptly make available to the public, in its offices, the transcript,

electronic recording, or minutes, of the discussion of any item on the agenda of a closed meeting, or

closed portion of a meeting, except for such item or items of discussion which the Farm Credit

Administration determines to contain information which may be withheld under § 604.420 of this part.

Copies of such transcript or minutes, or a transcription of such recording disclosing the identity of each

speaker, shall be furnished to any person at the actual cost of duplication or transcription.

(d) The Farm Credit Administration shall maintain a complete verbatim copy of the transcript, a complete

copy of the minutes, or a complete electronic recording of each closed meeting or closed portion of a

meeting for a period of 2 years after the date of such closed meeting or closed portion of a meeting.

(e) All actions required or permitted by this section to be undertaken by the Farm Credit Administration shall

be by or under the authority of the Secretary to the Board.

12 CFR Part 604 (up to date as of 3/07/2024)

Farm Credit Administration Board Meetings

12 CFR 604.435(b)

12 CFR 604.440 (enhanced display) page 5 of 5
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 605 Information

§ 605.500 Policy.

§ 605.501 Information Security Officer.

§ 605.502 Program and procedures.

PART 605—INFORMATION

Authority: Secs. 5.9, 5.12, 5.17 of the Farm Credit Act; 12 U.S.C. 2243, 2246, 2252.

§ 605.500 Policy.

It is the policy of the Farm Credit Administration to act in matters relating to national security information in

accordance with Executive Order 13292 and directives issued thereunder by the Information Security Oversight

Office (ISOO).

[49 FR 9859, Mar. 16, 1984, as amended at 71 FR 54900, Sept. 20, 2006]

§ 605.501 Information Security Officer.

This content is from the eCFR and is authoritative but unofficial.

(a) The Information Security Officer of the Farm Credit Administration shall be responsible for implementation

and oversight of the information security program and procedures adopted by the Agency pursuant to the

Executive order. This officer shall be the recipient of questions, suggestions, and complaints regarding all

elements of this program and shall be solely responsible for changes to it and for the assurance that it is

at all times consistent with the Executive order and ISOO directive.

(b) The Information Security Officer shall be the Farm Credit Administration's official contact for requests for

declassification of materials submitted under the Executive order, regardless of the point of origin of such

requests, and shall assure that such requests for records in the Farm Credit Administration's possession

that were originated by another agency shall be forwarded to the originating agency. The Farm Credit

Administration shall include a copy of the records requested together with its recommendation for action.

Upon receipt, the originating agency shall process the request in accordance with 32 CFR

2001.33(a)(2)(i). Upon request, the originating agency shall communicate its declassification

determination to the Farm Credit Administration. The Farm Credit Administration shall inform the

requester of the determination within 1 year from the date of receipt, except in unusual circumstances. If

an appeal is made on a denial of a mandatory declassification review request, the originating agency's

appellate authority shall normally make a determination within 30 working days following the receipt of an

appeal. If additional time is required to make a determination, the originating appellate authority shall

notify the requester of the additional time needed and provide the requester with the reason for extension.

12 CFR Part 605 (up to date as of 3/07/2024)

Information 12 CFR Part 605 (Mar. 7, 2024)

12 CFR 605.501(b) (enhanced display) page 1 of 3
[49 FR 9859, Mar. 16, 1984, as amended at 71 FR 54900, Sept. 20, 2006]

§ 605.502 Program and procedures.

The originating agency's appellate authority shall notify the requester in writing of the final determination

and of the reasons for any denial. Such officer shall also assure that requests for declassification

submitted under the Freedom of Information Act are handled in accordance with that Act.

(a) The Farm Credit Administration has no authority for the original classification of information for national

security purposes. Only those agencies described in the Executive order may so classify information.

(b) Derivative classification. “Derivative classification” means the incorporating, paraphrasing, restating or

generating in new form information that is already classified, and marking the newly developed material

consistent with the classification markings that apply to the source information. Derivative classification

includes the classification of information based on classification guidance. The duplication or

reproduction of existing classified information is not derivative classification.

(c) Mandatory declassification review. “Mandatory declassification review” means the review for

declassification of classified information in response to a request for declassification that meets the

requirements under section 3.5 of the Executive order. All requests for review for declassification under

the mandatory review provisions of the Executive order shall be handled by the Information Security

Officer or his/her designee.

(d) Handling of classified documents. All documents bearing the terms “Top Secret,” “Secret,” and

“Confidential” shall be delivered to the Information Security Officer or his/her designee immediately upon

receipt. All potential recipients of such documents shall be advised of the names of such designees. In

the event that the Information Security Officer or his/her designee is not available to receive such

documents, they shall be sent to the FCA mailroom and stored in the combination safe and secured

unopened until the Information Security Officer is available. Under no cirumstances shall classified

materials that cannot be delivered be stored other than in the designated safe. All materials not

immediately deliverable or able to be secured in the designated safe shall be returned to the sender, under

appropriate cover, for redelivery to the FCA at the next earliest opportunity.

(e) Reproduction. Reproduction of classified materials shall take place only in accordance with section 4.2(g)

of the Executive order and any limitations imposed by the originator. Should copies be made, they shall be

subject to the same controls as the original document. Records showing the number and distribution of

copies shall be maintained by the Information Security Officer or his/her designee, and the log stored with

the original documents. These measures shall not restrict reproduction for the purposes of Mandatory

Review.

(f) Storage. In accordance with 32 CFR 2001.43, all classified documents shall be stored in combination

safes located at the primary headquarters and/or a Field Office, Office of Examination, Farm Credit

Administration. The combinations shall be changed as required by directives issued by ISOO. The

combinations shall be known only to the Information Security Officer and his/her designees who have

appropriate security clearances.

(g) Employee education. All employees who have been granted a security clearance and who have occasion

to handle classified materials shall be advised of handling, reproduction, and storage procedures and

shall be required to review the Executive order and appropriate ISOO directives.

12 CFR Part 605 (up to date as of 3/07/2024)

Information 12 CFR 605.502

12 CFR 605.502(g) (enhanced display) page 2 of 3
[49 FR 9859, Mar. 16, 1984, as amended at 52 FR 18200, May 14, 1987; 59 FR 21643, Apr. 26, 1994; 71 FR 54900, Sept. 20, 2006]

(h) Agency terminology. No official of the Farm Credit Administration shall use the terms “Top Secret”,

“Secret”, or “Confidential” except in relation to materials classified for national security purposes. As a

Federal regulatory agency, the Farm Credit Administration maintains certain internal documents that

relate to its examination and supervision of the institutions of the Farm Credit System. Such documents

are limited in use and distribution. Material that is of a sensitive nature to the Farm Credit Administration

may be designated “Executive Document.”

(i) Nondisclosure agreement. In accordance with 32 CFR 2003.20, the Farm Credit Administration requires

that any person whose position requires access to classified information must execute a nondisclosure

agreement on Standard Form 312—Classified Information Nondisclosure Agreement. Persons not

executing such nondisclosure agreements are subject to sanctions of Executive Order 13292. It is the

policy of the Farm Credit Administration that any employee authorized access to classified information

holds a personal responsibility for safeguarding against unlawful disclosures, and such employees are

prohibited from disclosure without consent of the FCA Information Security Officer. Any such

unauthorized disclosure will be reported to the Information Security Oversight Office, the Department of

Justice, the Department of State, the Federal Emergency Management Agency, and to any other Federal

agency for which the Farm Credit Administration has access to classified information, as such reportings

are subject to interpretation as required by statute and Executive order. Any employee who knowingly

disclosed classified information or who refuses to cooperate with an investigation may be subject to

mandatory administrative sanctions, including as a minimum, denial of further access to classified

information. Further sanctions could include demotion or dismissal depending on the circumstances of a

particular case.

(j) Freedom of Information request. All inquiries regarding requests for classified information under the

Freedom of Information Act (5 U.S.C. 552), including those from the news media, shall be referred to the

FCA FOI Officer, Office of Congressional and Public Affairs, Farm Credit Administration, and shall be

handled in accordance with provisions of that statute and applicable regulations.

12 CFR Part 605 (up to date as of 3/07/2024)

Information 12 CFR 605.502(h)

12 CFR 605.502(j) (enhanced display) page 3 of 3
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 606 Enforcement of Nondiscrimination on the Basis of Handicap in Programs

or Activities Conducted by the Farm Credit Administration

§ 606.601 Purpose.

§ 606.602 Application.

§ 606.603 Definitions.

§§ 606.604-606.609 [Reserved]

§ 606.610 Self-evaluation.

§ 606.611 Notice.

§§ 606.612-606.629 [Reserved]

§ 606.630 General prohibitions against discrimination.

§§ 606.631-606.639 [Reserved]

§ 606.640 Employment.

§§ 606.641-606.648 [Reserved]

§ 606.649 Program accessibility: Discrimination prohibited.

§ 606.650 Program accessibility: Existing facilities.

§ 606.651 Program accessibility: New construction and alterations.

§§ 606.652-606.659 [Reserved]

§ 606.660 Communications.

§§ 606.661-606.669 [Reserved]

§ 606.670 Compliance procedures.

§§ 606.671-606.999 [Reserved]

PART 606—ENFORCEMENT OF NONDISCRIMINATION ON THE

BASIS OF HANDICAP IN PROGRAMS OR ACTIVITIES CONDUCTED

BY THE FARM CREDIT ADMINISTRATION

Authority: 29 U.S.C. 794.

Source: 53 FR 19889, June 1, 1988, unless otherwise noted.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 606 (up to date as of 3/07/2024)

Enforcement of Nondiscrimination on the Basis of Handicap in Programs or...

12 CFR Part 606 (Mar. 7, 2024)

12 CFR 606 (enhanced display) page 1 of 9
§ 606.601 Purpose.

The purpose of this part is to effectuate section 119 of the Rehabilitation Comprehensive Services, and

Developmental Disabilities Amendments of 1978, which amended section 504 of the Rehabilitation Act of 1973 to

prohibit discrimination on the basis of handicap in programs or activities conducted by Executive agencies or the

United States Postal Service.

§ 606.602 Application.

§ 606.603 Definitions.

For purposes of this part, the term:

(a) This part applies to all programs or activities conducted by the agency. For example, members of the

public may participate in the following “programs and activities” of the FCA:

(1) Attending open meetings of the Farm Credit Board.

(2) Making inquiries or filing complaints.

(3) Using the FCA library in McLean, Virginia.

(4) Seeking employment with FCA.

(5) Attending any meeting, conference, seminar, or other program open to the public.

This list is illustrative only and failure to include an activity does not necessarily mean that it is not

covered by this regulation.

(b) This regulation does not apply to the institutions that are regulated or examined by the FCA. However, this

regulation governs the conduct of FCA personnel, in their interaction with employees of such institutions

and employees of other Federal agencies, while discharging their official FCA duties.

(a) Agency means the Farm Credit Administration.

(b) Assistant Attorney General means the Assistant Attorney General, Civil Rights Division, United States

Department of Justice.

(c) Auxiliary aids means services or devices that enable persons with impaired sensory, manual, or speaking

skills to have an equal opportunity to participate in, and enjoy the benefits of, programs or activities

conducted by the agency. For example, auxiliary aids useful for persons with impaired vision include

readers, Brailled materials, audio recordings, and other similar services and devices. Auxiliary aids useful

for persons with impaired hearing include telephone handset amplifiers, telephones compatible with

hearing aids, telecommunication devices for deaf persons (TDDs), interpreters, note-takers, written

materials, and other similar services and devices.

(d) Complete complaint means a written statement that contains the complainant's name and address and

describes the agency's alleged discriminatory action in sufficient detail to inform the agency of the nature

and date of the alleged violation of section 504. It shall be signed by the complainant or by someone

authorized to do so on his or her behalf. Complaints filed on behalf of classes or third parties shall

describe or identify (by name, if possible) the alleged victims of discrimination.

(e) Facility means all or any portion of buildings, structures, equipment, roads, walks, parking lots, rolling

stock or other conveyances, or other real or personal property.

12 CFR Part 606 (up to date as of 3/07/2024)

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12 CFR 606.601

12 CFR 606.603(e) (enhanced display) page 2 of 9
§§ 606.604-606.609 [Reserved]

§ 606.610 Self-evaluation.

(f) Individual with handicaps means any person who has a physical or mental impairment that substantially

limits one or more major life activities, has a record of such an impairment, or is regarded as having such

an impairment. As used in this definition, the phrase:

(1) Physical or mental impairment includes:

(i) Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting

one or more of the following body systems: Neurological; musculoskeletal; special sense

organs; respiratory, including speech organs; cardiovascular; reproductive; digestive;

genitourinary; hemic and lymphatic; skin; and endocrine; or

(ii) Any mental or psychological disorder, such as mental retardation, organic brain syndrome,

emotional or mental illness, and specific learning disabilities. The term physical or mental

impairment includes, but is not limited to, such diseases and conditions as orthopedic, visual,

speech, and hearing impairments, cerebral palsy, epilepsy, muscular dystrophy, multiple

sclerosis, cancer, heart disease, diabetes, mental retardation, emotional illness, and drug

addiction and alcoholism.

(2) Major life activities includes functions such as caring for oneself, performing manual tasks, walking,

seeing, hearing, speaking, breathing, learning, and working.

(3) Has a record of such an impairment means has a history of, or has been misclassified as having, a

mental or physical impairment that substantially limits one more major life activities.

(4) Is regarded as having an impairment means:

(i) Has a physical or mental impairment that does not substantially limit major life activities but is

treated by the agency as constituting such a limitation;

(ii) Has a physical or mental impairment that substantially limits major life activities only as a

result of the attitudes of others toward such impairment; or

(iii) Has none of the impairments defined in paragraph (f)(1) of this definition but is treated by the

agency as having such an impairment.

(g) Qualified individual with handicaps means an individual with handicaps who meets the essential eligibility

requirements for participation in the program or activity conducted by the agency. With respect to

employment, a qualified individual with handicaps is one who meets the definition of qualified

handicapped person set forth in 29 CFR 1613.702(f), which is made applicable to this part by § 606.640 of

this rule.

(h) Section 504 means section 504 of the Rehabilitation Act of 1973 (Pub. L. 93–112, 87 Stat. 394 (29 U.S.C.

794)), as amended by the Rehabilitation Act Amendments of 1974 (Pub. L. 93–516, 88 Stat. 1617); the

Rehabilitation, Comprehensive Services, and Developmental Disabilities Amendments of 1978 (Pub. L.

95–602, 92 Stat. 2955); and the Rehabilitation Act Amendments of 1986 (Pub. L. 99–506, 100 Stat. 1810).

(a) The agency shall, within one year of the effective date of this part, evaluate its current policies and

practices, and the effects thereof, that do not or may not meet the requirements of this part, and, to the

extent modification of any such policies and practices is required, the agency shall proceed to make the

necessary modifications.

12 CFR Part 606 (up to date as of 3/07/2024)

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12 CFR 606.603(f)

12 CFR 606.610(a) (enhanced display) page 3 of 9
§ 606.611 Notice.

The agency shall make available to employees, applicants, participants, beneficiaries, and other interested persons

such information regarding the provisions of this part and its applicability to the programs or activities conducted

by the agency, and make such information available to them in such manner as the agency head finds necessary to

apprise such persons of the protections against discrimination assured them by section 504 and this regulation.

§§ 606.612-606.629 [Reserved]

§ 606.630 General prohibitions against discrimination.

(b) The agency shall provide an opportunity to interested persons, including individuals with handicaps or

organizations representing individuals with handicaps, to participate in the self-evaluation process by

submitting comments (both oral and written).

(c) The agency shall, for at least three years following completion of the evaluation required under paragraph

(a) of this section, maintain on file and make available for public inspection:

(1) A list of the interested persons who commented, with copies of comments received;

(2) A description of areas examined and any problems identified; and

(3) A description of any modifications made.

(a) No qualified individual with handicaps, on the basis of handicap, shall be excluded from participation in,

be denied the benefits of, or otherwise be subjected to discrimination under any program or activity of the

agency.

(b)

(1) The agency, in providing any aid, benefit, or service, may not, directly or through contractual or other

arrangements, on the basis of handicap:

(i) Deny a qualified individual with handicaps the oportunity to participate in or benefit from the

activity, aid, benefit, or service;

(ii) Afford a qualified individual with handicaps an opportunity to participate in or benefit from the

aid, benefit, or service that is not equal to that afforded others;

(iii) Provide a qualified individual with handicaps with an aid, benefit, or service that is not as

effective in affording equal opportunity to obtain the same result, to gain the same benefit, or to

reach the same level of achievement as that provided to others;

(iv) Provide different or separate aid, benefits, or services to individuals with handicaps or to any

class of individuals with handicaps than is provided to others unless such action is necessary

to provide qualified individuals with handicaps with aid, benefits, or services that are as

effective as those provided to others;

(v) Deny a qualified individual with handicaps the opportunity to participate as a member of

planning or advisory boards;

(vi) Otherwise limit a qualified individual with handicaps in the enjoyment of any right, privilege,

advantage, or opportunity enjoyed by others receiving the aid, benefit, or service.

12 CFR Part 606 (up to date as of 3/07/2024)

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12 CFR 606.610(b)

12 CFR 606.630(b)(1)(vi) (enhanced display) page 4 of 9
§§ 606.631-606.639 [Reserved]

§ 606.640 Employment.

No qualified individual with handicaps shall, on the basis of handicap, be subjected to discrimination in employment

under any program or activity conducted by the agency. The definitions, requirements, and procedures of section

501 of the Rehabilitation Act of 1973 (29 U.S.C. 791), as established by the Equal Employment Opportunity

Commission in 29 CFR part 1613, shall apply to employment in the agency.

§§ 606.641-606.648 [Reserved]

§ 606.649 Program accessibility: Discrimination prohibited.

Except as otherwise provided in § 606.650, no qualified individual with handicaps shall, because the agency's

facilities are inaccessible to or unusable by individuals with handicaps, be denied the benefits of, be excluded from

participation in, or otherwise be subjected to discrimination under any program or activity conducted by the agency.

§ 606.650 Program accessibility: Existing facilities.

(2) The agency may not deny a qualified individual with handicaps the opportunity to participate in

programs or activities that are not separate or different, despite the existence of permissibly

separate or different programs or activities.

(3) The agency may not, directly or through contractual or other arrangements, utilize criteria or methods

of administration the purpose or effect of which would:

(i) Subject qualified individuals with handicaps to discrimination on the basis of handicap; or

(ii) Defeat or substantially impair accomplishment of the objectives of a program or activity with

respect to individuals with handicaps.

(4) The agency may not, in determining the site or location of a facility, make selections the purpose or

effect of which would:

(i) Exclude individuals with handicaps from, deny them the benefits of, or otherwise subject them

to discrimination under any program or activity conducted by the agency; or

(ii) Defeat or substantially impair the accomplishment of the objectives of a program or activity

with respect to individuals with handicaps.

(5) The agency, in the selection of procurement contractors, may not use criteria that subject qualified

individuals with handicaps to discrimination on the basis of handicap.

(c) The exclusion of nonhandicapped persons from the benefits of a program limited by Federal statute or

Executive order to individuals with handicaps or the exclusion of a specific class of individuals with

handicaps from a program limited by Federal statute or Executive order to a different class of individuals

with handicaps is not prohibited by this part.

(d) The agency shall administer programs and activities in the most integrated setting appropriate to the

needs of qualified individuals with handicaps.

(a) General. The agency shall operate each program or activity so that the program or activity, when viewed in

its entirety, is readily accessible to and usable by individuals with handicaps. This paragraph does not:

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12 CFR 606.630(b)(2)

12 CFR 606.650(a) (enhanced display) page 5 of 9
(1) Necessarily require the agency to make each of its existing facilities accessible to and usable by

individuals with handicaps;

(2) Require the agency to take any action that it can demonstrate would result in a fundamental

alteration in the nature of a program or activity or in undue financial and administrative burdens. In

those circumstances where agency personnel believe that the proposed action would fundamentally

alter the program or activity or would result in undue financial and administrative burdens, the

agency has the burden of proving that compliance with paragraph (a) of this section would result in

such alteration or burdens. The decision that compliance would result in such alteration or burdens

must be made by the agency head or his or her designee after considering all agency resources

available for use in the funding and operation of the conducted program or activity, and must be

accompanied by a written statement of the reasons for reaching that conclusion. In preparing the

report, the agency shall make reasonable efforts to ensure that the person(s) to be accommodated

has an opportunity to provide relevant information. If an action would result in such an alteration or

such burdens, the agency shall take any other action that would not result in such an alteration or

such burdens but would nevertheless ensure that individuals with handicaps receive the benefits and

services of the program or activity.

(b) Methods. The agency may comply with the requirements of this section through such means as redesign

of equipment, reassignment of services to accessible buildings, assignment of aides to beneficiaries,

home visits, delivery of services at alternate accessible sites, alteration of existing facilities and

construction of new facilities, or any other methods that result in making its programs or activities readily

accessible to and usable by individuals with handicaps. The agency is not required to make structural

changes in existing facilities where other methods are effective in achieving compliance with this section.

The agency, in making alterations to existing buildings, shall meet accessibility requirements to the extent

compelled by the Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151 through 4157), and any

regulations implementing it. In choosing among available methods for meeting the requirements of this

section, the agency shall give priority to those methods that offer programs and activities to qualified

individuals with handicaps in the most integrated setting appropriate.

(c) Time period for compliance. The agency shall comply with the obligations established under this section

within sixty days of the effective date of this part except that where structural changes in facilities are

undertaken, such changes shall be made within three years of the effective date of this part, but in any

event as expeditiously as possible.

(d) Transition plan. In the event that structural changes to facilities will be undertaken to achieve accessibility,

the agency shall develop, within six months of the effective date of this part, a transition plan setting forth

the steps necessary to complete such changes. The agency shall provide an opportunity to interested

persons, including individuals with handicaps or organizations representing individuals with handicaps, to

participate in the development of the transition plan by submitting comments (both oral and written). A

copy of the transition plan shall be made available for public inspection. The plan shall, at a minimum:

(1) Identify physical obstacles in the agency's facilities that limit the accessibility of its programs or

activities to individuals with handicaps;

(2) Describe in detail the methods that will be used to make the facilities accessible;

(3) Specify the schedule for taking the steps necessary to achieve compliance with this section, and if

the time period of the transition plan is longer than one year, identify steps that will be taken during

each year of the transition period;

(4) Indicate the official responsible for implementation of the plan; and

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12 CFR 606.650(a)(1)

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§ 606.651 Program accessibility: New construction and alterations.

Each building or part of a building that is constructed or altered by, on behalf of, or for the use of the agency shall be

designed, constructed, or altered so as to be readily accessible to and usable by individuals with handicaps. The

definitions, requirements, and standards of the Architectural Barriers Act (42 U.S.C. 4151 through 4157), as

established in 41 CFR 101–19.600 to 101–19.607, apply to buildings covered by this section.

§§ 606.652-606.659 [Reserved]

§ 606.660 Communications.

§§ 606.661-606.669 [Reserved]

(5) Identify the persons or groups who commented on the plan.

(a) The agency shall take appropriate steps to ensure effective communication with applicants, participants,

personnel of other Federal entities, and members of the public.

(1) The agency shall furnish appropriate auxiliary aids where necessary to afford an individual with

handicaps an equal opportunity to participate in and enjoy the benefits of a program or activity

conducted by the agency.

(i) In determining what type of auxiliary aid is necessary, the agency shall give primary

consideration to the requests of the individual with handicaps.

(ii) The agency need not provide individually prescribed devices, readers for personal use or study,

or other devices of a personal nature.

(2) Where the agency communicates with applicants and beneficiaries by telephone, telecommunication

devices for deaf persons (TDDs) or equally effective telecommunication systems shall be used.

(b) The agency shall ensure that interested persons, including persons with impaired vision or hearing, can

obtain information as to the existence and location of accessible services, activities, and facilities.

(c) The agency shall provide signage at a primary entrance to each of its inaccessible facilities directing

users to a location at which they can obtain information about accessible facilities. The international

symbol for accessibility shall be used at each primary entrance of an accessible facility.

(d) This section does not require the agency to take any action that it can demonstrate would result in a

fundamental alteration in the nature of a program or activity or in undue financial and administrative

burdens. In those circumstances where agency personnel believe that the proposed action would

fundamentally alter the program or activity or would result in undue financial and administrative burdens,

the agency has the burden of proving that compliance with this section would result in such alteration or

burdens. The decision that compliance would result in such alteration or burdens must be made by the

agency head or his or her designee after considering all agency resources available for use in the funding

and operation of the conducted program or activity, and must be accompanied by a written statement of

the reasons for reaching that conclusion. In preparing the report, the agency shall make reasonable

efforts to ensure that the person(s) to be accommodated has an opportunity to provide relevant

information. If an action required to comply with this section would result in such an alteration or such

burdens, the agency shall take any other action that would not result in such an alteration or such burdens

but would nevertheless ensure that, to the maximum extent possible, individuals with handicaps receive

the benefits and services of the program or activity.

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12 CFR 606.650(d)(5)

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§ 606.670 Compliance procedures.

[53 FR 19889, June 1, 1988, as amended at 56 FR 2674, Jan. 24, 1991; 70 FR 69645, Nov. 17, 2005; 80 FR 68429, Nov. 5, 2015; 81

FR 47692, July 22, 2016]

(a) Except as provided in paragraph (b) of this section, this section applies to all allegations of discrimination

on the basis of handicap in programs and activities conducted by the agency.

(b) The agency shall process complaints alleging violations of section 504 with respect to employment

according to the procedures established by the Equal Employment Opportunity Commission in 29 CFR

part 1613 pursuant to section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 791).

(c) Responsibility for implementation and operation of this section shall be vested in the Director, Office of

Agency Services, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090.

(d) The agency shall accept and investigate all complete complaints for which it has jurisdiction. All complete

complaints must be filed within 180 days of the alleged act of discrimination. The agency may extend this

time period for good cause.

(e) If the agency receives a complaint over which it does not have jurisdiction, it shall promptly notify the

complainant and shall make reasonable efforts to refer the complaint to the appropriate Government

entity.

(f) The agency shall notify the Architectural and Transportation Barriers Compliance Board upon receipt of

any complaint alleging that a building or facility that is subject to the Architectural Barriers Act of 1968, as

amended (42 U.S.C. 4151 through 4157), is not readily accessible to and usable by individuals with

handicaps.

(g) Within 180 days of the receipt of a complete complaint for which it has jurisdiction, the agency shall notify

the complainant of the results of the investigation in a letter containing:

(1) Findings of fact and conclusions of law;

(2) A description of a remedy for each violation found; and

(3) A notice of the right to appeal.

(h) Appeals of the findings of fact and conclusions of law or remedies must be filed by the complainant

within 90 days of receipt from the agency of the letter required by this paragraph. The agency may extend

this time for good cause.

(i) Timely appeals shall be accepted and processed by the Equal Employment Opportunity and Inclusion

Director, or his/her designee, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA

22102–5090.

(j) The head of the agency shall notify the complainant of the results of the appeal within 60 days of the

receipt of the request. If the head of the agency determines that additional information is needed from the

complainant, he or she shall have 60 days from the date of receipt of the additional information to make

his or her determination on the appeal.

(k) The time limits cited in paragraphs (g) and (j) of this section may be extended with the permission of the

Assistant Attorney General.

(l) The agency may delegate its authority for conducting complaint investigations to other Federal agencies,

except that the authority for making the final determination may not be delegated to another agency.

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§§ 606.671-606.999 [Reserved]

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Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 607 Assessment and Apportionment of Administrative Expenses

§ 607.1 Purpose and scope.

§ 607.2 Definitions.

§ 607.3 Assessment of banks, associations, and designated other System entities.

§ 607.4 Assessment of other System entities.

§ 607.5 Notice of assessment.

§ 607.6 Payment of assessment.

§ 607.7 Late-payment charges on assessments.

§ 607.8 Reimbursements for services to non-System entities.

§ 607.9 Reimbursable billings.

§ 607.10 Adjustments for overpayment or underpayment of assessments.

§ 607.11 Report of assessments and expenses.

PART 607—ASSESSMENT AND APPORTIONMENT OF

ADMINISTRATIVE EXPENSES

Authority: Secs. 5.15, 5.17 of the Farm Credit Act (12 U.S.C. 2250, 2252) and 12 U.S.C. 3025.

Source: 58 FR 10942, Feb. 23, 1993, unless otherwise noted.

§ 607.1 Purpose and scope.

The regulations in part 607 implement the provisions of section 5.15 of the Farm Credit Act of 1971, 12 U.S.C. 2001

et seq. (Act) relating to Farm Credit Administration (FCA) assessments. The regulations prescribe the procedures

for the equitable apportionment of FCA annual administrative expenses and necessary reserves among Farm Credit

System (System) institutions. Pursuant to section 5.15(a) of the Act, the regulations also provide for the separate

assessment of the FCA's costs of supervising and examining the Federal Agricultural Mortgage Corporation

(FAMC). The regulations further provide for the reimbursement of expenses incurred in performing statutorily

required examinations of non-System entities.

§ 607.2 Definitions.

For the purpose of this part, the following definitions shall apply:

This content is from the eCFR and is authoritative but unofficial.

(a) Assessment means the annual amount to be paid by each System institution to the Farm Credit

Administration in accordance with section 5.15 of the Act.

12 CFR Part 607 (up to date as of 3/07/2024)

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12 CFR Part 607 (Mar. 7, 2024)

12 CFR 607.2(a) (enhanced display) page 1 of 7
(b) Average risk-adjusted asset base means the average of the risk-adjusted asset base (as defined in §

615.5201 of this chapter) of banks, associations, and designated other System entities, calculated as

follows:

(1) For a bank, association, or designated other System entity with four quarters of risk-adjusted assets

as of June 30 of each year, the sum of the average daily risk-adjusted assets as of the last day of the

quarter for the most recent four quarters immediately preceding each September 15, divided by four;

(2) Except as provided in paragraphs (b)(3) and (b)(4) of this section, for a bank, association, or

designated other System entity with less than four quarters of risk-adjusted assets as of June 30 of

each year, the sum of the average daily risk-adjusted assets as of the last day of the quarter for the

quarters in which it was in existence immediately preceding September 15, divided by the number of

quarters in which it was in existence immediately preceding September 15;

(3) For a bank, association, or designated other System entity that is the continuing institution after a

merger of existing institutions or a newly formed institution formed through a consolidation of

existing institutions and that has less than four quarters of risk-adjusted assets as of June 30 of

each year, the sum of the average daily risk-adjusted assets as of the last day of the quarter for the

most recent four quarters immediately preceding September 15 for all the institutions that were

merged or consolidated, divided by four;

(4) For a bank, association, or designated other System entity chartered during the period July 1 through

September 30 of each year that is not the continuing institution after a merger of existing institutions

or a newly formed institution formed through a consolidation of existing institutions, the total of the

average daily risk-adjusted assets as of the last day of the quarter ending September 30.

(c) Composite Financial Institution Rating System (FIRS) rating means the composite numerical assessment

of the financial condition of an institution assigned to the institution by the FCA based on its most recent

examination of the institution. The FIRS factors are generally considered to be important indicators of an

institution's financial health. Institutions are rated on each of the factors during an examination. The

composite FIRS rating ranges from 1 to 5, with a lower number indicating a better financial condition than

a higher number.

(d) Delinquent amount means an amount owed to the FCA that has not been paid by the date specified in the

FCA's Notice of Assessment or billing.

(e) Designated other System entities means other System entities designated by the FCA in § 607.3(c) to be

assessed on the same basis as banks and associations under § 607.3.

(f) Direct expenses means the expenses of the FCA attributable to the performance of examinations.

(g) Indirect expenses means all FCA expenses that are not attributable to the performance of examinations.

(h) Non-System entities means the National Consumer Cooperative Bank, the National Cooperative Bank

Development Corporation, and any other entity that is required to be examined, supervised, or otherwise

regulated by the FCA that is not a System institution.

(i) Notice of Assessment means a written notice to each System institution showing the total amount

assessed and owing, the fiscal year covered by the assessment, the amounts of installment payments,

and the due dates for such payments. For banks, associations, and designated other System entities, the

Notice of Assessment shall also include an individualized assessment table showing the assessment

under § 607.3(b)(2), where applicable.

12 CFR Part 607 (up to date as of 3/07/2024)

Assessment and Apportionment of Administrative Expenses

12 CFR 607.2(b)

12 CFR 607.2(i) (enhanced display) page 2 of 7
[58 FR 10942, Feb. 23, 1993, as amended at 59 FR 37403, July 22, 1994; 63 FR 34268, June 24, 1998; 70 FR 35348, June 17, 2005;

75 FR 35968, June 24, 2010; 81 FR 49772, July 28, 2016; 82 FR 48759, Oct. 20, 2017]

§ 607.3 Assessment of banks, associations, and designated other System entities.

Average risk-adjusted asset size range (in millions)

Assessment rate

Over To

$0 $25 X1

25 50 .85X1

50 100 .75X1

100 500 .60X1

500 1,000 .50X1

1,000 7,000 .35X1

7,000 10,000 .20X1

(j) Other System entities means any service corporation chartered under section 4.25 of the Act, the FAMC,

the Federal Farm Credit Banks Funding Corporation, the Farm Credit Finance Corporation of Puerto Rico,

and any other entity statutorily designated as a System institution that is not a bank or association.

(k) System institutions means banks, associations, and other System entities.

(a) Banks, associations, and other System entities designated in paragraph (c) of this section will be

assessed annually pursuant to this section for funds to cover a portion of the FCA's administrative

expenses and for such funds as may be required to maintain a necessary reserve. The total amount of the

annual assessment of banks, associations, and designated other System entities shall be based on the

FCA budget for each fiscal year plus such amount as may be required to maintain a necessary reserve,

excluding amounts to be assessed against other System entities and reimbursements received from nonSystem entities.

(b) The assessment shall be apportioned among the banks, associations, and designated other System

entities as follows:

(1) Thirty (30) percent of the assessment under this section shall be apportioned to each bank,

association, and designated other System entity on the basis of each institution's pro rata share of

the total average risk-adjusted asset base.

(2) Seventy (70) percent of the assessment under this section shall be apportioned to each bank,

association, and designated other System entity based upon the amounts of the institution's average

risk-adjusted assets that fall within the graduated risk-adjusted asset tiers contained in the following

table. An institution's total assessment under this paragraph is the sum of the amounts assessed for

risk-adjusted assets falling into each applicable tier, subject to adjustment for its FIRS rating as

required in paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The same assessment rate (designated

as X1 or a declining percentage of X1 in the following table) will be applied to each dollar value of

risk-adjusted assets falling within each tier, increased where applicable, by the amounts prescribed

in paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The actual assessment rate under this paragraph

shall be determined annually based on relative average risk-adjusted asset bases, the FIRS ratings of

individual institutions, and the FCA budget as adjusted pursuant to paragraph (a) of this section, but

the relationship between the rates applied to each tier shall remain constant as set forth in the

following table.

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12 CFR 607.2(j)

12 CFR 607.3(b)(2) (enhanced display) page 3 of 7
Average risk-adjusted asset size range (in millions)

Assessment rate

Over To

10,000 .10X1

Example: XYZ association has a FIRS rating of 2 and average risk-adjusted assets of $500.4 million. The

value of X1 has been determined to be .000917, based on an FCA budget of $40.29 million.

X1= .000917 therefore $25,000,000 × .0917% = $22,925

.85X1= .000780 therefore $25,000,000 × .0780% = 19,500

.75X1= .000688 therefore $50,000,000 × .0688% = 34,400

.60X1= .000550 therefore $400,000,000 × .0550% = 220,000

.50X1= .000458 therefore $400,000 × .0458% = 183

Total Assessment under § 607.3(b)(2) = 297,008

(i) If the FCA assigns a bank, association, or designated other System entity a composite FIRS

rating of 3 following its most recent examination of the institution prior to the date of

assessment, the assessment provided for in paragraph (b)(2) of this section shall be increased

by 20 percent.

(ii) If the FCA assigns a bank, association, or designated other System entity a composite FIRS

rating of 4 or 5 following its most recent examination of the institution prior to the date of

assessment, the assessment provided for in paragraph (b)(2) of this section shall be increased

by 40 percent.

(iii) Banks, associations, and designated other System entities that were formed through mergers or

consolidations and have not been examined before their initial assessment under this section

shall be deemed to have a composite FIRS rating equivalent to the best composite FIRS rating

assigned to the merged or consolidated institutions in the FCA's most recent examination of

the individual institutions prior to the date of merger or consolidation. Newly chartered

institutions not formed through mergers or consolidations that have not been examined before

their initial assessment under this section shall be deemed to have a composite FIRS rating of

2.

(3) Each bank, association, and designated other System entity shall pay a minimum assessment of

$20,000 regardless of the result of the application of the assessment formula established by

paragraphs (b)(1) and (b)(2) of this section. If such a minimum assessment is apportioned to an

institution, that institution's average risk-adjusted asset base shall be deducted from the total

average risk-adjusted asset base, and $20,000 shall be deducted from the total assessment amount

for purposes of determining the assessments of banks, associations, and designated other System

entities paying more than the $20,000 minimum assessment.

(c) Other System entities designated to be assessed in accordance with this section are:

The Farm Credit Services Leasing Corporation.

(d) Assessments may be adjusted periodically to reflect:

(1) Changes in the FCA budget and necessary reserve; and

12 CFR Part 607 (up to date as of 3/07/2024)

Assessment and Apportionment of Administrative Expenses

12 CFR 607.3(b)(2)(i)

12 CFR 607.3(d)(1) (enhanced display) page 4 of 7
[58 FR 10942, Feb. 23, 1993, as amended at 63 FR 34268, June 24, 1998]

§ 607.4 Assessment of other System entities.

§ 607.5 Notice of assessment.

(2) Any overpayment or underpayment by a bank, association, or designated other System entity in the

prior fiscal year.

(a)

(1) Unless otherwise designated to be assessed under § 607.3, and with the exception of FAMC as

provided in paragraph (b) of this section, other System entities will be assessed for estimated direct

expenses plus an allocated portion of FCA indirect expenses and such amount as may be required to

maintain a necessary reserve. The estimate for direct expenses shall take into account the direct

expenses incurred in the most recent examination of the entity preceding each September 15 and

expected increases or decreases in examination work for the next fiscal year. A proportional amount

of FCA indirect expenses will be allocated to each entity based on the estimated direct expenses

related to the particular entity as a percentage of the total budgeted direct expenses of the agency

(excluding direct expenses under paragraph (b) of this section) for the fiscal year covered by the

assessment.

(2) Assessments of other System entities under paragraph (a)(1) of this section may be adjusted

periodically to reflect:

(i) Changes in the FCA budget and necessary reserve; and

(ii) Any overpayment or underpayment by such other System entity in the prior fiscal year.

(b) Assessment of Federal Agricultural Mortgage Corporation. The FCA shall assess FAMC for the estimated

cost of FCA's regulation, supervision, and examination of FAMC, including reasonably related

administrative and overhead expenses. FAMC's assessment may be adjusted periodically to reflect

changes in the FCA budget and to reconcile differences between FAMC's assessment and FCA's actual

expenditures for regulation of FAMC in the prior fiscal year.

(a) Except as provided in paragraph (b) of this section, prior to September 15 of each year, the FCA shall

determine the amount of assessment to be collected from each System institution for the next fiscal year

under §§ 607.3 and 607.4 and shall provide each System institution with a Notice of Assessment. The

total amount assessed each System institution in the Notice of Assessment shall be an obligation of each

institution on October 1 of each fiscal year. The total amount assessed each System institution shall be

payable not less often than quarterly in equal installments during each fiscal year, subject to adjustment

pursuant to §§ 607.3(d), 607.4(a)(2), 607.4(b), and 607.10.

(b) For banks, associations and designated other System entities chartered during the period July 1 through

September 30 of each year, the FCA shall, prior to December 15, determine the amount of assessment to

be collected from each such institution for the remainder of the fiscal year and provide the institution with

a Notice of Assessment. The total amount of the assessment becomes an obligation of the institution on

January 1 and shall be payable in equal installments, subject to adjustment pursuant to §§ 607.3(d) and

607.10, not less often than quarterly for the remainder of the fiscal year. The first installment shall be due

on January 1. This paragraph shall not apply to banks, associations, and designated other System entities

formed by merger, consolidation, or transfer of direct lending authority.

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12 CFR 607.3(d)(2)

12 CFR 607.5(b) (enhanced display) page 5 of 7
§ 607.6 Payment of assessment.

§ 607.7 Late-payment charges on assessments.

§ 607.8 Reimbursements for services to non-System entities.

Non-System entities shall be assessed for direct expenses plus an amount for FCA indirect expenses reasonably

related to the services rendered to the non-System entity. Such related indirect expenses shall be calculated as a

percentage of the FCA's overall indirect expenses based on the extent of FCA activities with respect to the nonSystem entity during the period since the entity's most recent assessment.

§ 607.9 Reimbursable billings.

The FCA shall bill the amounts due for services to non-System entities each year subsequent to the issuance of

their respective Reports of Examination. Amounts billed are due in full within 30 days from the date billed. If the

billed amount or any portion thereof remains unpaid at close of business on the due date, such amount or portion

shall be considered delinquent in accordance with § 607.7.

(c) In the event of the proposed cancellation of the charter of a System institution, the unpaid installments of

the total amount of the institution's assessment shall be provided for prior to the cancellation of the

charter.

(a) System institutions shall pay the amounts due as scheduled in the FCA Notice of Assessment. Payment

shall be made by electronic funds transfer (EFT) for credit to the FCA's account in the Department of the

Treasury, by check to the FCA for deposit, or by such other means as the FCA may authorize.

(b) Payments made by EFT that are not received by the close of business on the due date shall be considered

delinquent in accordance with § 607.7.

(c) Payments made by check that are not received by the FCA before the close of business on the third

workday preceding the due date shall be considered delinquent in accordance with § 607.7.

(a) If any portion of a scheduled installment of a System institution's total assessment or the reimbursement

billed to a non-System entity is not paid by the due date, the overdue amount shall be considered

delinquent.

(b) Delinquent amounts shall be charged late-payment interest at the United States Treasury Department's

current value of funds rate published in the FEDERAL REGISTER. Late payment interest shall be expressed as

an annual rate of interest and shall accrue on a daily basis starting on the due date of the delinquent

amount and continuing through the date payment is received by the FCA.

(c) The FCA shall waive the collection of interest on the delinquent amounts if such amounts are paid within

30 days of the date interest begins to accrue. The FCA may waive interest due on delinquent amounts

upon finding no fault with the performance of the remitter.

(d) The FCA shall charge an amount necessary to cover the administrative costs incurred as a result of

collection of any delinquent amount.

(e) The FCA shall charge a penalty of 6 percent per annum on any portion of a delinquent amount that is more

than 90 days past due. Such penalty shall accrue from the date the amount became delinquent.

12 CFR Part 607 (up to date as of 3/07/2024)

Assessment and Apportionment of Administrative Expenses

12 CFR 607.5(c)

12 CFR 607.9 (enhanced display) page 6 of 7
§ 607.10 Adjustments for overpayment or underpayment of assessments.

Where adjustments for overpayment or underpayment of assessments are made pursuant to §§ 607.3(d),

607.4(a)(2), and 607.4(b), credits for overpayments or charges for underpayments shall be based on FCA

administrative operating expenses incurred in the applicable fiscal year and on funds required to be maintained

pursuant to section 5.15 of the Act. Such credits or charges shall be applied to the next applicable assessment

payment due during the current or subsequent fiscal year. Where such adjustments are made, the FCA shall provide

the institution with a statement of adjustment at least 15 days prior to the date when the institution's next

assessment payment is due. Adjustments in assessments shall be made in principal amount only. Overdue

amounts under § 607.7 are not underpayments for assessment adjustment purposes.

§ 607.11 Report of assessments and expenses.

By January 15 of each calendar year, the FCA shall provide each assessed System institution with a report of

assessments and expenses for the preceding fiscal year showing total assessments and other income received as

applied to expenses incurred by major budget category and amounts set aside for a necessary reserve.

12 CFR Part 607 (up to date as of 3/07/2024)

Assessment and Apportionment of Administrative Expenses

12 CFR 607.10

12 CFR 607.11 (enhanced display) page 7 of 7
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter A —Administrative Provisions

Part 608 Collection of Claims Owed the United States

Subpart A Administrative Collection of Claims

§ 608.801 Authority.

§ 608.802 Applicability.

§ 608.803 Definitions.

§ 608.804 Delegation of authority.

§ 608.805 Responsibility for collection.

§ 608.806 Demand for payment.

§ 608.807 Right to inspect and copy records.

§ 608.808 Right to offer to repay claim.

§ 608.809 Right to agency review.

§ 608.810 Review procedures.

§ 608.811 Special review.

§ 608.812 Charges for interest, administrative costs, and penalties.

§ 608.813 Contracting for collection services.

§ 608.814 Reporting of credit information.

§ 608.815 Credit report.

Subpart B Administrative Offset

§ 608.820 Applicability.

§ 608.821 Collection by offset.

§ 608.822 Notice requirements before offset.

§ 608.823 Right to review of claim.

§ 608.824 Waiver of procedural requirements.

§ 608.825 Coordinating offset with other Federal agencies.

§ 608.826 Stay of offset.

§ 608.827 Offset against amounts payable from Civil Service Retirement and Disability Fund.

Subpart C Offset Against Salary

§ 608.835 Purpose.

§ 608.836 Applicability of regulations.

§ 608.837 Definitions.

§ 608.838 Waiver requests and claims to the General Accounting Office.

§ 608.839 Procedures for salary offset.

§ 608.840 Refunds.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR Part 608 (Mar. 7, 2024)

12 CFR Part 608 (Mar. 7, 2024) (enhanced display) page 1 of 17
§ 608.841 Requesting current paying agency to offset salary.

§ 608.842 Responsibility of the FCA as the paying agency.

§ 608.843 Nonwaiver of rights by payments.

PART 608—COLLECTION OF CLAIMS OWED THE UNITED STATES

Authority: Sec. 5.17 of the Farm Credit Act; 12 U.S.C. 2252; 31 U.S.C. 3701–3719; 5 U.S.C. 5514; 4 CFR parts

101–105; 5 CFR part 550.

Source: 59 FR 13187, Mar. 21, 1994, unless otherwise noted.

Subpart A—Administrative Collection of Claims

§ 608.801 Authority.

The regulations of this part are issued under the Federal Claims Collection Act of 1966, as amended by the Debt

Collection Act of 1982, 31 U.S.C. 3701–3719 and 5 U.S.C. 5514, and in conformity with the joint regulations issued

under that Act by the General Accounting Office and the Department of Justice (joint regulations) prescribing

standards for administrative collection, compromise, suspension, and termination of agency collection actions, and

referral to the General Accounting Office and to the Department of Justice for litigation of civil claims for money or

property owed to the United States (4 CFR parts 101–105).

§ 608.802 Applicability.

This part applies to all claims of indebtedness due and owing to the United States and collectible under procedures

authorized by the Federal Claims Collection Act of 1966, as amended by the Debt Collection Act of 1982. The joint

regulations and this part do not apply to conduct in violation of antitrust laws, tax claims, claims between Federal

agencies, or to any claim which appears to involve fraud, presentation of a false claim, or misrepresentation on the

part of the debtor or any other party having an interest in the claim, unless the Justice Department authorizes the

Farm Credit Administration, pursuant to 4 CFR 101.3, to handle the claim in accordance with the provisions of 4 CFR

parts 101–105. Additionally, this part does not apply to Farm Credit Administration assessments under part 607 of

this chapter.

§ 608.803 Definitions.

In this part (except where the term is defined elsewhere in this part), the following definitions shall apply:

(a) Administrative offset or offset, as defined in 31 U.S.C. 3701(a)(1), means withholding money payable by

the United States Government to, or held by the Government for, a person to satisfy a debt the person

owes the Government.

(b) Agency means a department, agency, or instrumentality in the executive or legislative branch of the

Government.

(c) Claim or debt means money or property owed by a person or entity to an agency of the Federal

Government. A “claim” or “debt” includes amounts due the Government from loans insured by or

guaranteed by the United States and all other amounts due from fees, leases, rents, royalties, services,

sales of real or personal property, overpayment, penalties, damages, interest, and fines.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR Part 608 (Mar. 7, 2024)

12 CFR 608.803(c) (enhanced display) page 2 of 17
§ 608.804 Delegation of authority.

The FCA official(s) designated by the Chairman of the Farm Credit Administration are authorized to perform all

duties which the Chairman is authorized to perform under these regulations, the Federal Claims Collection Act of

1966, as amended, and the joint regulations issued under that Act.

§ 608.805 Responsibility for collection.

(d) Claim certification means a creditor agency's written request to a paying agency to effect an

administrative offset.

(e) Creditor agency means an agency to which a claim or debt is owed.

(f) Debtor means the person or entity owing money to the Federal Government.

(g) FCA means the Farm Credit Administration.

(h) Hearing official means an individual who is responsible for reviewing a claim under § 608.810 of this part.

(i) Paying agency means an agency of the Federal Government owing money to a debtor against which an

administrative or salary offset can be effected.

(j) Salary offset means an administrative offset to collect a debt under 5 U.S.C. 5514 by deductions at one or

more officially established pay intervals from the current pay account of a debtor.

(a) The collection of claims shall be aggressively pursued in accordance with the provisions of the Federal

Claims Collection Act of 1966, as amended, the joint regulations issued under that Act, and these

regulations. Debts owed to the United States, together with charges for interest, penalties, and

administrative costs, should be collected in one lump sum unless otherwise provided by law. If a debtor

requests installment payments, the debtor, as requested by the FCA, shall provide sufficient information to

demonstrate that the debtor is unable to pay the debt in one lump sum. When appropriate, the FCA shall

arrange an installment payment schedule. Claims which cannot be collected directly or by administrative

offset shall be either written off as administratively uncollectible or referred to the General Counsel for

further consideration.

(b) The Chairman, or designee of the Chairman, may compromise claims for money or property arising out of

the activities of the FCA, where the claim (exclusive of charges for interest, penalties, and administrative

costs) does not exceed $100,000. When the claim exceeds $100,000 (exclusive of charges for interest,

penalties, and administrative costs), the authority to accept a compromise rests solely with the

Department of Justice. The standards governing the compromise of claims are set forth in 4 CFR part

103.

(c) The Chairman, or designee of the Chairman, may suspend or terminate the collection of claims which do

not exceed $100,000 (exclusive of charges for interest, penalties, and administrative costs) after

deducting the amount of any partial payments or collections. If, after deducting the amount of any partial

payments or collections, a claim exceeds $100,000 (exclusive of charges for interest, penalties, and

administrative costs), the authority to suspend or terminate rests solely with the Department of Justice.

The standards governing the suspension or termination of claim collections are set forth in 4 CFR part

104.

(d) The FCA shall refer claims to the Department of Justice for litigation or to the General Accounting Office

(GAO) for claims arising from audit exceptions taken by the GAO to payments made by the FCA in

accordance with 4 CFR part 105.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.803(d)

12 CFR 608.805(d) (enhanced display) page 3 of 17
§ 608.806 Demand for payment.

(a) A total of three progressively stronger written demands at not more than 30-day intervals should normally

be made upon a debtor, unless a response or other information indicates that additional written demands

would either be unnecessary or futile. When necessary to protect the Government's interest, written

demands may be preceded by other appropriate actions under Federal law, including immediate referral

for litigation and/or administrative offset.

(b) The initial demand for payment shall be in writing and shall inform the debtor of the following:

(1) The amount of the debt, the date it was incurred, and the facts upon which the determination of

indebtedness was made;

(2) The payment due date, which shall be 30 calendar days from the date of mailing or hand delivery of

the initial demand for payment;

(3) The right of the debtor to inspect and copy the records of the agency related to the claim or to

receive copies if personal inspection is impractical. The debtor shall be informed that the debtor may

be assessed for the cost of copying the documents in accordance with § 608.807;

(4) The right of the debtor to obtain a review of the FCA's determination of indebtedness;

(5) The right of the debtor to offer to enter into a written agreement with the agency to repay the amount

of the claim. The debtor shall be informed that the acceptance of such an agreement is discretionary

with the agency;

(6) That charges for interest, penalties, and administrative costs will be assessed against the debtor, in

accordance with 31 U.S.C. 3717, if payment is not received by the payment due date;

(7) That if the debtor has not entered into an agreement with the FCA to pay the debt, has not requested

the FCA to review the debt, or has not paid the debt by the payment due date, the FCA intends to

collect the debt by all legally available means, which may include initiating legal action against the

debtor, referring the debt to a collection agency for collection, collecting the debt by offset, or asking

other Federal agencies for assistance in collecting the debt by offset;

(8) The name and address of the FCA official to whom the debtor shall send all correspondence relating

to the debt; and

(9) Other information, as may be appropriate.

(c) If, prior to, during, or after completion of the demand cycle, the FCA determines to collect the debt by

either administrative or salary offset, the FCA shall follow, as applicable, the requirements for a Notice of

Intent to Collect by Administrative Offset or a Notice of Intent to Collect by Salary Offset set forth in §

608.822.

(d) If no response to the initial demand for payment is received by the payment due date, the FCA shall take

further action under this part, under the Federal Claims Collection Act of 1966, as amended, under the

joint regulations (4 CFR parts 101–105), or under any other applicable State or Federal law. These actions

may include reports to credit bureaus, referrals to collection agencies, termination of contracts,

debarment, and salary or administrative offset.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.806

12 CFR 608.806(d) (enhanced display) page 4 of 17
§ 608.807 Right to inspect and copy records.

The debtor may inspect and copy the FCA records related to the claim. The debtor shall give the FCA reasonable

advance notice that it intends to inspect and copy the records involved. The debtor shall pay copying costs unless

they are waived by the FCA. Copying costs shall be assessed pursuant to §§ 602.11 and 602.12 of this chapter.

[59 FR 13187, Mar. 21, 1994, as amended at 71 FR 54900, Sept. 20, 2006]

§ 608.808 Right to offer to repay claim.

§ 608.809 Right to agency review.

(a) The debtor may offer to enter into a written agreement with the FCA to repay the amount of the claim. The

acceptance of such an offer and the decision to enter into such a written agreement is at the discretion of

the FCA.

(b) If the debtor requests a repayment arrangement because payment of the amount due would create a

financial hardship, the FCA shall analyze the debtor's financial condition. The FCA may enter into a written

agreement with the debtor permitting the debtor to repay the debt in installments if the FCA determines, in

its sole discretion, that payment of the amount due would create an undue financial hardship for the

debtor. The written agreement shall set forth the amount and frequency of installment payments and

shall, in accordance with § 608.812, provide for the imposition of charges for interest, penalties, and

administrative costs unless waived by the FCA.

(c) The written agreement may require the debtor to execute a confess-judgment note when the total amount

of the deferred installments will exceed $750. The FCA shall provide the debtor with a written explanation

of the consequences of signing a confess-judgment note. The debtor shall sign a statement

acknowledging receipt of the written explanation. The statement shall recite that the written explanation

was read and understood before execution of the note and that the debtor signed the note knowingly and

voluntarily. Documentation of these procedures will be maintained in the FCA's file on the debtor.

(a) If the debtor disputes the claim, the debtor may request a review of the FCA's determination of the

existence of the debt or of the amount of the debt. If only part of the claim is disputed, the undisputed

portion should be paid by the payment due date.

(b) To obtain a review, the debtor shall submit a written request for review to the FCA official named in the

initial demand letter, within 15 calendar days after receipt of the letter. The debtor's request for review

shall state the basis on which the claim is disputed.

(c) The FCA shall promptly notify the debtor, in writing, that the FCA has received the request for review. The

FCA shall conduct its review of the claim in accordance with § 608.810.

(d) Upon completion of its review of the claim, the FCA shall notify the debtor whether the FCA's

determination of the existence or amount of the debt has been sustained, amended, or canceled. The

notification shall include a copy of the written decision issued by the hearing official pursuant to §

608.810(e). If the FCA's determination is sustained, this notification shall contain a provision which states

that the FCA intends to collect the debt by all legally available means, which may include initiating legal

action against the debtor, referring the debt to a collection agency for collection, collecting the debt by

offset, or asking other Federal agencies for assistance in collecting the debt by offset.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.807

12 CFR 608.809(d) (enhanced display) page 5 of 17
§ 608.810 Review procedures.

§ 608.811 Special review.

(a) Unless an oral hearing is required by § 608.823(d), the FCA's review shall be a review of the written record

of the claim.

(b) If an oral hearing is required under § 608.823(d), the FCA shall provide the debtor with a reasonable

opportunity for such a hearing. The oral hearing, however, shall not be an adversarial adjudication and

need not take the form of a formal evidentiary hearing. All significant matters discussed at the hearing,

however, will be carefully documented.

(c) Any review required by this part, whether a review of the written record or an oral hearing, shall be

conducted by a hearing official. In the case of a salary offset, the hearing official shall not be under the

supervision or control of the Chairman of the Farm Credit Administration.

(d) The FCA may be represented by legal counsel. The debtor may represent himself or herself or may be

represented by an individual of the debtor's choice and at the debtor's expense.

(e) The hearing official shall issue a final written decision based on documentary evidence and, if applicable,

information developed at an oral hearing. The written decision shall be issued as soon as practicable after

the review but not later than 60 days after the date on which the request for review was received by the

FCA, unless the debtor requests a delay in the proceedings. A delay in the proceedings shall be granted if

the hearing official determines, in his or her sole discretion, that there is good cause to grant the delay. If a

delay is granted, the 60-day decision period shall be extended by the number of days by which the review

was postponed.

(f) Upon issuance of the written opinion, the FCA shall promptly notify the debtor of the hearing official's

decision. Said notification shall include a copy of the written decision issued by the hearing official

pursuant to paragraph (e) of this section.

(a) An employee subject to salary offset, under subpart C of this part, or a voluntary repayment agreement,

may, at any time, request a special review by the FCA of the amount of the salary offset or voluntary

repayment, based on materially changed circumstances such as, but not limited to, catastrophic illness,

divorce, death, or disability.

(b) To determine whether an offset would prevent the employee from meeting essential subsistence

expenses (costs incurred for food, housing, clothing, transportation, and medical care), the employee shall

submit a detailed statement and supporting documents for the employee, his or her spouse, and

dependents indicating:

(1) Income from all sources;

(2) Assets;

(3) Liabilities;

(4) Number of dependents;

(5) Expenses for food, housing, clothing, and transportation;

(6) Medical expenses; and

(7) Exceptional expenses, if any.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.810

12 CFR 608.811(b)(7) (enhanced display) page 6 of 17
§ 608.812 Charges for interest, administrative costs, and penalties.

(c) If the employee requests a special review under this section, the employee shall file an alternative

proposed offset or payment schedule and a statement, with supporting documents, showing why the

current salary offset or payments result in an extreme financial hardship to the employee.

(d) The FCA shall evaluate the statement and supporting documents, and determine whether the original

offset or repayment schedule imposes an undue financial hardship on the employee. The FCA shall notify

the employee in writing of such determination, including, if appropriate, a revised offset or payment

schedule.

(a) Except as provided in paragraph (d) of this section, the FCA shall:

(1) Assess interest on unpaid claims;

(2) Assess administrative costs incurred in processing and handling overdue claims; and

(3) Assess penalty charges not to exceed 6 percent a year on any part of a debt more than 90 days past

due. The imposition of charges for interest, administrative costs, and penalties shall be made in

accordance with 31 U.S.C. 3717.

(b)

(1) Interest shall accrue from the date of mailing or hand delivery of the initial demand for payment or

the Notice of Intent to Collect by either Administrative or Salary Offset if the amount of the claim is

not paid within 30 days from the date of mailing or hand delivery of the initial demand or notice.

(2) The 30-day period may be extended on a case-by-case basis if the FCA reasonably determines that

such action is appropriate. Interest shall only accrue on the principal of the claim and the interest

rate shall remain fixed for the duration of the indebtedness, except, as provided in paragraph (c) of

this section, in cases where a debtor has defaulted on a repayment agreement and seeks to enter

into a new agreement, or if the FCA reasonably determines that a higher rate is necessary to protect

the interests of the United States.

(c) If a debtor defaults on a repayment agreement and seeks to enter into a new agreement, the FCA may

assess a new interest rate on the unpaid claim. In addition, charges for interest, administrative costs, and

penalties which accrued but were not collected under the original repayment agreement shall be added to

the principal of the claim to be paid under the new repayment agreement. Interest shall accrue on the

entire principal balance of the claim, as adjusted to reflect any increase resulting from the addition of

these charges.

(d) The FCA may waive charges for interest, administrative costs, and/or penalties if it determines that:

(1) The debtor is unable to pay any significant sum toward the claim within a reasonable period of time;

(2) Collection of charges for interest, administrative costs, and/or penalties would jeopardize collection

of the principal of the claim;

(3) Collection of charges for interest, administrative costs, or penalties would be against equity and

good conscience; or

(4) It is otherwise in the best interest of the United States, including the situation where an installment

payment agreement or offset is in effect.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.811(c)

12 CFR 608.812(d)(4) (enhanced display) page 7 of 17
§ 608.813 Contracting for collection services.

The Chairman, or designee of the Chairman, may contract for collection services in accordance with 31 U.S.C. 3718

and 4 CFR 102.6 to recover debts.

§ 608.814 Reporting of credit information.

The Chairman, or designee of the Chairman, may disclose to a consumer reporting agency information that an

individual is responsible for a debt owed to the United States. Information will be disclosed to reporting agencies in

accordance with the terms and conditions of agreements entered into between the FCA and the reporting agencies.

The terms and conditions of such agreements shall specify that all of the rights and protection afforded to the

debtor under 31 U.S.C. 3711(f) have been fulfilled. The FCA shall notify each consumer reporting agency, to which a

claim was disclosed, when the debt has been satisfied.

§ 608.815 Credit report.

In order to aid the FCA in making appropriate determinations regarding the collection and compromise of claims;

the collection of charges for interest, administrative costs, and penalties; the use of administrative offset; the use of

other collection methods; and the likelihood of collecting the claim, the FCA may institute, consistent with the

provisions of the Fair Credit Reporting Act (15 U.S.C. 1681, et seq.), a credit investigation of the debtor immediately

following a determination that the claim exists.

Subpart B—Administrative Offset

§ 608.820 Applicability.

§ 608.821 Collection by offset.

(a) The provisions of this subpart shall apply to the collection of debts by administrative [or salary] offset

under 31 U.S.C. 3716, 5 U.S.C. 5514, or other statutory or common law.

(b) Offset shall not be used to collect a debt more than 10 years after the Government's right to collect the

debt first accrued, unless facts material to the Government's right to collect the debt were not known and

could not reasonably have been known by the official or officials of the Government who were charged

with the responsibility of discovering and collecting such debt.

(c) Offset shall not be used with respect to:

(1) Debts owed by other agencies of the United States or by any State or local government;

(2) Debts arising under or payments made under the Social Security Act, the Internal Revenue Code of

1986, as amended, or tariff laws of the United States; or

(3) Any case in which collection by offset of the type of debt involved is explicitly provided for or

prohibited by another statute.

(d) Unless otherwise provided by contract or law, debts or payments which are not subject to offset under 31

U.S.C. 3716 or 5 U.S.C. 5514 may be collected by offset if such collection is authorized under common

law or other applicable statutory authority.

(a) Collection of a debt by administrative [or salary] offset shall be accomplished in accordance with the

provisions of these regulations, of 4 CFR 102.3, and 5 CFR part 550, subpart K. It is not necessary for the

debt to be reduced to judgment or to be undisputed for offset to be used.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.813

12 CFR 608.821(a) (enhanced display) page 8 of 17
§ 608.822 Notice requirements before offset.

(b) The Chairman, or designee of the Chairman, may determine that it is feasible to collect a debt to the

United States by offset against funds payable to the debtor.

(c) The feasibility of collecting a debt by offset will be determined on a case-by-case basis. This

determination shall be made by considering all relevant factors, including the following:

(1) The degree to which the offset can be accomplished in accordance with law. This determination

should take into consideration relevant statutory, regulatory, and contractual requirements;

(2) The degree to which the FCA is certain that its determination of the existence and amount of the

debt is correct;

(3) The practicality of collecting the debt by offset. The cost, in time and money, of collecting the debt by

offset and the amount of money which can reasonably be expected to be recovered through offset

will be relevant to this determination; and

(4) Whether the use of offset will substantially interfere with or defeat the purpose of a program

authorizing payments against which the offset is contemplated. For example, under a grant program

in which payments are made in advance of the grantee's performance, the imposition of offset

against such a payment may be inappropriate.

(d) The collection of a debt by offset may not be feasible when there are circumstances which would indicate

that the likelihood of collection by offset is less than probable.

(e) The offset will be effected 31 days after the debtor receives a Notice of Intent to Collect by Administrative

Offset (or Notice of Intent to Collect by Salary Offset if the offset is a salary offset), or upon the expiration

of a stay of offset, unless the FCA determines under § 608.824 that immediate action is necessary.

(f) If the debtor owes more than one debt, amounts recovered through offset may be applied to them in any

order. Applicable statutes of limitation would be considered before applying the amounts recovered to any

debts owed.

(a) Except as provided in § 608.824, the FCA will provide the debtor with 30 calendar days' written notice that

unpaid debt amounts shall be collected by administrative [or salary] offset (Notice of Intent to Collect by

Administrative [or Salary] Offset) before the FCA imposes offset against any money that is to be paid to

the debtor.

(b) The Notice of Intent to Collect by Administrative [or Salary] Offset shall be delivered to the debtor by hand

or by mail and shall provide the following information:

(1) The amount of the debt, the date it was incurred, and the facts upon which the determination of

indebtedness was made;

(2) In the case of an administrative offset, the payment due date, which shall be 30 calendar days from

the date of mailing or hand delivery of the Notice;

(3) In the case of a salary offset:

(i) The FCA's intention to collect the debt by means of deduction from the employee's current

disposable pay account until the debt and all accumulated interest is paid in full; and

(ii) The amount, frequency, proposed beginning date, and duration of the intended deductions;

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.821(b)

12 CFR 608.822(b)(3)(ii) (enhanced display) page 9 of 17
(4) The right of the debtor to inspect and copy the records of the FCA related to the claim or to receive

copies if personal inspection is impractical. The debtor shall be informed that the debtor shall be

assessed for the cost of copying the documents in accordance with § 608.807;

(5) The right of the debtor to obtain a review of, and to request a hearing, on the FCA's determination of

indebtedness, the propriety of collecting the debt by offset, and, in the case of salary offset, the

propriety of the proposed repayment schedule (i.e., the percentage of disposable pay to be deducted

each pay period). The debtor shall be informed that to obtain a review, the debtor shall deliver a

written request for a review to the FCA official named in the Notice, within 15 calendar days after the

debtor's receipt of the Notice. In the case of a salary offset, the debtor shall also be informed that

the review shall be conducted by an official arranged for by the FCA who shall be a hearing official

not under the control of the Chairman of the Farm Credit Administration, or an administrative law

judge;

(6) That the filing of a petition for hearing within 15 calendar days after receipt of the Notice will stay the

commencement of collection proceedings;

(7) That a final decision on the hearing (if one is requested) will be issued at the earliest practical date,

but not later than 60 days after the filing of the written request for review unless the employee

requests, and the hearing official grants, a delay in the proceedings;

(8) The right of the debtor to offer to enter into a written agreement with the FCA to repay the amount of

the claim. The debtor shall be informed that the acceptance of such an agreement is discretionary

with the FCA;

(9) That charges for interest, penalties, and administrative costs shall be assessed against the debtor, in

accordance with 31 U.S.C. 3717, if payment is not received by the payment due date. The debtor

shall be informed that such assessments must be made unless excused in accordance with the

Federal Claims Collection Standards (4 CFR parts 103 and 104);

(10) The amount of accrued interest and the amount of any other penalties or administrative costs which

may have been added to the principal debt;

(11) That if the debtor has not entered into an agreement with the FCA to pay the debt, has not requested

the FCA to review the debt, or has not paid the debt prior to the date on which the offset is to be

imposed, the FCA intends to collect the debt by administrative [or salary] offset or by requesting

other Federal agencies for assistance in collecting the debt by offset. The debtor shall be informed

that the offset shall be imposed against any funds that might become available to the debtor, until

the principal debt and all accumulated interest and other charges are paid in full;

(12) The date on which the offset will be imposed, which shall be 31 calendar days from the date of

mailing or hand delivery of the Notice. The debtor shall be informed that the FCA reserves the right

to impose an offset prior to this date if the FCA determines that immediate action is necessary;

(13) That any knowingly false or frivolous statements, representations, or evidence may subject the

debtor to:

(i) Penalties under the False Claims Act, sections 3729 through 3731 of title 31, United States

Code, or any other applicable statutory authority;

(ii) Criminal penalties under sections 286, 287, 1001, and 1002 of title 18, United States Code, or

any other applicable statutory authority; and, with regard to employees,

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.822(b)(4)

12 CFR 608.822(b)(13)(ii) (enhanced display) page 10 of 17
§ 608.823 Right to review of claim.

(iii) Disciplinary procedures appropriate under chapter 75 of title 5, United States Code; part 752 of

title 5, Code of Federal Regulations, or any other applicable statute or regulation;

(14) The name and address of the FCA official to whom the debtor shall send all correspondence relating

to the debt or the offset;

(15) Any other rights and remedies available to the debtor under statutes or regulations governing the

program for which the collection is being made;

(16) That unless there are applicable contractual or statutory provisions to the contrary, amounts paid on

or deducted for the debt, which are later waived or found not owed to the United States, will be

promptly refunded to the employee; and

(17) Other information, as may be appropriate.

(c) When the procedural requirements of this section have been provided to the debtor in connection with the

same debt or under some other statutory or regulatory authority, the FCA is not required to duplicate

those requirements before effecting offset.

(a) If the debtor disputes the claim, the debtor may request a review of the FCA's determination of the

existence of the debt, the amount of the debt, the propriety of collecting the debt by offset, and in the case

of salary offset, the propriety of the proposed repayment schedule. If only part of the claim is disputed,

the undisputed portion should be paid by the payment due date.

(b) To obtain a review, the debtor shall submit a written request for review to the FCA official named in the

Notice of Intent to Collect by Administrative [or Salary] Offset within 15 calendar days after receipt of the

notice. The debtor's written request for review shall state the basis on which the claim is disputed and

shall specify whether the debtor requests an oral hearing or a review of the written record of the claim. If

an oral hearing is requested, the debtor shall explain in the request why the matter cannot be resolved by

a review of the documentary evidence alone.

(c) The FCA shall promptly notify the debtor, in writing, that the FCA has received the request for review. The

FCA shall conduct its review of the claim in accordance with § 608.810.

(d) The FCA's review of the claim, under this section, shall include providing the debtor with a reasonable

opportunity for an oral hearing if:

(1) An applicable statute authorizes or requires the FCA to consider waiver of the indebtedness, the

debtor requests waiver of the indebtedness, and the waiver determination turns on an issue of

credibility or veracity; or

(2) The debtor requests reconsideration of the debt and the FCA determines that the question of the

indebtedness cannot be resolved by reviewing the documentary evidence; for example, when the

validity of the debt turns on an issue of credibility or veracity.

(e) A debtor waives the right to a hearing and will have his or her debt offset in accordance with the proposed

offset schedule if the debtor:

(1) Fails to file a written request for review within the timeframe set forth in paragraph (b) of this section,

unless the FCA determines that the delay was the result of circumstances beyond his or her control;

or

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.822(b)(13)(iii)

12 CFR 608.823(e)(1) (enhanced display) page 11 of 17
§ 608.824 Waiver of procedural requirements.

§ 608.825 Coordinating offset with other Federal agencies.

(2) Fails to appear at an oral hearing of which he or she was notified unless the hearing official

determines that the failure to appear was due to circumstances beyond the employee's control.

(f) Upon completion of its review of the claim, the FCA shall notify the debtor whether the FCA's

determination of the existence or amount of the debt has been sustained, amended, or canceled. The

notification shall include a copy of the written decision issued by the hearing official, pursuant to §

608.810(e). If the FCA's determination is sustained, this notification shall contain a provision which states

that the FCA intends to collect the debt by offset or by requesting other Federal agencies for assistance in

collecting the debt.

(g) When the procedural requirements of this section have been provided to the debtor in connection with the

same debt or under some other statutory or regulatory authority, the FCA is not required to duplicate

those requirements before effecting offset.

(a) The FCA may impose offset against a payment to be made to a debtor prior to the completion of the

procedures required by this part, if:

(1) Failure to impose the offset would substantially prejudice the Government's ability to collect the debt;

and

(2) The timing of the payment against which the offset will be imposed does not reasonably permit the

completion of those procedures.

(b) The procedures required by this part shall be complied with promptly after the offset is imposed. Amounts

recovered by offset, which are later found not to be owed to the Government, shall be promptly refunded

to the debtor.

(a)

(1) Any creditor agency which requests the FCA to impose an offset against amounts owed to the

debtor shall submit to the FCA a claim certification which meets the requirements of this paragraph.

The FCA shall submit the same certification to any agency that the FCA requests to effect an offset.

(2) The claim certification shall be in writing. It shall certify the debtor owes the debt and that all of the

applicable requirements of 31 U.S.C. 3716 and 4 CFR part 102 have been met. If the intended offset

is to be a salary offset, a claim certification shall instead certify that the debtor owes the debt and

that the applicable requirements of 5 U.S.C. 5514 and 5 CFR part 550, subpart K, have been met.

(3) A certification that the debtor owes the debt shall state the amount of the debt, the factual basis

supporting the determination of indebtedness, and the date on which payment of the debt was due.

A certification that the requirements of 31 U.S.C. 3716 and 4 CFR part 102 have been met shall

include a statement that the debtor has been sent a notice of Intent to Collect by Administrative

Offset at least 31 calendar days prior to the date of the intended offset or a statement that pursuant

to 4 CFR 102.3(b)(5) said Notice was not required to be sent. A certification that the requirements of

5 U.S.C. 5514 and 5 CFR part 550, subpart K, have been met shall include a statement that the debtor

has been sent a Notice of Intent to Collect by Salary Offset at least 31 calendar days prior to the date

of the intended offset or a statement that pursuant to 4 CFR 102.3(b)(5) said Notice was not

required to be sent.

(b)

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.823(e)(2)

12 CFR 608.825(b) (enhanced display) page 12 of 17
§ 608.826 Stay of offset.

§ 608.827 Offset against amounts payable from Civil Service Retirement and Disability Fund.

The FCA may request that monies payable to a debtor from the Civil Service Retirement and Disability Fund be

administratively offset to collect debts owed to the FCA by the debtor. The FCA must certify that the debtor owes

the debt, the amount of the debt, and that the FCA has complied with the requirements set forth in this part, 4 CFR

102.3, and the Office of Personnel Management regulations. The request shall be submitted to the official

designated in the Office of Personnel Management regulations to receive the request.

Subpart C—Offset Against Salary

§ 608.835 Purpose.

The purpose of this subpart is to implement section 5 of the Debt Collection Act of 1982 (Pub. L. 97–365)(5 U.S.C.

5514), which authorizes the collection of debts owed by Federal employees to the Federal Government by means of

salary offsets. These regulations provide procedures for the collection of a debt owed to the Government by the

(1) The FCA shall not effect an offset requested by another Federal agency without first obtaining the

claim certification required by paragraph (a) of this section. If the FCA receives an incomplete claim

certification, the FCA shall return the claim certification with notice that a claim certification which

complies with the requirements of paragraph (a) of this section must be submitted to the FCA before

the FCA will consider effecting an offset.

(2) The FCA may rely on the information contained in the claim certification provided by a requesting

creditor agency. The FCA is not authorized to review a creditor agency's determination of

indebtedness.

(c) Only the creditor agency may agree to enter into an agreement with the debtor for the repayment of the

claim. Only the creditor agency may agree to compromise, suspend, or terminate collection of the claim.

(d) The FCA may decline, for good cause, a request by another agency to effect an offset. Good cause

includes that the offset might disrupt, directly or indirectly, essential FCA operations. The refusal and the

reasons shall be sent in writing to the creditor agency.

(a)

(1) When a creditor agency receives a debtor's request for inspection of agency records, the offset is

stayed for 10 calendar days beyond the date set for the record inspection.

(2) When a creditor agency receives a debtor's offer to enter into a repayment agreement, the offset is

stayed until the debtor is notified as to whether the proposed agreement is acceptable.

(3) When a review is conducted, the offset is stayed until the creditor agency issues a final written

decision.

(b) When offset is stayed, the amount of the debt and the amount of any accrued interest or other charges

will be withheld from payments to the debtor. The withheld amounts shall not be applied against the debt

until the stay expires. If withheld funds are later determined not to be subject to offset, they will be

promptly refunded to the debtor.

(c) If the FCA is the creditor agency and the offset is stayed, the FCA will immediately notify an offsetting

agency to withhold the payment pending termination of the stay.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.825(b)(1)

12 CFR 608.835 (enhanced display) page 13 of 17
imposition of a salary offset against amounts payable to a Federal employee as salary. These regulations are

consistent with the regulations on salary offset published by the Office of Personnel Management, codified in 5 CFR

part 550, subpart K. Since salary offset is a type of administrative offset, this subpart supplements subpart B.

§ 608.836 Applicability of regulations.

§ 608.837 Definitions.

In this subpart, the following definitions shall apply:

(a) These regulations apply to the following cases:

(1) Where the FCA is owed a debt by an individual currently employed by another agency;

(2) Where the FCA is owed a debt by an individual who is currently employed by the FCA; or

(3) Where the FCA currently employs an individual who owes a debt to another Federal agency. Upon

receipt of proper certification from the creditor agency, the FCA will offset the debtor-employee's

salary in accordance with these regulations.

(b) These regulations do not apply to the following:

(1) Debts or claims rising under the Internal Revenue Code of 1986, as amended (26 U.S.C. 1 et seq.); the

Social Security Act (42 U.S.C. 301 et seq.); the tariff laws of the United States; or to any case where

collection of a debt by salary offset is explicitly provided for or prohibited by another statute (e.g.,

travel advances in 5 U.S.C. 5705 and employee training expenses in 5 U.S.C. 4108).

(2) Any adjustment to pay arising from an employee's election of coverage or a change in coverage

under a Federal benefits program requiring periodic deductions from pay if the amount to be

recovered was accumulated over four pay periods or less.

(3) A claim which has been outstanding for more than 10 years after the creditor agency's right to collect

the debt first accrued, unless facts material to the Government's right to collect were not known and

could not reasonably have been known by the official or officials charged with the responsibility for

discovery and collection of such debts.

(a) Agency means:

(1) An executive agency as defined by 5 U.S.C. 105, including the United States Postal Service and the

United States Postal Rate Commission;

(2) A military department as defined in 5 U.S.C. 102;

(3) An agency or court of the judicial branch, including a court as defined in 28 U.S.C. 610, the District

Court for the Northern Mariana Islands, and the Judicial Panel on Multi-district Litigation;

(4) An agency of the legislative branch, including the United States Senate and the United States House

of Representatives; or

(5) Other independent establishments that are entities of the Federal Government.

(b) Disposable pay means, for an officially established pay interval, that part of current basic pay, special pay,

incentive pay, retired pay, retainer pay, or, in the case of an employee not entitled to basic pay, other

authorized pay, remaining after the deduction of any amount required by law to be withheld. The FCA shall

allow the deductions described in 5 CFR 581.105 (b) through (f).

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.836

12 CFR 608.837(b) (enhanced display) page 14 of 17
§ 608.838 Waiver requests and claims to the General Accounting Office.

§ 608.839 Procedures for salary offset.

§ 608.840 Refunds.

(c) Employee means a current employee of the FCA or other agency, including a current member of the Armed

Forces or Reserve of the Armed Forces of the United States.

(d) Waiver means the cancellation, remission, forgiveness, or nonrecovery of a debt allegedly owed by an

employee to the FCA or another agency as permitted or required by 5 U.S.C. 5584 or 8346(b), 10 U.S.C.

2774, 32 U.S.C. 716, or any other law.

(a) The regulations contained in this subpart do not preclude an employee from requesting a waiver of an

overpayment under 5 U.S.C. 5584 or 8346(b), 10 U.S.C. 2774, 32 U.S.C. 716, or in any way questioning the

amount or validity of a debt by submitting a subsequent claim to the General Accounting Office in

accordance with the procedures prescribed by the General Accounting Office.

(b) These regulations also do not preclude an employee from requesting a waiver pursuant to other statutory

provisions pertaining to the particular debts being collected.

(a) The Chairman, or designee of the Chairman, shall determine the amount of an employee's disposable pay

and the amount to be deducted from the employee's disposable pay at regular pay intervals.

(b) Deductions shall begin within three official pay periods following the date of mailing or delivery of the

Notice of Intent to Collect by Salary Offset.

(c)

(1) If the amount of the debt is equal to or is less than 15 percent of the employee's disposable pay, such

debt should be collected in one lump-sum deduction.

(2) If the amount of the debt is not collected in one lump-sum deduction, the debt shall be collected in

installment deductions over a period of time not greater than the anticipated period of employment.

The size and frequency of installment deductions will bear a reasonable relation to the size of the

debt and the employee's ability to pay. However, the amount deducted from any pay period will not

exceed 15 percent of the employee's disposable pay for that period, unless the employee has agreed

in writing to the deduction of a greater amount.

(3) A deduction exceeding the 15-percent disposable pay limitation may be made from any final salary

payment pursuant to 31 U.S.C. 3716 in order to liquidate the debt, whether the employee is being

separated voluntarily or involuntarily.

(4) Whenever an employee subject to salary offset is separated from the FCA and the balance of the

debt cannot be liquidated by offset of the final salary check pursuant to 31 U.S.C. 3716, the FCA may

offset any later payments of any kind against the balance of the debt.

(d) In instances where two or more creditor agencies are seeking salary offsets against current employees of

the FCA or where two or more debts are owed to a single creditor agency, the FCA, at its discretion, may

determine whether one or more debts should be offset simultaneously within the 15-percent limitation.

Debts owed to the FCA should generally take precedence over debts owed to other agencies.

(a) In instances where the FCA is the creditor agency, it shall promptly refund any amounts deducted under

the authority of 5 U.S.C. 5514 when:

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Collection of Claims Owed the United States

12 CFR 608.837(c)

12 CFR 608.840(a) (enhanced display) page 15 of 17
§ 608.841 Requesting current paying agency to offset salary.

§ 608.842 Responsibility of the FCA as the paying agency.

(1) The debt is waived or otherwise found not to be owed to the United States (unless expressly

prohibited by statute or regulations); or

(2) An administrative or judicial order directs the FCA to make a refund.

(b) Unless required or permitted by law or contract, refunds under this section shall not bear interest.

(a) To request a paying agency to impose a salary offset against amounts owed to the debtor, the FCA shall

provide the paying agency with a claim certification which meets the requirements set forth in §

608.825(a). The FCA shall also provide the paying agency with a repayment schedule determined under

the provisions of § 608.839 or in accordance with a repayment agreement entered into with the debtor.

(b) If the employee separates from the paying agency before the debt is paid in full, the paying agency shall

certify the total amount collected on the debt. A copy of this certification shall be sent to the employee

and a copy shall be sent to the FCA. If the paying agency is aware that the employee is entitled to

payments from the Civil Service Retirement and Disability Fund, or other similar payments, it must provide

written notification to the agency responsible for making such payments that the debtor owes a debt

(including the amount) and that the provisions of this section have been fully complied with. However, the

FCA must submit a properly certified claim to the agency responsible for making such payments before

the collection can be made.

(c) When an employee transfers to another paying agency, the FCA is not required to repeat the due process

procedures set forth in 5 U.S.C. 5514 and this part to resume the collection. The FCA shall, however,

review the debt upon receiving the former paying agency's notice of the employee's transfer to make sure

the collection is resumed by the new paying agency.

(d) If a special review is conducted pursuant to § 608.811 and results in a revised offset or repayment

schedule, the FCA shall provide a new claim certification to the paying agency.

(a) When the FCA receives a claim certification from a creditor agency, deductions should be scheduled to

begin at the next officially established pay interval. The FCA shall send the debtor written notice which

provides:

(1) That the FCA has received a valid claim certification from the creditor agency;

(2) The date on which salary offset will begin;

(3) The amount of the debt; and

(4) The amount of such deductions.

(b) If, after the creditor agency has submitted the claim certification to the FCA, the employee transfers to a

different agency before the debt is collected in full, the FCA must certify the total amount collected on the

debt. The FCA shall send a copy of this certification to the creditor agency and a copy to the employee. If

the FCA is aware that the employee is entitled to payments from the Civil Service Retirement Fund and

Disability Fund, or other similar payments, it shall provide written notification to the agency responsible for

making such payments that the debtor owes a debt (including the amount).

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Collection of Claims Owed the United States

12 CFR 608.840(a)(1)

12 CFR 608.842(b) (enhanced display) page 16 of 17
§ 608.843 Nonwaiver of rights by payments.

An employee's involuntary payment of all or any portion of a debt being collected under this subpart shall not be

construed as a waiver of any rights the employee may have under 5 U.S.C. 5514 or any other provisions of a written

contract or law unless there are statutory or contractual provisions to the contrary.

12 CFR Part 608 (up to date as of 3/07/2024)

Collection of Claims Owed the United States

12 CFR 608.843

12 CFR 608.843 (enhanced display) page 17 of 17
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 609 Electronic Commerce

Subpart A General Rules

§ 609.905 Background.

§ 609.910 Compliance with the Electronic Signatures in Global and National Commerce Act

(Public Law 106–229) (E-SIGN).

§ 609.915 Compliance with Federal Reserve Board Regulations B, M, and Z.

Subpart B Interpretations and Definitions

§ 609.920 Interpretations.

§ 609.925 Definitions.

Subpart C Standards for Boards and Management

§ 609.930 Policies and procedures.

§ 609.935 Business planning.

§ 609.940 Internal systems and controls.

§ 609.945 Records retention.

Subpart D General Requirements for Electronic Communications

§ 609.950 Electronic communications.

PART 609—ELECTRONIC COMMERCE

Authority: Sec. 5.9 of the Farm Credit Act (12 U.S.C. 2243); 5 U.S.C. 301; Pub. L. 106–229 (114 Stat. 464).

Source: 67 FR 16631, Apr. 8, 2002, unless otherwise noted.

Subpart A—General Rules

§ 609.905 Background.

The Farm Credit Administration (FCA) wants to create a flexible regulatory environment that facilitates electronic

commerce (E-commerce) and allows Farm Credit System (System) institutions and their customers to use new

technologies. System institutions may use E-commerce but must establish good business practices that ensure

safety and soundness while doing so.

§ 609.910 Compliance with the Electronic Signatures in Global and National Commerce Act

This content is from the eCFR and is authoritative but unofficial.

Link to an amendment published at 88 FR 85832, Dec. 11, 2023.

12 CFR Part 609 (up to date as of 3/07/2024)

Electronic Commerce

12 CFR Part 609 (Mar. 7, 2024)

12 CFR 609.910 (enhanced display) page 1 of 5
(Public Law 106–229) (E-SIGN).

(a) General. E-SIGN makes it easier to conduct E-commerce. With some exceptions, E-SIGN permits the use

and establishes the legal validity of electronic contracts, electronic signatures, and records maintained in

electronic rather than paper form. It governs transactions relating to the conduct of business, consumer,

or commercial affairs between two or more persons. E-commerce is optional; all parties to a transaction

must agree before it can be used.

(b) Consumer transactions. E-SIGN contains extensive consumer disclosure provisions that apply whenever

another consumer protection law, such as the Equal Credit Opportunity Act, requires the disclosure of

information to a consumer in writing. Consumer means an individual who obtains, through a transaction,

products or services, including credit, used primarily for personal, family, or household purposes. You

must follow E-SIGN's specific procedures to make the required consumer disclosures electronically. ESIGN's special disclosure rules for consumer transactions do not apply to business transactions. Under ESIGN, some System loans qualify as consumer transactions, while others are business transactions. You

will need to distinguish between the two types of transactions to comply with E-SIGN.

(c) Specific exceptions. E-SIGN does not permit electronic notification for notices of default, acceleration,

repossession, foreclosure, eviction, or the right to cure, under a credit agreement secured by, or a rental

agreement for, a person's primary residence. These notices require paper notification. The law also

requires paper notification to cancel or terminate life insurance. Thus, System institutions cannot use

electronic notification to deliver some notices that must be provided under part 617, subparts A, D, E, and

G of this chapter. In addition, E-SIGN does not apply to the writing or signature requirements imposed

under the Uniform Commercial Code, other than sections 1–107 and 1–206 and Articles 2 and 2A.

(d) Promissory notes. E-SIGN establishes special technological and business process standards for

electronic promissory notes secured by real estate. To treat an electronic version of such a promissory

note as the equivalent of a paper promissory note, you must conform to E-SIGN's detailed requirements

for transferable records. A transferable record is an electronic record that:

(1) Would be a note under Article 3 of the Uniform Commercial Code if the electronic record were in

writing;

(2) The issuer of the electronic record has expressly agreed is a transferable record; and

(3) Relates to a loan secured by real property.

(e) Effect on State and Federal law. E-SIGN preempts most State and Federal statutes or regulations, including

the Farm Credit Act of 1971, as amended (Act), and its implementing regulations, that require contracts or

other business, consumer, or commercial records to be written, signed, or in non-electronic form. Under ESIGN, an electronic record or signature generally satisfies any provision of the Act, or its implementing

regulations that requires such records and signatures to be written, signed, or in paper form. Therefore,

unless an exception applies or a necessary condition under E-SIGN has not been met, an electronic record

or signature satisfies any applicable provision of the Act or its implementing regulations.

(f) Document integrity and signature authentication. Each System institution must verify the legitimacy of an

E-commerce communication, transaction, or access request. Document integrity ensures that the same

document is provided to all parties. Signature authentication proves the identities of all parties. The

parties to the transaction may determine how to ensure document integrity and signature authentication.

12 CFR Part 609 (up to date as of 3/07/2024)

Electronic Commerce

12 CFR 609.910(a)

12 CFR 609.910(f) (enhanced display) page 2 of 5
[67 FR 16631, Apr. 8, 2002, as amended at 69 FR 10906, Mar. 9, 2004]

§ 609.915 Compliance with Federal Reserve Board Regulations B, M, and Z.

The regulations in this part require fair practices and meaningful disclosures for certain lending and leasing

activities. System institutions must comply with Federal Reserve Board Regulations B (Equal Credit Opportunity), M

(Consumer Leasing), and Z (Truth in Lending) (12 CFR parts 202, 213, and 226).

Subpart B—Interpretations and Definitions

§ 609.920 Interpretations.

§ 609.925 Definitions.

We provide the following definitions that apply to the Act and its implementing regulations:

(g) Records retention. Each System institution may maintain all records electronically even if originally they

were paper records. The stored electronic record must accurately reflect the information in the original

record. The electronic record must be accessible and capable of being reproduced by all persons entitled

by law or regulations to review the original record.

(a) E-SIGN preempts most statutes and regulations, including the Act and its implementing regulations that

require paper copies and handwritten signatures in business, consumer, or commercial transactions. ESIGN requires that statutes and regulations be interpreted to allow E-commerce as long as the safeguards

of E-SIGN are met and its exceptions recognized. Generally, an electronic record or signature satisfies any

provision of the Act or its implementing regulations that require such records and signatures to be written,

signed, or in paper form.

(b) System institutions may interpret the Act and its implementing regulations broadly to allow electronic

transmissions, communications, records, and submissions, as provided by E-SIGN. This means that the

terms address, copy, distribute, document, file, mail, notice, notify, record, provide, send, signature, sent,

written, writing, and similar words generally should be interpreted to permit electronic transmissions,

communications, records, and submissions in business, consumer, or commercial transactions.

(a) Electronic means relating to technology having electrical, digital, magnetic, wireless, optical,

electromagnetic, or similar capabilities.

(b) Electronic communication means a message that can be transmitted electronically and displayed on

equipment as visual text. An example is a message displayed on a personal computer monitor screen.

This does not include audio- and voice-response telephone systems.

(c) Electronic business (E-business) or electronic commerce (E-commerce) means buying, selling, producing,

or working in an electronic medium.

(d) Electronic mail (E-mail) means:

(1) To send or submit information electronically; or

(2) A communication received electronically.

12 CFR Part 609 (up to date as of 3/07/2024)

Electronic Commerce

12 CFR 609.910(g)

12 CFR 609.925(d)(2) (enhanced display) page 3 of 5
Subpart C—Standards for Boards and Management

§ 609.930 Policies and procedures.

The FCA supports E-commerce and wants to facilitate it and other new technologies and innovations to enhance

the efficient conduct of business and the delivery of safe and sound credit and closely related services. Through Ecommerce, System institutions can enhance customer service, access information, and provide alternate

communication systems. At the same time, E-commerce presents challenges and risks that your board must

carefully consider in advance. Before engaging in E-commerce, you must weigh its business risks against its

benefits. You must also adopt E-commerce policies and procedures to ensure your institution's safety and

soundness and compliance with law and regulations. Among other concerns, the policies and procedures must

address, when applicable:

[67 FR 16631, Apr. 8, 2002; 69 FR 42853, July 19, 2004]

§ 609.935 Business planning.

When engaging in E-commerce, the business plan required under part 618 of this chapter, subpart J, must describe

the E-commerce initiative, including intended objectives, business risks, security issues, relevant markets, and legal

compliance.

§ 609.940 Internal systems and controls.

When applicable, internal systems and controls must provide reasonable assurances that System institutions will:

(e) Electronic signature means an electronic sound, symbol, or process, attached to or logically associated

with a contract or other record and executed or adopted by a person with the intent to sign the record.

Electronic signature describes a category of electronic processes that can be substituted for a

handwritten signature.

(a) Security and integrity of System institution and borrower data;

(b) The privacy of your customers as well as visitors to your Web site;

(c) Notices to customers or visitors to your Web site when they link to an affiliate or third party Web site;

(d) Capability of vendor or application providers;

(e) Business resumption after disruption;

(f) Fraud and money laundering;

(g) Intrusion detection and management;

(h) Liability insurance; and

(i) Prompt reporting of known or suspected criminal violations associated with E-commerce to law

enforcement authorities and FCA under part 612, subpart B of this chapter.

(a) Follow and achieve business plan objectives and policies and procedures requirements regarding Ecommerce; and

(b) Prevent and detect material deficiencies on a timely basis.

12 CFR Part 609 (up to date as of 3/07/2024)

Electronic Commerce

12 CFR 609.925(e)

12 CFR 609.940(b) (enhanced display) page 4 of 5
§ 609.945 Records retention.

Records stored electronically must be accurate, accessible, and reproducible for later reference.

Subpart D—General Requirements for Electronic Communications

§ 609.950 Electronic communications.

(a) Agreement. In accordance with E-SIGN, System institutions may communicate electronically in business,

consumer, or commercial transactions. E-commerce transactions require the agreement of all parties

when you do business.

(b) Communications with consumers. E-SIGN and Federal Reserve Board Regulations B, M, and Z (12 CFR

parts 202, 213, and 226) outline specific disclosure requirements for communications with consumers.

(c) Communications with parties other than consumers. The consumer disclosure requirements of E-SIGN

and of Federal Reserve Board Regulation B (12 CFR part 202) do not apply to your communications with

parties other than consumers. (Federal Reserve Board Regulations M and Z (12 CFR parts 213 and 226)

apply to consumers only.) Nonetheless, you must ensure that your communications, including those

disclosures required under the Act and the regulations in this part, demonstrate good business practices

in the delivery of credit and closely related services and in your obtaining goods and services.

12 CFR Part 609 (up to date as of 3/07/2024)

Electronic Commerce

12 CFR 609.945

12 CFR 609.950(c) (enhanced display) page 5 of 5
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 610 Registration of Mortgage Loan Originators

§ 610.101 Cross reference.

PART 610—REGISTRATION OF MORTGAGE LOAN ORIGINATORS

Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 1.13, 2.2, 2.4, 2.12, 5.9, 5.17, 7.2, 7.6, 7.8 of the Farm Credit Act (12 U.S.C.

2013, 2015, 2017, 2018, 2019, 2021, 2073, 2075, 2093, 2243, 2252, 2279a–2, 2279b, 2279c–10); and secs. 1501 et

seq. of Pub. L. 110–289, 122 Stat. 2654.

Source: 78 FR 51048, Aug. 20, 2013, unless otherwise noted.

§ 610.101 Cross reference.

The rules formerly at 12 CFR part 610 have been recodified by the Consumer Financial Protection Bureau at 12 CFR

part 1007, “S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators

(Regulation G)”.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 610 (up to date as of 3/07/2024)

Registration of Mortgage Loan Originators

12 CFR Part 610 (Mar. 7, 2024)

12 CFR 610.101 (enhanced display) page 1 of 1
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 611 Organization

Subpart A General

§ 611.100 Definitions.

§ 611.110 Meetings of stockholders.

Subpart B Bank and Association Board of Directors

§ 611.210 Director qualifications and training.

§ 611.220 Outside directors.

Subpart C Election of Directors and Other Voting Procedures

§ 611.310 Eligibility for membership on bank and association boards and subsequent

employment.

§ 611.320 Impartiality in the election of directors.

§ 611.325 Bank and association nominating committees.

§ 611.326 Floor nominations for open Farm Credit bank and association director positions.

§ 611.330 Disclosures of Farm Credit bank and association director-nominees.

§ 611.340 Confidentiality and security in voting.

§ 611.350 Application of cooperative principles to the election of directors.

§ 611.360 [Reserved]

Subpart D Compensation Practices of Farm Credit Banks and Associations

§ 611.400 Compensation of bank board members.

§ 611.410 [Reserved]

Subpart E Transfer of Authorities

§ 611.500 General.

§ 611.501 Procedures.

§ 611.505 Farm Credit Administration review.

§ 611.510 Approval procedures.

§ 611.515 Information statement.

§ 611.520 Plan of transfer.

§ 611.525 Stockholder reconsideration.

Subpart F Bank Mergers, Consolidations and Charter Amendments

§ 611.1000 General authority.

§ 611.1010 Farm Credit bank charter amendment procedures.

§ 611.1020 Requirements for mergers or consolidations of Farm Credit banks.

§ 611.1030 [Reserved]

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR Part 611 (Mar. 7, 2024)

12 CFR Part 611 (Mar. 7, 2024) (enhanced display) page 1 of 61
§ 611.1040 Creation of new associations.

Subpart G Mergers, Consolidations, and Charter Amendments of Associations

§ 611.1120 General authority.

§ 611.1121 Association charter amendment procedures.

§ 611.1122 Requirements for association mergers or consolidations.

§ 611.1123 Association merger or consolidation agreements.

§ 611.1124 Territorial adjustments.

§ 611.1125 Treatment of associations not approving districtwide mergers.

§ 611.1126 Reconsiderations of mergers and consolidations.

Subpart H Rules for Inter-System Fund Transfers

§ 611.1130 Inter-System transfer of funds and equities.

Subpart I Service Corporations

§ 611.1135 Incorporation of service corporations.

§ 611.1136 Regulation and examination of service corporations.

§ 611.1137 Title VIII service corporations.

Subpart J Unincorporated Business Entities

§ 611.1150 Purpose and scope.

§ 611.1151 Definitions.

§ 611.1152 Authority over equity investments in UBEs for business activity.

§ 611.1153 General restrictions and prohibitions on the use of UBEs.

§ 611.1154 Notice of equity investments in UBEs.

§ 611.1155 Approval of equity investments in UBEs.

§ 611.1156 Ongoing requirements.

§ 611.1157 Disclosure and reporting requirements.

§ 611.1158 Grandfather provision.

Subparts K–O [Reserved]

Subpart P Termination of System Institution Status

§ 611.1200 Applicability of this subpart.

§ 611.1205 Definitions that apply in this subpart.

§ 611.1210 Advance notices—commencement resolution and notice to equity holders.

§ 611.1211 Special requirements.

§ 611.1215 Communications with the public and equity holders.

§ 611.1216 Public availability of documents related to the termination.

§ 611.1217 Plain language requirements.

§ 611.1218 Role of directors.

§ 611.1219 Prohibited acts.

§ 611.1220 Termination resolution.

§ 611.1221 Submission to FCA of plan of termination and disclosure information; other

required submissions.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR Part 611 (Mar. 7, 2024)

12 CFR Part 611 (Mar. 7, 2024) (enhanced display) page 2 of 61
§ 611.1223 Plan of termination—contents.

§ 611.1230 FCA review and approval—plan of termination.

§ 611.1235 Plan of termination—distribution.

§ 611.1240 Voting record date and stockholder approval.

§ 611.1245 Stockholder reconsideration.

§ 611.1246 Filing of termination application and its contents.

§ 611.1247 FCA review and approval—termination.

§ 611.1250 Preliminary exit fee estimate.

§ 611.1255 Exit fee calculation.

§ 611.1260 Payment of debts and assessments—terminating association.

§ 611.1265 Retirement of a terminating association's investment in its affiliated bank.

§ 611.1270 Repayment of obligations—terminating bank.

§ 611.1275 Retirement of equities held by other System institutions.

§ 611.1280 Dissenting stockholders' rights.

§ 611.1285 Loan refinancing by borrowers.

§ 611.1290 Continuation of borrower rights.

PART 611—ORGANIZATION

Authority: Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 1.13, 2.0, 2.1, 2.2, 2.10, 2.11, 2.12, 3.0, 3.1, 3.2, 3.3, 3.7, 3.8, 3.9, 4.3A, 4.12,

4.12A, 4.15, 4.20, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17, 5.25, 7.0–7.3, 7.6–7.13, 8.5(e) of the Farm Credit Act (12 U.S.C.

2002, 2011, 2012, 2013, 2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121, 2122, 2123, 2124, 2128, 2129,

2130, 2154a, 2183, 2184, 2203, 2208, 2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a–2279a–3,

2279b–2279f–1, 2279aa–5(e)); secs. 411 and 412, Pub. L. 100–233, 101 Stat. 1568, 1638, as amended by secs.

403 and 404, Pub. L. 100–399, 101 Stat. 989, 999 (12 U.S.C. 2071 note and 2202 note).

Source: 37 FR 11415, June 7, 1972, unless otherwise noted.

Subpart A—General

Source: 75 FR 18740, Apr. 12, 2010, unless otherwise noted.

§ 611.100 Definitions.

The following definitions apply for the purpose of this part:

(a) Business day means a day the institution is open for business, excluding the legal public holidays

identified in 5 U.S.C. 6103(a).

(b) FCA means the Farm Credit Administration.

(c) Mail ballot means a ballot cast by regular or electronic mail.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR Part 611 (Mar. 7, 2024)

12 CFR 611.100(c) (enhanced display) page 3 of 61
[75 FR 18740, Apr. 12, 2010, as amended at 77 FR 60595, Oct. 3, 2012; 79 FR 17856, Mar. 31, 2014; 80 FR 51116, Aug. 24, 2015]

§ 611.110 Meetings of stockholders.

(d) Online meeting means a meeting that is conducted over the Internet through the use of mediating

technologies, such as online services, computer hardware and software, etc., where technology is used to

generate objects and environments that are presented to users through a number of senses (e.g., vision

and hearing). The mediating technologies allow people or objects at remote locations to appear locally

present or at least allow them to be treated that way during the course of the meeting.

(e) Online meeting space means an online environment where Farm Credit institutions can hold stockholder

meetings that allow stockholders to communicate, collaborate, and share information. Any stockholder

with the necessary technology requirements and access (e.g., password-protected meetings) must be

allowed to connect to his or her institution's online meeting space.

(f) Regional election means the apportionment of a Farm Credit institution's territory into regions in which a

director or directors from a region are elected only by those voting stockholders who reside or conduct

agricultural or aquatic operations in that same region.

(g) Stockholder-association means an association within a Farm Credit bank district holding voting stock in

that bank.

(h) Stockholder-elected director means a director who is elected by the majority vote of the voting

stockholders voting to serve as a member of a Farm Credit institution's board of directors.

(i) Voting record date or record date means the official date set by a Farm Credit institution whereby a

stockholder must own voting stock in that institution in order to cast a vote.

(j) Voting record date list or record date list means the list of names, addresses, and classes of stock held by

stockholders in the Farm Credit institution who are eligible to vote as of a specific voting record date.

(a) Requirement. Associations must have annual meetings of stockholders for the purpose of conducting

annual director elections. Farm Credit banks are encouraged to hold annual or periodic meetings of

stockholders. The bylaws of each Farm Credit bank and association must specify the quorum

requirements for stockholder meetings. Associations must elect at least one director at each annual

meeting, but the vote on the election of a director or directors by mail ballot may only occur in the period

following an annual meeting. An online meeting space may be used in addition to a physical meeting

space to conduct a stockholders' meeting or director election. A physical meeting space must always

exist for association meetings involving director elections and other stockholders' votes.

(b) Notice. Each association, and those Farm Credit banks holding annual meetings, must issue an Annual

Meeting Information Statement in accordance with the requirements of §§ 620.20 and 620.21 of this

chapter.

(c) Online meeting. Each Farm Credit bank and association using an online meeting space as part of a

meeting or election must have policies and procedures in place addressing how the online meeting space

will be accessed and used by participants. The policies and procedures must specifically identify any

technological adaptations necessary to address the confidentiality and security in voting requirements of

§ 611.340.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.100(d)

12 CFR 611.110(c) (enhanced display) page 4 of 61
Subpart B—Bank and Association Board of Directors

Source: 71 FR 5761, Feb. 2, 2006, unless otherwise noted.

§ 611.210 Director qualifications and training.

§ 611.220 Outside directors.

(a) Qualifications.

(1) Each bank and association board of directors must establish and maintain a policy identifying

desirable director qualifications. The policy must explain the type and level of knowledge and

experience desired for board members, explaining how the desired qualifications were identified. The

policy must be periodically updated and provided to the institution's nominating committee.

(2) Each Farm Credit institution board must have a director who is a financial expert. Boards of directors

for associations with $500 million or less in total assets as of January 1 of each year may satisfy

this requirement by retaining an advisor who is a financial expert. The financial advisor must report

to the board of directors and be free of any affiliation with the external auditor or institution

management. A financial expert is one recognized as having education or experience in: Accounting,

internal accounting controls, or preparing or reviewing financial statements for financial institutions

or large corporations consistent with the breadth and complexity of accounting and financial

reporting issues that can reasonably be expected to be raised by the institution's financial

statements.

(b) Training. Each bank and association board of directors must establish and maintain a policy for director

training that includes appropriate implementing procedures. The policy must identify training areas

supporting desired director qualifications. Each Farm Credit bank and association must require newly

elected or appointed directors to complete director orientation training within 1 year of assuming their

position and require incumbent directors to attend training periodically to advance their skills.

(a) Eligibility, number and term —

(1) Eligibility. No candidate for an outside director position may be a director, officer, employee, agent, or

stockholder of an institution in the Farm Credit System. Farm Credit banks and associations must

make a reasonable effort to select outside directors possessing some or all of the desired director

qualifications identified pursuant to § 611.210(a) of this part.

(2) Number. Stockholder-elected directors must constitute at least 60 percent of the members of each

institution's board.

(i) Each Farm Credit bank must have at least two outside directors.

(ii) Associations with total assets exceeding $500 million as of January 1 of each year must have

no fewer than two outside directors on the board. However, this requirement does not apply if it

causes the percent of stockholder-elected directors to be less than 75 percent of the board.

(iii) Associations with $500 million or less in total assets as of January 1 of each year must have at

least one outside director.

(3) Terms of office. Banks and associations may not establish a different term of office for outside

directors than that established for stockholder-elected directors.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.210

12 CFR 611.220(a)(3) (enhanced display) page 5 of 61
Subpart C—Election of Directors and Other Voting Procedures

Source: 53 FR 50392, Dec. 15, 1988, unless otherwise noted.

§ 611.310 Eligibility for membership on bank and association boards and subsequent

employment.

[53 FR 50392, Dec. 15, 1988, as amended at 54 FR 37095, Sept. 7, 1989; 75 FR 18740, Apr. 12, 2010]

§ 611.320 Impartiality in the election of directors.

(b) Removal. Each institution must establish and maintain procedures for removal of outside directors. When

the removal of an outside director is sought before the expiration of the outside director's term, the reason

for removal must be documented. An institution's director removal procedures must allow for removal of

an outside director by a majority vote of all voting stockholders voting, in person or by proxy, or by a twothirds majority vote of the full board of directors. The outside director subject to the removal action is

prohibited from voting in his or her own removal action.

(a) No person shall be eligible for membership on a bank or association board who is or has been, within 1

year preceding the date the term of office begins, a salaried officer or employee of any bank or

association in the System.

(b) No bank or association director shall be eligible to continue to serve in that capacity and his or her office

shall become vacant if after election as a member of the board, he or she becomes legally incompetent or

is convicted of any criminal offense involving dishonesty or breach of trust or held liable in damages for

fraud.

(c) No bank director shall, within 1 year after the date when he or she ceases to be a member of the board,

serve as a salaried officer or employee of such bank, or any association with which the bank has a

discount or agent relationship.

(d) No director of an association shall, within 1 year after he or she ceases to be a member of the board,

serve as a salaried officer or employee of such association.

(e) No person shall be eligible for membership on a Farm Credit bank or association board of directors in the

same election cycle for which the Farm Credit institution's nominating committee is identifying

candidates if that person was elected to serve on that institution's nominating committee and attended

any meeting called by the nominating committee.

(f) Out-of-territory borrowers who hold voting stock in the association may serve as association directors

unless prohibited by the association's bylaws. If an association's bylaws prohibit it, that association must

inform, in writing and at the time of loanmaking, each out-of-territory borrower that out-of-territory

borrowers may not serve as directors.

(a) Each Farm Credit institution shall adopt policies and procedures that are designed to assure that the

elections of board members are conducted in an impartial manner.

(b) No employee or agent of a Farm Credit institution shall take any part, directly or indirectly, in the

nomination or election of members to the board of directors of a Farm Credit institution, or make any

statement, either orally or in writing, which may be construed as intended to influence any vote in such

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.220(b)

12 CFR 611.320(b) (enhanced display) page 6 of 61
[53 FR 50392, Dec. 15, 1988, as amended at 71 FR 5761, Feb. 2, 2006; 75 FR 18740, Apr. 12, 2010]

§ 611.325 Bank and association nominating committees.

Each Farm Credit bank and association may have only one nominating committee in any one election cycle. Each

Farm Credit bank and association's board of directors must establish and maintain policies and procedures on its

nominating committee, describing the formation, composition, operation, resources, and duties of the committee,

consistent with current laws and regulations. Each nominating committee must conduct itself in the impartial

manner prescribed by the policies and procedures adopted by its institution under § 611.320 and this section.

nominations, or elections. This paragraph shall not prohibit employees or agents from providing

biographical and other similar information or engaging in other activities pursuant to policies and

procedures for nominations and elections. This paragraph does not affect the right of an employee or

agent to nominate or vote for stockholder-elected directors of an institution in which the employee or

agent is a voting member.

(c) No property, facilities, or resources, including information technology and human or financial resources, of

any Farm Credit institution shall be used by any candidate for nomination or election or by any other

person for the benefit of any candidate for nomination or election, unless the same property, facilities, or

resources are simultaneously available and made known to be available for use by all declared

candidates, including floor nominees. For the limited purpose of Farm Credit bank board elections, each

Farm Credit bank may allow its stockholder-associations to use stockholder-association property,

facilities, or resources in support of bank director candidates. Any Farm Credit bank permitting this

activity by its stockholder-associations must have a policy in place approved by its board of directors

establishing reasonable standards that stockholder-associations must follow, and those standards must

give appropriate consideration to the various sizes of stockholder-associations within a bank's district

and include a maximum amount that a stockholder-association may expend in support of a bank director

candidate.

(d) No director, employee, or agent of a Farm Credit institution shall, for the purpose of furthering the interests

of any candidates for nomination or election, furnish or make use of records that are not made available

for use by all declared candidates.

(e) No Farm Credit institution may in any way distribute or mail, whether at the expense of the institution or

another, any campaign materials for director candidates. Institutions may request biographical

information, as well as the disclosure information required under § 611.330, from all declared candidates

who certify that they are eligible, restate such information in a standard format, and distribute or mail it

with ballots or proxy ballots.

(f) No director of a Farm Credit institution shall, in his or her capacity as a director, make any statement,

either orally or in writing, which may be construed as intending to influence any vote in that institution's

director nominations or elections. This paragraph shall not prohibit director candidates from engaging in

campaign activities on their own behalf.

(a) Composition. The voting stockholders of each bank and association must elect a nominating committee

of no fewer than three members. Unless prohibited by association bylaws, out-of-territory borrowers who

hold voting stock may serve as members of an association's nominating committee. If an association's

bylaws prohibit it, that association must inform, in writing and at the time of loanmaking, each out-ofterritory borrower that out-of-territory borrowers may not serve on the association's nominating

committee.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.320(c)

12 CFR 611.325(a) (enhanced display) page 7 of 61
[75 FR 18741, Apr. 12, 2010]

(b) Election. Farm Credit banks and associations may use in-person (including use of an online medium and

proxy ballots) or mail balloting procedures to elect a nominating committee.

(1) Farm Credit banks and associations must provide voting stockholders the opportunity to vote on the

candidates for each nominating committee position.

(2) Association nominating committee members may only be elected to a 1-year term. Farm Credit

Banks must use weighted voting, with no cumulative voting permitted, when electing members to

serve on a nominating committee. Farm Credit banks and associations may permit nominating

committee members to be re-nominated and stand for re-election to serve successive terms.

(c) Conflicts of interest. No individual may serve on a nominating committee who, at the time of election to, or

during service on, a nominating committee, is an employee, director, or agent of that bank or association.

A nominating committee member may not be a candidate for election to the board in the same election

for which the committee is identifying nominees. A nominating committee member may resign from the

committee to run for election to the board only if the individual did not attend any nominating committee

meeting.

(d) Responsibilities. It is the responsibility of each nominating committee to identify, evaluate, and nominate

candidates for stockholder election to a Farm Credit bank or association board of directors. A nominating

committee's responsibilities are limited to the following:

(1) Nominate individuals who the committee determines meet the eligibility requirements to run for open

director positions. The committee must endeavor to ensure representation from all areas of the

Farm Credit bank's or association's territory and, as nearly as possible, all types of agriculture

practiced within the territory.

(2) Evaluate the qualifications of the director candidates. The evaluation process must consider whether

there are any known obstacles preventing a candidate from performing the duties of the position.

(3) Nominate at least two candidates for each director position being voted on by stockholders. If two

nominees cannot be identified, the nominating committee must provide written explanation to the

existing board of the efforts to locate candidates or the reasons for disqualifying any other

candidate that resulted in fewer than two nominees.

(4) Maintain records of its meetings, including a record of attendance at meetings.

(5) Identify, evaluate, and nominate eligible individuals for service on the next nominating committee, if

permitted by the institution.

(e) Resources. Each Farm Credit bank and association must provide its nominating committee reasonable

access to administrative resources in order for the committee to perform its duties. Each Farm Credit

bank and association must, at a minimum, provide its nominating committee with FCA regulations and

guidance on nominating committees, a current list of stockholders, the most recent bylaws, the current

director qualifications policy, and a copy of the policies and procedures that the bank or the association

has adopted pursuant to § 611.320(a) ensuring impartial elections. On the request of the nominating

committee, the institution must also provide a summary of the current board self-evaluation. The bank or

association may require a pledge of confidentiality by committee members prior to releasing evaluation

documents.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.325(b)

12 CFR 611.325(e) (enhanced display) page 8 of 61
§ 611.326 Floor nominations for open Farm Credit bank and association director positions.

[75 FR 18741, Apr. 12, 2010]

§ 611.330 Disclosures of Farm Credit bank and association director-nominees.

(a) Each floor nominee must be eligible for the director position for which the person has been nominated.

(b)

(1) Voting stockholders of associations must be allowed to make floor nominations for every open

stockholder-elected director position. Associations using only mail ballots must allow nominations

from the floor at every session of an annual meeting. Associations permitting stockholders to cast

votes during annual meetings may only allow nominations from the floor at the first session of the

annual meeting.

(2) If floor nominations are permitted by a Farm Credit bank's election policies and procedures, voting

stockholders must be allowed to make floor nominations for every open stockholder-elected director

position and a physical meeting space must exist. Before every director election by a Farm Credit

bank, the bank must inform voting stockholders whether floor nominations will be accepted.

(c) Each association's board of directors must adopt policies and procedures for making and accepting floor

nominations of candidates to stand for election to its board of directors. Each Farm Credit bank's board of

directors allowing nominations from the floor must also adopt policies and procedures for making and

accepting floor nominations. Policies and procedures for floor nominations must, at a minimum, provide

that:

(1) Floor nominations may only be made after the nominating committee has provided its list of directornominees.

(2) No more than a second by a voting stockholder to a nomination from the floor is required. After

receiving a floor nomination, the floor nominee must state if he or she accepts the nomination.

(3) Floor nominees must make the disclosures required by § 611.330 of this part.

(a) Each Farm Credit bank and association's board of directors must adopt policies and procedures that

ensure a disclosure statement is prepared by each director-nominee. At a minimum, each disclosure

statement for each nominee must:

(1) State the nominee's name, city and state of residence, business address if any, age, and business

experience during the last 5 years, including each nominee's principal occupation and employment

during the last 5 years.

(2) List all business interests on whose board of directors the nominee serves or is otherwise employed

in a position of authority and state the principal business in which the business interest is engaged.

(3) Identify any family relationship of the nominee that would be reportable under part 612 of this

chapter if elected to the institution's board.

(b)

(1) Floor nominees who are not incumbent directors must provide to the Farm Credit bank or

association the information referred to in this section and in § 620.6(e) and (f) of this chapter. The

information must be provided in either paper or electronic form within the time period prescribed by

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Organization 12 CFR 611.326

12 CFR 611.330(b)(1) (enhanced display) page 9 of 61
[75 FR 18742, Apr. 12, 2010, as amended at 77 FR 60596, Oct. 3, 2012]

§ 611.340 Confidentiality and security in voting.

the institution's bylaws or policies and procedures. If the institution does not have a prescribed time

period, each floor nominee must provide this information to the institution within 5 business days of

the nomination. If stockholders will not vote solely by mail ballot upon conclusion of the meeting,

each floor nominee must provide the information at the first session at which voting is held.

(2) For each nominee who is not an incumbent director or a nominee from the floor, the nominee must

provide the information referred to in this section and in § 620.6(e) and (f) of this chapter.

(c) Each Farm Credit bank and association must distribute director-nominee disclosure information to all

stockholders eligible to vote in the election. Institutions may either restate such information in a standard

format or provide complete copies of each nominee's disclosure statement.

(1) Disclosure information for each director-nominee must be provided as part of the Annual Meeting

Information Statement (AMIS) issued for director elections in accordance with § 620.21(b) of this

chapter.

(2) Disclosure information for each director-nominee must be distributed or mailed with ballots or proxy

ballots. Farm Credit banks and associations must ensure that the disclosure information on floor

nominees is provided to voting stockholders by delivering ballots for the election of directors in the

same format as the comparable information contained in the AMIS.

(d) No person may be a nominee for director who does not make the disclosures required by this section.

(a) Each Farm Credit bank and association's board of directors must adopt policies and procedures that:

(1) Ensure the security of all records and materials related to a stockholder vote including, but not

limited to, ballots, proxy ballots, and other related materials.

(2) Ensure that ballots and proxy ballots are provided only to stockholders who are eligible to vote as of

the record date set for the stockholder vote.

(3) Provide for the establishment of a tellers committee or an independent third party who will be

responsible for validating ballots and proxies and tabulating voting results. A tellers committee may

only consist of voting stockholders who are not employees, directors, director-nominees, or

members of that election cycle's nominating committee.

(4) Ensure that a list of eligible voting stockholders (or identity codes of eligible voting stockholders) as

of the voting record date is provided to the tellers committee or independent third party that will be

tabulating the vote to ensure the validity of the votes cast. A small number of specifically authorized

administrative employees of the institution may assist the tellers committee in such verifications,

provided the institution implements procedures to ensure the confidentiality and security of the

information made available to the employees. If an institution is using a tellers committee,

verification of voter eligibility must be done separate and apart from the opening and tabulating of

the actual ballots and may be done in advance of the vote tabulation, any time after the list of eligible

voting stockholders has been provided to the tellers committee.

(5) Ensure that all information and materials regarding how or whether an individual stockholder has

voted remain confidential, including protecting the information from disclosure to the institution's

directors, stockholders, or employees, or any other person except:

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Organization 12 CFR 611.330(b)(2)

12 CFR 611.340(a)(5) (enhanced display) page 10 of 61
[80 FR 30335, May 28, 2015]

§ 611.350 Application of cooperative principles to the election of directors.

In the election of directors, each Farm Credit institution shall comply with the following cooperative principles as

well as those set forth in § 615.5230 of this chapter, unless otherwise required by statute or regulation.

(i) A duly appointed tellers committee;

(ii) A small number of specifically authorized administrative employees assisting the tellers

committee by validating stockholders' eligibility to vote;

(iii) An independent third party tabulating the vote; or

(iv) The Farm Credit Administration.

(b) No Farm Credit bank or association may use signed ballots in stockholder votes. A bank or association

may use balloting procedures, such as an identity code, that can be used to identify whether an individual

stockholder is eligible to vote or has previously submitted a vote. In weighted voting, the votes must be

tabulated by an independent third party.

(c) An independent third party or each member of the tellers committee that tabulates the votes, and any

administrative employees assisting the tellers committee in verifying stockholder eligibility to vote, must

sign a certificate declaring that such party, member, or employee will not disclose to any person (including

the institution, its directors, stockholders, or employees) any information about how or whether an

individual stockholder has voted, except that the information must be disclosed to the Farm Credit

Administration, if requested.

(d) Once a Farm Credit bank or association receives a ballot, the vote of that stockholder is final, except that a

stockholder may withdraw a proxy ballot before balloting begins at a stockholders' meeting. A Farm Credit

bank or association may give a stockholder voting by proxy an opportunity to give voting discretion to the

proxy of the stockholder's choice, provided that the proxy is also a stockholder eligible to vote.

(e) Ballots and proxy ballots must be safeguarded before the time of distribution or mailing to voting

stockholders and after the time of receipt by the bank or association until disposal. When stockholder

meetings are held for the purpose of conducting elections or other votes, only proxy ballots may be

accepted prior to any or all sessions of the stockholders' meeting and mail ballots may only be distributed

after the conclusion of the meeting. In an election of directors, ballots, proxy ballots, and election records

must be retained at least until the end of the term of office of the director. In other stockholder votes,

ballots, proxy ballots, and records must be retained for at least 3 years after the vote.

(f) An institution and its officers, directors, and employees may not make any public announcement of the

results of a stockholder vote before the tellers committee or independent third party has validated the

results of the vote.

(a) Each voting stockholder of an association or bank for cooperatives has only one vote, regardless of the

number of shares owned or the number of loans outstanding. Each voting stockholder-association of a

Farm Credit Bank has only one vote that is assigned a weight proportional to the number of that

association's voting stockholders. Each voting stockholder of an agricultural credit bank has only one

vote, unless another voting scheme has been approved by the Farm Credit Administration.

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Organization 12 CFR 611.340(a)(5)(i)

12 CFR 611.350(a) (enhanced display) page 11 of 61
[75 FR 18742, Apr. 12, 2010]

§ 611.360 [Reserved]

Subpart D—Compensation Practices of Farm Credit Banks and Associations

§ 611.400 Compensation of bank board members.

(b) If an association apportions its territory into geographic regions for director nomination or election

purposes, out-of-territory voting stockholders must be assigned to a geographic region.

(c) All voting stockholders of a Farm Credit institution have the right to vote in any stockholder vote to remove

any director.

(a) Farm Credit banks are authorized to pay fair and reasonable compensation to directors for services

performed in an official capacity at a rate not to exceed the level established in section 4.21 of the Farm

Credit Act of 1971, as amended, unless the FCA determines that such a level adversely affects the safety

and soundness of the institution.

(b) The bank director compensation level established in section 4.21 of the Act shall be adjusted to reflect

changes in the Consumer Price Index (CPI) for all urban consumers, as published by the Bureau of Labor

Statistics, in the following manner: Current year's maximum compensation = Prior year's maximum

compensation adjusted by the prior year's annual average percent change in the CPI for all urban

consumers. Adjustments will be made to the bank director statutory compensation limit beginning from

October 28, 1992 (the date of enactment of the Farm Credit Banks and Associations Safety and

Soundness Act of 1992). Additionally, each year the FCA will communicate the CPI adjusted bank director

statutory compensation limit.

(c)

(1) A Farm Credit bank is authorized to pay a director up to 30 percent more than the statutory

compensation limit in exceptional circumstances where the director contributes extraordinary time

and effort in the service of the bank and its shareholders.

(2) Banks must document the exceptional circumstances justifying additional director compensation.

The documentation must describe:

(i) The exceptional circumstances justifying the additional director compensation, including the

extraordinary time and effort the director devoted to bank business; and

(ii) The amount and the terms and conditions of the additional director compensation.

(d) Each bank board shall adopt a written policy regarding compensation of bank directors. The policy shall

address, at a minimum, the following areas:

(1) The activities or functions for which attendance is necessary and appropriate and may be

compensated, except that a Farm Credit bank shall not compensate any director for rendering

services on behalf of any other Farm Credit System institution or a cooperative of which the director

is a member, or for performing other assignments of a non-official nature;

(2) The methodology for determining each director's rate of compensation; and

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Organization 12 CFR 611.350(b)

12 CFR 611.400(d)(2) (enhanced display) page 12 of 61
[59 FR 37411, July 22, 1994, as amended at 64 FR 16618, Apr. 6, 1999; 65 FR 8023, Feb. 17, 2000; 77 FR 60596, Oct. 3, 2012]

§ 611.410 [Reserved]

Subpart E—Transfer of Authorities

Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.

§ 611.500 General.

Each Farm Credit Bank or Agricultural Credit Bank is authorized, in accordance with section 7.6 of the Act, to

transfer certain authorities to Federal land bank associations. The regulations in this subpart set forth the

procedures and voting and approval requirements applicable to such transfers.

§ 611.501 Procedures.

§ 611.505 Farm Credit Administration review.

(3) The exceptional circumstances under which the board would pay additional compensation for any of

its directors as authorized by paragraph (c) of this section.

(e) Directors may also be reimbursed for reasonable travel, subsistence, and other related expenses in

accordance with the bank's policy.

(a) The boards of directors of a bank and an association which seek to transfer authorities may adopt

appropriate resolutions approving such transfer and providing for the submission of such a proposal to

their respective stockholders for a vote.

(b) The resolutions accompanied by the following information shall be submitted to the Farm Credit

Administration for review and approval:

(1) Any proposed amendments to the charters of the institutions;

(2) A copy of the transfer plan as required under § 611.520 of this part;

(3) An information statement that complies with the requirements of § 611.515;

(4) The proposed bylaws of the bank and the association, as applicable; and

(5) Any additional information the boards of directors wish to submit in support of the request or that

the Farm Credit Administration requests.

(a) Upon receipt of the board of directors resolution and the accompanying documents, the Farm Credit

Administration shall review the request and either deny or give its preliminary approval to the request.

(b) If the request is denied, written notice stating the reasons for the denial shall be transmitted to the chief

executive officer of the bank and the association who shall promptly notify their respective boards of

directors.

(c) Upon approval of the proposed transfer of authorities by the stockholders as provided in § 611.510, the

secretary of the bank and the secretary of the association shall forward to the Farm Credit Administration

a certified record of the results of the stockholder votes.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.400(d)(3)

12 CFR 611.505(c) (enhanced display) page 13 of 61
[53 FR 50393, Dec. 15, 1988, as amended at 63 FR 64844, Nov. 24, 1998]

§ 611.510 Approval procedures.

§ 611.515 Information statement.

THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR

PASSED UPON THE ACCURACY OR ADEQUACY OF THE

(d) Each institution shall notify its stockholders not later than 30 days after the stockholder vote of the final

results of the vote. If no petition for reconsideration is filed with the Farm Credit Administration in

accordance with § 611.525, the transfer shall be effective on the date specified in the transfer plan, or at

such later date as may be required by the Farm Credit Administration to grant final approval. Notice of

final approval shall be transmitted to the institutions involved.

(e) The effective date of a transfer may not be less than 35 days after mailing of the notification to

stockholders of the results of the stockholder vote, or 15 days after the date of submission to the Farm

Credit Administration of all required documents for the Agency's consideration of final approval,

whichever occurs later. If a petition for reconsideration is filed within 35 days after the date of mailing of

the notification of stockholder vote, the constituent institutions must agree on a second effective date to

be used in the event the transfer is approved on reconsideration. The second effective date may not be

less than 60 days after stockholder notification of the results of the first vote, or 15 days after the date of

the reconsideration vote, whichever occurs later.

(a) Upon receipt of approval of a resolution by the Farm Credit Administration, the bank and the association

shall call a meeting of their voting stockholders. Each institution shall notify each stockholder that the

resolution has been filed and that a meeting will be held in accordance with the institution's bylaws. The

stockholders meeting of the bank and the association shall be held within 60 days of receipt of the

approval from the Farm Credit Administration.

(b) The notice of meeting to consider and act upon the directors' resolution shall be accompanied by an

information statement that complies with the requirements of § 611.515.

(c) The proposal shall be approved if agreed to by:

(1) A majority of the stockholders of the bank voting in person or by proxy, with each association entitled

to cast a number of votes equal to the number of its voting stockholders;

(2) A majority of the stockholders of the association voting, in person or by proxy;

(3) The Farm Credit Administration.

(a) The bank and association shall prepare an information statement which will inform stockholders about

the provisions of the proposed transfer of authorities and the effect of the proposal on the bank and the

association.

(b) The information statement for each institution involved shall contain the following materials as applicable

to the institution:

(1) A statement either on the first page of the materials or on the notice of the stockholders meeting, in

capital letters and boldface type, that:

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.505(d)

12 CFR 611.515(b)(1) (enhanced display) page 14 of 61
INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR

PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE

CONTRARY SHALL BE MADE OR RELIED UPON.

(2) A description of the material provisions of the plan under § 611.520 and the effect of the transaction

on the institution, its stockholders, and the territory to be served.

(3) A statement enumerating the potential advantages and disadvantages of the proposed transfer

including, but not limited to, changes in operating efficiencies, one-stop service, branch offices, local

control, and financial condition.

(4) A summary of the provisions of the charter and bylaws following the transfer that differ materially

from the charter or bylaws currently existing.

(5) A brief statement by the board of directors of the institution setting forth the board's opinion on the

advisability of the transfer.

(6) A presentation of the following financial data:

(i) An audited balance sheet and income statement and notes thereto of the bank or the

association, as applicable, for the preceding 2 fiscal years.

(ii) If the transfer of authority includes any material transfer of assets, a balance sheet and income

statement of the bank and the association showing its financial condition before the transfer of

authority and a pro forma balance sheet and income statement for the bank or association, as

applicable, showing its financial condition after the transfer. The statements shall meet the

following conditions:

(A) Such financial statements shall be presented in columnar form, showing the financial

condition as of the end of the most recent quarter of the institution, and operating results

since the end of the last fiscal year through the end of the most recent quarter of the

institution.

(B) If the request is made within 90 days after the end of the fiscal year, the institution's

financial statements shall be as of the most recent fiscal yearend.

(C) If the request is made within 45 days after the end of the most recent quarter, the

institution's financial statements shall be as of the end of the quarter preceding the

quarter just ended.

(D) If the request is made more than 45 days after the end of the most recent quarter, the

institution's financial statements shall be as of the end of that quarter.

(E) The financial statements must be accompanied by appropriate notes, describing any

assets being transferred and including data relating to high-risk assets and other property

owned, allowance for credit losses, and current year-to-date chargeoffs.

(F) The amount and nature of start-up costs estimated to be associated with the transfer.

(7) A description of the type and dollar amount of any financial assistance that has been provided to the

bank or the association, as applicable, during the past year; the conditions on which the financial

assistance was extended, the terms of repayment or retirement, if any; and, the liability for

repayment of this assistance by the bank or the association if the transfer were approved.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.515(b)(2)

12 CFR 611.515(b)(7) (enhanced display) page 15 of 61
[53 FR 50393, Dec. 15, 1988, as amended at 58 FR 48790, Sept. 20, 1993; 87 FR 27492, May 9, 2022]

§ 611.520 Plan of transfer.

The transfer of authorities and assets, as appropriate, shall occur pursuant to a written plan which shall be agreed

to by the bank and the association involved. The written plan shall include the following:

(8) A statement as to whether the bank or the association, as applicable, would require financial

assistance during the first 3 years of operation, the estimated type and dollar amount of the

assistance, and terms of repayment or retirement, if known.

(9) A statement indicating the possible tax consequences to stockholders and whether any legal

opinion, ruling or external auditor's opinion has been obtained on the matter.

(10) A presentation of the association's interest rate and fee programs, interest collection policy,

capitalization plan and other factors that would affect a borrower's cost of doing business with the

association.

(11) A description of any event subsequent to the date of the last quarterly report, but prior to the

stockholder vote, that would have a material impact on the financial condition of the bank or the

association.

(12) A statement of any other material fact or circumstances that a stockholder would need in order to

make an informed and responsible decision, or that would be necessary in order to provide a

disclosure that is not misleading.

(13) A form of written proxy, together with instructions on its purpose, use and authorization by the

stockholder. The proxy instructions must ensure the secrecy of the stockholder's ballot if the

stockholder votes by proxy.

(14) A copy of the plan of transfer provided for in § 611.520 of this part.

(c) No bank or association director, officer, or employee shall make any untrue or misleading statement of a

material fact, or fail to disclose any material fact necessary under the circumstances to make statements

made not misleading, to a stockholder of the association in connection with a transfer under this subpart.

(a) An explanation of the value of the equity ownership as of the last monthend held by stockholders of the

bank and the association and the impact, if any, of the transfer on the value of that equity.

(b) If the plan provides for a transfer of assets, a description of the terms and conditions upon which such

transfer will occur, including, but not limited to, any warranties or representations regarding the value of

such assets.

(c) A description of how the association would obtain loan funds after the transfer.

(d) A statement on how the expenses connected with the transfer are to be borne by the affected parties.

(e) A statement of any conditions which must be satisfied prior to the effective date of the transfer, including

but not limited to approval by stockholders and approval by the Farm Credit Administration.

(f) A statement that prior to the effective date of the transfer the board of directors of the bank or the

association may rescind its resolution and void the transfer, with the concurrence of the Farm Credit

Administration, on the basis that:

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Organization 12 CFR 611.515(b)(8)

12 CFR 611.520(f) (enhanced display) page 16 of 61
§ 611.525 Stockholder reconsideration.

Subpart F—Bank Mergers, Consolidations and Charter Amendments

Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.

§ 611.1000 General authority.

[80 FR 51116, Aug. 24, 2015]

§ 611.1010 Farm Credit bank charter amendment procedures.

(1) The information disclosed to stockholders contained material errors or omissions;

(2) Material misrepresentations were made to stockholders regarding the impact of the transfer;

(3) Fraudulent activities were used to obtain the stockholders' approval; or,

(4) An event occurred between the time of the vote and the transfer that would have a significant

adverse impact on the future viability of the association.

(g) A designation of those persons who have authority to carry out the plan of transfer, including the authority

to execute any documents necessary to perfect title, on behalf of the bank and the association.

(a) Stockholders have the right to reconsider the approval of the transfer provided that a petition signed by 15

percent of the stockholders of either institution involved in the transfer is filed with the Farm Credit

Administration within 35 days after the date of mailing of the notification of the final results of the

stockholder vote required under § 611.505(d) and such petition is approved by the Farm Credit

Administration.

(b) A special stockholders meeting shall be called by the institution to vote on the reconsideration following

the Farm Credit Administration's approval of a stockholder petition to reconsider the transfer. If a majority

of stockholders of any institution involved in the transfer votes against the transfer, the transfer is not

approved.

(a) An amendment to a Farm Credit bank charter may relate to any provision that is properly the subject of a

charter, including, but not limited to, the name of the bank, the location of its offices, or the territory

served.

(b) The FCA may make changes in the charter of a Farm Credit bank as may be requested by that bank and

approved by the FCA pursuant to § 611.1010 of this part.

(c) The FCA may, on its own initiative, make changes in the charter of a Farm Credit bank, and any chartered

service corporation thereof, where the FCA determines that the change is necessary to accomplish the

purposes of the Act.

(a) A Farm Credit bank may recommend a charter amendment to accomplish any of the following actions:

(1) A merger or consolidation with any other Farm Credit bank or banks operating under title I or III of the

Act;

(2) A transfer of territory with any other Farm Credit bank operating under the same title of the Act;

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.520(f)(1)

12 CFR 611.1010(a)(2) (enhanced display) page 17 of 61
[80 FR 51116, Aug. 24, 2015]

§ 611.1020 Requirements for mergers or consolidations of Farm Credit banks.

[80 FR 51116, Aug. 24, 2015]

§ 611.1030 [Reserved]

§ 611.1040 Creation of new associations.

Any application for the issuance of a charter to a new production credit association or Federal land bank

association must meet the requirements of sections 2.0 or 2.10, respectively, of the Act. Any application for the

issuance of a charter for an agricultural credit association must meet the requirements of section 2.0 of the Act.

[53 FR 50393, Dec. 15, 1988, as amended at 80 FR 51116, Aug. 24, 2015]

Subpart G—Mergers, Consolidations, and Charter Amendments of Associations

(3) A change to its name or location;

(4) Any other change that is properly the subject of a Farm Credit bank charter;

(b) Upon approval of an appropriate resolution by the Farm Credit bank board, the certified resolution,

together with supporting documentation, must be submitted to the FCA for preliminary or final approval,

as the case may be.

(c) The FCA will review the material submitted and either approve or disapprove the request. The FCA may

require submission of any supplemental information and analysis it deems appropriate. If the request is

for merger, consolidation, or transfer of territory, the approval of the FCA will be preliminary only, with final

approval subject to a vote of the Farm Credit bank's stockholders.

(d) Following receipt of the FCA's written preliminary approval, the proposal must be submitted for approval to

the voting stockholders of the Farm Credit bank. A proposal will be considered approved if agreed to by a

majority of the voting stockholders of each Farm Credit bank voting, in person or by proxy, at a duly

authorized stockholder meeting with each stockholder-association entitled to cast a number of votes

equal to the number of the association's voting shareholders, unless another voting scheme has been

approved by the FCA.

(e) Upon approval by the stockholders of the Farm Credit bank, the request for final approval and issuance of

the appropriate charter or amendments to charter for the Farm Credit banks involved must be submitted

to the FCA.

(a) As authorized under sections 7.0 and 7.12 of the Act, a Farm Credit bank may merge or consolidate with

one or more Farm Credit banks operating under the same or different titles of the Act.

(b) The plan to merge or consolidate two or more Farm Credit banks is subject to the requirements of §§

611.1122, 611.1123, and 611.1126 of this part, unless otherwise instructed by the FCA. In interpreting

those sections, the phrase “Farm Credit bank(s)” will be read for the word “association(s)” and references

to “funding bank” are to be ignored.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1010(a)(3)

12 CFR 611.1040 (enhanced display) page 18 of 61
§ 611.1120 General authority.

[50 FR 20400, May 16, 1985, as amended at 51 FR 41945, Nov. 20, 1986; 80 FR 51116, Aug. 24, 2015]

§ 611.1121 Association charter amendment procedures.

[80 FR 51116, Aug. 24, 2015]

§ 611.1122 Requirements for association mergers or consolidations.

(a) An amendment to an association charter may relate to any provision that is properly the subject of a

charter, including, but not limited to, the name of the association, the location of its offices, or the territory

served.

(b) The FCA may make changes in the charter of an association as may be requested by that association and

approved by the FCA pursuant to § 611.1121 of this part.

(c) The FCA may, on its own initiative, make changes in the charter of an agricultural credit association,

Federal land bank association, or a production credit association, and any chartered service corporation

thereof, where the FCA determines that the change is necessary to accomplish the purposes of the Act.

(a) An association that proposes to amend its charter must submit a request to its funding bank containing

the following information:

(1) A statement of the provision(s) of the charter that the association proposes to amend and the

proposed amendment(s);

(2) A statement of the reasons for the proposed amendment(s), the impact of the amendment(s) on the

association and its stockholders, and the requested effective date of the amendment(s);

(3) A certified copy of the resolution of the board of directors of the association approving the

amendment(s);

(4) Any additional information or documents that the association wishes to submit in support of the

request or that may be requested by the funding bank.

(b) Upon receipt of a proposed amendment from an association, the funding bank must review the materials

submitted and provide the association with its analysis of the proposal within a reasonable period of time.

Concurrently, the funding bank must communicate its recommendation on the proposal to the FCA,

including the reasons for the recommendation, and any analysis the bank believes appropriate. Following

review by the bank, the association must transmit the proposed amendment with attachments to the FCA.

(c) Upon receipt of an association's request for a charter amendment, the FCA will review the materials

submitted and either approve or disapprove the request. The FCA may require submission of any

supplemental information and analysis it deems appropriate.

(d) The FCA will notify the association of its approval or disapproval of the amendment request, including a

copy of the amended charter with the approval notification, and provide a copy of such communication to

the funding bank.

(a) Where two or more associations plan to merge or consolidate, or where the funding bank board has

adopted a reorganization plan for the associations in the district, the associations involved must jointly

submit a request to the funding bank containing the following:

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Organization 12 CFR 611.1120

12 CFR 611.1122(a) (enhanced display) page 19 of 61
(1) In the case of a merger, a copy of the charter of the continuing association reflecting any proposed

amendments. In the case of consolidation, a copy of the proposed charter of the new association;

(2) A statement of the reasons for the proposed merger or consolidation, the impact of the proposed

transaction on the associations and their stockholders, and the planned effective date of the merger

or consolidation;

(3)

(i) A certified copy of the resolution of the board of directors of each association recommending

approval of the merger or consolidation; or

(ii) In the case of a district reorganization plan, a certified copy of the resolution of the board of

directors of each association recommending either approval or disapproval of the proposal.

(4) A copy of the agreement of merger or consolidation;

(5) Two signed copies of the continuing or proposed Articles of Association;

(6) All of the information specified in paragraph (e) of this section;

(7) Any additional information or documents each association wishes to submit in support of the

request; and

(8) All additional information and documentation that the funding bank or the FCA requests.

(b) Upon receipt of a request for approval of an association merger or consolidation, the funding bank must

review the materials submitted to determine whether they comply with the requirements of these

regulations and must communicate with the associations concerning any deficiency. When the bank

approves the request to merge or consolidate it must notify the associations. The bank must also notify

the FCA of its approval together with the reasons for its approval and any supporting analysis. The

associations must jointly submit the proposal together with required documentation to the FCA for

preliminary approval.

(c) Upon receipt of a complete association merger or consolidation request, the FCA will review the request

and either deny or give its written preliminary approval to the request within 60 days. The FCA will notify

the requesting associations when the 60-day preliminary approval review period begins. The FCA may

require submission of any supplemental information and analysis it deems appropriate for its

consideration of the merger or consolidation request.

(1) When a request is denied, written notice stating the reasons for the denial will be transmitted to the

associations and a copy provided to the funding bank(s).

(2) When a request is preliminarily approved, written notice of the preliminary approval will be given to

the associations and a copy provided to the funding bank(s). Preliminary approval by the FCA does

not constitute approval of the merger or consolidation. Approval of a merger or consolidation is only

issued pursuant to this subpart. In connection with granting preliminary approval, the FCA may

impose conditions in writing.

(d) Upon receipt of preliminary approval by the FCA of a merger or consolidation request, each constituent

association must call a meeting of its voting stockholders. The FCA may also require, when considered

appropriate to the merger or consolidation request under review, the associations to hold informational

meetings before a stockholder vote. The stockholder meeting to vote on a merger or consolidation must:

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1122(a)(1)

12 CFR 611.1122(d) (enhanced display) page 20 of 61
THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON

THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE

OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE

CONTRARY SHALL BE MADE OR RELIED UPON.

(1) Be called on written notice to each stockholder entitled to vote on the transaction as of the record

date and be held in accordance with the terms of each association's bylaws.

(2) Follow the voting procedures of § 611.340, except associations may not use tellers committees to

validate ballots and tabulate votes on the merger or consolidation.

(3) Require the affirmative vote of a majority of the voting stockholders of each association present and

voting, either in person or by written proxy, at a meeting at which a quorum is present to constitute

stockholder approval of a merger or consolidation proposal.

(e) Notice of the stockholder meeting to consider and act upon a proposed merger or consolidation must be

accompanied by the information required under this paragraph. The notice and accompanying

information must not be sent to stockholders until preliminary approval of the merger or consolidation

has been given by the FCA.

(1) A statement either on the first page of the materials or on the notice of the stockholders' meeting, in

capital letters and bold face type, that:

(2) A description of the material provisions of the agreement of merger or consolidation and the effect

of the proposed merger or consolidation on the associations, their stockholders, the new or

continuing board of directors, and the territory to be served. In addition, a copy of the agreement

must be furnished with the notice to stockholders.

(3) A summary of the provisions of the charter and bylaws of the continuing or new association that

differ materially from the existing charter or bylaw provisions of the constituent associations.

(4) A brief statement by the boards of directors of the constituent associations setting forth the basis

for the boards' recommendation on the merger or consolidation.

(5) A description of any agreement or arrangement between a constituent association and any of its

officers relating to employment or termination of employment and arising from the merger or

consolidation.

(6) A presentation of the following financial data:

(i) A balance sheet and income statement for each constituent association for each of the 2

preceding fiscal years.

(ii) A balance sheet for each constituent association as of a date within 90 days of the date the

request for preliminary approval is forwarded to the FCA presented on a comparative basis with

the corresponding period of the prior fiscal year.

(iii) An income statement for the interim period between the end of the last fiscal year and the date

of the required balance sheet presented on a comparative basis with the corresponding period

of the preceding fiscal year. The balance sheet and income statement format must be that

contained in the association's annual report to stockholders; must contain any significant

changes in accounting policies that differ from those in the latest association annual report to

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1122(d)(1)

12 CFR 611.1122(e)(6)(iii) (enhanced display) page 21 of 61
stockholders; and must contain appropriate footnote disclosures, including data relating to

high-risk assets and other property owned, and allowance for credit losses, including net

chargeoffs as required in paragraph (e)(10) of this section.

(7) The financial statements (balance sheet and income statement) must be in sufficient detail to show

separately all significant categories of interest-earning assets and interest-bearing liabilities and the

income or expense accrued thereon.

(8) Attached to the financial statements for each constituent association, either:

(i) A statement signed by the chief executive officer and each member of the board of directors of

the association that the various financial statements are unaudited, but have been prepared in

all material respects in accordance with generally accepted accounting principles (except as

otherwise disclosed therein) and are, to the best of the knowledge of the board, a fair and

accurate presentation of the financial condition of the association; or

(ii) A signed opinion by an independent certified public accountant that the various financial

statements have been examined in accordance with generally accepted auditing standards and,

accordingly, included such tests of the accounting records and such other auditing procedures

as were considered necessary in the circumstances, and, as of the date of the statements,

present fairly the financial position of the association in conformity with generally accepted

accounting principles applied on a consistent basis, except as otherwise noted thereon.

(9) A presentation for each constituent association regarding its policy on accounting for loan

performance, together with the number and dollar amount of loans in all performance categories,

including those categorized as high-risk assets.

(10) Information of each constituent association concerning the amount of loans charged off in each of

the 2 fiscal years preceding the date of the balance sheet, the current year-to-date net chargeoff

amount, and the balance in the allowance for credit losses account and a statement regarding

whether, in the opinion of management, the allowance for credit losses is adequate to absorb the

risk currently existing in the loan portfolio. This information may be appropriately included in the

footnotes to the financial statements.

(11) A management discussion and analysis of the financial condition and results of operation for the

past 2 fiscal years for each constituent institution. This requirement can be satisfied by including the

materials contained in the management discussion and analysis of each institution's most recent

annual report.

(12) A discussion of any material changes in financial condition of each constituent institution from the

end of the last fiscal year to the date of the interim balance sheet provided.

(13) A discussion of any material changes in the results of operations of each constituent institution with

respect to the most recent fiscal-year-to-date period for which an income statement is provided.

(14) A discussion of any change in the tax status of the new institution from those of the constituent

institutions as a result of merger or consolidation. A statement on any adverse tax consequences to

the stockholders of the institution as a result of the change in tax status.

(15) A statement on the proposed institution's relationship with an independent public accountant,

including any change that may occur as a result of the merger or consolidation.

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Organization 12 CFR 611.1122(e)(7)

12 CFR 611.1122(e)(15) (enhanced display) page 22 of 61
(16) A pro forma balance sheet of the continuing or consolidated association presented as if the merger

or consolidation had occurred as of the date on the balance sheets required in paragraph (e)(6) of

this section, as recommended to the stockholders. A pro forma summary of earnings for the

continuing or consolidated association presented as if the merger or consolidation had been

effective at the beginning of the interim period between the end of the last fiscal year and the date of

the balance sheets.

(17) A description of the type and dollar amount of any financial assistance that has been provided during

the past year or will be provided by the funding bank or other party to assist the constituent or the

continuing or new association(s), the conditions on which financial assistance has been or will be

extended, the terms of repayment or retirement, if any, and the impact of the assistance on the

subject association(s) or the stockholders.

(18) A presentation for each constituent association of interest rate comparisons for the last 2 fiscal

years preceding the date of the balance sheet, together with a statement of the continuing or new

association's proposed interest rate and fee programs, interest collection policies, capitalization

rates, dividends or patronage refunds, and other factors that would affect a borrower's cost of doing

business with the continuing or new association. Where agreement has not been reached on such

matters, current related information must be presented for each constituent association.

(19) A description for each constituent association of any event subsequent to the date of the financial

statements, but prior to the merger or consolidation vote, that would have a material impact on the

financial condition of the constituent or continuing or new association(s).

(20) A statement of any other material fact or circumstance that a stockholder would need in order to

make an informed decision on the merger or consolidation proposal, or that is necessary to make

the required disclosures not misleading.

(21) Where proxies are to be solicited, a form of written proxy, together with instructions on the purpose

and authority for its use, and the proper method for signature by the stockholder.

(f) Where a proposed merger or consolidation will involve more than three associations, the FCA may require

the supplementation, or allow the condensation or omission of any information required under paragraph

(e) of this section in furtherance of meaningful disclosure to stockholders. Any waiver sought under this

paragraph must be obtained before preparation of the financial statements and accompanying schedules

required under paragraph (e) of this section.

(g) The effective date of a merger or consolidation may not be less than 35 days after the date of mailing of

the notification to stockholders of the results of the stockholder vote, or 15 days after the date of

submission to the FCA of all required documents for the FCA's consideration of final approval, whichever

occurs later.

(1) The constituent institutions must agree on a second effective date to be used in the event the merger

or consolidation is approved on reconsideration. The second effective date may not be less than 60

days after stockholder notification of the results of the first vote, or 15 days after the date of the

reconsideration vote, whichever occurs later.

(2) If no reconsideration petition is filed with the FCA, upon final approval by the FCA, the merger or

consolidation will be effective on the date specified in the merger agreement or at such later date as

may be required by the FCA.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1122(e)(16)

12 CFR 611.1122(g)(2) (enhanced display) page 23 of 61
[80 FR 51117, Aug. 24, 2015, as amended at 87 FR 27492, May 9, 2022]

§ 611.1123 Association merger or consolidation agreements.

(h) Each constituent association must notify its stockholders not later than 30 days after the stockholder vote

of the final results of the vote. Upon approval of a proposed merger or consolidation by the stockholders

of the constituent associations, each association must submit to the FCA a certified copy of the

stockholders' resolution on which the stockholders cast their votes and a certification of the stockholder

vote from the independent third party(s) used to tally the vote. After the time for submitting

reconsideration petitions has expired, and if no petition is filed, the FCA will make a final approval decision

on the merger or consolidation, imposing conditions as appropriate. The FCA will send written notice of

the final FCA approval decision to the associations and provide a copy to the affiliated funding bank(s).

(i) No Farm Credit institution, or any director, officer, employee, agent, or other person participating in the

conduct of the affairs thereof, may make any untrue or misleading statement of a material fact, or fail to

disclose any material fact necessary under the circumstances to make statements made not misleading,

to a stockholder of any association in connection with an association merger or consolidation.

(1) No Farm Credit institution or any director, officer, employee, agent, or other person participating in the

conduct of the affairs of a Farm Credit institution may make an oral or written representation to any

person that a preliminary or final approval by the FCA of a merger or consolidation constitutes,

directly or indirectly, either a recommendation on the merits of the transaction or an assurance

concerning the adequacy or accuracy of any information provided to any association's stockholders

in connection therewith.

(2) When a Farm Credit institution, or any of its employees, officers, directors, agents, or other person

participating in the conduct of the affairs thereof, make disclosures or representations in connection

with an association merger or consolidation that, in the judgment of the FCA, are incomplete,

inaccurate, or misleading, whether or not such disclosure or representation is made in disclosure

statements required by this subpart, such institution must make such additional or corrective

disclosure as directed by the FCA and as is necessary to provide stockholders and the general public

with full and fair disclosure.

(a) Associations operating under the same title of the Act may merge or consolidate voluntarily, but only

pursuant to a written agreement. The agreement must set forth all of the terms of the transaction,

including, but not limited to, the following:

(1) The proposed effective date of the merger or consolidation.

(2) The proposed name and headquarters location of the continuing or consolidated association.

(3) The names of the persons nominated to serve as directors until the first regular annual meeting of

the continuing or consolidated association to be held after the effective date of the merger or

consolidation. Any director of a constituent association may be designated in the agreement to

serve as a director of the continuing or consolidated association for a period not to exceed his or her

current term, after which he or she must stand for reelection. However, the terms of the agreement

must provide for the election of at least one director at each annual meeting subsequent to the

effective date of the merger or consolidation. The bylaws of the continuing or consolidated

association must reflect the provisions of the merger or consolidation agreement regarding director

terms.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1122(h)

12 CFR 611.1123(a)(3) (enhanced display) page 24 of 61
[50 FR 20400, May 16, 1985, as amended at 51 FR 32442, Sept. 12, 1986; 53 FR 50396, Dec. 15, 1988; 80 FR 51119, Aug. 24,

2015]

§ 611.1124 Territorial adjustments.

This section applies to any request submitted to the FCA to modify association charters for the purpose of

transferring territory from one association to another.

(4) A statement of the formula to be used to exchange the stock of the constituent associations for the

stock of the continuing or consolidated association. No fractional shares of stock may be issued.

(5) A statement of any conditions which must be satisfied prior to the effective date of the proposed

transaction, including but not limited to approval by stockholders, the funding bank, and the FCA.

(6) A statement of the representations or warranties, if any, made or to be made by any association, or

its officers, directors, or employees that is a party to the proposed transactions.

(7) A statement that the board of directors of each constituent association can terminate the agreement

before the effective date upon a determination by an association, with the concurrence of the FCA,

that:

(i) The information disclosed to stockholders contained material errors or omissions;

(ii) Material misrepresentations were made to stockholders regarding the impact of the merger or

consolidation;

(iii) Fraudulent activities were used to obtain stockholders' approval; or

(iv) An event occurred between the time of the vote and the merger that would have a significant

adverse impact on the future viability of the continuing or consolidated association.

(8) A description of the legal opinions or rulings (including those related to tax matters), if any, that have

been obtained or furnished by any party in connection with the proposed transaction. Also, refer to

paragraph (a)(5) of this section.

(9) The capitalization plan and capital structure for the continuing or consolidated association and a

statement that the capitalization plan must comply with applicable FCA regulations.

(10) Provision for the employee benefits plan, its subsequent continuation or adaptation by the board of

directors of the continuing or consolidated association following the merger or consolidation.

(11) A statement of the authority of those persons designated to carry out the terms of the agreement,

including the authority to waive provisions of the agreement and to execute any documents

necessary to perfect title, on behalf of the constituent associations.

(b) As an attachment to the agreement, the constituent associations must set forth those provisions of the

charter and bylaws of the continuing or consolidated association which differ from the existing charter or

bylaw provisions of the constituent associations.

(a) Territorial adjustments, except as specified in paragraph (m) of this section, require approval of a majority

of the voting stockholders of each association present and voting or voting by written proxy at a duly

authorized meeting at which a quorum is present.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1123(a)(4)

12 CFR 611.1124(a) (enhanced display) page 25 of 61
(b) When two or more associations agree to transfer territory, each association must submit a proposal to the

funding bank containing the following:

(1) A statement of the reasons for the proposed transfer and the impact the transfer will have on its

stockholders and holders of participation certificates;

(2) A certified copy of the resolution of the board of directors of each association approving the

proposed territory transfer;

(3) A copy of the agreement to transfer territory that contains the following information:

(i) A description of the territory to be transferred;

(ii) Transferor association's plan to transfer loans and the types of loans to be transferred;

(iii) Transferor association's plan to retire and transferee association's plan to issue equities held by

holders of stock, participation certificates, and allocated equities, if any, and a statement by

each association that the book value of its equities is at least equal to par;

(iv) An inventory of the assets to be sold by the transferor association and purchased by the

transferee association;

(v) An inventory of the liabilities to be assumed from the transferor association by the transferee

association;

(vi) A statement that the holders of stock and participation certificates whose loans are subject to

transfer have 60 days from the effective date of the territory transfer to inform the transferor

association of their decision to remain with the transferor association for normal servicing until

the current loan is paid;

(vii) A statement that the transfer is conditioned upon the approval of the stockholders of each

constituent association; and

(viii) The effective date of the proposed territory transfer.

(4) A copy of the stockholder disclosure statement provided for in paragraph (f) of this section; and

(5) Any additional relevant information or documents that the association wishes to submit in support of

its request or that may be required by the FCA.

(c) Upon receipt of documents supporting a proposed territory transfer, the funding bank must review the

materials submitted and provide the associations with its analysis of the proposal within a reasonable

period of time. The funding bank must concurrently advise the FCA of its recommendation regarding the

proposed territory transfer. Following review by the bank, the associations must transmit the proposal to

the FCA together with all required documents.

(d) Upon receipt of an association's request to transfer territory, the FCA will review the request and either

deny or grant preliminary approval to the request. The FCA may require submission of any supplemental

information and analysis it deems appropriate for its consideration of the request to transfer territory.

(1) When a request is denied, written notice stating the reasons for the denial will be transmitted to the

associations, and a copy provided to the funding bank.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1124(b)

12 CFR 611.1124(d)(1) (enhanced display) page 26 of 61
THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON

THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE

OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE

CONTRARY SHALL BE MADE OR RELIED UPON.

(2) When a request is preliminarily approved, written notice of the preliminary approval will be

transmitted to the associations, and a copy provided to the funding bank. Preliminary approval by the

FCA does not constitute approval of the territory transfer. Final approval is granted only in

accordance with paragraph (h) of this section. In connection with granting preliminary approval, the

FCA may impose conditions in writing.

(e) Upon receipt of preliminary approval by the FCA, each constituent association must, by written notice, and

in accordance with its bylaws, call a meeting of its voting stockholders. The affirmative vote of a majority

of the voting stockholders of each association present and voting or voting by written proxy at a meeting

at which a quorum is present is required for stockholder approval of a territory transfer.

(f) Notice of the meeting to consider and act upon a proposed territory transfer must be accompanied by the

following information covering each constituent association:

(1) A statement either on the first page of the materials or on the notice of the stockholders' meeting, in

capital letters and bold face type, that:

(2) A copy of the Agreement to Transfer Territory and a summary of the major provisions of the

Agreement;

(3) The reason the territory transfer is proposed;

(4) A map of the association's territory as it would look after the transfer;

(5) A summary of the differences, if any, between the transferor and transferee associations' interest

rates, interest rate policies, collection policies, service fees, bylaws, and any other items of interest

that would impact a borrower's lending relationship with the institution;

(6) A statement that all loans of the transferor association that finance operations located in the

transferred territory will be transferred to the transferee association except as otherwise provided for

in this section or in accordance with agreements between the associations as provided for in §

614.4070;

(7) Where proxies are to be solicited, a form of written proxy, together with instructions on the purpose

and authority for its use, and the proper method for signature by the stockholders; and

(8) A statement that the associations' bylaws, financial statements for the previous 3 years, and any

financial information prepared by the associations concerning the proposed transfer of territory are

available on request to the stockholders of any association involved in the transaction.

(g) No Farm Credit institution, or director, officer, employee, agent, or other person participating in the conduct

of the affairs thereof, may make any untrue or misleading statement of a material fact, or fail to disclose

any material fact necessary under the circumstances to make statements made not misleading, to a

stockholder of any Farm Credit institution in connection with a territory transfer.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1124(d)(2)

12 CFR 611.1124(g) (enhanced display) page 27 of 61
[80 FR 51119, Aug. 24, 2015]

(h) Upon approval of a proposed territory transfer by the stockholders of the constituent associations, a

certified copy of the stockholders' resolution for each constituent association and one executed

Agreement to Transfer Territory must be forwarded to the FCA. The territory transfer will be effective

when thereafter finally approved and on the date as specified by the FCA. Notice of final approval will be

transmitted to the associations and a copy provided to the bank.

(i) No director, officer, employee, agent, or other person participating in the conduct of the affairs of a Farm

Credit institution may make an oral or written representation to any person that a preliminary or final

approval by the FCA of a territory transfer constitutes, directly or indirectly, a recommendation on the

merits of the transaction or an assurance concerning the adequacy or accuracy of any information

provided to any association's stockholders in connection therewith.

(j) When a Farm Credit institution, or any of its employees, officers, directors, agents, or other persons

participating in the conduct of the affairs thereof, make disclosures or representations that, in the

judgment of the FCA, are incomplete, inaccurate, or misleading in connection with a territory transfer,

whether or not such disclosure or representation is made in disclosure statements required by this

subpart, such institution must make such additional or corrective disclosure as directed by the FCA and

as is necessary to provide stockholders and the general public with full and fair disclosure.

(k) The notice and accompanying information required under paragraph (f) of this section may not be sent to

stockholders until preliminary approval of the territory transfer has been granted by the FCA.

(l) Where a territory transfer is proposed simultaneously with a merger or consolidation, both transactions

may be voted on by stockholders at the same meeting. Only stockholders of a transferee or transferor

association may vote on a territory transfer.

(m) Each borrower whose real estate or operations is located in a territory that will be transferred must be

provided with a written Notice of Territory Transfer immediately after the FCA has granted final approval

of the territory transfer. The Notice must inform the borrower of the transfer of the borrower's loan to the

transferee association and the exchange of related equities for equities of like kinds and amounts in the

transferee association. If a like kind of equity is not available in the transferee association, similar equities

must be offered that will not adversely affect the interest of the owner. The Notice must give the borrower

60 days from the effective date of the territory transfer to notify the transferor association in writing if the

borrower decides to stay with the transferor association for normal servicing until the current loan is paid.

Any application by the borrower for renewal or for additional credit must be made to the transferee

association, except as otherwise provided for by an agreement between associations in accordance with

§ 614.4070.

(n) This section does not apply to territory transfers initiated by order of the FCA or to territory transfers due

to the liquidation of the transferor association.

(o) Where a proposed action involves the transfer of a portion of an association's territory to an association

operating in a different district, such proposal must comply with the provisions of this section and section

5.17(a) of the Act.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1124(h)

12 CFR 611.1124(o) (enhanced display) page 28 of 61
§ 611.1125 Treatment of associations not approving districtwide mergers.

[51 FR 32443, Sept. 12, 1986, as amended at 60 FR 34099, June 30, 1995; 80 FR 51121, Aug. 24, 2015]

§ 611.1126 Reconsiderations of mergers and consolidations.

(a) Issuance of charters. When issuing charters or certificates of territory for districtwide mergers or

consolidations of associations, the FCA will not issue any charters or certificates of territory that include

the territory of one or more associations whose stockholders voted to disapprove the merger or

consolidation.

(b) A funding bank must not take any of the following actions with respect to an association that has

determined to not participate in a districtwide merger or consolidation:

(1) Discriminate in the provision of any financial service and assistance, including, but not limited to,

access to loan funds and rates of interest on loans and discounts offered by the funding bank to

associations and their member/borrowers;

(2) Discriminate in the provision of any related services that are offered by the funding bank to

associations and their member/borrowers;

(3) Discriminate in the provision of any professional assistance that may be normally provided by the

funding bank to associations; or

(4) Discriminate in the provision of any technical assistance that may be normally provided by the

funding bank to associations.

(c) This regulation does not prohibit a funding bank from taking any action with respect to an association,

including, but not limited to, charging different rates of interest or different prices for services, or declining

to provide financial assistance; provided that any such action is fully documented and based on an

objective analysis of applicable criteria that are uniformly and consistently applied by the funding bank to

all associations in the district.

(a) Voting stockholders have the right to reconsider their approval of a merger or consolidation, provided that

a petition is filed with the FCA. The petition must be signed by 15 percent of the stockholders (who were

eligible to vote on the merger or consolidation proposal) of one or more of the constituent associations.

The reconsideration petition must be filed with the FCA within 35 days after the date when the association

mailed the notification of the final results of the stockholder vote pursuant to § 611.1122(h).

(b) Voting stockholders that intend to file a reconsideration petition have a right to obtain from the

association of which they are a voting stockholder the voting record date list used by that association for

the merger or consolidation vote. The association must provide the voting record date list as soon as

possible, but not later than 7 days after receipt of the request. The list must be provided pursuant to the

provisions of § 618.8310(b) of this chapter.

(c) A reconsideration petition must be addressed to the Secretary of the FCA Board and filed with the FCA on

or before the deadline described in paragraph (a) of this section. Reconsideration petitions must identify a

contact person and provide contact information for that person.

(1) Filing of a reconsideration petition may only be accomplished through in-person delivery during

normal business hours to any FCA employee in official duty status or by sending the petition by mail,

facsimile, electronic transmission, carrier delivery, or other similar means to an FCA office.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1125

12 CFR 611.1126(c)(1) (enhanced display) page 29 of 61
[80 FR 51121, Aug. 24, 2015]

Subpart H—Rules for Inter-System Fund Transfers

§ 611.1130 Inter-System transfer of funds and equities.

(2) The FCA will use the postmark, ship date, electronic stamp, or similar evidence as the date of filing

the reconsideration petition.

(d) The FCA will notify the named contact on the reconsideration petition whether the petition was filed on

time. On the timely receipt of a reconsideration petition, the FCA will review the petition to determine

whether it complies with the requirements of section 7.9 of the Act. Following a determination that the

petition was timely filed and complies with applicable requirements, the FCA will give notice to the

associations involved in the merger or consolidation for which the reconsideration petition was filed. The

associations are not entitled to either a copy of the petition or the names of the petitioners.

(e) Following FCA notification that a reconsideration petition has been properly filed, a special stockholders

meeting must be called by the association(s) to reconsider the merger or consolidation vote. The

reconsideration vote must be conducted according to the merger and consolidation voting requirements

of § 611.1122(d). If a majority of the stockholders voting, in person or by proxy, at a duly authorized

stockholders' meeting from any one of the constituent associations vote against the merger or

consolidation under the reconsideration vote, the merger or consolidation will not take place. In the event

that the merger or consolidation is approved on reconsideration, the constituent associations must use

the second effective date developed under § 611.1122(g)(1).

(a) Section 5.17(a)(6) of the Act authorizes the FCA to regulate the borrowing, repayment, and transfer of

funds and equities between institutions of the System, including banks, associations, and service

corporations chartered under the Act. This section sets forth the circumstances and procedures under

which the FCA may direct such a transfer of funds and equities based on its determination with respect to

the financial condition of one or more institutions of the System. For purposes of this section, the term

“bond” refers to long-term notes, bonds, debentures, or other similar obligations, or short-term discount

notes issued by one or more banks pursuant to section 4.2 of the Act.

(b) The FCA may direct a transfer of funds or equities by one or more banks of the System to another bank of

the System where it determines that:

(1) The receiving institution will not be able to make payments of principal or interest on bonds for which

it is primarily liable within the meaning of section 4.4(a) of the Act; or

(2) The common or preferred stock, participation certificates, or allocated equities of the receiving

institution have a book value less than their par or stated values; or

(3) The total bonds outstanding for which the receiving institution is primarily liable exceed 20 times the

combined capital and surplus accounts of the bank; or

(4) Based on application to it of one or more of the following ratios, the receiving institution is not

financially viable in that it will not be able to continue to extend new or additional credit or financial

assistance to its eligible borrowers:

(i) The ratio of stock to earned net worth (including legal reserve, unallocated and reserved

surplus, undistributed earnings, and allowance for credit losses) exceeds 2 to 1;

(ii) The ratio of the outstanding bonds to capital and surplus exceeds 15 to 1;

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1126(c)(2)

12 CFR 611.1130(b)(4)(ii) (enhanced display) page 30 of 61
[50 FR 36986, Sept. 11, 1985. Redesignated at 51 FR 8666, Mar. 13, 1986, as amended at 51 FR 41945, Nov. 20, 1986; 58 FR

48790, Sept. 20, 1993; 59 FR 21643, Apr. 26, 1994; 78 FR 31831, May 28, 2013; 87 FR 27492, May 9, 2022]

Subpart I—Service Corporations

Source: 66 FR 16843, Mar. 28, 2001, unless otherwise noted.

§ 611.1135 Incorporation of service corporations.

(iii) Nonearning assets (any noninterest-bearing assets, including but not limited to cash,

noninterest-earning loans, net fixed assets, other property owned, accrued interest receivable,

and accounts receivable) exceed 15 percent of total assets;

(iv) Lendable net worth (interest-earning assets less interest-bearing liabilities) is zero or less.

(c) The FCA may direct a transfer of funds or equities between two or more Federal land bank associations or

two or more production credit associations in district where it determines that such transfer:

(1) Is necessary to provide financial support to the district bank in which those associations are

stockholders based on application of the criteria to the bank as set forth in paragraph (b) of this

section; or

(2) Is necessary to provide financial support to one or more other like associations in the district based

on application of the criteria set forth in paragraph (b)(2) or (b)(4) of this section to the associations,

provided that in applying paragraph (b)(4)(ii) of this section the ratio of outstanding indebtedness to

capital and surplus of the receiving association(s) shall not exceed 9 to 1; or

(3) Is an integral part of a plan that has been adopted by other institutions of the System, and approved

by the FCA, under which those institutions will extend financial assistance to the district bank in

which those associations are stockholders.

(d) A direction by the FCA for a transfer of funds or equities pursuant to this section shall be signed by the

Chairman and shall establish the amount, timing, duration, repayment, and other terms of assessments

necessary to accomplish such transfer, taking into consideration the financial condition of each institution

to be assessed. Where the FCA directs a transfer of funds or equities between associations under

paragraph (c) (1) or (2) of this section, it may authorize the district bank in which such associations are

stockholders to accomplish the necessary assessments through debits and credits to the accounts of the

bank.

(a) What is the process for chartering a service corporation? A Farm Credit bank or association (you or your)

may organize a corporation acting alone or with other Farm Credit banks or associations to perform, for

you or on your behalf, any function or service that you are authorized to perform under the Act and Farm

Credit Administration (we, us, or our) regulations, with two exceptions. Those exceptions are that your

corporation may not extend credit or provide insurance services. To organize a service corporation, you

must submit an application to us following the applicable requirements of paragraph (c) of this section. If

what you propose in your application meets the requirements of the Act, our regulations, and any other

conditions we may impose, we may issue a charter for your service corporation making it a federally

chartered instrumentality of the United States. Your service corporation will be subject to examination,

supervision, and regulation by us.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1130(b)(4)(iii)

12 CFR 611.1135(a) (enhanced display) page 31 of 61
(b) Who may own equities in your service corporation?

(1) Your service corporation may only issue voting and non-voting stock to:

(i) One or more Farm Credit banks and associations; and

(ii) Persons that are not Farm Credit banks or associations, provided that at least 80 percent of the

voting stock is at all times held by Farm Credit banks or associations.

(2) For the purposes of this subpart, we define persons as individuals or legal entities organized under

the laws of the United States or any state or territory thereof.

(c) What must be included in your application to form a service corporation? Your application for a corporate

charter must include:

(1) The certified resolution of the board of each organizing bank or association authorizing the

incorporation;

(2) A request signed by the president(s) of the organizing bank(s) or association(s) to us to issue a

charter, supported by a detailed statement demonstrating the need and the justification for the

proposed entity; and

(3) The proposed articles of incorporation addressing, at a minimum, the following:

(i) The name of your corporation;

(ii) The city and state where the principal offices of your corporation are to be located;

(iii) The general purposes for the formation of your corporation;

(iv) The general powers of your corporation;

(v) The procedures for a Farm Credit bank or association or persons that are not Farm Credit

institutions to become a stockholder;

(vi) The procedures to adopt and amend your corporation's bylaws;

(vii) The title, par value, voting and other rights, and authorized amount of each class of stock that

your corporation will issue and the procedures to retire each class;

(viii) The notice and quorum requirement for a meeting of shareholders, and the vote required for

shareholder action on various matters;

(ix) The procedures and shareholder voting requirements for the merger, voluntary liquidation, or

dissolution of your corporation or the distribution of corporate assets;

(x) The standards and procedures for the application and distribution of your corporation's

earnings; and

(xi) The length of time your corporation will exist.

(4) The proposed bylaws, which must include the provisions required by § 615.5220(b) of this chapter;

(5) A statement of the proposed amounts and sources of capitalization and operating funds;

(6) Any agreements between the organizing banks and associations relating to the organization or the

operation of the corporation; and

(7) Any other supporting documentation that we may request.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1135(b)

12 CFR 611.1135(c)(7) (enhanced display) page 32 of 61
[66 FR 16843, Mar. 28, 2001, as amended at 70 FR 53907, Sept. 13, 2005; 71 FR 65386, Nov. 8, 2006]

§ 611.1136 Regulation and examination of service corporations.

[66 FR 16843, Mar. 28, 2001, as amended at 78 FR 31831, May 28, 2013]

§ 611.1137 Title VIII service corporations.

Subpart J—Unincorporated Business Entities

Source: 78 FR 31831, May 28, 2013, unless otherwise noted.

(d) What will we do with your application? If we approve your completed application, we will issue a charter

for your service corporation as a corporate body and a federally chartered instrumentality. We may

condition the issuance of a charter, including imposing minimum capital requirements, as we deem

appropriate. For good cause, we may deny your application.

(e) Once your service corporation is formed, how are its articles of incorporation amended? Your service

corporation's articles of incorporation may be amended in either of two ways:

(1) The board of directors of the corporation may request that we amend the articles of incorporation by

sending us a certified resolution of the board of directors of the service corporation that states the:

(i) Section(s) to be amended;

(ii) Reason(s) for the amendment;

(iii) Language of the articles of incorporation provision, as amended; and

(iv) Requisite shareholder approval has been obtained. The request will be subject to our approval

as stated in paragraphs (a) and (c) of this section.

(2) We may at any time make any changes in the articles of incorporation of your service corporation

that are necessary and appropriate for the accomplishment of the purposes of the Act.

(f) When your service corporation issues equities, what are the disclosure requirements? Your service

corporation must provide the disclosures described in § 615.5255 of this chapter.

(a) What regulations apply to a service corporation? Because a service corporation is formed by banks and

associations, it is subject to applicable Farm Credit Administration (we, our) regulations.

(b) Who examines a service corporation? We examine service corporations.

(c) What types of service corporations are subject to our regulations and examination? All incorporated

service corporations formed by banks and associations are subject to our regulations and examination.

(a) What is a title VIII service corporation? A title VIII service corporation is a service corporation organized for

the purpose of exercising the authorities granted under title VIII of the Act to act as an agricultural

mortgage marketing facility.

(b) How do I form a title VIII service corporation? A title VIII service corporation is formed and subject to the

same requirements as a service corporation formed under § 611.1135, with one exception. The Federal

Agricultural Mortgage Corporation or its affiliates may not form or own stock in a title VIII service

corporation.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1135(d)

12 CFR 611.1137(b) (enhanced display) page 33 of 61
§ 611.1150 Purpose and scope.

§ 611.1151 Definitions.

For purposes of this subpart, the following definitions apply:

(a) Purpose. This subpart sets forth the parameters for one or more Farm Credit System (System) institutions

to organize or invest in an Unincorporated Business Entity (UBE) in accordance with the Farm Credit Act

of 1971, as amended (Act).

(b) Scope. Except as authorized under these regulations, no System institution may manage, control, become

a member or partner, or invest in a State-organized or chartered business entity. This subpart applies to

each System institution that organizes or invests in a UBE, including a UBE organized for the express

purpose of investing in a Rural Business Investment Company. This subpart does not apply to UBEs that

one or more System institutions have the authority to establish as Rural Business Investment Companies

pursuant to the provisions of title VI of the Farm Security and Rural Investment Act of 2002, as amended

(FSRIA) and United States Department of Agriculture regulations implementing FSRIA.

Articles of formation means registration certificates, charters, articles of organization, partnership agreements,

membership or trust agreements, operating, administration or management agreements, fee agreements

or any other documentation on the establishment, ownership, or operation of a UBE.

Control means that one System institution, directly or indirectly, owns more than 50 percent of the UBE's equity

or serves as the general partner of an LLLP, or constitutes the sole manager or the managing member of a

UBE. However, under generally accepted accounting principles (GAAP), the power to control may also

exist with a lesser percentage of ownership, for example, if a System institution is the UBE's primary

beneficiary, exercises significant influence over the UBE or establishes control under other facts and

circumstances in accordance with GAAP. Under this definition, a System institution also will be deemed to

have control over the UBE if it exercises decision-making authority in a principal capacity of the UBE as

defined under GAAP.

Equity investment means a System institution's contribution of money or assets to the operating capital of a UBE

that provides ownership rights in return.

System institution means each System bank under titles I or III of the Act, each System association under title II

of the Act, and each service corporation chartered under section 4.25 of the Act.

Third-party UBE means a UBE that is owned or controlled by one or more non-System persons or entities as the

term “control” is defined under GAAP.

UBE means a Limited Partnership (LP), Limited Liability Partnership (LLP), Limited Liability Limited Partnership

(LLLP), Limited Liability Company (LLC), Business or other Trust Entity (TE), or other business entity

established and maintained under State law that is not incorporated under any law or chartered under

Federal law.

UBE business activity means the services and functions delivered by a UBE for one or more System institutions.

Unusual and complex collateral means acquired property that may expose the owner to risks beyond those

commonly associated with loans, including, but not limited to, acquired industrial or manufacturing

properties where there is increased risk of incurring potential environmental or other liabilities that may

accrue to the owners of such properties.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1150

12 CFR 611.1151 “Unusual and complex collateral” (enhanced display) page 34 of 61
§ 611.1152 Authority over equity investments in UBEs for business activity.

§ 611.1153 General restrictions and prohibitions on the use of UBEs.

(a) Regulation, supervisory, oversight, examination and enforcement authority. FCA has regulatory,

supervisory, oversight, examination and enforcement authority over each System institution's equity

investment in or control of a UBE and the services and functions that a UBE performs for the System

institution. This includes FCA's authority to require a System institution's dissolution of, disassociation

from, or divestiture of an equity investment in a UBE, or to otherwise condition the approval of equity

investments in UBEs.

(b) Assessing UBE investments and business activity. In accordance with section 5.15 of the Act, the cost of

regulating and examining System institutions' activities involving UBEs will be taken into account when

assessing a System institution for the cost of administering the Act.

(a) Authorized UBE business activity. All UBE business activity must be:

(1) Necessary or expedient to the business of one or more System institutions owning the UBE; and

(2) In no instance greater than the functions and services that one or more System institutions owning

the UBE are authorized to perform under the Act and as determined by the FCA.

(b) Circumvention of cooperative principles. System institutions are prohibited from using UBEs to engage in

direct lending activities or any other activity that would circumvent the application of cooperative

principles, including borrower rights as described in section 4.14A of the Act, or stock ownership, voting

rights or patronage as described in section 4.3A of the Act.

(c) Transparency and the avoidance of conflicts of interest. Each System institution must ensure that:

(1) The UBE is held out to the public as a separate or subsidiary entity;

(2) The business transactions, accounts, and records of the UBE are not commingled with those of the

System institution; and

(3) All transactions between the UBE and System institution directors, officers, employees, and agents

are conducted at arm's length, in the interest of the System institution, and in compliance with the

standards of conduct rules in 12 CFR 612, subpart A of this chapter.

(d) Limit on one-member UBEs. A UBE owned solely by a single System institution (including between and

among a parent agricultural credit association and its production credit association and Federal land

credit association subsidiaries and between a parent agricultural credit bank and its subsidiary Farm

Credit Bank) as a one-member UBE is limited to the following special purposes:

(1) Acquiring and managing the unusual or complex collateral associated with loans; and

(2) Providing limited services such as electronic transaction, fixed asset, trustee or other services that

are integral to the daily internal operations of a System institution.

(e) Limit on UBE partnerships. A System institution operating through a parent-subsidiary structure may not

create a UBE partnership between or among the parent agricultural credit association and its production

credit association and Federal land credit association subsidiaries or between a parent Agricultural Credit

Bank and its Farm Credit Bank subsidiary.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1152

12 CFR 611.1153(e) (enhanced display) page 35 of 61
[78 FR 31831, May 28, 2013, as amended at 86 FR 58559, Oct. 22, 2021]

§ 611.1154 Notice of equity investments in UBEs.

(f) Prohibition on UBE subsidiaries. Except as provided in this paragraph, a System institution may not create

a subsidiary of a UBE that it has organized or invested in under this subpart or enable the UBE itself to

create a subsidiary or any other type of affiliated entity. A System institution may establish a UBE as a

subsidiary of a UBE formed pursuant to paragraph (d)(1) of this section to hold each investor's pro-rata

interest in acquired property provided that the loan collateral at issue involves a multi-lender transaction

that includes System and non-System lenders.

(g) Limit on potential liability.

(1) Each System institution's equity investment in a UBE must be established in a manner that will limit

potential exposure of the System institution to no more than the amount of its investment in the

UBE.

(2) A System institution cannot become a general partner of any partnership other than an LLLP.

(h) Limit on amount of equity investment in UBEs. The aggregate amount of equity investments that a single

System institution is authorized to hold in UBEs must not exceed one percent of the institution's total

outstanding loans, calculated at the time of each investment. On a case-by-case basis, FCA may approve

an exception to this limitation that would exceed the one-percent aggregate limit. Conversely, FCA may

impose a percentage limit lower than the one-percent aggregate limit based on safety or soundness and

other relevant concerns. This one-percent aggregate limit does not apply to equity investments in onemember UBEs formed for acquired property as permitted in paragraph (d)(1) of this section. Any equity

investment made in a UBE by a service corporation must be attributed to its System institution owners

based on the ownership percentage of each bank or association.

(i) Prohibition on relationship with a third-party UBE. A System institution is prohibited from:

(1) Making any equity investment in a third-party UBE except as may be authorized on a case-by-case

basis under § 615.5140(e) of this chapter for de minimis and passive investments. Such requests

would be considered outside of this rule.

(2) Serving as the general partner or manager of a third-party UBE; or

(3) Being designated as the primary beneficiary of a third-party UBE, either alone or with other System

institutions.

(j) Limitation on non-System equity investments. Non-System persons or entities may not invest in a UBE that

is controlled by a System institution except that non-System persons or entities may own 20 percent or

less of the equity of a System-controlled UBE organized to deliver services integral to the daily internal

operations of a System institution.

(k) UBEs formed for acquiring and managing collateral. The provisions of paragraphs (i) and (j) of this section

do not apply to UBEs formed for the purpose of acquiring and managing unusual or complex collateral

associated with multiple-lender loan transactions in which non-System persons or entities are

participants.

(a) Applicability. This notice provision is applicable only to System institutions that wish to make an equity

investment in UBEs whose activities are limited to the following purposes:

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Organization 12 CFR 611.1153(f)

12 CFR 611.1154(a) (enhanced display) page 36 of 61
(1) Acquiring and managing unusual or complex collateral associated with loans;

(2) Providing hail or multi-peril crop insurance services in collaboration with another System institution

in accordance with § 618.8040 of this chapter; and

(3) Any other UBE business activity that FCA determines to be appropriate for this notice provision.

(b) Notice requirements. System institutions must provide written notice to FCA so that the notice is received

by FCA no later than 10 business days in advance of making an equity investment in a UBE for authorized

UBE business activity described in paragraph (a) of this section. The notice must include:

(1) The UBE's articles of formation, including its name and the State in which it is organized, length of

time it will exist, its partners or members, and its management structure;

(2) The dollar amount of the System institution's equity investment in the UBE;

(3) A certified resolution of the System institution's board of directors authorizing the equity investment

in, and business activity of, the UBE and the board's approval to submit the notice to the FCA. For

UBEs organized to acquire and manage unusual or complex collateral associated with loans as

identified in paragraph (a)(1) of this section, the board of directors may adopt a blanket board

resolution to cover all such UBEs that the System institution will organize.

(4) Except for those UBEs identified in paragraph (a)(1) of this section, a board statement included with

the certified board resolution affirming that the UBE:

(i) Is needed to achieve operating efficiencies and benefits;

(ii) Is necessary or expedient to the System institution's business;

(iii) Will operate with transparency;

(iv) Will conduct its business activity in a manner designed to prevent conflicts of interest between

its purpose and operations and the mission and operations of the System institution(s);

(v) Will otherwise be in compliance with applicable Federal, State, and local laws; and

(vi) Will not be used by the System institution to make direct loans; perform any functions or

provide any services that the System institution is not authorized to perform or provide under

the Act and FCA regulations; or to exceed the stated purpose of the UBE as set forth in its

articles of formation.

(5) A letter from the funding bank that it has approved the institution's equity investment in the UBE. For

those UBEs organized to acquire and manage unusual or complex collateral associated with loans

as identified in paragraph (a)(1) of this section, the funding bank may provide a blanket approval

letter to cover all such UBEs that its district associations may invest in or organize.

(6) Any additional information the System institution wishes to submit.

(c) Supplementation or omission of information. FCA may require the supplementation or allow the omission

of any information required under paragraph (b) of this section.

(d) Other requirements. A System institution may not organize or invest in those UBEs identified in paragraph

(a) of this section if the FCA notifies the institution before the end of the 10 business day advance notice

period that such investment requires FCA approval under the provisions of § 611.1155.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1154(a)(1)

12 CFR 611.1154(d) (enhanced display) page 37 of 61
§ 611.1155 Approval of equity investments in UBEs.

(a) Request. System institutions must receive FCA approval before organizing or investing in any UBE that

does not qualify for the notice provision set forth in § 611.1154(a). A request for approval under this

section must include the following information:

(1) A detailed statement of the risk characteristics of the investment, as required by § 615.5140(e) of

this chapter and the initial amount of equity investment;

(2) A detailed statement on the purpose and objectives of the UBE; the need for the UBE and the

operating efficiencies and benefits that will be achieved by using the UBE;

(3) The proposed articles of formation addressing, at a minimum, the following:

(i) The UBE's name, the State in which it is organized, the city and State in which its principal office

is to be located, and its partners or members and management structure;

(ii) Specific business activities that the UBE will conduct;

(iii) General powers of the UBE;

(iv) Ownership, voting, partnership, membership and operating agreements for the UBE;

(v) Procedures to adopt and amend the partnership, membership or operating agreement of the

UBE;

(vi) The standards and procedures for the application and distribution of the UBE's earnings; and

(vii) Length of time the UBE will exist.

(4) A certified resolution of the System institution's board of directors authorizing the equity investment

in the UBE and the UBE business activity and the board's approval to submit the request to the FCA.

The certified board resolution must include a board statement affirming that the UBE:

(i) Is necessary or expedient to the System institution's business;

(ii) Will operate with transparency;

(iii) Will conduct its business activity in a manner designed to prevent conflicts of interest between

its purpose and operations and the mission and operations of the System institution(s);

(iv) Will comply with applicable Federal, State, and local laws; and

(v) Will not be used by the System institution to make direct loans; perform any functions or

provide any services that the System institution is not authorized to perform or provide under

the Act and FCA regulations; or exceed the purpose of the UBE as stated in its articles of

formation.

(5) A letter from the funding bank that it has approved the institution's equity investment in the UBE;

(6) Any additional information the System institution wishes to submit.

(b) Supplementation or omission of information. FCA may require the supplementation or allow the omission

of any information required under paragraph (a) of this section based on the complex or noncomplex

nature of the proposed UBE.

(c) Denial of a request. The FCA will specify in writing to the submitting System institutions the reasons for

denial of any request to organize or invest in a UBE.

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Organization 12 CFR 611.1155

12 CFR 611.1155(c) (enhanced display) page 38 of 61
§ 611.1156 Ongoing requirements.

A System institution that organizes or invests in a UBE must also comply with the following requirements:

§ 611.1157 Disclosure and reporting requirements.

§ 611.1158 Grandfather provision.

(a) Maintain and ensure FCA's access to all books, papers, records, agreements, reports and other documents

of each UBE necessary to document and protect the institution's interest in each entity;

(b) Divest, as soon as practicable, the institution's equity or beneficial interest in, and sever any relationship

with a UBE:

(1) That conducts activities beyond those authorized to carry out its limited purpose or that are contrary

to the Act or FCA regulations, or as otherwise directed to do so by FCA; or

(2) Where non-System persons or entities obtain control as defined under GAAP. This paragraph does

not apply to UBEs formed for the purpose of acquiring and managing unusual or complex collateral

associated with multiple-lender loan transactions in which non-System persons or entities are

participants.

(a) Annual report to shareholders. In its annual report to shareholders, as set forth in § 620.5(a)(12) of this

chapter, a System institution must provide information on its UBE investment and business activity.

(b) Periodic reports as directed. As directed by FCA, a System institution must submit periodic reports to FCA

on any equity investment in a UBE or UBE status as provided under § 621.12 of this chapter, and in

accordance with §§ 621.13 and 621.14 of this chapter.

(c) Dissolution of a UBE. A System institution must submit a timely report to FCA on the dissolution of a UBE

that it controls.

(a) Scope. The following equity investments in UBEs are grandfathered from the Notice and Approval

provisions under §§ 611.1154 and 611.1155, respectively.

(1) Those UBE formations or equity investments that received specific, written approval by FCA prior to

the effective date of this regulation; and

(2) Those UBE formations or equity investments that occurred prior to the effective date of this

regulation to acquire or manage unusual or complex collateral associated with loans.

(b) System institutions' obligations. All System institutions with grandfathered UBEs:

(1) Remain subject to their conditions of approval;

(2) Are subject to the ongoing requirements of § 611.1156 and the disclosure and reporting

requirements of § 611.1157; and

(3) May not change or expand the authorized business activity, service, or function of the UBE as

approved by FCA, add or increase the level of non-System ownership in the UBE to the extent such

ownership is authorized under § 611.1153(j), or change control of the UBE as control is defined in §

611.1151 without giving written notice of such changes to FCA at least 10 business days in advance

of any such change or expansion.

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Organization 12 CFR 611.1156

12 CFR 611.1158(b)(3) (enhanced display) page 39 of 61
Subparts K–O [Reserved]

Subpart P—Termination of System Institution Status

Source: 71 FR 44420, Aug. 4, 2006, unless otherwise noted.

§ 611.1200 Applicability of this subpart.

The regulations in this subpart apply to each bank and association that desires to terminate its System institution

status and become chartered as a bank, savings association, or other financial institution.

§ 611.1205 Definitions that apply in this subpart.

[71 FR 44420, Aug. 4, 2006, as amended at 85 FR 52253, Aug. 25, 2020]

§ 611.1210 Advance notices—commencement resolution and notice to equity holders.

(4) A System institution may not proceed with any change or expansion as defined in paragraph (b)(3) of

this section if the FCA notifies the institution before the end of the 10 business day advance notice

period that the proposed change or expansion is material and must be submitted for FCA approval

under the provisions of § 611.1155.

(c) System institution investments or reinvestments in grandfathered UBEs. System institutions investing for

the first time in grandfathered UBEs or reinvesting after having previously divested their equity investment

must provide notice to FCA or obtain FCA approval under either the notice provision in § 611.1154 or the

approval provision in § 611.1155 depending on the function, service, or activity of the grandfathered UBE

in which the institution seeks to invest or reinvest.

Assets means all assets determined in conformity with GAAP, except as otherwise required in this subpart.

Business days means days the FCA is open for business.

Days means calendar days.

Equity holders means holders of stock, participation certificates, or other equities such as allocated equities.

GAAP means “generally accepted accounting principles” as that term is defined in § 621.2 of this chapter.

OFI means an “other financing institution” that has a funding and discount agreement with a Farm Credit bank

under section 1.7(b)(1) of the Act.

Successor institution means the bank, savings association, or other financial institution that the terminating

bank or association will become when we revoke its Farm Credit charter.

(a) Adoption of commencement resolution. Your board of directors must begin the termination process by

adopting a commencement resolution stating your intention to terminate Farm Credit status under

section 7.10 of the Act. Immediately after you adopt the commencement resolution, send a certified copy

by overnight mail to us and to the Farm Credit System Insurance Corporation (FCSIC). If your institution is

an association, also send a copy to your affiliated bank. If your institution is a bank, also send a copy to

your affiliated associations, the other Farm Credit banks, and the Federal Farm Credit Banks Funding

Corporation (Funding Corporation).

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Organization 12 CFR 611.1158(b)(4)

12 CFR 611.1210(a) (enhanced display) page 40 of 61
(b) Advance notice. Within 5 business days after adopting the commencement resolution, you must:

(1) Send us copies of all contracts and agreements related to the termination.

(2) Subject to paragraph (b)(2)(ii) of this section:

(i) Send an advance notice to all equity holders stating you are taking steps to terminate System

status. Immediately upon mailing the notice to equity holders, you must also place it in a

prominent location on your Web site. The advance notice must describe the following:

(A) The process of termination;

(B) The expected effect of termination on borrowers and other equity holders, including the

effect on borrower rights and the consequences of any stock retirements before

termination;

(C) The type of charter the successor institution will have; and

(D) Any bylaw creating a special class of borrower stock and participation certificates under

paragraph (f) of this section.

(ii) Send us a draft of the advance notice by facsimile or electronic mail before mailing it to your

equity holders. If we have not contacted you within 2 business days of our receipt of the draft

notice regarding modifications, you may mail the notice to your equity holders.

(c) Bank negotiations on joint and several liability. If your institution is a terminating bank, within 10 days of

adopting the commencement resolution, your bank and the other Farm Credit banks must begin

negotiations to provide for your satisfaction of liabilities (other than your primary liability) under section

4.4 of the Act. The Funding Corporation may, at its option, be a party to the negotiations to the extent

necessary to fulfill its duties with respect to financing and disclosure. The agreement must comply with

the requirements in § 611.1270(c).

(d) Disclosure to loan applicants and equity holders after commencement resolution. Between the date your

board of directors adopts the commencement resolution and the termination date, you must give the

following information to your loan applicants and equity holders:

(1) For each loan applicant who is not a current stockholder, describe at the time of loan application:

(i) The effect of the proposed termination on the prospective loan; and

(ii) Whether, after the proposed termination, the borrower will continue to have any of the borrower

rights provided under the Act and regulations.

(2) For any equity holders who ask to have their equities retired, explain that the retirement would

extinguish the holder's right to exchange those equities for an interest in the successor institution. In

addition, inform holders of equities entitled to your residual assets in liquidation that retirement

before termination would extinguish their right to dissent from the termination and have their

equities retired.

(e) Terminating bank's right to continue issuing debt. Through the termination date, a terminating bank may

continue to participate in the issuance of consolidated and System-wide obligations to the same extent it

would be able to participate if it were not terminating.

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Organization 12 CFR 611.1210(b)

12 CFR 611.1210(e) (enhanced display) page 41 of 61
[71 FR 44420, Aug. 4, 2006, as amended at 75 FR 18743, Apr. 12, 2010]

§ 611.1211 Special requirements.

§ 611.1215 Communications with the public and equity holders.

Equity holders should read the plan of termination that they have received or will receive (as appropriate) because

it contains important information, including an enumerated statement of the anticipated benefits and potential

disadvantages of the proposal.

(f) Special class of stock. Notwithstanding any requirements to the contrary in § 615.5230(c) of this chapter,

you may adopt bylaws providing for the issuance of a special class of stock and participation certificates

between the date of adoption of a commencement resolution and the termination date. Your voting

stockholders must approve the special class before you adopt the commencement resolution. The

equities must comply with section 4.3A of the Act and be identical in all respects to existing classes of

equities that are entitled to the residual assets of the institution in a liquidation, except for the value a

holder will receive in a termination. In a termination, the holder of the special class of stock receives value

equal to the lower of either par (or face) value, or the value calculated under § 611.1280(c) and (d). A

holder must have the same right to vote (if the equity is held on the voting record date) and to dissent as

holders of similar equities issued before the commencement resolution. If the termination does not occur,

the special classes of stock and participation certificates must automatically convert into shares of the

otherwise identical equities.

(a) Special assessments, analyses, studies, and rulings. At any time after we receive your commencement

resolution, and as we deem necessary or useful to evaluate your proposal, we may require you to engage

independent experts, acceptable to us, to conduct assessments, analyses, or studies, or to request

rulings, including, but not limited to:

(1) Assessments of fair value;

(2) Analyses and rulings on tax implications; and

(3) Studies of the effect of your proposal on equity holders (including the effect on holders in their

capacity as borrowers), the System, and other parties.

(b) Informational meetings. After the advance notice, but before the stockholder vote, we may require you to

hold regional or local informational meetings in convenient locations, at convenient times, and in a

manner conducive to accommodating all equity holders that wish to attend, to discuss equity holder

issues and answer questions. These meetings are subject to the plain language requirements of §

611.1217(b) regarding balanced statements.

(a) Communications after commencement resolution and before termination. The terminating institution may

communicate with equity holders and the public regarding the proposed termination, as long as written

communications (other than non-public communications among participants, i.e., persons or entities that

are parties to a proposed corporate restructuring involving the successor institution, or their agents)

made in connection with or relating to the proposed termination and any related transactions are filed in

accordance with paragraph (c) of this section and the conditions in this section are satisfied.

(b) To rely on this section, you must include the following legend in each communication in a prominent

location:

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Organization 12 CFR 611.1210(f)

12 CFR 611.1215(b) (enhanced display) page 42 of 61
§ 611.1216 Public availability of documents related to the termination.

§ 611.1217 Plain language requirements.

(c) All your written communications and all written communications by your directors, employees, and agents

in connection with or relating to the proposed termination or any related transactions must be filed with

us under this section on or before the date of first use.

(d) We will require you to correct communications that we deem are misleading or inaccurate.

(e) In addition to the filings we require under paragraph (c) of this section, we may require you to file timely

any written communications you have knowledge of that are made by any other participants or their

agents in connection with or related to the proposed termination or to any transaction related to the

proposed termination.

(f) An immaterial or unintentional failure to file or a delay in filing a written communication described in this

section will not result in a violation of this section, as long as:

(1) A good faith and reasonable effort was made to comply with the filing requirement; and

(2) The written communication is filed as soon as practicable after discovery of the failure to file.

(g) Communications that exist in electronic form must be filed electronically with the FCA as we direct. For

communications that do not exist in electronic form, you must timely notify us by electronic mail and

send us a copy by regular mail.

(h) You do not need to file a written communication that does not contain new or different information from

that which you have previously publicly disclosed and filed under this section.

(a) We may post on our Web site, or require you to post on your Web site:

(1) Results of any special assessments, analyses, studies, and rulings required under § 611.1211;

(2) Documents you submit to us or file with us under § 611.1215; and

(3) Documents you submit to us under section 7.11 of the Act that are related directly or indirectly to the

proposed termination, including but not limited to contracts entered into in connection with or

relating to the proposed termination and any related transactions.

(b) We will not post confidential information on our Web site and will not require you to post it on your Web

site.

(c) You may request that we treat specific information as confidential under the Freedom of Information Act,

5 U.S.C. 552 (see 12 CFR part, 602 subpart B). You should draft your request for confidential treatment

narrowly to extend only to those portions of a document you consider to be confidential. If you request

confidential treatment for information that we do not consider to be confidential, we may post that

information on our Web site after providing notice to you. On our own initiative, we may determine that

certain information should be treated as confidential and, if so, we will not make that information public.

(a) Plain language presentation. All communications to equity holders required under §§ 611.1210, 611.1223,

611.1240, and 611.1280 must be clear, concise, and understandable. You must:

(1) Use short, explanatory sentences, bullet lists or charts where helpful, and descriptive headings and

subheadings;

(2) Minimize the use of glossaries or defined terms;

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Organization 12 CFR 611.1215(c)

12 CFR 611.1217(a)(2) (enhanced display) page 43 of 61
§ 611.1218 Role of directors.

§ 611.1219 Prohibited acts.

§ 611.1220 Termination resolution.

No more than 1 week before you submit your plan of termination to us, your board of directors must adopt a

termination resolution stating its support for terminating your status as a System institution and authorizing:

(3) Write in the active voice when possible; and

(4) Avoid legal and highly technical business terminology.

(b) Balanced statements. Communications to equity holders that describe or enumerate anticipated benefits

of the proposed termination should also describe or enumerate the potential disadvantages to the same

degree of detail.

(a) Statements by directors. Directors may not be prohibited by confidentiality agreements or otherwise from

publicly or privately commenting orally or in writing on the termination proposal and related matters.

(b) Directors' right to obtain independent advice. One or more directors of a terminating institution or an

institution that is considering terminating have the right to obtain independent legal and financial advice

regarding the proposed termination and related transactions. The institution must pay for such advice and

related expenses as are reasonable in light of the circumstances. A request by a director or directors for

the institution to pay such expenses cannot be denied unless the board of directors, by at least a twothirds vote of the full board (the total number of current directors), denies the request. The institution

must act on any request in a timely manner. For any denial of payment, the board must provide notice to

the FCA within 1 business day of the denial, fully document the reasons for such a denial, and ensure that

the institution discloses the nature of the request and the reasons for any denial to the terminating

institution's equity holders in the plan of termination.

(a) Statements about termination. Neither the institution nor any director, officer, employee, or agent may

make any untrue or misleading statement of a material fact, or fail to disclose any material fact, to the

FCA or a current or prospective equity holder about the proposed termination and any related

transactions.

(b) Representations regarding FCA approval. Neither the institution nor any director, officer, employee, or

agent may make an oral or written representation to anyone that our approval of the plan of termination or

the termination is, directly or indirectly, either a recommendation on the merits of the proposal or an

assurance that the information you give to your equity holders is adequate or accurate.

(a) Submission to us of a plan of termination and other required submissions that comply with § 611.1223;

and

(b) Submission of the plan of termination to the voting stockholders if we approve the plan of termination

under § 611.1230 or, if we take no action, after the end of our approval period.

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Organization 12 CFR 611.1217(a)(3)

12 CFR 611.1220(b) (enhanced display) page 44 of 61
§ 611.1221 Submission to FCA of plan of termination and disclosure information; other required

submissions.

§ 611.1223 Plan of termination—contents.

The Farm Credit Administration has not determined if this information is accurate or complete. You should not

rely on any statement to the contrary.

(a) Filing. Send us an original and five copies of the plan of termination, including the disclosure information,

and other required submissions. You may not file the plan of termination until at least 30 days after you

mail the equity holder notice under § 611.1210(b). If you send us the plan of termination in electronic

form, you must send us at least one hard copy with original signatures.

(b) Plan contents. The plan of termination must include your equity holder disclosure information that

complies with § 611.1223.

(c) Other submissions. You must also submit the following:

(1) A statement of how you will transfer assets to, and have your liabilities assumed by, the successor

institution;

(2) A copy of the charter application for the successor institution, with any exhibits or other supporting

information; and

(3) A statement, if applicable, whether the successor institution will continue to borrow from a Farm

Credit bank and how such a relationship will affect your provision for payment of debts. You must

also provide evidence of any agreement and plan for satisfaction of outstanding debts.

(a) Disclaimer. Place the following statement in boldface type in the material to be sent to equity holders,

either on the notice of meeting or the first page of the plan of termination:

(b) Summary. The first part of the plan of termination must be a summary that concisely explains:

(1) Which stockholders have a right to vote on the termination and related transactions;

(2) The material changes the termination will cause to the rights of borrowers and other equity holders;

(3) The effect of those changes;

(4) The anticipated benefits and potential disadvantages of the termination;

(5) The right of certain equity holders to dissent and receive payment for their existing equities; and

(6) The estimated termination date.

(7) If applicable, an explanation of any corporate restructuring that the successor institution expects to

engage in within 18 months after the date of termination.

(c) Remaining requirements. You must also disclose the following information to equity holders:

(1) Termination resolution. Provide a certified copy of the termination resolution required under §

611.1220.

(2) Plan of termination. Summarize the plan of termination.

(3) Benefits and disadvantages. Provide an enumerated statement of the anticipated benefits and

potential disadvantages of the termination.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1221

12 CFR 611.1223(c)(3) (enhanced display) page 45 of 61
(4) Recommendation. Explain the board's basis for recommending the termination.

(5) Exit fee. Explain the preliminary exit fee estimate, with any adjustments we require, and estimated

expenses of termination and organization of the successor institution.

(6) Initial board of directors. List the initial board of directors and senior officers for the successor

institution, with a brief description of the business experience of each person, including principal

occupation and employment during the past 5 years.

(7) Relevant contracts and agreements. Include copies of all contracts and agreements related to the

termination, including any proposed contracts in connection with the termination and subsequent

operations of the successor institution. The FCA may, in its discretion, permit or require you to

provide a summary or summaries of the documents in the disclosure information to be submitted to

equity holders instead of copies of the documents.

(8) Bylaws and charter. Summarize the provisions of the bylaws and charter of the successor institution

that differ materially from your bylaws and charter. The summary must state:

(i) Whether the successor institution will require a borrower to hold an equity interest as a

condition for having a loan; and

(ii) Whether the successor institution will require equity holders to do business with the institution.

(9) Changes to equity. Explain any changes in the nature of equity investments in the successor

institution, such as changes in dividends, patronage, voting rights, preferences, retirement of

equities, and liquidation priority. If equities protected under section 4.9A of the Act are outstanding,

the plan of termination must state that the Act's protections will be extinguished on termination.

(10) Effect of termination on statutory and regulatory rights. Explain the effect of termination on rights

granted to equity holders by the Act and FCA regulations. You must explain the effect termination

will have on borrower rights granted in the Act and part 617 of this chapter.

(11) Loan refinancing by borrowers.

(i) State, as applicable, that borrowers may seek to refinance their loans with the System

institutions that already serve, or will be permitted to serve, your territory. State that no System

institution is obligated to refinance your loans.

(ii) If we have assigned the chartered territory you serve to another System institution before the

plan of termination is mailed to equity holders, or if another System institution is already

chartered to make the same type of loans you make in the chartered territory, identify such

institution(s) and provide the following information:

(A) The name, address, and telephone number of the institution; and

(B) An explanation of the institution's procedures for borrowers to apply for refinancing.

(iii) If we have not assigned the territory before you mail the plan of termination, give the name,

address, and telephone number of the System institution specified by us and state that

borrowers may contact the institution for information about loan refinancing.

(12) Equity exchanges. Explain the formula and procedure to exchange equity in your institution for equity

in the successor institution.

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Organization 12 CFR 611.1223(c)(4)

12 CFR 611.1223(c)(12) (enhanced display) page 46 of 61
(13) Employment, retirement, and severance agreements. Describe any employment agreement or

arrangement between the successor institution and any of your senior officers or directors. Describe

any severance and retirement plans that cover your employees or directors and state the costs you

expect to incur under the plans in connection with the termination.

(14) Final exit fee and its calculation. Explain how the final exit fee will be calculated under § 611.1255

and how it will be paid.

(15) New charter. Describe the nature and type of financial institution the successor institution will be and

any conditions of approval of the new chartering authority or regulator.

(16) Differences in successor institution's programs and policies. Summarize any differences between you

and the successor institution on:

(i) Interest rates and fees;

(ii) Collection policies;

(iii) Services provided; and

(iv) Any other item that would affect a borrower's lending relationship with the successor institution,

including whether a stockholder's ability to borrow from the institution will be restricted.

(17) Capitalization. Discuss expected capital requirements of the successor institution, and the amount

and method of capitalization.

(18) Sources of funding. Explain the sources and manner of funding for the successor institution's

operations.

(19) Contingent liabilities. Describe how the successor institution will address any contingent liability it

will assume from you.

(20) Tax status. Summarize the differences in tax status between your institution and the successor

institution, and explain how the differences may affect equity holders.

(21) Regulatory environment. Describe briefly how the regulatory environment for the successor

institution will differ from your current regulatory environment, and any effect on the cost of doing

business or the value of stockholders' equity.

(22) Dissenters' rights. Explain which equity holders are entitled to dissenters' rights and what those

rights are. The explanation must include the estimated liquidation value of the stock, procedures for

exercising dissenters' rights, and a statement of when the rights may be exercised.

(23) Financial information.

(i) Present the following financial data:

(A) A balance sheet and income statement for each of the 3 preceding fiscal years;

(B) A balance sheet as of a date within 90 days of the date you send the plan of termination to

us, presented on a comparative basis with the corresponding period of the previous 2

fiscal years;

(C) An income statement for the interim period between the end of the last fiscal year and the

date of the balance sheet required by paragraph (d)(23)(i)(B) of this section, presented on

a comparative basis with the corresponding period of the previous 2 fiscal years;

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Organization 12 CFR 611.1223(c)(13)

12 CFR 611.1223(c)(23)(i)(C) (enhanced display) page 47 of 61
(D) A pro forma balance sheet of the successor institution presented as if termination had

occurred as of the date of the most recent balance sheet presented in the plan of

termination; and

(E) A pro forma summary of earnings for the successor institution presented as if the

termination had been effective at the beginning of the interim period between the end of

the last fiscal year and the date of the balance sheet presented under paragraph

(d)(23)(i)(D) of this section.

(ii) The format for the balance sheet and income statement must be the same as the format in

your annual report and must contain appropriate footnote disclosures, including data on highrisk assets, other property owned, and allowance for credit losses.

(iii) The financial statements must include either:

(A) A statement signed by the chief executive officer and each board member that the various

financial statements are unaudited but have been prepared in all material respects in

conformity with GAAP (except as otherwise disclosed) and are, to the best of each

signer's knowledge, a fair and accurate presentation of the financial condition of the

institution; or

(B) A signed opinion by an independent certified public accountant that the various financial

statements have been examined in conformity with generally accepted auditing standards

and included such tests of the accounting records and other such auditing procedures as

were considered necessary in the circumstances, and, as of the date of the statements,

present fairly the financial position of the institution in conformity with GAAP applied on a

consistent basis, except as otherwise disclosed.

(24) Subsequent financial events. Describe any event after the date of the financial statements, but before

the date you send the plan of termination to us, that would have a material impact on your financial

condition or the condition of the successor institution.

(25) Other subsequent events. Describe any event after you send the plan of termination to us that could

have a material impact on any information in the plan of termination.

(26) Other material disclosures. Describe any other material fact or circumstance that a stockholder

would need to know to make an informed decision on the termination, or that is necessary to make

the disclosures not misleading. We may require you to disclose any assessments, analyses, studies,

or rulings we require under § 611.1211.

(27) Ballot and proxy. Include a ballot and proxy, with instructions on the purpose and authority for their

use, and the proper method for the stockholder to sign the proxy.

(28) Board of directors certification. Include a certification signed by the entire board of directors as to the

truth, accuracy, and completeness of the information contained in the plan of termination. If any

director refuses to sign the certification, the director must inform us of the reasons for refusing.

(29) Directors' statements. You must include statements, if any, by directors regarding the proposed

termination.

(d) Requirement to provide updated information. After you send us the plan of termination, you must

immediately send us:

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Organization 12 CFR 611.1223(c)(23)(i)(D)

12 CFR 611.1223(d) (enhanced display) page 48 of 61
[71 FR 44420, Aug. 4, 2006, as amended at 87 FR 27492, May 9, 2022]

§ 611.1230 FCA review and approval—plan of termination.

§ 611.1235 Plan of termination—distribution.

§ 611.1240 Voting record date and stockholder approval.

(1) Any material change to information in the plan of termination, including financial information, that

occurs between the date you file the plan of termination and the termination date;

(2) Copies of any additional written information on the termination that you have given or give to current

or prospective equity holders before termination; and

(3) A description of any subsequent event(s) that could have a material impact on any information in the

plan of termination or on the termination.

(a) FCA review period. No later than 60 days after we receive the plan of termination, we will review it and

either approve or disapprove the plan for submission to your equity holders. If we take no action on the

plan of termination within the 60 days, you may submit the plan to your equity holders. The 60-day review

period under section 7.11 of the Act will begin on the date we receive a complete plan of termination. We

will advise you in writing when the 60-day period begins.

(b) FCA approval of the plan of termination. Our approval of the plan of termination for submission to your

equity holders:

(1) Is not our approval of the termination; and

(2) May be subject to any condition we impose.

(a) Reaffirmation resolution. Not more than 14 days before mailing the plan of termination to your equity

holders, your board of directors must adopt a resolution reaffirming support of the termination. A certified

copy of the resolution must be sent to us and must accompany the plan of termination when it is

distributed to stockholders.

(b) Notice of meeting and distribution of plan. You must provide all equity holders with a notice of meeting

and the plan of termination at least 45 days before the stockholder vote. You must also provide a copy of

the plan to us when you provide it to your equity holders.

(a) Stockholder meeting. You must call the meeting by written notice in compliance with your bylaws. The

stockholder meeting to vote on the termination must occur at least 60 days after our approval of the plan

of termination (or, if we take no action, at least 60 days after the end of our approval period).

(b) Voting record date. The voting record date may not be more than 70 days before the stockholders'

meeting.

(c) Quorum requirement for termination vote. At least 30 percent, unless your bylaws provide for a higher

quorum, of the voting stockholders of the institution must be present at the meeting either in person or by

proxy in order to hold the vote on the termination.

(d) Approval requirement. The affirmative vote of a majority of the voting stockholders of the institution

present and voting or voting by proxy at the duly authorized meeting at which a quorum is present as

prescribed in paragraph (c) of this section is required for approval of the termination.

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Organization 12 CFR 611.1223(d)(1)

12 CFR 611.1240(d) (enhanced display) page 49 of 61
[71 FR 44420, Aug. 4, 2006, as amended at 75 FR 18743, Apr. 12, 2010]

§ 611.1245 Stockholder reconsideration.

§ 611.1246 Filing of termination application and its contents.

(e) Voting procedures. The voting procedures must comply with § 611.340. You must have an independent

third party count the ballots. If a voting stockholder notifies you of the stockholder's intent to exercise

dissenters' rights, the tabulator must be able to verify to you that the stockholder voted against the

termination. Otherwise, the votes of stockholders must remain confidential.

(f) Notice to FCA and equity holders of voting results. Within 10 days of the termination vote, you must send

us a certified record of the results of the vote. You must notify all equity holders of the results within 30

days after the stockholder meeting. If the stockholders approve the termination, you must give the

following information to equity holders:

(1) Stockholders who voted against termination and equity holders who were not entitled to vote have a

right to dissent as provided in § 611.1280; and

(2) Voting stockholders have a right, under § 611.1245, to file a petition with the FCA for reconsideration

within 35 days after the date you mail to them the notice of the results of the termination vote.

(g) Requirement to notify new equity holders. You must provide the information described in paragraph (f)(1)

of this section to each person that becomes an equity holder after the termination vote and before

termination.

(a) Right to reconsider termination. Voting stockholders have the right to reconsider their approval of the

termination if a petition signed by at least 15 percent of the voting stockholders is filed with us within 35

days after you mail notices to stockholders that the termination was approved. If we determine that the

petition complies with the requirements of section 7.9 of the Act, you must call a special stockholders'

meeting to reconsider the vote. The meeting must occur within 60 days after the date on which you

mailed to stockholders the results of the termination vote.

(b) Quorum requirement for termination reconsideration vote. At least 30 percent, unless your bylaws provide

for a higher quorum, of the voting stockholders of the institution must be present at the stockholders'

meeting either in person or by proxy in order to hold the reconsideration vote. If a majority of the voting

stockholders voting in person or by proxy vote against the termination, the termination may not take

place.

(c) Stockholder list and expenses. You must, at your expense, timely give stockholders who request it a list of

the names and addresses of stockholders eligible to vote in the reconsideration vote. The petitioners

must pay all other expenses for the petition. You must pay expenses that you incur for the reconsideration

vote.

(a) Filing of termination application. Send us your termination application no later than 90 days after you send

us notice of the stockholder vote approving the termination. Please send us an original and five copies of

the termination application for review and approval. If you send us the termination application in

electronic form, you must send us at least one hard copy with original signatures.

(b) Contents of termination application. The application must contain:

(1) A certified copy of the termination and reaffirmation resolutions;

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Organization 12 CFR 611.1240(e)

12 CFR 611.1246(b)(1) (enhanced display) page 50 of 61
§ 611.1247 FCA review and approval—termination.

§ 611.1250 Preliminary exit fee estimate.

(2) A certification signed by the board of directors that the board continues to support the termination,

there has been no material change to any of the information contained in the plan of termination or

information statement after the FCA approved the plan of termination, and there have not been any

subsequent events that could have a material impact on any of the information in the plan of

termination or the termination; and

(3) Any additional information that is required under this subpart, that we request or that your board of

directors wishes to submit in support of the application.

(a) FCA action on application. After we receive the termination application, we will review it and either approve

or disapprove the termination.

(b) Basis for disapproval. We will disapprove the termination if we determine that there are one or more

appropriate reasons for disapproval consistent with our authorities under the Act and our regulations. We

will inform you of our reason(s) for disapproval in writing.

(c) Conditions of FCA approval. We will approve your termination application only if:

(1) Your stockholders have voted in favor of termination in the termination vote and in any

reconsideration vote;

(2) You have given us executed copies of all contracts, agreements, and other documents submitted

under §§ 611.1221 and 611.1223;

(3) You have paid or made adequate provision for payment of debts, including responsibility for any

contingent liabilities, and for retirement of equities;

(4) A Federal or State chartering authority has granted a new charter to the successor institution;

(5) You deposit into escrow an amount equal to 110 percent of the estimated exit fee plus 110 percent

of the estimated amount you must pay to retire equities of dissenting stockholders and Farm Credit

institutions, as described in § 611.1255(c); and

(6) You have fulfilled any condition of termination we impose.

(d) Effective date of termination. If we approve the termination, we will revoke your charter, and the

termination will be effective on the date that we provide, but no earlier than the last to occur of:

(1) Fulfillment of all conditions listed in or imposed under paragraph (c) of this section;

(2) Your proposed termination date;

(3) Ninety (90) days after we receive your termination application described in § 611.1246; or

(4) Fifteen (15) days after any reconsideration vote.

(a) Preliminary exit fee estimate—terminating association. You must provide a preliminary exit fee estimate to

us when you submit the plan of termination under § 611.1221. Calculate the preliminary exit fee estimate

in the following order:

(1) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month

period as of the quarter end immediately before the date you send us your plan of termination.

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Organization 12 CFR 611.1246(b)(2)

12 CFR 611.1250(a)(1) (enhanced display) page 51 of 61
(2) Any amounts we refer to in this section are average daily balances unless we specify that they are

not. Amounts that are not average daily balances will be referred to as “dollar amount.”

(3) Compute the average daily balances based on financial statements that comply with GAAP. The

financial statements, as of the quarter end immediately before the date you send us your plan of

termination, must be independently audited by a qualified public accountant. We may, in our

discretion, waive the audit requirement if an independent audit was performed as of a date less than

6 months before you submit the plan of termination.

(4) Make adjustments to assets as follows:

(i) Add back expenses you have incurred related to termination. Related expenses include, but are

not limited to, legal services, accounting services, tax services, studies, auditing, business

planning, equity holder meetings, and application fees for the termination and reorganization.

Do not add back to assets expenses related to a requirement by the FCA to engage

independent experts to conduct assessments, analyses, or studies, or to request rulings that

solely address the impact of the termination on the System or parties other than the

terminating institution and its stockholders.

(ii) Subtract the dollar amount of estimated current and deferred tax expenses, if any, due to the

termination.

(iii) Add the dollar amount of estimated current and deferred tax benefits, if any, due to the

termination.

(iv) Adjust for the dollar amount of significant transactions you reasonably expect to occur between

the quarter end before you file your plan of termination and date of termination. Examples of

these transactions include, but are not limited to, gains or losses on the sale of assets,

retirements of equity, loan repayments, and patronage distributions. Do not make adjustments

for future expenses related to termination, such as severance or special retirement payments,

or stock retirements to dissenting stockholders and Farm Credit institutions.

(5) Subtract from liabilities any liability that we treat as regulatory capital under the capital or collateral

requirements in subparts H and K of part 615 of this chapter.

(6) Make any adjustments we require under paragraph (c) of this section.

(7) After making these adjustments to assets and liabilities, subtract liabilities from assets. This is your

preliminary total capital for purposes of termination.

(8) Multiply assets as adjusted above by 6 percent, and subtract this amount from preliminary total

capital. This is your preliminary exit fee estimate.

(b) Preliminary exit fee estimate—terminating bank.

(1) Affiliated associations that are terminating with you must calculate their individual preliminary exit

fee estimates as described in paragraph (a) of this section.

(2) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month

period as of the quarter end immediately before the date you send us your plan of termination.

(3) Any amounts we refer to in this section are average daily balances unless we specify that they are

not. Amounts that are not average daily balances will be referred to as “dollar amount.”

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Organization 12 CFR 611.1250(a)(2)

12 CFR 611.1250(b)(3) (enhanced display) page 52 of 61
(4) Compute the average daily balances based on bank-only financial statements that comply with

GAAP. The financial statements, as of the quarter end immediately before the date you send us your

plan of termination, must be independently audited by a qualified public accountant. We may, in our

discretion, waive this requirement if an independent audit was performed as of a date less than 6

months before you submit the plan of termination.

(5) Make adjustments to assets and liabilities as follows:

(i) Add back to assets the following:

(A) Expenses you have incurred related to termination. Related expenses include, but are not

limited to, legal services, accounting services, tax services, studies, auditing, business

planning, equity holder meetings, and application fees for the termination and

reorganization. Do not add back to assets expenses related to a requirement by the FCA to

engage independent experts to conduct assessments, analyses, or studies, or to request

rulings that solely address the impact of the termination on the System or parties other

than the terminating institution and its stockholders.

(B) Any specific allowance for losses, and a pro rata portion of any general allowance for

credit losses, on direct loans to associations that you do not expect to incur before or at

termination.

(ii) Subtract from your assets and liabilities an amount equal to your direct loans to your affiliated

associations that are not terminating.

(iii) Subtract the following from assets:

(A) Equity investments in your institution that are held by nonterminating associations and

that you expect to transfer to another System bank before or at termination. A

nonterminating association's investment consists of purchased equities, allocated

equities, and a share of the bank's unallocated surplus calculated in accordance with the

bank's bylaw provisions on liquidation. We may require a different calculation method for

the unallocated surplus if we determine that using the liquidation provision would be

inequitable to stockholders; and

(B) The dollar amount of estimated current and deferred tax expenses, if any, due to the

termination.

(iv) Add the dollar amount of current and deferred estimated tax benefits, if any, due to the

termination.

(v) Subtract from liabilities any liability that we treat as regulatory capital under the capital or

collateral requirements in subparts H and K of part 615 of this chapter.

(vi) Adjust for the dollar amount of significant transactions you reasonably expect to occur between

the quarter end before you file your plan of termination and date of termination. Examples of

these transactions include, but are not limited to, retirements of equity, loan repayments, and

patronage distributions. Do not make adjustments for future expenses related to termination,

such as severance or special retirement payments, or stock retirements to dissenting

stockholders and Farm Credit institutions.

(6) Make any adjustments we require under paragraph (c) of this section.

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Organization 12 CFR 611.1250(b)(4)

12 CFR 611.1250(b)(6) (enhanced display) page 53 of 61
[67 FR 17909, Apr. 12, 2002, as amended at 71 FR 76118, Dec. 20, 2006; 87 FR 27492, May 9, 2022]

(7) After the above adjustments, combine your balance sheet with the balance sheets of your

terminating associations after they have made the adjustments required in paragraph (a) of this

section. Subtract liabilities from assets. This is your preliminary total capital estimate for purposes

of termination.

(8) Multiply the assets of the combined balance sheet after the above adjustments by 6 percent.

Subtract this amount from the preliminary total capital estimate of the combined balance sheet. The

remainder is the preliminary exit fee estimate of the bank and terminating affiliated associations.

(9) Your preliminary exit fee estimate is the amount by which the preliminary exit fee estimate for the

combined entity exceeds the total of the individual preliminary exit fee estimates of your affiliated

terminating associations.

(c) Adjustments.

(1) We will review your account balances, transactions over the 3 years before the date of the

termination resolution under § 611.1220, and any subsequent transactions. Our review will include,

but not be limited to, the following:

(i) Additions to or subtractions from any allowance for losses;

(ii) Additions to assets or liabilities, or subtractions from assets or liabilities, due to transactions

that are outside your ordinary course of business;

(iii) Dividends or patronage refunds exceeding your usual practices;

(iv) Changes in the institution's capital plan, or in implementing the plan, that increased or

decreased the level of borrower investment;

(v) Contingent liabilities, such as loss-sharing obligations, that can be reasonably quantified; and

(vi) Assets, including real property and servicing rights, that may be overvalued, undervalued, or not

recorded on your books.

(2) If we determine the account balances do not accurately show the value of your assets and liabilities

(whether the assets and liabilities were booked before or during the 3-year look-back adjustment

period), we will make any adjustments we deem necessary.

(3) We may require you to reverse the effect of a transaction if we determine that:

(i) You have retired capital outside the ordinary course of business;

(ii) You have taken any other actions unrelated to your core business that have the effect of

changing the exit fee; or

(iii) You incurred expenses related to termination prior to the 12-month average daily balance period

on which the exit fee calculation is based.

(4) We may require you to make these adjustments to the preliminary exit fee estimate that is disclosed

in the information statement, the final exit fee calculation, and the calculations of the value of

equities held by dissenting stockholders, Farm Credit institutions that choose to have their equities

retired at termination, and reaffiliating associations.

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Organization 12 CFR 611.1250(b)(7)

12 CFR 611.1250(c)(4) (enhanced display) page 54 of 61
§ 611.1255 Exit fee calculation.

(a) Final exit fee calculation—terminating association. Calculate the final exit fee in the following order:

(1) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month

period preceding the termination date. Assume for this calculation that you have not paid or accrued

the items described in paragraph (a)(4)(ii) and (iii) of this section.

(2) Any amounts we refer to in this section are average daily balances unless we specify that they are

not. Amounts that are not average daily balances will be referred to as “dollar amount.”

(3) Compute the average daily balances based on financial statements that comply with GAAP. The

financial statements, as of the termination date, must be independently audited by a qualified public

accountant.

(4) Make adjustments to assets and liabilities as follows:

(i) Add back expenses related to the termination. Related expenses include, but are not limited to,

legal services, accounting services, tax services, studies, auditing, business planning, payments

of severance and special retirements, equity holder meetings, and application fees for the

termination and reorganization. Do not add back to assets expenses related to a requirement

by the FCA to engage independent experts to conduct assessments, analyses, or studies, or to

request rulings that solely address the impact of the termination on the System or parties other

than the terminating institution and its stockholders.

(ii) Subtract from assets the dollar amount of current and deferred tax expenses, if any, due to the

termination.

(iii) Add to assets the dollar amount of current and deferred tax benefits, if any, due to the

termination.

(iv) Subtract from liabilities any liability that we treat as regulatory capital under the capital or

collateral requirements in subparts H and K of part 615 of this chapter.

(v) Make the adjustments that we require under § 611.1250(c). For the final exit fee, we will review

and may require additional adjustments for transactions between the date you adopted the

termination resolution and the termination date.

(5) After making these adjustments to assets and liabilities, subtract liabilities from assets. This is your

total capital for purposes of termination.

(6) Multiply assets by 6 percent, and subtract this amount from total capital. This is your final exit fee.

(b) Final exit fee calculation—terminating bank.

(1) The individual exit fees of affiliated associations that are terminating with you must be calculated as

described in paragraph (a) of this section.

(2) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month

period preceding the termination date. Assume for this calculation that you have not paid or accrued

the items described in paragraph (b)(5)(iii)(B) and (b)(5)(iv) of this section.

(3) Any amounts we refer to in this section are average daily balances unless we specify that they are

not. Amounts that are not average daily balances will be referred to as “dollar amount.”

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Organization 12 CFR 611.1255

12 CFR 611.1255(b)(3) (enhanced display) page 55 of 61
(4) Compute the average daily balances based on bank-only financial statements that comply with

GAAP. The financial statements, as of the termination date, must be independently audited by a

qualified public accountant.

(5) Make adjustments to assets and liabilities as follows:

(i) Add back the following to your assets:

(A) Expenses you have incurred related to termination. Related expenses include, but are not

limited to, legal services, accounting services, tax services, studies, auditing, business

planning, payments of severance and special retirements, equity holder meetings, and

application fees for the termination and reorganization. Do not add back to assets

expenses related to a requirement by the FCA to engage independent experts to conduct

assessments, analyses, or studies, or to request rulings that solely address the impact of

the termination on the System or parties other than the terminating institution and its

stockholders.

(B) Any specific allowance for losses, and a pro rata share of any general allowance for credit

losses, on direct loans to associations that are paid off or transferred before or at

termination.

(ii) Subtract from your assets and liabilities your direct loans to affiliated associations that were

paid off or transferred in the 12-month period before termination or at termination.

(iii) Subtract from your assets the following:

(A) Equity investments held in your institution by affiliated associations that you transferred at

termination or during the 12 months before termination; and

(B) The dollar amount of current and deferred tax expenses, if any, due to the termination;

(iv) Add to assets, the dollar amount of estimated current and deferred tax benefits, if any, due to

the termination.

(v) Subtract from liabilities any liability that we treat as regulatory capital (or that we do not treat as

a liability) under the capital or collateral requirements in subparts H and K of part 615 of this

chapter.

(vi) Make the adjustments that we require under § 611.1250(c). For the final exit fee, we will review

and may require additional adjustments for transactions between the date you adopted the

termination resolution and the termination date.

(6) After the above adjustments, combine your balance sheet with the balance sheets of terminating

associations after making the adjustments required in paragraph (a) of this section.

(7) Subtract combined liabilities from combined assets. This is the total capital of the combined balance

sheet.

(8) Multiply the assets of the combined balance sheet after the above adjustments by 6 percent.

Subtract this amount from the total capital of the combined balance sheet. This amount is the

combined final exit fee for your institution and the terminating affiliated associations.

(9) Your final exit fee is the amount by which the combined final exit fee exceeds the total of the

individual final exit fees of your affiliated terminating associations.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1255(b)(4)

12 CFR 611.1255(b)(9) (enhanced display) page 56 of 61
[67 FR 17909, Apr. 12, 2002, as amended at 71 FR 76118, Dec. 20, 2006; 87 FR 27492, May 9, 2022]

§ 611.1260 Payment of debts and assessments—terminating association.

§ 611.1265 Retirement of a terminating association's investment in its affiliated bank.

(c) Payment of exit fee. On the termination date, you must:

(1) Deposit into an escrow account acceptable to us and the FCSIC an amount equal to 110 percent of

the preliminary exit fee estimate, adjusted to account for stock retirements to dissenting

stockholders and Farm Credit institutions, and any other adjustments we require.

(2) Deposit into an escrow account acceptable to us an amount equal to 110 percent of the equity you

must retire for dissenting stockholders and System institutions holding stock that would be entitled

to a share of the remaining assets in a liquidation.

(d) Pay-out of escrow. Following the independent audit of the institution's account balances as of the

termination date, we will determine the amount of the final exit fee and the amounts owed to stockholders

to retire their equities. We will then direct the escrow agent to:

(1) Pay the exit fee to the Farm Credit Insurance Fund;

(2) Pay the amounts owed to dissenting stockholders and Farm Credit institutions; and

(3) Return any remaining amounts to the successor institution.

(e) Additional payment. If the amount held in escrow is not enough to pay the amounts under paragraph (d)(1)

and (d)(2) of this section, the successor institution must pay any remaining liability to the escrow agent

for distribution to the appropriate parties. The termination application must include evidence that, after

termination, the successor institution will pay any remaining amounts owed.

(a) General rule. If your institution is a terminating association, you must pay or make adequate provision for

the payment of all outstanding debt obligations and assessments.

(b) No OFI relationship. If the successor institution will not become an OFI, you must either:

(1) Pay debts and assessments owed to your affiliated Farm Credit bank at termination; or

(2) With your affiliated Farm Credit bank's concurrence, arrange to pay any obligations or assessments

to the bank after termination.

(c) Obligations to other Farm Credit institutions. You must pay or make adequate provision for payment of

obligations to any Farm Credit institution (other than your affiliated bank) under any loss-sharing or other

agreement.

(a) Safety and soundness restrictions. Notwithstanding anything in this subpart to the contrary, we may

prohibit a bank from retiring the equities you hold in the bank if the retirement would cause the bank to fall

below its regulatory capital requirements after retirement, or if we determine that the bank would be in an

unsafe or unsound condition after retirement.

(b) Retirement agreement. Your affiliated bank may retire the purchased and allocated equities held by your

institution in the bank according to the terms of the bank's capital revolvement plan or an agreement

between you and the bank.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1255(c)

12 CFR 611.1265(b) (enhanced display) page 57 of 61
[71 FR 44420, Aug. 4, 2006, as amended at 81 FR 49772, July 28, 2016]

§ 611.1270 Repayment of obligations—terminating bank.

(c) Retirement in absence of agreement. Your affiliated bank must retire any equities not subject to an

agreement or revolvement plan no later than when you or the successor institution pays off your loan

from the bank.

(d) No retirement of unallocated surplus. When your bank retires equities you own in the bank, the bank must

pay par or face value for purchased and allocated equities, less any impairment. The bank may not pay

you any portion of its unallocated surplus.

(e) Exclusion of equities from capital ratios. If another Farm Credit institution makes an agreement to retire

equities you hold in that institution after termination, we may require that institution to exclude part or all

of those equities from assets and capital when the institution calculates its regulatory capital under parts

615 and 628 of this chapter.

(a) General rule. If your institution is a terminating bank, you must pay or make adequate provision for the

payment of all outstanding debt obligations, and provide for your responsibility for any probable

contingent liabilities identified.

(b) Satisfaction of primary liability on consolidated or System-wide obligations. After consulting with the other

Farm Credit banks, the Funding Corporation, and the FCSIC, you must pay or make adequate provision for

payment of your primary liability on consolidated or System-wide obligations in a method that we deem

acceptable. Before we make a final decision on your proposal and as we deem necessary, we may consult

with the other Farm Credit banks, the Funding Corporation, and the FCSIC.

(c) Satisfaction of joint and several liability and liability for interest on individual obligations.

(1) You and the other Farm Credit banks must enter into an agreement, which is subject to our approval,

covering obligations issued under section 4.2 of the Act and outstanding on the termination date.

The agreement must specify how you and your successor institution will make adequate provision

for the payment of your joint and several liability to holders of obligations other than those

obligations on which you are primarily liable, in the event we make calls for payment under section

4.4 of the Act. You and your successor institution must also provide for your liability under section

4.4(a)(1) of the Act to pay interest on the individual obligations issued by other System banks. As a

part of the agreement, you must also agree that your successor institution will provide ongoing

information to the Funding Corporation to enable it to fulfill its funding and disclosure duties. The

Funding Corporation may, at its option, be a party to the agreement to the extent necessary to fulfill

its duties with respect to financing and disclosure.

(2) If you and the other Farm Credit banks are unable to reach agreement within 90 days before the

proposed termination date, we will specify the manner in which you will make adequate provision for

the payment of the liabilities in question and how we will make joint and several calls for those

obligations outstanding on the termination date.

(3) Notwithstanding any other provision in these regulations, the successor institution will be jointly and

severally liable for consolidated and System-wide debt outstanding on the termination date (other

than the obligations on which you are primarily liable). The successor institution will also be liable

for interest on other banks' individual obligations as described in section 4.4(a)(1) of the Act and

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1265(c)

12 CFR 611.1270(c)(3) (enhanced display) page 58 of 61
§ 611.1275 Retirement of equities held by other System institutions.

§ 611.1280 Dissenting stockholders' rights.

outstanding on the termination date. The termination application must include evidence that the

successor institution will continue to be liable for consolidated and System-wide debt and for

interest on other banks' individual obligations.

(a) Retirement at option of equity holder. If your institution is a terminating institution, System institutions that

own your equities have the right to require you to retire the equities on the termination date.

(b) Value of equity holders' interests. You must retire the equities in accordance with the liquidation

provisions in your bylaws unless we determine that the liquidation provisions would result in an

inequitable distribution to stockholders. If we make such a determination, we will require you to distribute

the equity in accordance with another method that we deem equitable to stockholders. Before you retire

any equity, you must make the following adjustments to the amount of stockholder equity as stated in the

financial statements on the termination date:

(1) Make deductions for any taxes due to the termination that have not yet been recorded;

(2) Deduct the amount of the exit fee; and

(3) Make any adjustments described under § 611.1250(c) that we may require as we deem appropriate.

(c) Transfer of affiliated association's investment. As an alternative to equity retirement, an affiliated

association that reaffiliates with another Farm Credit bank instead of terminating with its bank has the

right to require the terminating bank to transfer its investment to its new affiliated bank when it

reaffiliates. If your institution is a terminating bank, at the time of reaffiliation you must transfer the

purchased and allocated equities held by the association, as well as its share of unallocated surplus, to

the new affiliated bank. Calculate the association's share before deduction of the exit fee as of the month

end preceding the reaffiliation date (or the termination date if it is the same as the reaffiliation date) in

accordance with the liquidation provisions of your bylaws, unless we determine that the liquidation

provisions would result in an inequitable distribution. If we make such a determination, we will require you

to distribute the association's share of your unallocated surplus in accordance with another method that

we deem equitable to stockholders. Before you distribute any unallocated surplus, you must make the

following adjustments to stockholder equity as stated in the financial statements as of the month end

preceding the reaffiliation date (or the termination date if it is the same as the reaffiliation date):

(1) Add back any taxes due to the termination, and the exit fee; and

(2) Make any adjustments described under § 611.1250(c) that we may require as we deem appropriate.

(d) Prohibition on certain affiliations. No Farm Credit institution may retain an equity interest otherwise

prohibited by law in a successor institution

(a) Definition. A dissenting stockholder is an equity holder (other than a System institution) in a terminating

institution on the termination date who either:

(1) Was eligible to vote on the termination resolution and voted against termination;

(2) Was an equity holder on the voting record date but was not eligible to vote; or

(3) Became an equity holder after the voting record date.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1275

12 CFR 611.1280(a)(3) (enhanced display) page 59 of 61
(b) Retirement at option of a dissenting stockholder. A dissenting stockholder may require a terminating

institution to retire the stockholder's equity interest in the terminating institution.

(c) Value of a dissenting stockholder's interest. You must pay a dissenting stockholder according to the

liquidation provision in your bylaws, except that you must pay at least par or face value for eligible

borrower stock (as defined in section 4.9A(d)(2) of the Act). If we determine that the liquidation provision

is inequitable to stockholders, we will require you to calculate their share in accordance with another

formula that we deem equitable.

(d) Calculation of interest of a dissenting stockholder. Before you retire any equity, you must make the

following adjustments to the amount of stockholder equity as stated in the financial statements on the

termination date:

(1) Deduct any taxes due to the termination that you have not yet recorded;

(2) Deduct the amount of the exit fee; and

(3) Make any adjustments described under § 611.1250(c) that we may require as we deem appropriate.

(e) Form of payment to a dissenting stockholder. You must pay dissenting stockholders for their equities as

follows:

(1) Pay cash for the par or face value of purchased stock, less any impairment;

(2) For equities other than purchased equities, you may:

(i) Pay cash;

(ii) Cause or otherwise provide for the successor institution to issue, on the date of termination,

subordinated debt to the stockholder with a face value equal to the value of the remaining

equities. This subordinated debt must have a maturity date of 7 years or less, must have priority

in liquidation ahead of all equity, and must carry a rate of interest not less than the rate (at the

time of termination) for debt of comparable maturity issued by the U.S. Treasury plus 1 percent;

or

(iii) Provide for a combination of cash and subordinated debt as described above.

(f) Payment to holders of special class of stock. If you have adopted bylaws under § 611.1210(f), you must

pay a dissenting stockholder who owns shares of the special class of stock an amount equal to the lower

of the par (or face) value or the value of such stock as determined under § 611.1280(c) and (d).

(g) Notice to equity holders. The notice to equity holders required in § 611.1240(f) must include a form for

stockholders to send back to you, stating their intention to exercise dissenters' rights. The notice must

contain the following information:

(1) A description of the rights of dissenting stockholders set forth in this section and the approximate

value per share that a dissenting stockholder can expect to receive. State whether the successor

institution will require borrowers to be stockholders or whether it will require stockholders to be

borrowers.

(2) A description of the current book and par value per share of each class of equities, and the expected

book and market value of the stockholder's interest in the successor institution.

(3) A statement that a stockholder must return the enclosed form to you within 30 days if the

stockholder chooses to exercise dissenters' rights.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1280(b)

12 CFR 611.1280(g)(3) (enhanced display) page 60 of 61
§ 611.1285 Loan refinancing by borrowers.

§ 611.1290 Continuation of borrower rights.

You may not require a waiver of contractual borrower rights provisions as a condition of borrowing from and owning

equity in the successor institution. Institutions that become other financing institutions on termination must comply

with the applicable borrower rights provisions in the Act and part 617 of this chapter.

(h) Notice to subsequent equity holders. Equity holders that acquire their equities after the termination vote

must also receive the notice described in paragraph (g) of this section. You must give them at least 5

business days to decide whether to request retirement of their stock.

(i) Reconsideration. If a reconsideration vote is held and the termination is disapproved, the right of

stockholders to exercise dissenters' rights is rescinded. If a reconsideration vote is held and the

termination is approved, you must retire the equities of dissenting stockholders as if there had been no

reconsideration vote.

(a) Disclosure of credit and loan information. At the request of a borrower seeking refinancing with another

System institution before you terminate, you must give credit and loan information about the borrower to

such institution.

(b) No reassignment of territory. If, at the termination date, we have not assigned your territory to another

System institution, any System institution may lend in your territory, to the extent otherwise permitted by

the Act and the regulations in this chapter.

12 CFR Part 611 (up to date as of 3/07/2024)

Organization 12 CFR 611.1280(h)

12 CFR 611.1290 (enhanced display) page 61 of 61
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 612 Standards of Conduct and Referral of Known or Suspected Criminal

Violations

Subpart A Standards of Conduct

§ 612.2130 Definitions.

§ 612.2135 Standards of conduct—core principles.

§ 612.2137 Elements of a Standards of Conduct Program.

§ 612.2140 [Reserved]

§ 612.2145 Disclosing and reporting conflicts of interest.

§ 612.2150 Prohibited conduct.

§§ 612.2155-612.2165 [Reserved]

§ 612.2170 Standards of Conduct Official.

§ 612.2180 Standards of conduct for agents.

§§ 612.2260-612.2270 [Reserved]

Subpart B Referral of Known or Suspected Criminal Violations

§ 612.2300 Purpose and scope.

§ 612.2301 Referrals.

§ 612.2302 Notification of board of directors and bonding company.

§ 612.2303 Institution responsibilities.

PART 612—STANDARDS OF CONDUCT AND REFERRAL OF KNOWN

OR SUSPECTED CRIMINAL VIOLATIONS

Authority: Secs. 5.9, 5.17, 5.19, 5.31A of the Farm Credit Act of 1971, as amended, (Act) (12 U.S.C. 2243, 2252,

2254, 2267a); Sec. 514 of Pub. L. 102–552, 106 Stat. 4102.

Source: 59 FR 24894, May 13, 1994, unless otherwise noted.

Subpart A—Standards of Conduct

Source: 86 FR 50975, Sept. 13, 2021, unless otherwise noted.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 612 (up to date as of 3/07/2024)

Standards of Conduct and Referral of Known or Suspected Criminal Violations 12 CFR Part 612 (Mar. 7, 2024)

12 CFR 612 (enhanced display) page 1 of 14
§ 612.2130 Definitions.

For purposes of this subpart, the following terms and definitions apply excepting that words like document, record,

certify, report, sign, and write generally should be interpreted to permit their electronic equivalents:

Agent means any person, other than a director or employee of the institution, with the power to act for the

institution either by contract or apparent authority and who currently either represents the System

institution in contacts with third parties or provides professional or fiduciary services to the institution.

Code of Ethics means a written statement of the principles and values the System institution follows to

establish a culture of ethical conduct for directors and employees, including, at a minimum, the core

principles established under this subpart.

Conflicts of interest means a set of circumstances or appearance thereof where a person has a financial interest

in a transaction, relationship, or activity that could or does actually affect (or has the appearance of

affecting) that person's ability to perform official duties and responsibilities in a totally impartial manner

and in the best interest of the institution when viewed from the perspective of a reasonable person with

knowledge of the relevant facts.

Employee means any individual working on a part-time, full-time, or temporary basis by the System institution,

including those identified as officers of the institution. Persons not maintained on the institution's payroll

(i.e., independent contractors) are not employees for purposes of this subpart.

Entity means a corporation, company, association, firm, joint venture, partnership (general or limited), trust

(business or otherwise) or other business operation whether or not incorporated.

Family means parents, spouses or civil union partners, children, siblings, uncles, aunts, nephews, nieces,

grandparents, grandchildren, and the spouses of the foregoing, whether arising from biological, adoptive,

marital, or other legal means (e.g., stepparents, stepchildren, half-siblings, in-laws). The term also includes

anyone residing in the household or who is a legal or financial dependent, regardless of any familial

relationship.

Financial interest means an interest in an activity, transaction, property, or relationship with a person that

involves receiving or providing something of monetary value or other present or deferred compensation.

Financially obligated with means having a legally enforceable joint obligation with, being financially obligated on

behalf of (contingently or otherwise), having an enforceable legal obligation secured by property owned

by another person, or owning property that secures an enforceable legal obligation of another.

Material, when applied to a financial interest or transaction (including a series of transactions viewed in the

aggregate), means that the interest or transaction is of sufficient magnitude that a reasonable person

with knowledge of the relevant facts would question the ability of the person who has the interest or is

party to such transaction(s) to perform the person's official duties objectively and impartially and in the

best interest of the institution and its statutory purpose.

Mineral interest means any interest in minerals, oil, or gas, including but not limited to, any right derived directly

or indirectly from a mineral, oil, or gas lease, deed, or royalty conveyance.

Officer means the chief executive officer, president, chief operating officer, vice president, secretary, treasurer,

general counsel, chief financial officer, and chief credit officer of the System institution, and any person

not so designated but who holds a similar position of authority.

Ordinary course of business, when applied to a transaction, means:

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Standards of Conduct and Referral of Known or Suspected Criminal Violations 12 CFR 612.2130

12 CFR 612.2130 “Ordinary course of business” (enhanced display) page 2 of 14
§ 612.2135 Standards of conduct—core principles.

(1) A transaction that is usual and customary in the business in question on terms that are not

preferential; or

(2) A transaction with a person who is in the business of offering the goods or services that are the

subject of the transaction on terms that are not preferential.

Person means individual or entity (including sole proprietorships).

Preferential means that the transaction is not on the same terms as those prevailing at the same time for

comparable transactions for other persons who are not directors, employees or agents of a System

institution.

Reportable business entity means an entity in which the reporting individual, directly or indirectly, or acting

through or in concert with one or more persons:

(1) Owns a material percentage of the equity;

(2) Owns, controls, or has the power to vote a material percentage of any class of voting securities; or

(3) Has the power to exercise a material influence over the management of policies of such entity from

his or her status as a partner, director, officer, or majority shareholder in the entity.

Resolved means an actual or apparent conflict of interest that has been addressed with an action such as

recusal, divestiture, approval or exception, job reassignment, employee supervision, employment

separation or other action, with the result that a reasonable person with knowledge of the relevant facts

would conclude that the conflicting interest is unlikely to adversely affect the person's performance of

official duties in an objective and impartial manner and in furtherance of the interests and statutory

purposes of the Farm Credit System.

Standards of Conduct Official or “SOCO” means a person appointed by the institution's board of directors

pursuant to this subpart to administer and report on the institution's Standards of Conduct Program, as

well as investigate allegations of misconduct by institution directors, employees or agents.

Standards of Conduct Program or SOC program means the policies and procedures, internal controls and other

actions a System institution must implement to put into practice the requirements of this subpart.

Supervised institution is a term that only applies within the context of a Farm Credit bank or employee of a Farm

Credit bank and refers to each association supervised by that Farm Credit bank.

Supervising institution is a term that only applies within the context of an association or employee of an

association and refers to the Farm Credit bank that supervises that association.

System institution and institution means any Farm Credit System bank, association, or service corporation

chartered under section 4.25 of the Act, and the Funding Corporation. It does not include the Federal

Agricultural Mortgage Corporation.

(a) Conduct. If you are a System institution director or employee, you must:

(1) Maintain high ethical standards, including high standards of care, honesty, integrity, and fairness.

(2) Act in the best interest of the institution.

(3) Preserve the reputation of the institution and the public's confidence in the Farm Credit System.

(4) Exercise diligence and good business judgment in carrying out official duties and responsibilities.

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Standards of Conduct and Referral of Known or Suspected Criminal Violations 12 CFR 612.2130 “Ordinary course of business” (1)

12 CFR 612.2135(a)(4) (enhanced display) page 3 of 14
§ 612.2137 Elements of a Standards of Conduct Program.

Each System institution board of directors is ultimately responsible for the implementation, oversight of, and

compliance with, the Standards of Conduct Program. In fulfilling these responsibilities, each System institution

board of directors must do the following:

(5) Report to the Standards of Conduct Official conflicts of interest and circumstances or transactions

that have the appearance of creating a conflict of interest involving yourself, your family, or your

reportable business entity.

(6) Work with the Standards of Conduct Official to identify conflicts and resolve reported conflicts of

interest and appearances of conflicts of interest.

(7) Avoid self-dealing and acceptance of gifts or favors that may be deemed as offered, or have the

appearance of being offered, to influence official actions or decisions.

(b) Responsibilities. To achieve the high standards of conduct of this subpart, every institution director and

employee must:

(1) Comply with the standards of conduct and Code of Ethics policies and procedures maintained at his

or her institution.

(2) Comply with all applicable laws and regulations.

(3) Timely report to the Standards of Conduct Official, or use the institution's anonymous reporting

procedures, any known or suspected:

(i) Illegal or unethical activity; or

(ii) Violation of the institution's standards of conduct and Code of Ethics.

(c) Fiduciary duties. Every officer or director of a System institution must fulfill his or her fiduciary duties to

the institution and its stockholders.

(a) Establish a SOC program. Each institution's board of directors must establish and maintain a Standards of

Conduct Program that sets forth the core principles of § 612.2135 and meets the requirements of this

subpart. The board must act to ensure the SOC program has adequate resources for its implementation

and operation. The SOC program must include maintaining conflicts of interest and other reports required

under this subpart, along with any investigations, determinations, and supporting documentation, for a

minimum of 6 years.

(b) Appoint a Standards of Conduct Official. Each institution must have a Standards of Conduct Official who is

appointed pursuant to § 612.2170. An institution may use one of its officers to serve as SOCO or may use

a chartered service corporation or third-party to provide the services of a SOCO. Institutions may also use

another institution's SOCO or hire a SOCO under a shared contract with other System institutions when

each institution has a separate confidential relationship with the person serving as SOCO.

(c) Adopt a written Code of Ethics. Each institution as part of its SOC program must adopt and maintain an

up-to-date written Code of Ethics. The Code must establish the institution's values and expectations for

the ethical conduct of directors and employees in business transactions and include a general statement

of expectations for appropriate professional conduct. The entire Code of Ethics must be available to all

directors, employees, agents, and shareholders of the institution. The institution must post on its external

website a statement that it has adopted a professional Code of Ethics, summarizing what that Code is,

and advising the public the entire Code of Ethics is available on request at no cost.

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12 CFR 612.2137(c) (enhanced display) page 4 of 14
(d) Establish Standards of Conduct policies and procedures. Each institution's board of directors must adopt

policies and procedures to implement the institution's SOC program. These policies and procedures must

address all aspects of the SOC program, including, but not limited to, the following:

(1) Requiring conflict of interest reporting from all directors and employees pursuant to § 612.2145. The

frequency of conflicts of interest reporting and other disclosures must be addressed in SOC program

policies and procedures using the institution's fiscal year calendar. At a minimum, each person must

annually report to the SOCO known conflicts occurring in the current year. Pursuant to § 612.2145(c),

the board must also require directors and officers to give the SOCO the disclosures required under §

620.6(a), (e), and (f) of this chapter, regardless of who else in the institution receives the disclosures.

(2) Explaining what constitutes SOC program compliance, including setting criteria for documentation

submitted with conflicts of interest reports and providing instructions to help directors and

employees identify and report on interests or circumstances that could give rise to an actual or

apparent conflict of interest.

(i) The board must explain within the policies and procedures what transactions are likely to

present real or potential conflicts, setting benchmarks and thresholds for both single and

aggregate activities. The policies and procedures must also explain how transactions in the

ordinary course of business are identified.

(ii) The board must explain within the policies and procedures, setting benchmarks and thresholds,

how materiality of a conflict is identified. The materiality guidelines must be used when

evaluating conflicts of interest reports filed by employees and directors. An exception for those

matters affecting all shareholders or borrowers may be used in making the determination of

materiality.

(3) Addressing the process by which real and apparent conflicts will be resolved. The procedures must

also explain action(s) to be taken when a conflict cannot be resolved to the satisfaction of the

institution. The procedures must explain the role and authorities of the SOCO in resolving conflicts.

(4) Addressing the conduct of third-party relationships. The board of directors at each institution must

adopt conflict-of-interest policies for third-party relationships and develop safeguards for use in

contractual obligations that require third-party service providers to perform services on behalf of the

institution in an ethical manner. At a minimum, the policies for third-party relationships must set

forth expectations for disclosing known conflicts of interest to the institution. The policies must also

implement the requirements of § 612.2180 for agents of the institution.

(5) Setting criteria for accepting gifts that are not otherwise prohibited by this subpart. The criteria must

explain the scope of application and may make appropriate exceptions for non-business events

where the gift is not viewed by the institution as attempting to influence official institution business.

The gift criteria must include de minimis dollar thresholds for all permissible gifts, regardless of the

gift giving reason. The thresholds must apply both per gift and in the aggregate per recipient, per

year. The institution must also establish disclosure requirements for gifts received as well as

procedures for disposing of impermissible gifts.

(6) Identifying the appropriate actions that may be taken against any director or employee who violates

the standards of conduct policies and procedures, Code of Ethics, or regulations under this subpart.

The board must also identify who is authorized to take which action and when. The board must

address how the SOCO exercises his or her authority under § 612.2170 to investigate certain

conduct issues.

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12 CFR 612.2137(d)(6) (enhanced display) page 5 of 14
§ 612.2140 [Reserved]

§ 612.2145 Disclosing and reporting conflicts of interest.

(7) Providing for anonymous reporting by individuals of known or suspected violations of the

institution's Standards of Conduct Program and Code of Ethics, through a hotline or other venue.

(e) Monitor the SOC program through internal controls. Each institution's board of directors must establish a

system of internal controls for its SOC program that includes, at a minimum, a process to:

(1) Protect against unauthorized disclosure of confidential information maintained by the institution.

(2) Conduct scheduled periodic reviews of the Standards of Conduct Program that determine the

continued adequacy of the program. Each review must look for consistency with institution

practices, financial services industry best practices, and Farm Credit Administration (FCA)

regulations in this chapter, identifying any required updates.

(3) Perform internal audits of the Standards of Conduct Program. The board of directors, with the

assistances of the SOCO and appropriate officers of the institution, must determine the scope and

depth of the audit. The board is responsible for identifying who will conduct the internal audit. The

audit findings must be given directly to the institution's board or designated board committee. The

audit itself must be designed to:

(i) Review the effectiveness of advancing the core principles;

(ii) Identify weaknesses;

(iii) Recommend and report necessary corrective actions; and

(iv) Cover the entire Standards of Conduct Program across the institution, including all activities

conducted through a System institution unincorporated business entity (UBE) formed under §

611.1150(b) of this chapter, including UBEs organized for the express purpose of investing in a

Rural Business Investment Company.

(f) Train institution personnel. Each institution's board of directors must establish a training program to

administer periodic Standards of Conduct and Code of Ethics training to directors and employees. The

training must be given by the SOCO and the board must address how the SOCO will exercises his or her

training responsibilities under § 612.2170. The Standards of Conduct training must be administered under

the following timeframes:

(1) Newly elected or appointed directors must receive Standards of Conduct training within 60 calendar

days of the director assuming his or her position.

(2) New employees must receive Standards of Conduct training within 10 business days of beginning

work.

(3) Periodic training for all directors and employees must occur at least annually but may be more

frequent.

(a) Responsibilities. As a director or employee of a System institution you must identify, disclose, and report

on any interest or circumstances that does or could constitute a conflict of interest and potential conflict

of interest. You must carry out this responsibility to the best of your knowledge and belief. You must

cooperate with, and provide information requested by, the Standards of Conduct Official for use in

determining the materiality of a conflict and to resolve conflicts of interest and potential conflicts of

interest.

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§ 612.2150 Prohibited conduct.

(1) If you have a conflict of interest in a matter, transaction, or activity subject to official action by the

institution or before the board of directors then you must disclose it and refrain from participating in

official action or board discussion of the matter, transaction, or activity. You must also avoid voting

on or influencing any decision directed at the matter, transaction, or activity.

(2) You must report, either to the SOCO or by using the institution's anonymous reporting procedures,

any known or suspected activity by a person affiliated with the institution that you suspect is illegal,

unethical, or a violation of the institution's standards of conduct and Code of Ethics.

(b) Reporting conflicts of interest. As a director or employee of a System institution, you must file with the

SOCO reports on any real or potential conflicts of interest. The reports must be filed at least annually and

at such other times as may be required by your institution policies and procedures. The reports must be in

sufficient detail for a reasonable person to make a conflict of interest determination and decide if the

conflict is material. You must file a report with the SOCO that contains the disclosures required by this

section and those required by the institution's SOC program policies and procedures. At a minimum, the

report must be signed by you and include:

(1) Any interest you have in any business matter, including any loan or loan application, to be considered

by the System institution, or supervised or supervising institution in the current year;

(2) All material financial interests, including those arising in the ordinary course of business, you have

with any director, employee, agent, or borrower of your System institution, or a supervised or

supervising institution;

(3) The name(s) of your reportable business entities that you know or have reason to know in the current

year transacted business with:

(i) Your System institution;

(ii) Any supervised or supervising institution; or

(iii) A borrower that transacts business with your System institution, or any supervised or

supervising institution.

(4) The name(s) of your family members you know or have reason to know transacted business with

your System institution or any supervised or supervising institution in the current year.

(5) Reportable gifts received or disposed of under the institution's SOC program policies and

procedures.

(c) Other required disclosures for directors and officers. If you are a director or officer at the institution, you

must give the SOCO the disclosures required under § 620.6(a), (e), and (f) of this chapter, regardless of

who else in the institution has been provided them. The timing and frequency of disclosing the

information to the SOCO, or any updates to them, is determined by your institution's SOC program policies

and procedures but must occur no less than annually and at issuance of the institution's Annual Meeting

Information Statement.

(a) General. If you are a System institution director or employee you must not act inconsistently with the

Standards of Conduct core principles set forth in this subpart. You also must not act in the following

manner:

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(1) Use your position for personal gain or advantage. Do not participate in deliberations on, or the

determination of, any matter affecting your financial interest either directly or indirectly. Matters

affecting your financial interest include financial interests of family or reportable business entities.

You also may not use your position as a director or employee of the institution to obtain special

advantage or favoritism for yourself, your family, or a reportable business entity. However, you may

participate in matters of general applicability affecting shareholders or borrowers of a particular

class if your participation occurs in a nondiscriminatory way.

(2) Divulge confidential information. Do not make use of or disclose any fact, information, or document

not generally available to the public that you acquired by virtue of your position as a director or

employee of the institution. You may use confidential information in the performance of your official

duties.

(3) Accept prohibited gifts. Do not solicit, obtain, or accept (directly or indirectly), any gift, fee, or other

compensation that is offered or requested based on your position as a director or employee of an

institution if it could be viewed as being offered to influence your decision-making, an official action,

or to obtain information related to your institution's operations.

(4) Purchase property owned by the institution. Do not knowingly purchase or otherwise acquire (directly

or indirectly) any interest (including mineral interests) in any real or personal property that currently

is owned, or within the past 12 months was owned, by your institution, your supervising institution, or

institutions supervised by your institution as a result of foreclosure, deed in lieu, or similar action.

The prohibition in this paragraph (a)(4) extends to property held or sold by a chartered service

corporation or a System unincorporated business entity. The prohibition does not apply in the

following situations:

(i) You acquire the property by inheritance.

(ii) You are exercising your rights of first refusal under section 4.36 of the Act.

(iii) If you are a director of the institution, you may purchase property from a System institution

when the property is sold through public auction or similar open, competitive bidding process.

The exception in this paragraph (a)(4)(iii) only applies if you did not participate in the decision

to foreclose upon the property nor did you participate in deciding how the institution would

dispose of the property. Participating in these decisions includes setting the sale terms or

receiving information as a result of your position with the institution that could give you an

advantage over other potential bidders or purchasers of the property.

(5) Enter into transactions with prohibited sources. Do not directly or indirectly borrow from, lend to, or

become financially obligated with or on behalf of a director, employee, or agent of your institution,

your supervising institution, or institution supervised by your institution. You are also prohibited from

directly or indirectly borrowing, lending to, or becoming financially obligated with or on behalf of a

borrower or loan applicant of your institution. The transaction prohibition does not apply to:

(i) Transactions with family members.

(ii) Transactions that occur in the ordinary course of business as determined and documented by

the written policies and procedures of your institution.

(iii) Transactions undertaken in an official capacity and in connection with the institution's

discounting, lending, or participation relationships with other financing institutions (OFIs) and

other lenders.

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(6) Purchase System obligations. Do not purchase any obligation of a System institution, including any

joint, consolidated or System-wide obligation, unless such obligation is part of an offering available

to the public and you either purchase it through a dealer or dealer bank affiliated with a member of

the selling group designated by the Funding Corporation or purchase it in the secondary markets.

(i) Do not purchase or retire any stock in advance of the release of material, non-public,

information concerning the institution to other stockholders.

(ii) If you are a director or employee of the Funding Corporation, do not purchase or otherwise

acquire, directly or indirectly, except by inheritance, any obligation or equity of a System

institution, including any joint, consolidated or System-wide obligations, unless it is a common

cooperative equity as defined in § 628.2 of this chapter.

(b) Employees only. In addition to the prohibitions under paragraph (a) of this section, if you are an institution

employee you must not:

(1) Serve as a director or employee of certain entities. Do not serve as a director or employee of any

commercial bank, savings and loan, or other non-System financial institution. You may not serve as a

director or employee of a non-System entity that transacts business with a System institution within

your institution's district unless specifically allowed in this paragraph (b). For the purpose of this

paragraph (b)(1), “transacts business” does not include loans by a System institution to a familyowned entity or a reportable business entity; service on the board of directors of the Federal

Agricultural Mortgage Corporation; transactions with non-profit entities; or transactions with entities

in which the System institution has an ownership interest. The prohibition in this paragraph (b)(1)

does not apply in the following situations:

(i) You may serve as a director or employee of an employee credit union.

(ii) You may serve as a director of a cooperative that borrows from the System under the Act's Title

III authorities if you are not employed at an institution with Title III lending authority and your

employing institution approves your service on the cooperative's board.

(2) Act as a real estate agent or broker. Do not act as a real estate agent or broker unless you are buying

or selling real estate for your own use or for family.

(3) Act as an insurance agent or broker. Do not act as an insurance agent or broker for the sale and

placement of insurance, unless authorized by section 4.29 of the Act.

(4) Serve as a joint employee. Do not serve as an employee for your supervising institution if you are an

officer at your association. Do not serve as an employee for a supervised institution if you are an

officer at your Farm Credit bank. The prohibition in this paragraph (b)(4) does not apply in the

following situations:

(i) You may be both a non-officer employee at a Farm Credit bank and a supervised association if

the employment expenses are appropriately reflected in each institution's financial statements.

(ii) If you are currently employed with a Farm Credit bank as other than an officer, in extraordinary

circumstances, FCA may approve your serving as an officer of a supervised association. This

requires the boards at both institutions to agree to the joint service and for the duties and

compensation at each institution to be delineated in the board approval documents. The board

documents, along with the request, must be sent at least 10 business days before the effective

date to the Director of Regulatory Policy, Farm Credit Administration.

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§§ 612.2155-612.2165 [Reserved]

§ 612.2170 Standards of Conduct Official.

(a) Authority. The Standards of Conduct Official must be appointed by the board of directors for the institution

and the board of directors must empower the appointed SOCO with all of the following:

(1) Direct access to the board (or designated board committee) for the purpose of discussing and

reporting on matters related to the institution's Standards of Conduct Program and Code of Ethics;

(2) Authority to carry out the responsibilities set forth in this section;

(3) Accessibility to all directors, employees, and agents of the institution;

(4) Legal authority to receive confidential SOC program communications from all directors, employees,

and agents of the institution; and

(5) Resources adequate for implementing a successful Standards of Conduct Program.

(b) Program administration. The Standards of Conduct Official must implement the institution's Standards of

Conduct Program as determined by the written policies and procedures of his or her institution and FCA

regulations in this chapter. This may include, but is not limited to, the following:

(1) Providing guidance and information to directors and employees on conflicts of interest, including

aiding in the identification of reportable conflicts of interest and reportable financial interests in

accordance with this subpart;

(2) Receiving reports required under this subpart from directors, employees, and agents;

(3) Receiving from directors and officers the disclosures required under § 620.6(a), (e), and (f) of this

chapter for treatment as a supplement to an individual's conflicts of interest report;

(4) Reviewing and acting upon all SOC program reports and disclosures, including documenting resolved

and unresolved conflicts of interest that are material, and making written determinations on how

conflicts of interest will be resolved;

(5) Maintaining all SOC program records for the required period of time, including documentation that

explains how conflicts are being handled;

(6) Conducting investigations as either authorized under this subpart or by the institution's SOC program

policies and procedures;

(7) Reporting promptly to the institution's board of directors (or designated board committee) those SOC

program or Code of Ethics matters required by the institution's SOC program policies and procedures

or FCA regulations in this chapter; and

(8) Reporting to the institution's board of directors those activities investigated pursuant to paragraph

(d) of this section.

(c) Training duties. The Standards of Conduct Official must give standards of conduct training to all directors

and employees at the institution. The training must comply with the requirement of § 612.2137 and the

institution's Standards of Conduct policies and procedures. In addition to other matters, periodic training

must cover updates or revisions to the institution's SOC program and Code of Ethics. The SOCO must

obtain written participation certifications from every director and employee taking the training.

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§ 612.2180 Standards of conduct for agents.

(d) Investigative duties. The Standards of Conduct Official is responsible for investigating complaints alleging

misconduct or possible criminal behavior by the institution, its directors, or its employees.

(1) At a minimum, the Standards of Conduct Official must investigate, or cause to be investigated, all

cases involving:

(i) Possible violations of criminal statutes;

(ii) Possible violations of director or employee prohibited conduct regulations in § 612.2150, and

the applicable institution policies and procedures;

(iii) Complaints of misconduct received against directors and employees of the institution;

(iv) Possible violations of other provisions of this part; and

(v) Suspected activities of a sensitive nature which could affect continued public confidence in the

Farm Credit System.

(2) The SOCO serves as the reporting official for all cases investigated under subpart B of this part

(criminal referrals). In this capacity, the SOCO must report to both the institution's board and the

Farm Credit Administration's Office of General Counsel all cases where:

(i) A preliminary investigation indicates that a Federal criminal statute may have been violated;

(ii) An investigation results in the removal of a director or discharge of an employee; or

(iii) A violation may have an adverse impact on continued public confidence in the System or any of

its institutions.

(a) Agents. Agents of System institutions must maintain high standards of honesty, integrity, and impartiality

in order to ensure the proper performance of System business and continued public confidence in the

System and all its institutions. The avoidance of misconduct and conflicts of interest is indispensable to

the maintenance of these standards.

(b) Institutions. Each institution must use safe and sound business practices in the engagement, utilization,

and retention of agents. These practices shall provide for the selection of qualified and reputable agents.

The institution is responsible for the administration of relationships with its agents and must take

appropriate investigative and corrective action in the case of a breach of fiduciary duties by an agent or

failure of an agent to carry out other duties as required by contract, FCA regulations in this chapter, or law.

(c) Control. System institutions are responsible for exercising special diligence and control, through good

business practices, to avoid or control situations that have inherent potential for sensitivity, either real or

perceived. These areas include:

(1) The employment of agents who are related to directors or employees of the institutions;

(2) The solicitation and acceptance of gifts, contributions, or special considerations by agents; and

(3) The use of System and borrower information obtained in the course of the agent's work with the

institution.

(d) Enforcement. Agents of System institutions are “institution-affiliated parties” as that term is defined in the

Act and therefore subject to certain FCA enforcement authorities contained in part C of title V of the Act.

An “institution-affiliated party” is:

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§§ 612.2260-612.2270 [Reserved]

Subpart B—Referral of Known or Suspected Criminal Violations

Source: 62 FR 24566, May 6, 1997, unless otherwise noted. Redesignated at 69 FR 10907, Mar. 9, 2004.

§ 612.2300 Purpose and scope.

(1) A director, officer, employee, shareholder, or agent of a System institution;

(2) An independent contractor (including an attorney, appraiser, or accountant) who knowingly or

recklessly participates in:

(i) A violation of law (including regulations) that is associated with the operations and activities of

one or more System institutions;

(ii) A breach of fiduciary duty; or

(iii) An unsafe practice that causes or is likely to cause more than a minimum financial loss to, or a

significant adverse effect on, a System institution; or

(3) Any other person, as determined by the Farm Credit Administration (by regulation or on a case-bycase basis) who participates in the conduct of the affairs of a System institution.

(a) This part applies to all institutions of the Farm Credit System as defined in section 1.2(a) of the Farm

Credit Act of 1971, as amended, (Act) (12 U.S.C. 2002(a)) including, but not limited to, associations,

banks, service corporations chartered under section 4.25 of the Act, the Federal Farm Credit Banks

Funding Corporation, the Farm Credit Leasing Services Corporation, and the Federal Agricultural Mortgage

Corporation (hereinafter, institutions). The purposes of this part are to ensure public confidence in the

Farm Credit System, to ensure the reporting of known or suspected criminal activity, to reduce potential

losses to institutions, and to ensure the safety and soundness of institutions. This part requires that

institutions use the Farm Credit Administration Criminal Referral Form (hereinafter FCA Referral Form) to

notify the appropriate Federal authorities when any known or suspected Federal criminal violations of the

type described in § 612.2301 are discovered by institutions.

(b) The specific referral requirements of this part apply to known or suspected criminal violations of the

United States Code involving the assets, operations, or affairs of an institution. This part prescribes

procedures for referring those violations to the proper Federal authorities and the Farm Credit

Administration. No specific procedural requirements apply to the referral of violations of State or local

laws.

(c) Nothing in this part should be construed as reducing in any way an institution's ability to report known or

suspected criminal activities to the appropriate investigatory or prosecuting authorities, whether Federal,

State, or local, even when the circumstances in which a report is required under § 612.2301 are not

present.

(d) It shall be the responsibility of each System institution to determine whether there appears to be a

reasonable basis to conclude that a criminal violation has been committed and, if so, to report the matter

to the proper law enforcement authorities for consideration of prosecution.

(e) Each referral required by § 612.2301(a) shall be made on the FCA Referral Form in accordance with the

FCA Referral Form instructions relating to its filing and distribution.

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[62 FR 24566, May 6, 1997. Redesignated and amended at 69 FR 10907, Mar. 9, 2004; 75 FR 35968, June 24, 2010.]

§ 612.2301 Referrals.

(a) Each institution and its board of directors shall exercise due diligence to ensure the discovery, appropriate

investigation, and reporting of criminal activity. Within 30 calendar days of determining that there is a

known or suspected criminal violation of the United States Code involving or affecting its assets,

operations, or affairs, the institution shall refer such criminal violation to the appropriate regional offices

of the United States Attorney, and the Federal Bureau of Investigation or the United States Secret Service

or both, using the FCA Referral Form. A copy of the completed FCA Referral Form, accompanied by any

relevant documentation, shall be provided at the same time to the Farm Credit Administration's Office of

General Counsel. In the event that a Farm Credit bank makes a loan through a Federal land bank

association which services the loan, the Federal land bank association must inform the Farm Credit bank

of any known or suspected violation involving that loan and the Farm Credit bank shall refer the violation

to Federal law enforcement authorities under this section. A report is required in circumstances where

there is:

(1) Any known or suspected criminal activity (e.g., theft, embezzlement), mysterious disappearance,

unexplained shortage, misapplication, or other defalcation of property and/or funds, regardless of

amount, where an institution employee, officer, director, agent, or other person participating in the

conduct of the affairs of such an institution is suspected;

(2) Any known or suspected criminal activity involving an actual or potential loss of $5,000 or more,

through false statements or other fraudulent means, where the institution has a substantial basis for

identifying a possible suspect or group of suspects and the suspect(s) is not an institution

employee, officer, director, agent, or other person participating in the conduct of the affairs of such

an institution;

(3) Any known or suspected criminal activity involving an actual or potential loss of $25,000 or more,

through false statements or other fraudulent means, where the institution has no substantial basis

for identifying a possible suspect or group of suspects; or

(4) Any known or suspected criminal activity involving a financial transaction in which the institution was

used as a conduit for such criminal activity (such as money laundering/structuring schemes).

(b) In circumstances where there is a known or suspected violation of State or local criminal law, the

institution shall notify the appropriate State or local law enforcement authorities.

(c) In addition to the requirements of paragraph (a) of this section, the institution shall immediately notify by

telephone the appropriate Federal law enforcement authorities and FCA offices specified on the FCA

Referral Form upon determining that a known or suspected criminal violation of Federal law requiring

urgent attention has occurred or is ongoing. Such cases include, but are not limited to, those where:

(1) There is a likelihood that the suspect(s) will flee;

(2) The magnitude or the continuation of the known or suspected criminal violation may imperil the

institution's continued operation; or

(3) Key institution personnel are involved.

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§ 612.2302 Notification of board of directors and bonding company.

§ 612.2303 Institution responsibilities.

Each institution shall establish effective policies and procedures designed to ensure compliance with this part,

including, but not limited to, adequate internal controls.

(a) The institution's board of directors shall be promptly notified of any criminal referral by the institution,

except that if the criminal referral involves a member of the board of directors, discretion may be

exercised in notifying such member of the referral.

(b) The institution involved shall promptly make all required notifications under any applicable surety bond or

other contract for protection.

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12 CFR 612.2303 (enhanced display) page 14 of 14
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 613 Eligibility and Scope of Financing

Subpart A Financing Under Titles I and II of the Farm Credit Act

§ 613.3000 Financing for farmers, ranchers, and aquatic producers or harvesters.

§ 613.3005 Lending objective.

§ 613.3010 Financing for processing or marketing operations.

§ 613.3020 Financing for farm-related service businesses.

§ 613.3030 Rural home financing.

Subpart B Financing for Banks Operating Under Title III of the Farm Credit Act

§ 613.3100 Domestic lending.

§ 613.3200 International lending.

Subpart C Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A of the Act

§ 613.3300 Participations and other interests in loans to similar entities.

PART 613—ELIGIBILITY AND SCOPE OF FINANCING

Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the

Farm Credit Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 2093, 2122, 2128, 2129, 2143, 2206a, 2211,

2212, 2213, 2243, 2252).

Subpart A—Financing Under Titles I and II of the Farm Credit Act

Source: 62 FR 4441, Jan. 30, 1997, unless otherwise noted.

§ 613.3000 Financing for farmers, ranchers, and aquatic producers or harvesters.

This content is from the eCFR and is authoritative but unofficial.

(a) Definitions. For purposes of this subpart, the following definitions apply:

(1) Bona fide farmer or rancher means a person owning agricultural land or engaged in the production of

agricultural products, including aquatic products under controlled conditions.

(2) Legal entity means any partnership, corporation, estate, trust, or other legal entity that is established

pursuant to the laws of the United States, any State thereof, the Commonwealth of Puerto Rico, the

District of Columbia, or any tribal authority and is legally authorized to conduct a business.

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[62 FR 4441, Jan. 30, 1997, as amended at 73 FR 30475, May 28, 2008]

§ 613.3005 Lending objective.

It is the objective of each bank and association, except for banks for cooperatives, to provide full credit, to the

extent of creditworthiness, to the full-time bona fide farmer (one whose primary business and vocation is farming,

ranching, or producing or harvesting aquatic products); and conservative credit to less than full-time farmers for

agricultural enterprises, and more restricted credit for other credit requirements as needed to ensure a sound credit

package or to accommodate a borrower's needs as long as the total credit results in being primarily an agricultural

loan. However, the part-time farmer who needs to seek off-farm employment to supplement farm income or who

desires to supplement off-farm income by living in a rural area and is carrying on a valid agricultural operation, shall

have availability of credit for mortgages, other agricultural purposes, and family needs in the preferred position

along with full-time farmers. Loans to farmers shall be on an increasingly conservative basis as the emphasis

moves away from the full-time bona fide farmer to the point where agricultural needs only will be financed for the

applicant whose business is essentially other than farming. Credit shall not be extended where investment in

agricultural assets for speculative appreciation is a primary factor.

§ 613.3010 Financing for processing or marketing operations.

(3) Person means a legal entity or an individual who is a citizen of the United States or a foreign national

who has been lawfully admitted into the United States either for permanent residency pursuant to 8

U.S.C. 1101(a)(20) or on a visa pursuant to a provision in 8 U.S.C. 1101(a)(15) that authorizes such

individual to own property or operate or manage a business or a legal entity.

(4) Producer or harvester of aquatic products means a person engaged in producing or harvesting

aquatic products for economic gain in open waters under uncontrolled conditions.

(b) Eligible borrower. Farm Credit institutions that operate under titles I or II of the Act may provide financing

to a bona fide farmer or rancher, or producer or harvester of aquatic products for any agricultural or

aquatic purpose and for other credit needs.

(a) Eligible borrowers. A borrower is eligible for financing for a processing or marketing operation under titles

I and II of the Act only if the borrower:

(1) Is a bona fide farmer, rancher, or producer or harvester of aquatic products who regularly produces

some portion of the throughput used in the processing or marketing operation; or

(2) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under §

613.3000(b) own more than 50 percent of the voting stock or equity and regularly produce some

portion of the throughput used in the processing or marketing operation; or

(3) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under §

613.3000(b) own 50 percent or less of the voting stock or equity, regularly produce some portion of

the throughput used in the processing or marketing operation and:

(i) Exercise majority voting control over the legal entity; or

(ii) Constitute a majority of the directors of a corporation, general partners of a limited partnership,

or managing members of a limited liability company who exercise control over the legal entity

by determining and overseeing the policies, business practices, management, and decisionmaking process of the legal entity; or

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12 CFR 613.3010(a)(3)(ii) (enhanced display) page 2 of 10
(4) Is a legal entity not eligible under paragraph (a)(1) of this section in which eligible borrowers under §

613.3000(b) meet all of the following criteria:

(i) Own at least 25 percent of the voting stock or equity in the processing or marketing operation;

(ii) Regularly produce 20 percent or more of the throughput used in the processing or marketing

operation;

(iii) Maintain representation on the board of directors or in the applicable management structure of

the entity.

(5) Is a legal entity not eligible under paragraph (a)(1) of this section that is a direct extension or

outgrowth of an eligible borrower's operation and meets all of the following criteria:

(i) The legal entity was created for the primary purpose of processing or marketing the eligible

borrower's throughput and would not exist but for the eligible borrower's involvement,

(ii) The legal entity fulfills a business need and supports the operation of the eligible borrower

through product branding or other value-added business activity directly related to the

operations of the eligible borrower,

(iii) The legal entity and the eligible borrower coordinate to operate in a functionally integrated

manner, and

(iv) The legal entity regularly receives throughput produced by the eligible borrower representing

either:

(A) At least 20 percent of the throughput used by the legal entity in the processing or

marketing operation; or

(B) At least 50 percent of the eligible borrower's total output of the commodity processed or

marketed.

(b) Portfolio restrictions for certain processing and marketing loans. Processing or marketing loans to eligible

borrowers who regularly supply less than 20 percent of the throughput are subject to the following

restrictions:

(1) Bank limitation. The aggregate of such processing and marketing loans made by a Farm Credit bank

shall not exceed 15 percent of all its outstanding retail loans at the end of the preceding fiscal year.

(2) Association limitation. The aggregate of such processing and marketing loans made by all direct

lender associations affiliated with the same Farm Credit bank shall not exceed 15 percent of the

aggregate of their outstanding retail loans at the end of the preceding fiscal year. Each Farm Credit

bank, in conjunction with all its affiliated direct lender associations, shall ensure that such

processing or marketing loans are equitably allocated among its affiliated direct lender associations.

(3) Calculation of outstanding retail loans. For the purposes of this paragraph, “outstanding retail loans”

includes loans, loan participations, and other interests in loans that are either bought without

recourse or sold with recourse.

(c) Reporting requirements. Each System institution shall include information on loans made under authority

of this section in the Reports of Condition and Performance required under § 621.12 of this chapter, in the

format prescribed by FCA reporting instructions.

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3010(a)(4)

12 CFR 613.3010(c) (enhanced display) page 3 of 10
[62 FR 4441, Jan. 30, 1997, as amended at 73 FR 30475, May 28, 2008]

§ 613.3020 Financing for farm-related service businesses.

(d) Institution policies. The board of directors of each System institution making processing and marketing

loans to legal entities under authority of this section must adopt a policy that addresses eligibility

requirements for such entities and ensures that the institution, at a minimum, develops and implements:

(1) Procedures on how, at or before the time a loan is made, the institution will document:

(i) Eligible borrower ownership, control, throughput, integration of operations and other factors, as

applicable, sufficient to establish eligibility of legal entities at the time a loan is made under this

section; and

(ii) Each legal entity's plan and intent for maintaining eligible borrower ownership, control,

throughput, and integration of operations, as applicable, during the duration of the loan;

(2) Procedures that encourage financing under paragraph (a)(4) of this section of credit-worthy entities

whose operations directly benefit producers, have local community investment support and provide

accessible ownership opportunities for local farmers and ranchers.

(3) Procedures for determining functional integration for loans made under paragraph (a)(5) of this

section that require consideration of all relevant facts and circumstances, which include the extent

to which:

(i) The operations share resources such as management, employees, facilities, and equipment;

(ii) The operations are conducted in coordination with or reliance upon each other; and

(iii) The eligible borrower and legal entity are dependent upon each other for economic success.

(4) Portfolio restrictions necessary to comply with paragraph (b) of this section and any board-defined

limits on financing provided under this section; and

(5) Reporting requirements necessary to comply with paragraph (c) of this section and any boarddefined reporting on financing provided under this section.

(a) Eligibility. An individual or legal entity that furnishes farm-related services to farmers and ranchers that are

directly related to their agricultural production is eligible to borrow from a Farm Credit bank or association

that operates under titles I or II of the Act.

(b) Purposes of financing. A Farm Credit Bank, agricultural credit bank, or direct lender association may

finance:

(1) All of the farm-related business activities of an eligible borrower who derives more than 50 percent

of its annual income (as consistently measured on either a gross sales or net sales basis) from

furnishing farm-related services that are directly related to the agricultural production of farmers and

ranchers; or

(2) Only the farm-related services activities of an eligible borrower who derives 50 percent or less of its

annual income (as consistently measured on either a gross sales or net sales basis) from furnishing

farm-related services that are directly related to the agricultural production of farmers and ranchers.

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3010(d)

12 CFR 613.3020(b)(2) (enhanced display) page 4 of 10
[62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001]

§ 613.3030 Rural home financing.

[62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001]

Subpart B—Financing for Banks Operating Under Title III of the Farm Credit Act

Source: 62 FR 4442, Jan. 30, 1997, unless otherwise noted.

(c) Limitation. The authority of Farm Credit banks and associations operating under section 1.7(a) of the Act

to finance eligible farm-related service businesses under paragraphs (b)(1) and (b)(2) of this section is

limited to necessary capital structures, equipment, and initial working capital.

(a) Definitions.

(1) Rural homeowner means an individual who resides in a rural area and is not a bona fide farmer,

rancher, or producer or harvester of aquatic products.

(2) Rural home means a single-family moderately priced dwelling located in a rural area that will be

owned and occupied as the rural homeowner's principal residence.

(3) Rural area means open country within a State or the Commonwealth of Puerto Rico, which may

include a town or village that has a population of not more than 2,500 persons.

(4) Moderately priced means the price of any rural home that either:

(i) Satisfies the criteria in section 8.0 of the Act pertaining to rural home loans that collateralize

securities that are guaranteed by the Federal Agricultural Mortgage Corporation; or

(ii) Is otherwise determined to be moderately priced for housing values for the rural area where it is

located, as documented by data from a credible, independent, and recognized national or

regional source, such as a Federal, State, or local government agency, or an industry source.

Housing values at or below the 75th percentile of values reflected in such data will be deemed

moderately priced.

(b) Eligibility. Any rural homeowner is eligible to obtain financing on a rural home. No borrower shall have a

loan from the Farm Credit System on more than one rural home at any one time.

(c) Purposes of financing. Loans may be made to rural homeowners for the purpose of buying, building,

remodeling, improving, repairing rural homes, and refinancing existing indebtedness thereon.

(d) Portfolio limitations.

(1) The aggregate of retail rural home loans by any Farm Credit Bank or agricultural credit bank shall not

exceed 15 percent of the total of all of its outstanding loans at any one time.

(2) The aggregate of rural home loans made by each direct lender association shall not exceed 15

percent of the total of its outstanding loans at the end of its preceding fiscal year, except with the

prior approval of its funding bank.

(3) The aggregate of rural home loans made by all direct lender associations that are funded by the

same Farm Credit bank shall not exceed 15 percent of the total outstanding loans of all such

associations at the end of the funding bank's preceding fiscal year.

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3020(c)

12 CFR 613.3030(d)(3) (enhanced display) page 5 of 10
§ 613.3100 Domestic lending.

(a) Definitions. For purposes of this subpart, the following definitions apply:

(1) Cooperative means any association of farmers, ranchers, producers or harvesters of aquatic

products, or any federation of such associations, or a combination of such associations and

farmers, ranchers, or producers or harvesters of aquatic products that conducts business for the

mutual benefit of its members and has the power to:

(i) Process, prepare for market, handle, or market farm or aquatic products;

(ii) Purchase, test, grade, process, distribute, or furnish farm or aquatic supplies; or

(iii) Furnish business and financially related services to its members.

(2) Farm or aquatic supplies and farm or aquatic business services are any goods or services normally

used by farmers, ranchers, or producers and harvesters of aquatic products in their business

operations, or to improve the welfare or livelihood of such persons.

(3) Public utility means a cooperative or other entity that is licensed under Federal, State, or local law to

provide electric, telecommunication, cable television, water, or waste treatment services.

(4) Rural area means all territory of a State that is not within the outer boundary of any city or town

having a population of more than 20,000 inhabitants based on the latest decennial census of the

United States.

(5) Service cooperative means a cooperative that is involved in providing business and financially related

services (other than public utility services) to farmers, ranchers, aquatic producers or harvesters, or

their cooperatives.

(b) Cooperatives and other entities that serve agricultural or aquatic producers —

(1) Eligibility of cooperatives. A bank for cooperatives or an agricultural credit bank may lend to a

cooperative that satisfies the following requirements:

(i) Unless the bank's board of directors establishes by resolution a higher voting control threshold

for any type of cooperative, the percentage of voting control of the cooperative held by farmers,

ranchers, producers or harvesters of aquatic products, or cooperatives shall be 80 percent

except:

(A) Sixty (60) percent for a service cooperative;

(B) Sixty (60) percent for local farm supply cooperatives that have historically served the

needs of a community that would not be adequately served by other suppliers and have

experienced a reduction in the percentage of membership by agricultural or aquatic

producers due to changed circumstances beyond their control; and

(C) Sixty (60) percent for local farm supply cooperatives that provide or will provide needed

services to a community, and are or will be in competition with a cooperative specified in §

613.3100(b)(1)(i)(B);

(ii) The cooperative deals in farm or aquatic products, or products processed therefrom, farm or

aquatic supplies, farm or aquatic business services, or financially related services with or for

members in an amount at least equal in value to the total amount of such business it transacts

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3100

12 CFR 613.3100(b)(1)(ii) (enhanced display) page 6 of 10
with or for non-members, excluding from the total of member and non-member business,

transactions with the United States, or any agencies or instrumentalities thereof, or services or

supplies furnished by a public utility; and

(iii) The cooperative complies with one of the following two conditions:

(A) No member of the cooperative shall have more than one vote because of the amount of

stock or membership capital owned therein; or

(B) The cooperative restricts dividends on stock or membership capital to the maximum

percentage per year permitted by applicable state law.

(iv) Any cooperative that has received a loan from a bank for cooperatives or an agricultural credit

bank shall, without regard to the requirements in paragraph (b)(1) of this section, continue to be

eligible for as long as more than 50 percent (or such higher percentage as is established by the

bank board) of the voting control of the cooperative is held by farmers, ranchers, producers or

harvesters of aquatic products, or other eligible cooperatives.

(2) Other eligible entities. The following entities are eligible to borrow from banks for cooperatives and

agricultural credit banks:

(i) Any legal entity that holds more than 50 percent of the voting control of a cooperative that is an

eligible borrower under paragraph (b)(1) of this section and uses the proceeds of the loan to

fund the activities of its cooperative subsidiary on the terms and conditions specified by the

bank;

(ii) Any legal entity in which an eligible cooperative (or a subsidiary or other entity in which an

eligible cooperative has an ownership interest) has an ownership interest, provided that if the

percentage of ownership attributable to the eligible cooperative is less than 50 percent,

financing may not exceed the percentage of ownership attributable to the eligible cooperative

multiplied by the value of the total assets of such entity; or

(iii) Any creditworthy private entity operated on a non-profit basis that satisfies the requirements for

a service cooperative and complies with the requirements of either paragraphs (b)(1)(i)(A) and

(b)(1)(iii) of this section, or paragraph (b)(1)(iv) of this section, and any subsidiary of such

entity. An entity that is eligible to borrow under this paragraph shall be organized to benefit

agriculture in furtherance of the welfare of the farmers, ranchers, and aquatic producers or

harvesters who are its members.

(c) Electric and telecommunication utilities —

(1) Eligibility. A bank for cooperatives or an agricultural credit bank may lend to:

(i) Electric and telephone cooperatives as defined by section 3.8(a)(4)(A) of the Act that satisfy the

eligibility criteria in paragraph (b)(1) of this section;

(ii) Cooperatives and other entities that:

(A) Have received a loan, loan commitment, insured loan, or loan guarantee from the Rural

Utilities Service of the United States Department of Agriculture to finance rural electric and

telecommunication services;

(B) Have received a loan or a loan commitment from the Rural Telephone Bank of the United

States Department of Agriculture; or

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3100(b)(1)(iii)

12 CFR 613.3100(c)(1)(ii)(B) (enhanced display) page 7 of 10
[62 FR 4442, Jan. 30, 1997; 62 FR 33746, June 23, 1997, as amended at 69 FR 43514, July 21, 2004; 71 FR 65386, Nov. 8, 2006]

§ 613.3200 International lending.

(C) Are eligible under the Rural Electrification Act of 1936, as amended, for a loan, loan

commitment, or loan guarantee from the Rural Utilities Service or the Rural Telephone

Bank.

(iii) The subsidiaries of cooperatives or other entities that are eligible under paragraph (c)(1)(ii) of

this section.

(iv) Any legal entity that holds more than 50 percent of the voting control of any public utility that is

an eligible borrower under paragraph (c)(1)(ii) of this section, and uses the proceeds of the loan

to fund the activities of the eligible subsidiary on the terms and conditions specified by the

bank.

(v) Any legal entity in which an eligible utility under paragraph (c)(1)(ii) of this section (or a

subsidiary or other entity in which an eligible utility under paragraph (c)(1)(ii) has an ownership

interest) has an ownership interest, provided that if the percentage of ownership attributable to

the eligible utility is less than 50 percent, financing may not exceed the percentage of

ownership attributable to the eligible utility multiplied by the value of the total assets of such

entity.

(2) Purposes for financing. A bank for cooperatives or agricultural credit bank may extend credit to

entities that are eligible to borrow under paragraph (c)(1) of this section in order to provide electric or

telecommunication services in a rural area. A subsidiary that is eligible to borrow under paragraph

(c)(1)(iii) of this section may also obtain financing from a bank for cooperatives or agricultural credit

bank for energy-related or public utility-related purposes that cannot be financed by the lenders

referred to in paragraph (c)(1)(ii), including, without limitation, financing to operate a licensed cable

television utility.

(d) Water and waste disposal facilities —

(1) Eligibility. A cooperative or a public agency, quasi-public agency, body, or other public or private entity

that, under the authority of state or local law, establishes and operates water and waste disposal

facilities in a rural area, as that term is defined by paragraph (a)(4) of this section, is eligible to

borrow from a bank for cooperatives or an agricultural credit bank.

(2) Purposes for financing. A bank for cooperatives or agricultural credit bank may extend credit to

entities that are eligible under paragraph (d)(1) of this section solely for installing, maintaining,

expanding, improving, or operating water and waste disposal facilities in rural areas.

(e) Domestic lessors. A bank for cooperatives or agricultural credit bank may lend to domestic parties to

finance the acquisition of facilities or equipment that will be leased to shareholders of the bank for use in

their operations located inside of the United States.

(a) Definitions. For the purpose of this section only, the following definitions apply:

(1) Agricultural supply includes:

(i) A farm supply; and

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3100(c)(1)(ii)(C)

12 CFR 613.3200(a)(1)(i) (enhanced display) page 8 of 10
[62 FR 4442, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004]

Subpart C—Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A of the Act

(ii) Agriculture-related processing equipment, agriculture-related machinery, and other capital

goods related to the storage or handling of agricultural commodities or products.

(2) Farm supply refers to an input that is used in a farming or ranching operation.

(b) Import transactions. The following parties are eligible to borrow from a bank for cooperatives or an

agricultural credit bank pursuant to section 3.7(b) of the Act for the purpose of financing the import of

agricultural commodities or products therefrom, aquatic products, and agricultural supplies into the

United States:

(1) An eligible cooperative as defined by § 613.3100(b);

(2) A counterparty with respect to a specific import transaction with a voting stockholder of the bank for

the substantial benefit of the shareholder; and

(3) Any foreign or domestic legal entity in which eligible cooperatives hold an ownership interest.

(c) Export transactions. Pursuant to section 3.7(b)(2) of the Act, a bank for cooperatives or an agricultural

credit bank is authorized to finance the export (including the cost of freight) of agricultural commodities

or products therefrom, aquatic products, or agricultural supplies from the United States to any foreign

country. The board of directors of each bank for cooperatives and agricultural credit bank shall adopt

policies that ensure that exports of agricultural products and commodities, aquatic products, and

agricultural supplies which originate from eligible cooperatives are financed on a priority basis. The total

amount of balances outstanding on loans made under this paragraph shall not, at any time, exceed 50

percent of the capital of any bank for cooperatives or agricultural credit bank for loans that:

(1) Finance the export of agricultural commodities and products therefrom, aquatic products, or

agricultural supplies that are not originally sourced from an eligible cooperative; and

(2) At least 95 percent of the loan amount is not guaranteed by a department, agency, bureau, board, or

commission of the United States or a corporation that is wholly owned directly or indirectly by the

United States.

(d) International business operations. A bank for cooperatives or an agricultural credit bank may finance a

domestic or foreign entity which is at least partially owned by eligible cooperatives described in §

613.3100(b), and facilitates the international business operations of such cooperatives.

(e) Restrictions.

(1) When eligible cooperatives own less than 50 percent of a foreign or domestic legal entity, the amount

of financing that a bank for cooperatives or agricultural credit bank may provide to the entity for

imports, exports, or international business operations shall not exceed the percentage of ownership

that eligible cooperatives hold in such entity multiplied by the value of the total assets of such entity;

and

(2) A bank for cooperatives or agricultural credit bank shall not finance the relocation of any plant or

facility from the United States to a foreign country.

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3200(a)(1)(ii)

12 CFR 613.3200(e)(2) (enhanced display) page 9 of 10
§ 613.3300 Participations and other interests in loans to similar entities.

[62 FR 4444, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004; 75 FR 18743, Apr. 12, 2010]

(a) Definitions.

(1) Participate and participation, for the purpose of this section, refer to multi-lender transactions,

including syndications, assignments, loan participations, subparticipations, other forms of the

purchase, sale, or transfer of interests in loans, or other extensions of credit, or other technical and

financial assistance.

(2) Similar entity means a party that is ineligible for a loan from a Farm Credit bank or association, but

has operations that are functionally similar to the activities of eligible borrowers in that a majority of

its income is derived from, or a majority of its assets are invested in, the conduct of activities that

are performed by eligible borrowers.

(b) Similar entity transactions. A Farm Credit bank or a direct lender association may participate with a lender

that is not a Farm Credit System institution in loans to a similar entity that is not eligible to borrow directly

under § 613.3000, § 613.3010, § 613.3020, § 613.3100, or § 613.3200, for purposes similar to those for

which an eligible borrower could obtain financing from the participating FCS institution.

(c) Restrictions. Participations by a Farm Credit bank or association in loans to a similar entity under this

section are subject to the following limitations:

(1) Lending limits —

(i) Farm Credit banks operating under title I of the Act and direct lender associations. The total

amount of all loan participations that any Farm Credit bank, agricultural credit bank, or direct

lender association has outstanding under paragraph (b) of this section to a single credit risk

shall not exceed:

(A) Ten (10) percent of its total capital; or

(B) Twenty-five (25) percent of its total capital if a majority of voting stockholders voting of the

respective Farm Credit bank or direct lender association so approve.

(ii) Farm Credit banks operating under title III of the Act. The total amount of all loan participations

that any bank for cooperatives or agricultural credit bank has outstanding under paragraph (b)

of this section to a single credit risk shall not exceed 10 percent of its total capital;

(2) Percentage held in the principal amount of the loan. The participation interest in the same loan held

by one or more Farm Credit bank(s) or association(s) shall not, at any time, equal or exceed 50

percent of the principal amount of the loan; and

(3) Portfolio limitations. The total amount of participations that any Farm Credit bank or direct lender

association has outstanding under paragraph (b) of this section shall not exceed 15 percent of its

total outstanding assets at the end of its preceding fiscal year.

(d) Approval by other Farm Credit System institutions. A bank for cooperatives or agricultural credit bank may

not participate in a loan to a similar entity under title III of the Act if the similar entity has a loan or loan

commitment outstanding with a Farm Credit Bank or an association chartered under the Act, unless

agreed to by the Farm Credit Bank or association.

12 CFR Part 613 (up to date as of 3/07/2024)

Eligibility and Scope of Financing 12 CFR 613.3300

12 CFR 613.3300(d) (enhanced display) page 10 of 10
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 614 Loan Policies and Operations

Subpart A Lending Authorities

§ 614.4000 Farm Credit Banks.

§ 614.4010 Agricultural credit banks.

§ 614.4020 Banks for cooperatives.

§ 614.4030 Federal land credit associations.

§ 614.4040 Production credit associations.

§ 614.4050 Agricultural credit associations.

§ 614.4055 Federal Agricultural Mortgage Corporation loan participations.

§ 614.4060 Affiliates established pursuant to section 8.5(e)(1) of the Farm Credit Act of 1971.

Subpart B Chartered Territories

§ 614.4070 Loans and chartered territory—Farm Credit Banks, agricultural credit banks, Federal

land bank associations, Federal land credit associations, production credit

associations, and agricultural credit associations.

§ 614.4080 Loans and chartered territory—banks for cooperatives.

Subpart C Bank/Association Lending Relationship

§ 614.4100 Policies governing lending through Federal land bank associations.

§ 614.4110 Transfer of direct lending authority to Federal land bank associations and

agricultural credit associations.

§ 614.4120 Policies governing extensions of credit to direct lender associations and OFIs.

§ 614.4125 Funding and discount relationships between Farm Credit Banks or agricultural

credit banks and direct lender associations.

§ 614.4130 Funding and discount relationships between Farm Credit Banks or agricultural

credit banks and OFIs.

Subpart D General Loan Policies for Banks and Associations

§ 614.4150 Lending policies and loan underwriting standards.

§ 614.4155 Interest rates.

§ 614.4160 Differential interest rate programs.

§ 614.4165 Young, beginning, and small farmers and ranchers.

§ 614.4170 General.

§ 614.4175 Uninsured voluntary and involuntary accounts.

Subpart E Loan Terms and Conditions

§ 614.4200 General requirements.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Part 614 (Mar. 7, 2024)

12 CFR Part 614 (Mar. 7, 2024) (enhanced display) page 1 of 66
§ 614.4231 Certain seasonal commodity loans to cooperatives.

§ 614.4232 Loans to domestic lessors.

§ 614.4233 International loans.

Subpart F Collateral Evaluation Requirements

§ 614.4240 Collateral definitions.

§ 614.4245 Collateral evaluation policies.

§ 614.4250 Collateral evaluation standards.

§ 614.4255 Independence requirements.

§ 614.4260 Evaluation requirements.

§ 614.4265 Real property evaluations.

§ 614.4266 Personal and intangible property evaluations.

§ 614.4267 Professional association membership; competency.

Subpart G [Reserved]

Subpart H Loan Purchases and Sales

§ 614.4325 Purchase and sale of interests in loans.

§ 614.4330 Loan participations.

§ 614.4335 Borrower stock requirements.

§ 614.4337 Disclosure to borrowers.

Subpart I Loss-Sharing Agreements

§ 614.4340 General.

§ 614.4345 Guaranty agreements.

Subpart J Lending and Leasing Limits

§ 614.4350 Definitions.

§ 614.4351 Computation of lending and leasing limit base.

§ 614.4352 Farm Credit Banks and agricultural credit banks.

§ 614.4353 Direct lender associations.

§ 614.4354 [Reserved]

§ 614.4355 Banks for cooperatives.

§ 614.4356 Farm Credit Leasing Services Corporation.

§ 614.4357 Banks for cooperatives look-through notes.

§ 614.4358 Computation of obligations.

§ 614.4359 Attribution rules.

§ 614.4360 Lending and leasing limit violations.

§ 614.4361 Transition.

§ 614.4362 Loan and lease concentration risk mitigation policy.

Subparts K–L [Reserved]

Subpart M Loan Approval Requirements

§ 614.4450 General requirements.

§ 614.4460 Loan approval responsibility.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Part 614 (Mar. 7, 2024)

12 CFR Part 614 (Mar. 7, 2024) (enhanced display) page 2 of 66
§ 614.4470 Loans subject to bank approval.

Subpart N [Reserved]

Subpart O Special Lending Programs

§ 614.4525 General.

§ 614.4530 Special loans, production credit associations and agricultural credit associations.

Subpart P Farm Credit Bank and Agricultural Credit Bank Financing of Other

Financing Institutions

§ 614.4540 Other financing institution access to Farm Credit Banks and agricultural credit

banks for funding, discount, and other similar financial assistance.

§ 614.4550 Place of discount.

§ 614.4560 Requirements for OFI funding relationships.

§ 614.4570 Recourse and security.

§ 614.4580 Limitation on the extension of funding, discount and other similar financial

assistance to an OFI.

§ 614.4590 Equitable treatment of OFIs and Farm Credit System associations.

§ 614.4595 Public disclosure about OFIs.

§ 614.4600 Insolvency of an OFI.

Subpart Q Banks for Cooperatives and Agricultural Credit Banks Financing

International Trade

§ 614.4700 Financing foreign trade receivables.

§ 614.4710 [Reserved]

§ 614.4720 Letters of credit.

§ 614.4800 Guarantees and contracts of suretyship.

§ 614.4810 Standby letters of credit.

§ 614.4900 Foreign exchange.

Subpart R Secondary Market Authorities

§ 614.4910 Basic authorities.

Subpart S Flood Insurance Requirements

§ 614.4920 Purpose and scope.

§ 614.4925 Definitions.

§ 614.4930 Requirement to purchase flood insurance where available.

§ 614.4932 Exemptions.

§ 614.4935 Escrow requirement.

§ 614.4940 Required use of standard flood hazard determination form.

§ 614.4945 Force placement of flood insurance.

§ 614.4950 Determination fees.

§ 614.4955 Notice of special flood hazards and availability of Federal disaster relief

assistance.

§ 614.4960 Notice of servicer's identity.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Part 614 (Mar. 7, 2024)

12 CFR Part 614 (Mar. 7, 2024) (enhanced display) page 3 of 66
Appendix A to Subpart S of Part 614

Sample Form of Notice of Special Flood Hazards and

Availability of Federal Disaster Relief Assistance

Appendix B to Subpart S of Part 614

Sample Clause for Option to Escrow for Outstanding Loans

PART 614—LOAN POLICIES AND OPERATIONS

Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10,

3.20, 3.28, 4.12, 4.12A, 4.13B, 4.14, 4.14A, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9,

5.10, 5.17, 7.0, 7.2, 7.6, 7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017,

2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149,

2183, 2184, 2201, 2202, 2202a, 2202d, 2202e, 2206, 2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243,

2244, 2252, 2279a, 2279a–2, 2279b, 2279c–1, 2279f, 2279f–1, 2279aa, 2279aa–5); 12 U.S.C. 2121 note; 42 U.S.C.

4012a, 4104a, 4104b, 4106, and 4128.

Subpart A—Lending Authorities

Source: 55 FR 24880, June 19, 1990, unless otherwise noted.

§ 614.4000 Farm Credit Banks.

(a) Long-term real estate lending. Except to the extent such authorities are transferred pursuant to section 7.6

of the Act, Farm Credit Banks are authorized, subject to the requirements in § 614.4200 of this part, to

make real estate mortgage loans with maturities of not less than 5 years nor more than 40 years and

continuing commitments to make such loans.

(b) Extensions of credit to Farm Credit direct lender associations. Farm Credit Banks are authorized to make

loans and extend other similar financial assistance to associations with direct lending authority and

discount for or purchase from such associations, with the association's endorsement or guaranty, any

note, draft, and other obligations for loans that have been made in accordance with the provisions of

subparts D and E of part 614 of these regulations. Such extensions of credit shall be made pursuant to a

written financing agreement meeting the requirements of § 614.4125.

(c) Extensions of credit to other financing institutions. Farm Credit Banks are authorized to make loans and

extend other similar financial assistance to any national bank, State bank, trust company, agricultural

credit corporation, incorporated livestock loan company, savings institution, credit union, or any

association of agricultural producers or any corporation engaged in the making of loans to farmers and

ranchers or producers or harvesters of aquatic products (collectively, “other financing institutions”), for

purposes eligible for financing by a production credit association in accordance with § 614.4130 and

subpart P of this part. Farm Credit Banks are authorized to discount for or purchase from such

institutions, with the institution's endorsement or guaranty, notes, drafts, and other obligations or loans

made to persons and for purposes eligible for financing by a production credit association, in accordance

with § 614.4130 and subpart P of this part.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Part 614 (Mar. 7, 2024)

12 CFR 614.4000(c) (enhanced display) page 4 of 66
[55 FR 24880, June 19, 1990, as amended at 57 FR 38246, Aug. 24, 1992; 57 FR 43290, Sept. 18, 1992; 62 FR 51013, Sept. 30,

1997; 63 FR 5723, Feb. 4, 1998; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]

§ 614.4010 Agricultural credit banks.

(d) Loan participations. Subject to the requirements of subpart H of part 614, a Farm Credit Bank may enter

into loan participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under title I of the Act;

(2) Farm Credit banks and associations that are direct lenders on loans it is not authorized to make,

provided the borrower eligibility, membership, term, amount, loan security, and stock or participation

certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

(e) Other interests in loans.

(1) Subject to the requirements of subpart H of this part, Farm Credit Banks may sell interests in loans

only to:

(i) Farm Credit System institutions authorized to purchase such interests;

(ii) Other lenders that are not Farm Credit System institutions; and

(iii) Any certified agricultural mortgage marketing facility, as defined by section 8.0(3) of the Act, for

the purpose of pooling and securitizing such loans under title VIII of the Act.

(2) Subject to the requirements of subpart H of this part, Farm Credit Banks may purchase interests

other than participation interests in loans and nonvoting stock from other Farm Credit System

institutions.

(3) Farm Credit Banks, in their capacity as certified agricultural mortgage marketing facilities under title

VIII of the Act, may purchase interests in loans (other than participation interests authorized in

paragraph (d) of this section) from institutions other than Farm Credit System institutions only for

the purpose of pooling and securitizing such loans under title VIII of the Act.

(f) Residual powers after the transfer of lending authority to an association. After transferring its authority to

make and participate in long-term real estate loans to an agricultural credit association or a Federal land

credit association pursuant to section 7.6(a) of the Act and subpart E of part 611 of these regulations, a

Farm Credit Bank retains residual authority to:

(1) Enter into loan participation agreements pursuant to paragraph (d) of this section;

(2) Purchase or sell other interests in loans in accordance with paragraph (e) of this section; and

(3) Make long-term real estate loans in accordance with paragraph (a) of this section in areas of its

chartered territory where no active association operates.

(a) Long-term real estate lending. Except to the extent such authorities are transferred pursuant to section 7.6

of the Act, agricultural credit banks are authorized, subject to the requirements of § 614.4200, to make

real estate mortgage loans with maturities of not less than 5 years nor more than 40 years and continuing

commitments to make such loans.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4000(d)

12 CFR 614.4010(a) (enhanced display) page 5 of 66
(b) Extensions of credit to Farm Credit direct lender associations. Agricultural credit banks are authorized to

make loans and extend other similar financial assistance to associations with direct lending authority and

discount for or purchase from such associations, with the association's endorsement or guaranty, any

note, draft, and other obligations for loans made by the association in accordance with the provisions of

this part. Such extensions of credit shall be made pursuant to a written financing agreement meeting the

requirements of § 614.4125.

(c) Extensions of credit to other financing institutions. Agricultural credit banks are authorized to make loans

and extend other similar financial assistance to any national bank, State bank, trust company, agricultural

credit corporation, incorporated livestock loan company, savings institution, credit union, or any

association of agricultural producers or corporation engaged in the making of loans to farmers, ranchers,

or producers or harvesters of aquatic products (collectively, “other financing institutions”), for purposes

eligible for financing by a production credit association, in accordance with § 614.4130 and subpart P of

this part. Agricultural credit banks are authorized to discount for or purchase from such other financing

institutions, with the institution's endorsement or guaranty, notes, drafts, and other obligations or loans

made to persons and for purposes eligible for financing by a production credit association, in accordance

with the requirements of § 614.4130 and subpart P of this part.

(d) Extensions of credit to or on behalf of eligible cooperatives. Agricultural credit banks are authorized to

make loans and commitments and extend other technical and financial assistance, including but not

limited to, collateral custody, discounting notes and other obligations, guarantees, and currency

exchanges necessary to service transactions financed under paragraphs (d)(4) and (d)(5) of this section,

to:

(1) Eligible cooperatives, as defined in § 613.3100(b)(1), in accordance with §§ 614.4200, 614.4231,

614.4232, 614.4233, and subpart Q of part 614;

(2) Other eligible entities, as defined in § 613.3100(b)(2), in accordance with §§ 614.4200, 614.4231,

and 614.4232;

(3) Domestic lessors, for the purpose of providing leased assets to stockholders of the bank eligible to

borrow under section 3.7(a) of the Act for use in such stockholders' operations in the United States,

in accordance with § 614.4232;

(4) Domestic or foreign parties with respect to a transaction with a voting stockholder of the bank, for

the import of agricultural commodities, farm supplies, or aquatic products through purchases, sales

or exchanges, provided such stockholder substantially benefits as a result of such extension of

credit or assistance, in accordance with policies of the bank's board, § 614.4233, and subpart Q of

part 614; and

(5) Domestic or foreign parties in which a voting stockholder of the bank has a minimum ownership

interest, for the purpose of facilitating such stockholder's import operations of the type described in

paragraph (d)(4) of this section, provided the stockholder substantially benefits as a result of such

extension of credit or assistance, in accordance with policies of the bank's board, § 614.4233, and

subpart Q of part 614.

(6) Any party, subject to the requirements in § 613.3200(c) of this chapter, for the export (including the

cost of freight) of agricultural commodities or products therefrom, aquatic products, or farm

supplies from the United States to any foreign country, in accordance with § 614.4233 and subpart Q

of this part 614; and

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4010(b)

12 CFR 614.4010(d)(6) (enhanced display) page 6 of 66
[55 FR 24880, June 19, 1990, as amended at 57 FR 38246, Aug. 24, 1992; 57 FR 43290, Sept. 18, 1992; 62 FR 4445, Jan. 30, 1997;

62 FR 51013, Sept. 30, 1997; 63 FR 5723, Feb. 4, 1998; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan.

10, 2002; 71 FR 65387, Nov. 8, 2006]

(7) Domestic or foreign parties in which eligible cooperatives, as defined in § 613.3100 of this chapter,

hold an ownership interest, for the purpose of facilitating the international business operations of

such cooperatives pursuant to the requirements of § 613.3200 (d) and (e) of this chapter.

(e) Loan participations. Subject to the requirements of subpart H of this part, an agricultural credit bank may

enter into loan participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under the Act;

(2) Farm Credit banks and associations that are direct lenders on loans it is not authorized to make,

provided the borrower eligibility, membership, term, amount, loan security, and stock or participation

certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

(f) Other interest in loans.

(1) Subject to subpart H of this part, agricultural credit banks may sell interests in real estate mortgage

loans identified in paragraph (a) of this section to Farm Credit System institutions authorized to

purchase such interests, other lenders, and certified agricultural mortgage marketing facilities for the

Federal Agricultural Mortgage Corporation. Agricultural credit banks may also sell interests in the

types of loans listed in paragraph (d) of this section to other Farm Credit System institutions that are

authorized to purchase such interests.

(2) Subject to the requirements of subpart H of this part, agricultural credit banks may purchase

interests other than participation interests in loans and nonvoting stock from other Farm Credit

System institutions.

(3) Agricultural credit banks, in their capacity as certified agricultural mortgage marketing facilities

under title VIII of the Act, may purchase interests in loans (other than participation interests

authorized in paragraph (e) of this section) from institutions other than Farm Credit System

institutions only for the purpose of pooling and securitizing such loans under title VIII of the Act.

(g) Residual powers after the transfer of lending authority to an association. After transferring its authority to

make and participate in long-term real estate loans to an agricultural credit association or a Federal land

credit association pursuant to section 7.6(a) of the Act and subpart E of part 611 of these regulations, an

agricultural credit bank retains residual authority to:

(1) Enter into loan participation agreements pursuant to paragraph (e) of this section;

(2) Purchase or sell other interests in loans in accordance with paragraph (f) of this section; and

(3) Make long-term real estate loans in accordance with paragraph (a) of this section in areas of its

chartered territory where no active association operates.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4010(d)(7)

12 CFR 614.4010(g)(3) (enhanced display) page 7 of 66
§ 614.4020 Banks for cooperatives.

[55 FR 24880, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997; 62 FR 51013, Sept. 30, 1997; 67 FR 1285, Jan. 10, 2002;

71 FR 65387, Nov. 8, 2006]

(a) Banks for cooperatives are authorized to make loans and commitments and extend other technical and

financial assistance, including but not limited to, collateral custody, discounting notes and other

obligations, guarantees, and currency exchanges necessary to service transactions financed under

paragraphs (a)(4) and (a)(5) of this section, to:

(1) Eligible cooperatives, as defined in § 613.3100(b)(1), in accordance with §§ 614.4200, 614.4231,

614.4232, 614.4233, and subpart Q of this part;

(2) Other eligible entities as defined in § 613.3100(b)(2), in accordance with §§ 614.4200, 614.4231, and

614.4232;

(3) Domestic lessors, for the purpose of providing leased assets to stockholders of the bank eligible to

borrow under section 3.7(a) of the Act for use in such stockholder's operations in the United States,

in accordance with § 614.4232;

(4) Domestic or foreign parties with respect to a transaction with a voting stockholder of the bank, for

the import of agricultural commodities, farm supplies, or aquatic products through purchases, sales

or exchanges, provided such stockholder substantially benefits as a result of such extension of

credit or assistance, in accordance with policies of the bank's board, § 614.4233, and subpart Q of

this part; and

(5) Domestic or foreign parties in which a voting stockholder of the bank has an ownership interest, for

the purpose of facilitating the import operations of the type described in paragraph (a)(4) of this

section, in accordance with policies of the bank's board, § 614.4233, and subpart Q of this part.

(6) Any party, subject to the requirements in § 613.3200(c) of this chapter, for the export (including the

cost of freight) of agricultural commodities or products therefrom, aquatic products, or farm

supplies from the United States to any foreign country, in accordance with § 614.4233 and subpart Q

of this part; and

(7) Domestic or foreign parties in which eligible cooperatives, as defined in § 613.3100 of this chapter,

hold an ownership interest, for the purpose of facilitating the international business operations of

such cooperatives pursuant to the requirements in § 613.3200 (d) and (e) of this chapter.

(b) Loan participations. Subject to the requirements of subpart H of this part, a bank for cooperatives may

enter into loan participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under title III of the Act;

(2) Farm Credit banks and associations that are direct lenders on loans of the type it is not authorized to

make, provided the borrower eligibility, membership, term, amount, loan security, and stock or

participation certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4020

12 CFR 614.4020(b)(3) (enhanced display) page 8 of 66
§ 614.4030 Federal land credit associations.

[55 FR 24880, June 19, 1990, as amended at 57 FR 38247, Aug. 24, 1992; 62 FR 51013, Sept. 30, 1997; 64 FR 43049, Aug. 9, 1999;

65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]

§ 614.4040 Production credit associations.

(a) Long-term real estate lending. Federal land credit associations are authorized, subject to the requirments

of § 614.4200, to make real estate mortgage loans with maturities of not less than 5 years nor more than

40 years and continuing commitments to make such loans.

(b) Loan participations. Subject to the requirements of subpart H of this part, Federal land credit associations

may enter into participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under title I of the Act;

(2) Farm Credit banks and associations that are direct lenders on loans it is not authorized to make,

provided the borrower eligibility, membership, term, amount, loan security, and stock or participation

certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

(c) Other interests in loans.

(1) Subject to the requirements of subpart H of this part and the supervision of their respective funding

banks, Federal land credit associations may sell interests in loans made under paragraph (a) of this

section only to:

(i) Farm Credit System institutions, as authorized by their respective funding banks;

(ii) Other lenders that are not Farm Credit System institutions, as authorized by their respective

funding banks; and

(iii) Any certified agricultural mortgage marketing facility, as defined by section 8.0(3) of the Act, for

the purpose of pooling and securitizing such loans under title VIII of the Act.

(2) Subject to the requirements of subpart H of this part, Federal land credit associations may purchase

interests in loans that comply with the requirements of paragraph (a) of this section and nonvoting

stock from Farm Credit System institutions.

(3) Federal land credit associations, in their capacity as certified agricultural mortgage marketing

facilities under title VIII of the Act, may purchase interests in loans (other than participation interests

under paragraph (b) of this section) from institutions other than Farm Credit System institutions for

the purpose of pooling and securitizing such loans under title VIII of the Act.

(a) Short- and intermediate-term loans. Production credit associations are authorized to make or guarantee

short- and intermediate-term loans and provide other financial assistance for a term of:

(1) Not more than 7 years;

(2) More than 7 years, but not more than 10 years, as set forth in policies approved by the funding bank;

or

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4030

12 CFR 614.4040(a)(2) (enhanced display) page 9 of 66
[55 FR 24880, June 19, 1990; 55 FR 28511, July 11, 1990, as amended at 57 FR 38247, Aug. 24, 1992; 62 FR 51013, Sept. 30,

1997; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002; 85 FR 60693, Sept. 28, 2020]

§ 614.4050 Agricultural credit associations.

(3) Not more than 15 years to producers and harvesters of aquatic products for major capital

expenditures, including but not limited to the purchase of vessels, construction or purchase of shore

facilities, and similar purposes directly related to the operations of producers or harvesters of

aquatic products.

(b) Loan participations. Subject to the requirements of subpart H of this part, a production credit association

may enter into participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under title II of the Act;

(2) Farm Credit banks and associations that are direct lenders on loans it is not authorized to make,

provided the borrower eligibility, membership, term, amount, loan security, and stock or participation

certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

(c) Other interests in loans.

(1) Subject to the requirements of subpart H of this part and the supervision of their respective funding

banks, production credit associations may sell interests in loans that are made under paragraph (a)

of this section to:

(i) Banks of the Farm Credit System, as authorized by their respective funding banks; and

(ii) Any certified agricultural mortgage marketing facility, as defined by section 8.0(3) of the Act, for

the purpose of pooling and securitizing such loans under title VIII of the Act.

(2) Subject to the requirements of subpart H of this part, production credit associations, as authorized

by their respective funding banks, may purchase interests in loans that comply with the requirements

of paragraph (a) of this section and nonvoting stock from banks of the Farm Credit System.

(3) Production credit associations, in their capacity as certified mortgage marketing facilities under title

VIII of the Act, may purchase from Farm Credit System institutions and institutions that are not Farm

Credit System institutions interests in loans (other than participation interests authorized by

paragraph (c) of this section) for the purpose of pooling and securitizing such loans under title VIII of

the Act.

(a) Terms to maturity on loans. Agricultural credit associations are authorized to make or guarantee, subject

to requirements of § 614.4200:

(1) Long-term real estate mortgage loans with maturities of not less than 5 nor more than 40 years, and

continuing commitments to make such loans; and

(2) Short- and intermediate-term loans and provide other similar financial assistance for a term of not

more than:

(i) 10 years; or

(ii) 15 years to aquatic producers and harvesters for their aquatic operations.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4040(a)(3)

12 CFR 614.4050(a)(2)(ii) (enhanced display) page 10 of 66
[55 FR 24880, June 19, 1990; 55 FR 28511, July 11, 1990, as amended at 57 FR 38247, Aug. 24, 1992; 62 FR 51013, Sept. 30,

1997; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002; 85 FR 60693, Sept. 28, 2020]

§ 614.4055 Federal Agricultural Mortgage Corporation loan participations.

Subject to the requirements of subpart H of this part 614:

(b) Loan participations. Subject to the requirements of subpart H of this part, agricultural credit associations

may enter into participation agreements with:

(1) Farm Credit banks and associations that are direct lenders and lenders that are not Farm Credit

institutions on loans of the type it is authorized to make under titles I and II of the Act;

(2) Farm Credit banks and associations that are direct lenders on loans of the type it is not authorized to

make, provided the borrower eligibility, membership, term, amount, loan security, and stock or

participation certificate requirements of the originating institution are met; and

(3) The Federal Agricultural Mortgage Corporation to the extent provided in § 614.4055.

(c) Other interests in loans.

(1) Subject to the requirements of subpart H of this part and the supervision of their respective funding

banks, agricultural credit associations may sell:

(i) Interests in loans made under paragraph (a)(1) of this section only to:

(A) Farm Credit System institutions, as authorized by their respective funding banks;

(B) Lenders that are not Farm Credit System institutions, as authorized by their respective

funding banks; and

(C) Any certified agricultural mortgage marketing facility, as defined by section 8.0(3) of the

Act, for the purpose of pooling and securitizing such loans under title VIII of the Act.

(ii) Interests in loans made under paragraph (a)(2) of this section only to:

(A) Banks of the Farm Credit System, as authorized by their respective funding banks; and

(B) Any certified agricultural mortgage marketing facility, as defined by section 8.0(3) of the

Act, for the purpose of pooling and securitizing such loans under title VIII of the Act.

(2) Subject to the requirements of subpart H of this part, agricultural credit associations may purchase:

(i) Interests in loans that comply with the requirements in paragraph (a)(1) of this section from

institutions of the Farm Credit System;

(ii) Interests in loans that comply with the requirements of paragraph (a)(2) of this section from

banks of the Farm Credit System; and

(iii) Nonvoting stock from institutions of the Farm Credit System.

(3) Agricultural credit associations, in their capacity as certified agricultural mortgage marketing

facilities under title VIII of the Act, may purchase interests in loans, other than participation interests

authorized by paragraph (b) of this section, from institutions other than Farm Credit System

institutions for the purpose of pooling and securitizing such loans under title VIII of the Act.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4050(b)

12 CFR 614.4055 (enhanced display) page 11 of 66
[67 FR 1285, Jan. 10, 2002]

§ 614.4060 Affiliates established pursuant to section 8.5(e)(1) of the Farm Credit Act of 1971.

An affiliate established by one or more Farm Credit System institutions pursuant to section 8.5(e)(1) of the Act and

§ 611.1137 of this chapter, as a certified agricultural mortgage marketing facility, may purchase loans from Farm

Credit System institutions and institutions other than Farm Credit System institutions in accordance with title VIII of

the Act and any applicable regulation promulgated thereunder.

[57 FR 38247, Aug. 24, 1992]

Subpart B—Chartered Territories

§ 614.4070 Loans and chartered territory—Farm Credit Banks, agricultural credit banks, Federal

land bank associations, Federal land credit associations, production credit associations, and

agricultural credit associations.

(a) Any Farm Credit System bank or direct lender association may buy from, and sell to, the Federal

Agricultural Mortgage Corporation, participation interests in “qualified loans.”

(b) The Federal Agricultural Mortgage Corporation may buy from, and sell to, any Farm Credit System bank or

direct lender association, or lender that is not a Farm Credit System institution, participation interests in

“qualified loans.”

(c) For purposes of this section, “qualified loans” means qualified loans as defined in section 8.0(9) of the

Act.

(a) A bank or association chartered under title I or II of the Act may finance eligible borrower operations

conducted wholly within its chartered territory regardless of the residence of the applicant.

(b) A bank or association operating under title I or II of the Act may finance the operations of a borrower

headquartered and operating in its territory even though the operation financed is conducted partially

outside its territory, provided notice is given to all Farm Credit institutions providing similar credit in the

territory(ies) in which the operations being financed are conducted. A bank or association operating under

title I or II of the Act may lend to a borrower headquartered outside its territory to finance eligible borrower

operations that are conducted partially within its territory and partially outside its territory only if the

concurrence of Farm Credit institutions providing similar credit for the territories in which the operations

are conducted is obtained.

(c) A bank or association chartered under title I or II of the Act may finance eligible borrower operations

conducted wholly outside its chartered territory, provided such loans are authorized by the policies of the

bank and/or association involved, do not constitute a significant shift in loan volume away from the bank

or association's assigned territory, and are made and administered in accordance with paragraphs (c)(1)

and (c)(2) of this section.

(1) If a loan is made to an eligible borrower whose operations are conducted wholly outside the

chartered territory of the lending bank or association, the lending institution shall obtain concurrence

of all Farm Credit institutions providing similar credit in the territory(ies) in which the operation being

financed is conducted.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4055(a)

12 CFR 614.4070(c)(1) (enhanced display) page 12 of 66
[55 FR 24882, June 19, 1990, as amended at 76 FR 30250, May 25, 2011]

§ 614.4080 Loans and chartered territory—banks for cooperatives.

Loans made under title III by banks for cooperatives and agricultural credit banks may be made to eligible domestic

parties domiciled within any territory that may be served by Farm Credit institutions under section 1.2 of the Act and

to eligible foreign parties without regard to domicile.

[55 FR 24882, June 19, 1990]

Subpart C—Bank/Association Lending Relationship

§ 614.4100 Policies governing lending through Federal land bank associations.

[55 FR 24883, June 19, 1990]

(2) Loans to finance eligible borrower operations conducted wholly outside a bank's or association's

territory shall be appropriately designated by the bank or association to provide adequate

identification of the number and volume of such loans, which shall be monitored by the bank or

association.

(d) A bank or association chartered under title I or II of the Act may finance eligible borrower operations

conducted wholly or partially outside its chartered territory through the purchase of loans from the

Federal Deposit Insurance Corporation in compliance with § 614.4325(b)(3), provided:

(1) Notice is given to the Farm Credit System institution(s) chartered to serve the territory where the

headquarters of the borrower's operation being financed is located; and

(2) After loan purchase, additional financing of eligible borrower operations complies with paragraphs

(a), (b), and (c) of this section.

(a) Farm Credit Banks and agricultural credit banks may delegate authority to make credit decisions to

Federal land bank associations that demonstrate the ability to extend and administer credit soundly,

provided the association develops, implements and maintains adequate credit administration guidelines,

standards, and practices.

(b) The board of directors of each Farm Credit Bank and each agricultural credit bank lending through Federal

land bank associations shall adopt policies and procedures governing the exercise of statutory and

delegated authorities by such associations. Policies governing the delegated authorities shall:

(1) Define authorities to be delegated;

(2) Require the documented evaluation of the capability and responsibility of individuals exercising

delegated authorities;

(3) Provide for reporting of actions taken under delegated authority to the delegating bank;

(4) Provide procedures for periodic review and enforcement;

(5) Provide for withdrawal of authority where appropriate; and

(6) Where redelegation from the association's board to association employees is authorized, require

similar control measures to be used.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4070(c)(2)

12 CFR 614.4100(b)(6) (enhanced display) page 13 of 66
§ 614.4110 Transfer of direct lending authority to Federal land bank associations and

agricultural credit associations.

[55 FR 24883, June 19, 1990]

§ 614.4120 Policies governing extensions of credit to direct lender associations and OFIs.

The board of directors of each Farm Credit Bank and agricultural credit bank shall adopt policies and procedures

governing the making of direct loans to and the discounting of loans for direct lender associations and OFIs. The

policies and procedures shall prescribe lending policies and loan underwriting standards that are consistent with

sound financial and credit practices. The policies shall require a periodic review of the lending relationship with

each direct lender association and OFI at intervals consistent with the term of the general financing agreement but

in no case longer than 5 years. The policies shall require an evaluation of the creditworthiness of a direct lender

association on the basis of credit factors and lending policies and loan underwriting standards set forth in part 614,

subpart D, and may permit lending to such an institution on an unsecured basis only if the overall condition of the

institution warrants. The stated term of a general financing agreement shall not exceed 5 years but may be

automatically renewable for additional terms not to exceed 5 years if neither party objects at the time of renewal.

The term of any general financing agreement that provides for unsecured lending to a direct lender association shall

not exceed 1 year and may not be automatically renewed.

[63 FR 5724, Feb. 4, 1998]

§ 614.4125 Funding and discount relationships between Farm Credit Banks or agricultural

credit banks and direct lender associations.

(a) Upon the transfer of authority to make and participate in long-term agricultural real estate mortgage loans

by a Farm Credit Bank or agricultural credit bank to a Federal land bank association pursuant to section

7.6(a) of the Act and subpart E of part 611 of these regulations, the association shall be designated a

Federal land credit association and shall have the powers set forth in § 614.4030.

(b) Upon the transfer of the authority to make and participate in long-term real estate loans by a Farm Credit

Bank or agricultural credit bank to an agricultural credit association pursuant to section 7.6(d) of the Act,

the association shall have all of the powers set forth in § 614.4050.

(c) An association to which such long-term lending authority is to be transferred shall have in place, prior to

the transfer, policies and procedures guiding the extension and administration of credit within its territory.

(a) A Farm Credit Bank or agricultural credit bank shall not advance funds to, or discount loans for, any direct

lender association except pursuant to a general financing agreement. Each general financing agreement

must require that the amount of financing available to a direct lender association not be based on loans

that are ineligible under the Act and the regulations in this chapter. If financing under a general financing

agreement is based on a loan that FCA determines is ineligible under the Act and the regulations in this

chapter, then the amount of financing available must be recalculated without that ineligible loan.

(b) The Farm Credit Bank or agricultural credit bank shall deliver a copy of the executed general financing

agreement and all related documents, such as a promissory note or security agreement, and all

amendments of any of these documents, within 10 business days after any such document or

amendment is executed, to the Chief Examiner, Farm Credit Administration, or to the Farm Credit

Administration office that the Chief Examiner designates.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4110

12 CFR 614.4125(b) (enhanced display) page 14 of 66
[63 FR 5724, Feb. 4, 1998, as amended at 69 FR 43514, July 21, 2004]

§ 614.4130 Funding and discount relationships between Farm Credit Banks or agricultural

credit banks and OFIs.

(c) The general financing agreement shall address only those matters that are reasonably related to the

debtor/creditor relationship between the Farm Credit Bank or agricultural credit bank and the direct lender

association.

(d) The total credit extended to a direct lender association, through direct loan or discounts, shall be

consistent with the Farm Credit Bank's or agricultural credit bank's lending policies and loan underwriting

standards and the creditworthiness of the direct lender association. The general financing agreement or

promissory note shall establish a maximum credit limit determined by objective standards as established

by the Farm Credit Bank or agricultural credit bank.

(e) A Farm Credit Bank or agricultural credit bank that provides notice to a direct lender association that it is

in material default of any covenant, term, or condition of the general financing agreement, promissory

note, security agreement, or other related documents simultaneously shall provide written notification to

the Chief Examiner, Farm Credit Administration, or to the Farm Credit Administration office that the Chief

Examiner designates and the Director, Risk Management, Farm Credit System Insurance Corporation.

(f) A direct lender association shall provide written notification to the Chief Examiner, Farm Credit

Administration, or to the Farm Credit Administration office that the Chief Examiner designates, and the

Director, Risk Management, Farm Credit System Insurance Corporation immediately upon receipt of a

notice that it is in material default under any general financing agreement, loan agreement, promissory

note, security agreement, or other related documents with a Farm Credit Bank, agricultural credit bank or

non-Farm Credit institution.

(g) A Farm Credit Bank or agricultural credit bank shall obtain prior written consent of the Farm Credit

Administration before it takes any action that leads to or could lead to the liquidation of a direct lender

association.

(h) No direct lender association shall obtain financing from any party unless the parties agree to the

requirements of this paragraph. No Farm Credit Bank, agricultural credit bank, or other party shall petition

any Federal or State court to appoint a conservator, receiver, liquidation agent, or other administrator to

manage the affairs of or liquidate a direct lender association.

(a) A Farm Credit Bank or agricultural credit bank shall not advance funds to, or discount loans for, an OFI, as

defined in § 611.1205 of this chapter, except pursuant to a general financing agreement.

(b) The Farm Credit Bank or agricultural credit bank shall deliver a copy of the executed general financing

agreement and all related documents, such as a promissory note or security agreement, and all

amendments of any of these documents, within 10 business days after any such document or

amendment is executed, to the Chief Examiner, Farm Credit Administration, or to the Farm Credit

Administration office that the Chief Examiner designates.

(c) The total credit extended to the OFI, through direct loan or discounts, shall be consistent with the Farm

Credit Bank's or agricultural credit bank's lending policies and loan underwriting standards and the

creditworthiness of the OFI. The general financing agreement or promissory note shall establish a

maximum credit limit determined by objective standards as established by the Farm Credit Bank or

agricultural credit bank.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4125(c)

12 CFR 614.4130(c) (enhanced display) page 15 of 66
[63 FR 5724, Feb. 4, 1998, as amended at 67 FR 17917, Apr. 12, 2002]

Subpart D—General Loan Policies for Banks and Associations

§ 614.4150 Lending policies and loan underwriting standards.

Under the policies of its board, each institution shall adopt written standards for prudent lending and shall issue

written policies, operating procedures, and control mechanisms that reflect prudent credit practices and comply

with all applicable laws and regulations. Written policies and procedures shall, at a minimum, prescribe:

[62 FR 51014, Sept. 30, 1997]

§ 614.4155 Interest rates.

Loans made by each bank and direct lender association shall bear interest at a rate or rates as may be determined

by the institution board. The board shall set interest rates or approve individual interest rate changes either on a

case-by-case basis or pursuant to an interest rate plan within which management may establish rates. Any interest

rate plan shall set loan-pricing policies and objectives, provide guidance regarding the circumstances under which

management may adjust rates, and provide the upper and lower limits on management authority. Any interest rate

plan adopted shall be reviewed on a continuing basis by the board, as well as in conjunction with its review and

approval of the institution's operational and strategic business plan.

[62 FR 66818, Dec. 22, 1997]

(a) The minimum supporting credit and financial information, frequency for collection of information, and

verification of information required in relation to loan size, complexity and risk exposure

(b) The procedures to be followed in credit analysis

(c) The minimum standards for loan disbursement, servicing and collections

(d) Requirements for collateral and methods for its administration

(e) Loan approval delegations and requirements for reporting to the board

(f) Loan pricing practices

(g) Loan underwriting standards that include measurable standards:

(1) For determining that an applicant has the operational, financial, and management resources

necessary to repay the debt from cashflow

(2) That are appropriate for each loan program and the institution's risk-bearing ability; and

(3) That consider the nature and type of credit risk, amount of the loan, and enterprises being financed

(h) Requirements that loan terms and conditions are appropriate for the loan; and

(i) Such other requirements as are necessary for the professional conduct of a lending organization,

including documentation for each loan transaction of compliance with the loan underwriting standards or

the compensating factors or extenuating circumstances that establish repayment of the loan

notwithstanding the failure to meet any one or more loan underwriting standard.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4150

12 CFR 614.4155 (enhanced display) page 16 of 66
§ 614.4160 Differential interest rate programs.

Pursuant to policies approved by the board of directors, differential interest rates may be established for loans

based on a variety of factors that may include type, purpose, amount, quality, funding or operating costs, or similar

factors or combinations of factors. Differential interest rate programs should achieve equitable rate treatment

within categories of borrowers. In the adoption of differential interest rate programs, institutions may consider,

among other things, the effect that such interest rate structures will have on the achievement of objectives relating

to the special credit needs of young, beginning or small farmers.

[61 FR 67186, Dec. 20, 1996. Redesignated at 62 FR 66818, Dec. 22, 1997]

§ 614.4165 Young, beginning, and small farmers and ranchers.

(a) Definitions.

(1) For purposes of this subpart, the term “credit” includes:

(i) Loans made to farmers, ranchers, and producers or harvesters of aquatic products under title I

or II of the Act; and

(ii) Interests in participations made to farmers, ranchers, and producers or harvesters of aquatic

products under title I or II of the Act.

(2) For purposes of this subpart, the term “services” includes:

(i) Leases made to farmers, ranchers, and producers or harvesters of aquatic products under title I

or II of the Act; and

(ii) Related services to farmers, ranchers, and producers or harvesters of aquatic products under

title I or II of the Act.

(b) Farm Credit banks oversight.

(1) Each Farm Credit Bank and Agricultural Credit Bank must adopt written policies that direct:

(i) The board of each affiliated direct lender association to establish a program to provide sound

and constructive credit and related services to young, beginning, and small farmers, ranchers,

and producers or harvesters of aquatic products (YBS farmers and ranchers or YBS);

(ii) Each affiliated direct lender association to include in its YBS program provisions ensuring

coordination with other System institutions in the territory and other governmental and private

sources of credit; and

(iii) The bank to provide the FCA a complete and accurate annual report summarizing the YBS

program operations and achievements of its affiliated direct lender associations.

(2) Annually, the YBS program of each direct lender association must be reviewed and approved by its

funding bank, provided review and approval shall solely be to determine whether the YBS program

contains all required components as set forth in paragraph (d) of this section. Any conclusion by the

bank that a YBS program is incomplete must be communicated in writing to the direct lender

association and to the FCA within 30 days.

(3) Each Farm Credit Bank and Agricultural Credit Bank must implement internal controls for

requirements in paragraphs (b)(1)(iii) and (b)(2) of this section.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4160

12 CFR 614.4165(b)(3) (enhanced display) page 17 of 66
(c) Direct lender association YBS plan.

(1) YBS program components outlined in paragraph (d) of this section must be included in each direct

lender association's operational and strategic business plan for at least the succeeding 3 years (as

set forth in § 618.8440 of this chapter).

(2) The YBS portion of the operational and strategic business plan must:

(i) Analyze the direct lender association's performance in the previous year toward achieving the

components in paragraph (d) of this section;

(ii) Discuss variances and reasons for the results; and

(iii) Identify how the qualitive factors and quantitative goals in paragraph (d) of this section assist

and expand access to credit and education for YBS farmers and ranchers.

(d) Direct lender association YBS programs. The board of directors of each direct lender association must

establish a program to provide sound and constructive credit and services to YBS farmers and ranchers in

its territory. Each YBS program must operate in a safe and sound manner and within the direct lender

association's risk-bearing capacity, while meeting the unique needs of YBS farmers and ranchers. Such a

program must include the following minimum components:

(1) Qualitative factors—

(i) Corporate governance.

(A) A mission statement describing program objectives and specific means for achieving such

objectives.

(B) Internal controls that establish clear lines of responsibility for YBS strategic plan

development and the corresponding YBS program implementation, tracking YBS program

performance, and YBS quarterly reporting to the direct lender association's board of

directors.

(ii) Credit and related services.

(A) Efforts to offer credit and related services, either directly or in coordination with others,

that are responsive to the needs of the YBS farmers and ranchers in the territory.

Examples include customized loan underwriting standards, loan guarantee programs, fee

waivers, or other credit enhancements commensurate with the credit risk approved by the

board of directors.

(B) Coordination with other System institutions in the territory and other governmental and

private sources who offer credit and services to YBS farmers and ranchers.

(iii) Marketing, outreach, and education. Implementation of effective outreach programs to attract

and retain YBS farmers and ranchers, which may include the use of advertising campaigns,

educational programs, and advisory committees comprised of YBS farmers and ranchers and/

or a YBS mentoring program to better serve and understand the needs of this lending segment.

(2) Quantitative goals—

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4165(c)

12 CFR 614.4165(d)(2) (enhanced display) page 18 of 66
[88 FR 89285, Dec. 27, 2023]

§ 614.4170 General.

Direct lenders shall be responsible for the servicing of the loans that they make. However, loan participation

agreements may designate specific loan servicing efforts to be accomplished by a participating institution. Each

direct lender shall adopt loan servicing policies and procedures to assure that loans will be serviced fairly and

equitably for the borrower while minimizing the risk for the lender. Procedures shall include specific plans that help

preserve the quality of sound loans and that help correct credit deficiencies as they develop.

(i) Annual quantitative goals. Annual quantitative goals for credit to YBS farmers and ranchers

based on an understanding of reliable demographic data for the lending territory. Direct lender

associations must identify the sources of data used to establish the goals. Such goals must

include at least one of the following:

(A) Loan volume and loan number goals for YBS farmers and ranchers in the territory;

(B) Percentage goals representative of the demographics for YBS farmers and ranchers in the

territory;

(C) Percentage goals for loans made to new borrowers qualifying as YBS farmers and

ranchers in the territory; or

(D) Goals for capital committed to loans made YBS farmers and ranchers in the territory.

(ii) Board of directors approval and review. Goals must be approved by the direct lender

association's board of directors and reviewed quarterly with adjustments made as needed.

(a) The Farm Credit Bank shall provide guidelines for the servicing of loans by the Federal land bank

associations. The servicing may be accomplished either under the direct supervision of the bank or under

delegated authority.

(b) The servicing of loans which are participated in by Farm Credit System institutions shall be in accordance

with § 614.4325.

(c) In the development of loan servicing policies and procedures, the following criteria shall be included:

(1) Term loans. The objective shall be to provide borrowers with prompt and efficient service with

respect to actions in such areas as personal liability, partial release of security, insurance

requirements or adjustments, loan divisions or transfers, or conditional payments. Procedures shall

provide for adequate inspections, reanalyses, reappraisals, controls on payment of insurance and

taxes (and for payment when necessary), and prompt exercise of legal options to preserve the

lender's collateral position or guard against loss. Loan servicing policies for rural home loans shall

recognize the inherent differences between agricultural and rural home lending.

(2) Operating loans. The objective shall be to service such loans to assure disbursement in accordance

with the basis of approval, repayment from the sources obligated or pledged, and to minimize risk

exposure to the lender. Procedures shall require:

(i) The procurement of periodic operating data essential for maintaining control, for the proper

analysis of such data, and prompt action as needed;

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4165(d)(2)(i)

12 CFR 614.4170(c)(2)(i) (enhanced display) page 19 of 66
[37 FR 11424, June 7, 1972, as amended at 40 FR 17745, Apr. 22, 1975. Redesignated at 46 FR 51878, Oct. 22, 1981 and

amended at 48 FR 54475, Dec. 5, 1983; 51 FR 39502, Oct. 28, 1986; 57 FR 38250, Aug. 24, 1992; 61 FR 67187, Dec. 20, 1996.

Redesignated at 75 FR 35968, June 24, 2010]

§ 614.4175 Uninsured voluntary and involuntary accounts.

[53 FR 35454, Sept. 14, 1988. Redesignated at 75 FR 35968, June 24, 2010]

Subpart E—Loan Terms and Conditions

Source: 55 FR 24884, June 19, 1990, unless otherwise noted.

§ 614.4200 General requirements.

(ii) Inspections, reappraisals, and borrower visits appropriate to the nature and quality of the loan;

and

(iii) Controls on insurance, margin requirements, warehousing, and the prompt exercise of legal

options to preserve the lender's collateral position and guard against loss.

(3) Legal entity loans. In addition to the foregoing servicing objectives for term and operating loans,

procedures for servicing these loans shall require procurement of data on changes in ownership,

control, and management; review of business objectives, financing programs, organizational

structure, and operating methods, and appropriate analysis of such changes with provision for

action as needed.

(a) Borrowers may make voluntary advance payments on their loans or, under agreement with a System

institution, may make voluntary advance conditional payments intended to be applied to future maturities.

The monies in the advance conditional payment accounts may be available for return to the borrower in

lieu of increasing his loan. System institutions may pay interest on advance conditional payments for the

time the funds are held unapplied at a rate not to exceed the rate charged on the related loan(s). System

institutions shall hold any advance conditional payments received in accordance with this section in

voluntary advance payment accounts.

(b) System institutions may establish involuntary payment accounts including, but not limited to, funds held

for the borrower, such as loan proceeds to be disbursed for which the borrower is obligated; the unapplied

insurance proceeds arising from any insured loss; and total insurance premiums and applicable taxes

collected in advance in connection with any loan.

(a) Terms and conditions.

(1) The terms and conditions of each loan made by a Farm Credit bank or association shall be set forth

in a written document or documents, such as a loan agreement, promissory note, or other

instrument(s) appropriate to the type and amount of the credit extension, in order to establish loan

conditions and performance requirements. Copies of all documents executed by the borrower in

connection with the closing of a loan made under titles I or II of the Act shall be provided to the

borrower at the time of execution and at any time thereafter that the borrower requests additional

copies.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4170(c)(2)(ii)

12 CFR 614.4200(a)(1) (enhanced display) page 20 of 66
[62 FR 51014, Sept. 30, 1997, as amended at 85 FR 60694, Sept. 28, 2020]

(2) The terms and conditions of all loans shall be adequately disclosed in writing to the borrower not

later than loan closing. For loans made under titles I and II of the Act, the institution shall provide

prompt written notice of the approval of the loan.

(3) Applicants shall be provided notification of the action taken on each credit application in compliance

with the requirements of 12 CFR 202.9.

(b) Security.

(1) Long-term real estate mortgage loans must be secured by a first lien interest in real estate, except

that the loans may be secured by a second lien interest if the institution also holds the first lien on

the property. No funds shall be advanced, under a legally binding commitment or otherwise, if the

outstanding loan balance after the advance would exceed 85 percent (or 97 percent as provided in

section 1.10(a) of the Act) of the appraised value of the real estate, except that a loan on which

private mortgage insurance is obtained may exceed 85 percent of the appraised value of the real

estate to the extent that the loan amount in excess of 85 percent is covered by such insurance. The

real estate that is used to satisfy the loan-to-value limitation must be comprised primarily of

agricultural or rural property, including agricultural land and improvements thereto, a farm-related

business, a marketing or processing operation, a rural residence, or real estate used as an integral

part of an aquatic operation.

(2) Notwithstanding the requirements of paragraph (b)(1) of this section, the lending institution may

advance funds for the payment of taxes or insurance premiums with respect to the real estate,

reschedule loan payments, grant partial releases of security interests in the real estate, and take

other actions necessary to protect the lender's collateral position. Any action taken that results in

exceeding the loan-to-value limitation shall be in accordance with a policy of the institution's board of

directors and adequately documented in the loan file.

(3) Short- and intermediate-term loans may be secured or unsecured as the documented

creditworthiness of the borrower warrants.

(4) In addition to the requirements in paragraph (b)(1) of this section, a long-term, non-farm rural home

loan, including a revolving line of credit, shall be secured by a first lien on the property, except that it

may be secured by a second lien if the institution also holds the first lien on the property. A short- or

intermediate-term loan on a rural home, including a revolving line of credit, must be secured by a lien

on the property unless the financing is provided exclusively for repairs, remodeling, or other

improvements to the rural home, in which case the loan may be secured by other property or

unsecured if warranted by the documented creditworthiness of the borrower.

(5) Except as provided in § 614.4231, loans made under title III of the Act may be secured or unsecured,

as appropriate for the purpose of the loan and the documented creditworthiness of the borrower.

(c) Loan amortization. If a direct lender amortizes a loan over a period of time that is longer than the term to

maturity under § 614.4000(a), § 614.4010(a), § 614.4030(a), § 614.41040(a), or § 614.4050(a)(1) or (2), it

must establish a loan amortization schedule that is:

(1) Consistent with its loan underwriting standards adopted pursuant to § 614.4150; and

(2) Appropriate to the type and purpose of the loan, expected useful life of the asset being financed, and

the repayment capacity of the borrower.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4200(a)(2)

12 CFR 614.4200(c)(2) (enhanced display) page 21 of 66
§ 614.4231 Certain seasonal commodity loans to cooperatives.

Loans on certain commodities that are part of government programs shall comply with the criteria established for

those programs. Security taken on program commodities shall be consistent with prudent lending practices and

ensure compliance with the government program. The bank shall provide for periodic review by bank officials of any

custodial activities and shall provide notice to the custodians that their activities are subject to review and

examination by the Farm Credit Administration.

[62 FR 51015, Sept. 30, 1997]

§ 614.4232 Loans to domestic lessors.

Loans and financial assistance extended by banks for cooperatives and agricultural credit banks to domestic

lessors to finance equipment or facilities leased by a stockholder of the bank shall be subject to the following terms

and conditions:

[55 FR 24884, June 19, 1990, as amended at 64 FR 34517, June 28, 1999]

§ 614.4233 International loans.

Term loans made by banks for cooperatives and agricultural credit banks under the authority of section 3.7(b) of the

Act and § 613.3200 of this chapter to foreign or domestic parties who are not shareholders of the bank shall be

subject to the following conditions:

[55 FR 24884, June 19, 1990, as amended at 55 FR 28886, July 16, 1990; 55 FR 50544, Dec. 7, 1990; 56 FR 5927, Feb. 14, 1991;

62 FR 4445, Jan. 30, 1997]

(a) The term of the loan shall not be longer than the total period of the lease;

(b) The contract between the lessor and lessee shall establish that the leased assets are effectively under the

control of the lessee and that such control shall continue in effect for essentially all of the term of the

lease;

(c) The lessee must hold at least one share of stock or one participation certificate; and

(d) The leased equipment and facilities must be primarily for use in the lessee's operations in the United

States.

(a) The loan shall be denominated in a currency to eliminate foreign exchange risk on repayment.

(b) The borrower's obligations shall be guaranteed or insured against default under such policies as are

available in the United States and other countries. Exceptions may be made where a prospective borrower

has had a longstanding successful business relationship with an eligible cooperative borrower or an

eligible cooperative which is not a borrower if the prospective borrower has a high credit rating as

determined by the bank.

(c) For a borrower in which a voting stockholder of the bank has a majority ownership interest, financing may

be extended for the full value of the transaction; otherwise, financing may be extended only to

approximate the percent of ownership.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4231

12 CFR 614.4233(c) (enhanced display) page 22 of 66
Subpart F—Collateral Evaluation Requirements

Source: 59 FR 46730, Sept. 12, 1994, unless otherwise noted.

§ 614.4240 Collateral definitions.

For the purposes of this part, the following definitions shall apply:

(a) Abundance of caution, when used to describe decisions to require collateral, means that the collateral is

taken in circumstances in which:

(1) It is not required by statute, regulation, or the institution's policies; and

(2) A prudent lender would extend credit based on a borrower's income and/or other collateral, absent

the real estate, and the decision to extend credit was, in fact, based on other sources of revenue or

collateral.

(b) Appraisal means a written statement independently and impartially prepared by a qualified appraiser

setting forth an opinion as to the market value of an adequately described property as of a specific

date(s), supported by the presentation and analysis of relevant market information.

(c) Appraisal Foundation means the Appraisal Foundation established on November 30, 1987, by professional

appraisal organizations, as a not-for-profit corporation under the laws of Illinois, in order to enhance the

quality of professional appraisals.

(d) Appraisal Subcommittee means the Appraisal Subcommittee of the Federal Financial Institutions

Examination Council.

(e) Business loan means a loan or other extension of credit to any corporation, general or limited partnership,

business trust, joint venture, sole proprietorship, or other business entity (including entities and

individuals engaged in farming enterprises).

(f) Cost approach means the process by which an evaluator establishes an indicated value by measuring the

current market cost to construct a reproduction of or replacement for the improvements, minus the

amount of depreciation (physical deterioration, or functional and/or external obsolescence) evident in the

structure from all causes, plus the market value of the land.

(g) Evaluation means a study of the nature, quality, or utility of, interest in, or aspects of, an asset. An

evaluation may take the form of a valuation or an appraisal.

(h) Fee appraiser means a qualified evaluator who is not an employee of the party contracting for the

completion of the evaluation and who performs an evaluation on a fee basis. For purposes of this

subpart, a fee appraiser may include a staff evaluator from another Farm Credit System institution only if

the employing institution is not operating under joint management with the contracting institution. In

addition, for purposes of personal and intangible collateral evaluations, the term “fee appraiser” includes,

but is not limited to, certified public accountants, equipment dealers, grain buyers, livestock buyers, and

auctioneers.

(i) FIRREA means the Financial Institutions Recovery, Reform, and Enforcement Act of 1989.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4240

12 CFR 614.4240(i) (enhanced display) page 23 of 66
(j) Highest and best use means the reasonable and most probable use of the property that would result in the

highest market value of vacant land or improved property, as of the date of valuation; or that use, from

among reasonably probable and legally alternative uses, found to be physically possible, appropriately

supported, financially feasible, and which results in the highest land value.

(k) Income capitalization approach means the procedure that values property by measuring the present value

of the expected future benefits of property ownership. This value is derived from either:

(1) Capitalizing a single year's income expectancy or an annual average of several years' income

expectancies at a market-derived capitalization rate that reflects a specific income pattern, return on

investment, and change in the value of the investment; or

(2) Discounting the annual cashflows for the holding period and the reversion at a specified yield rate or

specified yield rates which reflect market behavior.

(l) Market value means the most probable price that a property should bring in a competitive and open

market under all conditions requisite to a fair sale, the buyer and seller each acting prudently,

knowledgeably, and assuming neither is under duress. Implicit in this definition is the consummation of a

sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;

(2) Both parties are well informed or well advised, and acting in what they consider their best interests;

(3) A reasonable time is allowed for exposure in the open market;

(4) Payment is made in terms of cash in United States dollars or in terms of financial arrangements

comparable thereto; and

(5) The price represents the normal consideration for the property sold unaffected by special or creative

financing or sales concessions granted by anyone associated with the sale.

(m) Personal property, for purposes of this subpart, means all tangible and movable property not considered

real property or fixtures.

(n) Qualified evaluator means an individual who is competent, reputable, impartial, and has demonstrated

sufficient training and experience to properly evaluate property of the type that is the subject of the

evaluation. For the purposes of this definition, the term “qualified evaluator” includes an appraiser or

valuator.

(o) Real estate means an identified parcel or tract of land, including improvements, if any.

(p) Real estate-related financial transactions means any transaction involving:

(1) The sale, lease, purchase, investment in, or exchange of real property, including interests in property

or the financing thereof; or

(2) The refinancing of real property or interests in real property; or

(3) The use of real property or interests in real property as security for a loan or investment, including

mortgage-backed securities.

(q) Real property means all interests, benefits, and rights inherent in the ownership of real estate.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4240(j)

12 CFR 614.4240(q) (enhanced display) page 24 of 66
§ 614.4245 Collateral evaluation policies.

(r) Sales comparison approach means the procedure that values property by comparing the subject property

to similar properties located in relatively close proximity, having similar size and utility, and having been

recently sold in arm's-length transactions (comparable sales). The sales comparison approach requires

the evaluator to estimate the degree of similarity and difference between the subject property and

comparable sales. Such comparison shall be made on the basis of conditions of sale, financing terms,

market conditions, location, physical characteristics, and income characteristics. Appropriate

adjustments shall be made to the sales price of the comparable property based on the identified

deficiencies or superiorities of the subject property to arrive at a probable price for which the subject

property could be sold on the date of the collateral evaluation.

(s) State certified appraiser means any individual who has satisfied the requirements for and has been

certified as a real estate appraiser by a State or territory whose requirements for certification currently

meet or exceed the minimum criteria for certification issued by the Appraiser Qualification Board of the

Appraisal Foundation. No individual shall be a State certified appraiser unless such individual has

achieved a passing grade on a suitable examination administered by a State or territory that is consistent

with and equivalent to the Uniform State Certification Examination issued or endorsed by the Appraiser

Qualification Board of the Appraisal Foundation. In addition, the Appraisal Subcommittee must not have

issued a finding that the policies, practices, or procedures of the State or territory are inconsistent with

title XI of FIRREA.

(t) State licensed appraiser means any individual who has satisfied the requirements for licensing and has

been licensed as a real estate appraiser by a State or territory in which the licensing procedures comply

with title XI of FIRREA and in which the Appraisal Subcommittee has not issued a finding that the policies,

practices, or procedures of the State or territory are inconsistent with title XI of FIRREA.

(u) Transaction value means:

(1) For loans or other extensions of credit, the amount of the loan, loan commitment, or other extensions

of credit;

(2) For sales, leases, purchases, investments in, or exchanges of real property, the market value of the

property interest involved; and

(3) For the pools of loans or interests in real property, the transaction value of the individual loans or the

market value of the real property interests comprising the pool.

(v) USPAP means the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal

Foundation.

(w) Valuation means the process of estimating a defined value of an identified interest or interests in a

specific asset or assets as of a given date. A valuation results from the completion of a collateral

evaluation that does not require an appraisal.

(a) The board of directors of each Farm Credit System institution that engages in lending or leasing secured

by collateral shall adopt well-defined and effective collateral evaluation policies and standards, that

comply with the regulations in this subpart, to ensure that collateral evaluations are:

(1) Sufficiently descriptive and detailed to provide ample support to the institution's related credit

decisions;

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4240(r)

12 CFR 614.4245(a)(1) (enhanced display) page 25 of 66
[59 FR 46730, Sept. 12, 1994, as amended at 62 FR 51015, Sept. 30, 1997]

§ 614.4250 Collateral evaluation standards.

(2) Performed based on criteria established for the purpose of determining the circumstances under

which collateral evaluations will be required and when they will be required. Such criteria must, at a

minimum:

(i) Establish when an institution will require a collateral appraisal completed under the USPAP

rather than a collateral valuation; and

(ii) Take into account such factors as market trends, market volatility, and various types of credit,

loan servicing, collection, and liquidation actions; and

(3) Completed by a qualified evaluator in an unbiased manner.

(b) The policies and standards required by this section shall, at a minimum, address the criteria outlined in §§

614.4250 through 614.4267 of this subpart.

(c) A Federal land bank association shall, with the approval of its respective Farm Credit bank, adopt

collateral evaluation policies that are consistent with the bank's policies and standards.

(d) An institution's board of directors may adopt specific collateral evaluation requirements, consistent with

the regulations in this subpart, for loans designated as part of a minimum information program.

(a) When real, personal, or intangible property is taken as security for a loan or is the subject of a lease, an

evaluation of such property shall be performed in accordance with § 614.4260 and the institutions'

policies and procedures. Such a collateral evaluation shall be identified as either a collateral valuation or a

collateral appraisal. Specifically, all collateral evaluations must:

(1) Value the subject property based upon market value as defined in § 614.4240(l);

(2) Be presented in a written format;

(3) Consider the purpose for which the property will be used and the property's highest and best use, if

different from the intended use;

(4) Be sufficiently descriptive to enable the reader to ascertain the reasonableness of the estimated

market value and the rationale for the estimate;

(5) Provide sufficient detail (including an identification and description of the property) and depth of

analysis to reflect the relevant characteristics and complexity of the subject property;

(6) Analyze and report, as appropriate, for real, intangible, and/or personal property, on:

(i) The current income producing capacity of the property;

(ii) A reasonable marketing period for the property;

(iii) The current market conditions and trends that will affect projected income, to the extent such

conditions will affect the value of the property;

(iv) The appropriate deductions and discounts as they would apply to the property, including but not

limited to, those based on the condition of the property, as well as the specialization of the

operation and property; and

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Loan Policies and Operations 12 CFR 614.4245(a)(2)

12 CFR 614.4250(a)(6)(iv) (enhanced display) page 26 of 66
§ 614.4255 Independence requirements.

(v) Potential liabilities, including those associated with any hazardous waste or other

environmental concerns; and

(7) Include in the evaluation report a certification that the evaluation was not based on a requested

minimum valuation or specific valuation or approval of a loan.

(b) For purposes of determining appraisal value as required in section 1.10(a) of the Act, the definition of

market value and the requirements of this subpart shall apply.

(a) Prohibitions. For all personal and intangible property, and for all real property exempted under §

614.4260(c) of this subpart, no person may:

(1) Perform evaluations in connection with transactions in which such person has a direct or indirect

interest, financial or otherwise, in the loan or subject property;

(2) As a director, vote on or approve a loan decision on which such person performed a collateral

evaluation; or

(3) As a director, perform a collateral evaluation in connection with any transaction on which such

person made or will be required to make a credit decision.

(b) Officers and employees. If the institution's internal control procedures required by § 618.8430 of this

chapter include requirements for either a prior approval or post-review of credit decisions, officers and

employees may:

(1) Participate in a vote or approval involving assets on which they performed a collateral evaluation; or

(2) Perform a collateral evaluation in connection with a transaction on which they have made or will be

required to make a credit decision.

(c) Real estate appraiser. Except as provided in § 614.4260(c) of this subpart, all evaluations of real property

that serve as the primary security for a loan shall be performed by a qualified real estate appraiser who

has no direct or indirect interest, financial or otherwise, in the loan or subject property and is not engaged

in the marketing, lending, collection, or credit decision processes of any of the following:

(1) A Farm Credit System institution making or originating the loan;

(2) A Farm Credit System institution operating under common management with the institution making

or originating the loan; or

(3) A Farm Credit System institution purchasing an interest in the loan.

(d) Fee appraisers. Fee appraisers shall be engaged directly by the Farm Credit System institution or its agent,

and shall have no direct or indirect interest, financial or otherwise, in the property or transaction. A Farm

Credit System institution may accept a real estate appraisal that was prepared by an appraiser engaged

directly by another Farm Credit System institution, by a United States Government agency, a GovernmentSponsored Enterprise or by a financial institution subject to title XI of FIRREA.

(e) Loan purchases. No employee who, acting as a State licensed or State certified appraiser, performed a

real estate appraisal on any collateral supporting a loan shall subsequently participate in any decision

related to the loan purchase.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4250(a)(6)(v)

12 CFR 614.4255(e) (enhanced display) page 27 of 66
§ 614.4260 Evaluation requirements.

(a) Valuation. Valuations of personal and intangible property, as well as real property exempted under

paragraph (c) of this section, shall be performed by qualified individuals who meet the established

standards of this subpart and the Farm Credit System institution obtaining the collateral valuation.

(b) Appraisal.

(1) Appraisals for real estate-related financial transactions with transaction values of more than

$250,000 shall be performed by a qualified appraiser who is a State licensed or a State certified real

estate appraiser.

(2) Appraisals for real estate-related financial transactions with transaction values of more than

$1,000,000 shall be performed by a qualified appraiser who is a State certified real estate appraiser.

(c) Appraisals not required. An appraisal performed by a State certified or State licensed appraiser is not

required for any real estate-related financial transaction in which any of the following conditions are met:

(1) The transaction value is $250,000 or less;

(2) The transaction is a “business loan” as defined in § 614.4240(e) that:

(i) Has a transaction value of $1,000,000 or less; and

(ii) Is not dependent on income derived from the sale or cash rental of real estate as the primary

source of repayment;

(3) A lien on real property has been taken as collateral in an abundance of caution, and the application,

when evaluated on the five basic credit factors, without considering the subject real estate, would

support the credit decision that was based on other sources of repayment or collateral;

(4) A lien on real estate is not statutorily required and has been taken for purposes other than the real

estate's value;

(5) Subsequent loan transactions (which include but are not limited to loan servicing actions,

reamortizations, modifications of loan terms, and partial releases), provided that either:

(i) The transaction does not involve the advancement of new loan funds other than funds

necessary to cover reasonable closing costs; or

(ii) There has been no obvious and material change in market conditions or physical aspects of the

property that threatens the adequacy of the Farm Credit System institution's real estate

collateral protection, even with the advancement of new loan funds;

(6) A Farm Credit System institution purchases a loan or an interest in a loan, pool of loans, or interests

in real property, including mortgage-backed securities, provided that:

(i) The appraisal prepared for each loan, pooled loan, or real property interest, when originated,

met the standards of this subpart, other Federal regulations adopted pursuant to FIRREA, or the

requirements of the government-sponsored secondary market intermediaries under whose

auspices the interest is sold; and

(ii) There has been no obvious and material change in market conditions or physical aspects of the

property that would threaten the Farm Credit System institution's collateral position, or

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4260

12 CFR 614.4260(c)(6)(ii) (enhanced display) page 28 of 66
[59 FR 46730, Sept. 12, 1994, as amended at 60 FR 2687, Jan. 11, 1995]

§ 614.4265 Real property evaluations.

(7) A Farm Credit System institution makes or purchases a loan secured by real estate, which loan is

guaranteed by an agency of the United States Government and is supported by an appraisal that

conforms to the requirements of the guaranteeing agency.

To qualify for exceptions in paragraphs (c)(1) through (c)(7) of this section from the requirements of

this subpart, the institution must have documentation justifying the use of such exceptions in the

applicable loan file(s). In addition, the institution must document that the repayment of a “business

loan” is not dependent on income derived from the sale or cash rental of real estate.

(d) FCA-required appraisals. The FCA reserves the right to require an appraisal under this subpart whenever it

believes it is necessary to address safety and soundness issues.

(e) Reciprocity. The requirements of this subpart are satisfied by the use of State certified or State licensed

appraisers from any State provided that:

(1) The appraiser is qualified to perform such appraisals;

(2) The applicable Farm Credit System institution has established policies providing for such interstate

appraisals; and

(3) The applicable State appraiser licensing and certification agency recognizes the certification or

license of the appraiser's State of permanent certification or licensure.

(a) Real estate shall be valued on the basis of market value.

(b) Market value shall be determined by a reasonable valuation method that:

(1) Considers the income capitalization approach, the sales comparison approach, and/or the cost

approach, as appropriate, to determine market value;

(2) Explains and documents the elimination of any approach not used.

(3) Reconciles the market values of the applicable approaches; and

(c) At a minimum, the institution shall develop and document the evaluation of the income and debt servicing

capacity for the property and operation where the transaction value exceeds $250,000 and the real estate

taken as collateral:

(1) Is an integral part of and supports the principal source of loan repayment; or

(2) Is not an integral part of and does not support the principal source of loan repayment, but has

demonstrable rental market appeal, is statutorily required, and fully or partially constitutes an integral

part of an agricultural or aquatic operation.

(d) The income-earning and debt-servicing capacity established under paragraph (c) of this section on such

properties shall be documented as part of the credit analysis for any related loan action, whether or not

the income capitalization approach value is used as the basis for the market value conclusion stated in

the evaluation report.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4260(c)(7)

12 CFR 614.4265(d) (enhanced display) page 29 of 66
[59 FR 46730, Sept. 12, 1994, as amended at 71 FR 65387, Nov. 8, 2006; 75 FR 35968, June 24, 2010]

§ 614.4266 Personal and intangible property evaluations.

[59 FR 46730, Sept. 12, 1994, as amended at 59 FR 50964, Oct. 6, 1994]

§ 614.4267 Professional association membership; competency.

(e) Collateral closely aligned with, an integral part of, and normally sold with real estate (fixtures) may be

included in the value of the real estate. All other collateral associated with the real estate, but designated

as personal property, shall be evaluated as personal property in accordance with §§ 614.4250 and

614.4266.

(f) The evaluation shall properly identify all nonagricultural influences, including, but not limited to, urban

development, mineral deposits, and commercial building development value, and the reasoning

supporting the evaluator's highest and best-use conclusion.

(g) Where an evaluation of real property is completed by a fee appraiser, as defined in § 614.4240(g), the

institution's standards shall include provisions for periodic collateral inspections performed by the

institution's account officer or appropriate designee.

(a) Personal property and intangibles shall be valued on the basis of market value in accordance with the

institution's evaluation standards and policies.

(b) Personal property evaluations shall include a source of comparisons of value (i.e., equipment dealer

listings, Blue Book, market sales reports, etc.) and a description of the property being evaluated, including

location of the property and, where applicable, quantity, species/variety, measure/weight, value per unit

and in total, type of identification (such as brand, bill of lading, or warehouse receipt), quality, condition,

and date.

(c) Evaluations of intangibles shall include a review and description of the documents supporting the property

interests and the marketability of the intangible property, including applicable terms, conditions, and

restrictions contained in the document that would affect the value of the property.

(d) Where an evaluation of personal or intangible property is completed by a fee appraiser, as defined in §

614.4240(g), the institution's standards shall include provisions for periodic collateral inspections and

verification by the institution's account officer or appropriate designee.

(e) When a Farm Credit System institution deems an appraisal necessary, personal or intangible property

shall be appraised in accordance with procedures and standards established by the institution by

individuals deemed qualified by the institution to complete the work under the USPAP Competency and

Ethics Provisions.

(a) Membership in appraisal organizations. A State certified appraiser or a State licensed appraiser may not

be excluded from consideration for an assignment for a real estate-related transaction solely by virtue of

membership or lack of membership in any particular appraisal organization.

(b) Competency. All staff and fee evaluators, including appraisers, performing evaluations in connection with

real, personal, or intangible property taken as collateral in connection with extensions of credit must meet

the qualification requirements of this subpart. However, an evaluator (as defined in § 614.4240(n)) may

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4265(e)

12 CFR 614.4267(b) (enhanced display) page 30 of 66
Subpart G [Reserved]

Subpart H—Loan Purchases and Sales

Source: 57 FR 38247, Aug. 24, 1992, unless otherwise noted.

§ 614.4325 Purchase and sale of interests in loans.

not be considered competent solely by virtue of being certified, licensed, or accredited. Any determination

of competency shall be based on the individual's experience and educational background as they relate to

the particular evaluation assignment for which such individual is being considered.

(a) Definitions. For the purposes of this subpart, the following definitions shall apply:

(1) Interests in loans means ownership interests in the principal amount, interest payments, or any

aspect of a loan transaction and transactions involving a pool of loans, including servicing rights.

(2) Lead lender means a lending institution having a direct contractual relationship with a borrower to

advance funds, which institution sells or assigns an interest or interests in such loan to one or more

other lenders.

(3) Loan means any extension of credit or similar financial assistance of the type authorized under the

Act, such as guarantees, letters of credit, and other similar transactions.

(4) Participating institution means an institution that purchases a participation interest in a loan

originated by another lender.

(5) Sale with recourse means a sale of a loan or an interest in a loan in which the seller:

(i) Retains some risk of loss from the transferred asset for any cause except the seller's breach of

usual and customary warranties or representations designed to protect the purchaser against

fraud or misrepresentation; or

(ii) Has an obligation to make payments of principal or interest to any party resulting from:

(A) Default on the payment of principal or interest on the loan by the borrower or guarantor or

any other deficiencies in the obligor's performance;

(B) Changes in the market value of the assets after transfer;

(C) Any contractual relationship between the seller and purchaser incident to the transfer that,

by its terms, could continue even after final payment, default, or other termination of the

assets transferred; or

(D) Any other cause, except the retention at servicing rights alone shall not constitute

recourse.

(6) Subordinated participation interest means an interest in a loan that bears the first risk of loss,

including the retention of such an interest when a loan is sold to a pooler certified by the Federal

Agricultural Mortgage Corporation pursuant to title VIII of the Act, or an interest in a pool of

subordinated participation interests purchased to satisfy the requirements of title VIII of the Act with

respect to a loan sold to such a certified pooler.

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Loan Policies and Operations 12 CFR 614.4325

12 CFR 614.4325(a)(6) (enhanced display) page 31 of 66
(b) Authority to purchase and sell interests in loans. Loans and interests in loans may only be sold in

accordance with each institution's lending authorities, as set forth in subpart A of this part. No Farm

Credit System institution may purchase any interest in a loan from an institution that is not a Farm Credit

System institution, except:

(1) For the purpose of pooling and securitizing such loans under title VIII of the Act;

(2) Purchases of a participation interest that qualifies under the institution's lending authority, as set

forth in subpart A of this part, and meets the requirements of § 614.4330 of this subpart;

(3) Loans purchased from the Federal Deposit Insurance Corporation, provided that the Farm Credit

System institution with direct lending authority under title I, II or III of the Act:

(i) Conducts a thorough due diligence prior to purchase to ensure that the loan, or pool of loans,

qualifies under the institution's lending authority as set forth in subpart A of this part, and

meets scope of financing and eligibility requirements in subpart A or subpart B of part 613;

(ii) Obtains funding bank approval if a Farm Credit System association purchases loans or pools of

loans that exceed 10 percent of total its capital;

(iii) Establishes a program whereby each eligible borrower of the loan purchased is offered an

opportunity to acquire the institution's required minimum amount of voting stock;

(iv) Determines whether each loan purchased, except for loans purchased that could be financed

only by a bank for cooperatives under title III of the Act, is a distressed loan as defined in §

617.7000, and provides borrowers of purchased loans who acquire voting stock the rights

afforded in § 617.7000, subparts A, and D through G if the loan is distressed; and

(v) Divests eligible purchased loans when the borrowers elect not to acquire stock under the

program offered in paragraph (b)(3)(iii) of this section in the same manner it would divest loans

under its current business practices.

(vi) Includes information on loans purchased under authority of this section in the Reports of

Condition and Performance required under § 621.12 of this chapter, in the format prescribed by

FCA reporting instructions.

(c) Policies. Each Farm Credit System institution that is authorized to sell or purchase interests in loans under

subpart A of this part shall exercise that authority in accordance with a policy adopted by its board of

directors that addresses the following matters:

(1) The types of purchasers to which the institution is authorized to sell interests in loans;

(2) The types of loans in which the institution may purchase or sell an interest and the types of interests

which may be purchased or sold;

(3) The underwriting standards to be applied in the purchase of interests in loans:

(4) Such limitations on the aggregate principal amount of interests in loans that the institution may

purchase from a single institution as are necessary to diversify risk, and such limitations on the

aggregate amount the institution may purchase from all institutions as are necessary to assure that

service to the territory is not impeded;

(5) Provision for the identification and reporting of loans in which interests are sold or purchased;

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Loan Policies and Operations 12 CFR 614.4325(b)

12 CFR 614.4325(c)(5) (enhanced display) page 32 of 66
(6) Requirements for providing and securing in a timely manner adequate credit and other information

needed to make an independent credit judgment; and

(7) Any limitations or conditions to which sales or purchases are subject that the board deems

appropriate, including arbitration.

(d) Purchase and sale agreements. Agreements to purchase or sell an interest in a loan shall, at a minimum:

(1) Identify the particular loan(s) to be covered by the agreement;

(2) Provide for the transfer of credit and other borrower information on a timely and continuing basis;

(3) Provide for sharing, dividing, or assigning collateral;

(4) Identify the nature of the interest(s) sold or purchased;

(5) Set forth the rights and obligations of the parties and the terms and conditions of the sale; and

(6) Contain any terms necessary for the appropriate administration of the loan and the protection of the

interests of the Farm Credit System institution.

(e) Independent credit judgment. Each institution that purchases an interest in a loan shall make a judgment

on the creditworthiness of the borrower that is independent of the originating or lead lender and any

intermediary seller or broker prior to the purchase of the interest and prior to any servicing action that

alters the terms of the original agreement, which judgment shall not be delegated to any person(s) not

employed by the institution. A Farm Credit System institution that purchases a loan or any interest therein

may use information, such as appraisals or collateral inspections, furnished by the originating or lead

lender, or any intermediary seller or broker; however, the purchasing Farm Credit System institution shall

independently evaluate such information when exercising its independent credit judgment. No employee

who performed a real estate appraisal on any collateral supporting a loan shall participate in the decision

to purchase that loan. The independent credit judgment shall be documented by a credit analysis that

considers factors set forth in the loan underwriting standards adopted pursuant to § 614.4150 of this part

and is independent of the originating institution and any intermediary seller or broker. The credit analysis

shall consider such credit and other borrower information as would be required by a prudent lender and

shall include an evaluation of the capacity and reliability of the servicer. Boards of directors of jointly

managed institutions shall adopt procedures to ensure that the interests of their respective shareholders

are protected in participation between such institutions.

(f) Limitations. The aggregate principal amount of interests in loans purchased from a single lead lender and

the aggregate principal amount of interests in loans purchased from other institutions shall not exceed

the limits set in the institution's policy.

(g) Sales with recourse. When a loan or interest in a loan is sold with recourse, it shall be accorded the

following treatment:

(1) The loan shall be considered, to the extent of the recourse, an extension of credit by the purchaser to

the seller, as well as an extension of credit from the seller to the borrower(s), for the purpose of

determining whether credit extensions to a borrower are within the lending limits established in

subpart J of this part.

(2) The amount of the loan subject to the recourse agreement shall be considered a loan sold with

recourse for the purpose of computing permanent capital ratios.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4325(c)(6)

12 CFR 614.4325(g)(2) (enhanced display) page 33 of 66
[57 FR 38247, Aug. 24, 1992, as amended at 58 FR 40321, July 28, 1993; 62 FR 51015, Sept. 30, 1997; 64 FR 34517, June 28,

1999; 67 FR 1285, Jan. 10, 2002; 76 FR 30250, May 25, 2011]

§ 614.4330 Loan participations.

Agreements to purchase or sell a participation interest shall be subject to the provisions of § 614.4325 of this

subpart, and, in addition, shall satisfy the requirements of this section.

(h) Transactions through agents. Transactions pertaining to purchases of loans, including the judgement on

creditworthiness, may be performed through an agent, provided that:

(1) The institution establishes the necessary criteria in a written agency agreement that outlines, at a

minimum, the scope of the agency relationship and obligates the agent to comply with the

institution's underwriting standards;

(2) The institution periodically reviews the agency relationship to determine if the agent's actions are in

the best interest of the institution;

(3) The agent must be independent of the seller or intermediate broker in the transaction; and

(4) If an association's funding bank serves as its agent, the agency agreement must provide that:

(i) The association can terminate the agreement upon no more than 60 days notice to the bank;

(ii) The association may, in its discretion, require the bank to purchase from the association any

interest in a loan that the association determines does not comply with the terms of the agency

agreement or the association's loan underwriting standards.

(a) Participation agreements. Agreements to purchase or sell a participation interest in a loan shall, in

addition to meeting the requirements of § 614.4325(d) of this subpart, at a minimum:

(1) Define the duties and responsibilities of the participating institution and the lead lender, and/or the

servicing institution, if different from the lead lender.

(2) Provide for loan servicing and monitoring of the servicer;

(3) Set forth authorization and conditions for action in the event of borrower distress or default;

(4) Provide for sharing of risk;

(5) Set forth conditions for the offering and acceptance of the loan participation and termination of the

agreement;

(6) Provide for sharing of fees, interest charges, and costs between participating institutions;

(7) Provide for a method of resolution of disagreements arising under the agreement between two or

more institutions;

(8) Specify whether the contract is assignable by either party; and

(9) Provide for the issuance of certificates evidencing a participation interest in a loan.

(b) Intrasystem participations. Loans participated between or among Farm Credit System institutions shall

meet the borrower eligibility, membership, loan term, loan amount, loan security, and stock purchase

requirements of the originating lender.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4325(h)

12 CFR 614.4330(b) (enhanced display) page 34 of 66
[57 FR 38247, Aug. 24, 1992, as amended at 67 FR 1285, Jan. 10, 2002]

§ 614.4335 Borrower stock requirements.

[62 FR 63646, Dec. 2, 1997]

§ 614.4337 Disclosure to borrowers.

When a loan or an interest in a loan other than a participation interest is sold with servicing rights, the disclosure

shall be made to the borrower in accordance with this section:

(a) In general. Except as provided in paragraph (b) of this section, a borrower shall meet the minimum

borrower stock purchase requirements as a condition of obtaining a loan.

(b) Loans designated for sale into a secondary market.

(1) An institution's bylaws may provide that the institution's minimum borrower stock purchase

requirements do not apply if a loan is designated, at the time it is made, for sale into a secondary

market.

(2) If a loan designated for sale under paragraph (b)(1) of this section is not sold into a secondary

market during the 180–day period that begins on the date of designation, the institution's minimum

borrower stock purchase requirements shall apply.

(c) Retirement of borrower stock —

(1) In general. Borrower stock may be retired only if the institution meets the minimum permanent

capital requirements imposed by the FCA pursuant to the Act or regulations and, except as provided

in paragraph (c)(2) of this section, in accordance with the following:

(i) Borrower stock may be retired if the entire loan is sold without recourse, provided that when the

loan is sold without recourse to another Farm Credit System institution, the borrower may elect

to hold stock in either the selling or purchasing institution.

(ii) Borrower stock may not be retired when the entire loan is sold with recourse.

(iii) When an interest in a loan is sold without recourse, a proportionate amount of borrower stock

may be retired, but in no event may stock be retired below the institution's minimum stock

purchase requirements for the interest retained.

(iv) If an institution repurchases a loan on which the stock has been retired, the borrower shall be

required to repurchase stock in the amount of the minimum stock purchase requirement.

(2) Loans sold into a secondary market. An institution's bylaws may provide that all outstanding voting

stock held by a borrower with respect to a loan shall be retired when the loan is sold into a

secondary market.

(d) Applicability. In the case of a loan sold into a secondary market under title VIII of the Act, paragraphs

(b)(1) and (c)(2) of this section apply regardless of whether the institution retains a subordinated

participation interest in a loan or pool of loans or contributes to a cash reserve.

(a) The selling institution shall disclose to the borrower at least 10 days prior to the borrower's next payment

date;

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4335

12 CFR 614.4337(a) (enhanced display) page 35 of 66
Subpart I—Loss-Sharing Agreements

§ 614.4340 General.

[49 FR 48910, Dec. 17, 1984, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989]

§ 614.4345 Guaranty agreements.

Guaranty agreements under which a percentage of the risk associated with specific loans is assumed may be

entered into by or among System banks and associations.

[49 FR 48910, Dec. 17, 1984, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989]

Subpart J—Lending and Leasing Limits

Source: 58 FR 40321, July 28, 1993, unless otherwise noted.

§ 614.4350 Definitions.

For purposes of this subpart, the following definitions shall apply:

(1) The name, address, and telephone number of the purchasing institution;

(2) The name and address of the party to whom payment is to be made;

(3) A description of the impact of the sale on statutory borrower rights after the sale;

(4) Any terms in the agreement that would permit a purchaser to change the terms or conditions of the

loan.

(b) A Farm Credit System institution that purchases a loan or a non-participation interest therein shall not

take any servicing action that adversely affects the borrower until it ensures that disclosure has been

made to the borrower of:

(1) The name, address, and telephone number of the purchasing institution; and

(2) The address where the payment should be sent.

(a) Upon the approval of the board of directors of the respective Farm Credit System institutions, any System

bank, association, or service corporation or service association may enter into an agreement to share loan

and other losses with any other institution(s) of the System. As appropriate, a loss-sharing agreement

may contain provisions relating to definitions of terms, terms and conditions for activation,

determinations of assessment formulas, limitations on assessments, reimbursements, administration,

arbitration, and provisions for amendment and termination.

(b) System institutions may agree among themselves to share losses for the purpose of protecting against

the impairment of capital stock or participation certificates, or for any other purpose. Agreements may

provide for sharing losses that arise in the future or that were recognized by one or more of the signatory

institutions before the date of the agreement. Agreements may contain provisions that are not entirely

reciprocal among the signatories to the agreement. Loss-sharing agreements can provide for the sharing

of loan losses, operating losses, casualty losses, losses on high risk assets, or any other losses.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4337(a)(1)

12 CFR 614.4350 (enhanced display) page 36 of 66
[58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999]

§ 614.4351 Computation of lending and leasing limit base.

[58 FR 40321, July 28, 1993, as amended at 59 FR 37403, July 22, 1994; 64 FR 34517, June 28, 1999; 70 FR 35348, June 17, 2005;

70 FR 53907, Sept. 13, 2005; 81 FR 49772, July 28, 2016; 86 FR 54356, Oct. 1, 2021]

§ 614.4352 Farm Credit Banks and agricultural credit banks.

(a) Borrower means an individual, partnership, joint venture, trust, corporation, or other business entity to

which an institution has made a loan or a commitment to make a loan either directly or indirectly.

Excluded are a Farm Credit System association or other financing institution that comply with the criteria

in section 1.7(b) of the Act and the regulations in subpart P of this part. For the purposes of this subpart,

the term “borrower” includes any customer to whom an institution has made a lease or a commitment to

make a lease.

(b) Commitment means a legally binding obligation to extend credit, enter into lease financing, purchase or

participate in loans or leases, or pay the obligation of another, which becomes effective at the time such

commitment is made.

(c) Loan means any extension of, or commitment to extend, credit authorized under the Act whether it results

from direct negotiations between a lender and a borrower or is purchased from or discounted for another

lender. This includes participation interests. The term “loan” includes loans and leases outstanding,

obligated but undisbursed commitments to lend or lease, contracts of sale, notes receivable, other similar

obligations, guarantees, and all types of leases. An institution “makes a loan or lease” when it enters into

a commitment to lend or lease, advances new funds, substitutes a different borrower or lessee for a

borrower or lessee who is released, or where any other person's liability is added to the outstanding loan,

lease or commitment.

(d) Primary liability means an obligation to repay that is not conditioned upon an unsuccessful prior demand

on another party.

(e) Secondary liability means an obligation to repay that only arises after an unsuccessful demand on another

party.

(a) Lending and leasing limit base. An institution's lending and leasing limit base is composed of the total

capital (tier 1 and tier 2) of the institution, as defined in § 628.2 of this chapter, with adjustments

applicable to the institution provided for in § 628.22 of this chapter, and with the following further

adjustments:

(1) [Reserved]

(2) Eligible third-party capital that is required to be excluded from total capital under § 628.23 of this

chapter may be included in the lending limit base.

(b) Timing of calculation. The lending limit base will be calculated on a monthly basis as of the preceding

month end.

(a) Farm Credit Banks. No Farm Credit Bank may make or discount a loan to a borrower if the consolidated

amount of all loans outstanding and undisbursed commitments to that borrower exceed 15 percent of the

bank's lending and leasing limit base.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4350(a)

12 CFR 614.4352(a) (enhanced display) page 37 of 66
[58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999; 76 FR 29997, May 24, 2011]

§ 614.4353 Direct lender associations.

No direct lender association may make a loan to a borrower if the consolidated amount of all loans outstanding and

undisbursed commitments to that borrower exceed 15 percent of the association's lending and leasing limit base.

[58 FR 40321, July 28, 1999, as amended at 64 FR 34517, June 28, 1999; 76 FR 29997, May 24, 2011]

§ 614.4354 [Reserved]

§ 614.4355 Banks for cooperatives.

No bank for cooperatives may make a loan if the consolidated amount of all loans outstanding and undisbursed

commitments to that borrower exceeds the following percentages of the lending and leasing limit base of the bank:

[58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997; 64 FR 34517, June 28, 1999; 71 FR 65387, Nov. 8, 2006]

(b) Agricultural credit banks.

(1) No agricultural credit bank may make or discount a loan to a borrower under the authority of title I of

the Act if the consolidated amount of all loans outstanding and undisbursed commitments to that

borrower exceed 15 percent of the bank's lending and leasing limit base.

(2) No agricultural credit bank may make or discount a loan to a borrower under the authority of title III

of the Act if the consolidated amount of all loans outstanding and undisbursed commitments to that

borrower exceed the lending and leasing limits prescribed in § 614.4355 of this subpart.

(a) Basic limit.

(1) Term loans to eligible cooperatives: 25 percent.

(2) Term loans to foreign and domestic parties: 10 percent.

(3) Lease loans qualifying under § 614.4020(a)(3) and applying to the lessee: 25 percent.

(4) Standby letters of credit qualifying under § 614.4810: 35 percent.

(5) Guarantees qualifying under § 614.4800: 35 percent.

(6) Seasonal loans exclusive of commodity loans qualifying under § 614.4231: 35 percent.

(7) Foreign trade receivables qualifying under § 614.4700: 50 percent.

(8) Commodity loans qualifying under § 614.4231: 50 percent.

(9) Export and import letters of credit qualifying under § 614.4720: 50 percent.

(b) Total limit.

(1) The sum of term and seasonal loans exclusive of commodity loans qualifying under § 614.4231: 35

percent.

(2) The sum of paragraphs (a)(1) through (a)(9) of this section: 50 percent.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4352(b)

12 CFR 614.4355(b)(2) (enhanced display) page 38 of 66
§ 614.4356 Farm Credit Leasing Services Corporation.

The Farm Credit Leasing Services Corporation may enter into a lease agreement with a lessee if the consolidated

amount of all leases and undisbursed commitments to that lessee or any related entities does not exceed 15

percent of its lending and leasing limit base.

[64 FR 34517, June 28, 1999,as amended at 76 FR 29997, May 24, 2011]

§ 614.4357 Banks for cooperatives look-through notes.

Where a bank for cooperatives makes a loan to an eligible borrower that is secured by notes of individuals or

business entities, the basic lending limits provided in § 614.4355 may be applied to each original notemaker rather

than to the loan to the eligible borrower, if:

[58 FR 40321, July 28, 1993. Redesignated at 64 FR 34517, June 28, 1999]

§ 614.4358 Computation of obligations.

(a) Each note is current and carries a full recourse endorsement or unconditional guarantee by the borrower;

(b) The bank determines the financial condition, repayment capacity, and other credit factors of the loan to

the original maker reasonably justify the credit granted by the endorser; and

(c) The loans are fully supported by documented loan files, which include, at a minimum:

(1) A credit report supporting the bank's finding that the financial condition, repayment capacity, and

other factors of the maker of the notes being pledged justify the credit extended by the bank and/or

endorser;

(2) A certification by a bank officer designated for that purpose by the loan or executive committee that

the financial responsibility of the original notemaker has been evaluated by the loan committee and

the bank is relying primarily on each such maker for the payment of the obligation; and

(3) Other credit information normally required of a borrower when making and administering a loan.

(a) Inclusions. The computation of total loans to each borrower for the purpose of computing their lending

and leasing limit shall include:

(1) The total unpaid principal of all loans and lease balances outstanding and the total amount of

undisbursed commitments except as excluded by paragraph (b) of this section. This amount shall

include loans that have been charged off on the books of the institution in whole or in part but have

not been collected, except to the extent that such amounts are not legally collectible;

(2) Purchased interests in loans, including participation interests, to the extent of the amount of the

purchased interest, including any undisbursed commitment;

(3) Loans attributed to a borrower in accordance with § 614.4359.

(b) Exclusions. The following loans when adequately documented in the loan file, may be excluded from loans

to a borrower subject to the lending and leasing limit:

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4356

12 CFR 614.4358(b) (enhanced display) page 39 of 66
[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, June 28, 1999; 67 FR 1285, Jan. 10, 2002]

(1) Any loan or portion of a loan that carries a full faith and credit performance guaranty or surety of any

department, agency, bureau, board, commission, or establishment of the United States government,

provided there is no evidence to suggest that the guaranty has become unenforceable and the

institution can demonstrate that it is in compliance with the terms and conditions of the guaranty.

(2) Any loan or portion of a loan guaranteed by a Farm Credit System institution, pursuant to the

provisions of § 614.4345 on guaranty agreements. This exclusion does not apply to the institution

providing the guaranty.

(3) Any loan or portion of a loan that is secured by bonds, notes, certificates of indebtedness, or

Treasury bills of the United States or by other obligations guaranteed as to principal and interest by

the United States government, provided the loans are fully secured by the current market value of

such obligations. If the market value of the collateral declines to below the balance of the loan, and

the entire loan, individually, or when combined with other loans and undisbursed commitments to or

attributed to the borrower, causes the borrower's total indebtedness to exceed the institution's

lending limit, the institution shall have 5 business days to bring the loan into conformance before it

shall be deemed to be in violation of the lending limit.

(4) Interests in loans sold, including participation interests, when the sale agreement meets the

following requirements:

(i) The interest must be sold without recourse; and

(ii) The agreement under which the interest is sold must provide for the sharing of all payments of

principal, collection expenses, collateral proceeds, and risk of loss on a pro rata basis

according to the percentage interest in the principal amount of the loan. Agreements that

provide for the pro rata sharing to commence at the time of default or similar event, as defined

in the agreement under which the interest is sold, shall be considered to be pro rata

agreements, notwithstanding the fact that advances are made and payments are distributed on

a basis other than pro rata prior to that time.

(5) Interests in leases sold when the sale agreement provides that:

(i) The interest sold must be:

(A) An undivided interest in all the lease payments or the residual value of all the leased

property; or

(B) A fractional undivided interest in the total lease transaction;

(ii) The interest must be sold without recourse; and

(iii) Sharing of all lease payments must be on a pro rata basis according to the percentage interest

in the lease payments.

(6) Loans sold in their entirety to a pooler certified by the Federal Agricultural Mortgage Corporation, if

an interest in a pool of subordinated participation interests is purchased to satisfy the requirements

of title VIII of the Act.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4358(b)(1)

12 CFR 614.4358(b)(6) (enhanced display) page 40 of 66
§ 614.4359 Attribution rules.

(a) For the purpose of applying the lending and leasing limit to the indebtedness of a borrower, loans to a

related borrower shall be combined with loans outstanding to the borrower and attributed to the borrower

when any one of the following three conditions exist:

(1) Liability.

(i) The borrower has primary or secondary liability on a loan made to the related borrower. The

amount of such loan attributable to the borrower is limited to the amount of the borrower's

liability.

(ii) This section does not require attribution of a guarantee taken out of an abundance of caution.

To qualify for the abundance of caution exception to the requirements of this subpart, the

institution must document in the loan file that the loan, when evaluated under the loan

underwriting standards adopted pursuant to § 614.4150 of this part without considering the

guarantee, would support the credit decision under the same basic terms and conditions.

(iii) For the banks for cooperatives and agricultural credit banks operating under title III authorities

of the Act, look-through notes are exempt from the lending limit provisions provided they meet

the criteria of § 614.4357.

(2) Financial interdependence. The operations of a borrower and related borrower are financially

interdependent. Financial interdependence exists if the borrower is the primary source of repayment

for a related borrower's loan, or if the operations of the borrower and the related borrower are

commingled.

(i) The borrower shall be considered the primary source of repayment on the loan to the related

borrower if the borrower is obligated to supply 50 percent or more of the related borrower's

annual gross receipts, and reliance on the income from one another is such that, regardless of

the solvency and liquidity of the borrower's operations, the debt service obligation of the related

borrower could not be met if income flow from the borrower is interrupted or terminated. For

the purpose of this paragraph, gross receipts include, but are not limited to, revenues,

intercompany loans, dividends and capital contributions.

(ii) The assets or operations of the borrower and related borrower are considered to be

commingled if they cannot be separated without materially impacting the economic survival of

the individual operations and their ability to repay their loans.

(3) Control. The borrower directly or indirectly controls the related borrower. A borrower is deemed to

control a related borrower if either paragraph (a)(3)(i) or (a)(3)(ii) of this section exist:

(i) The borrower, directly or acting through one or more other persons, owns 50 percent or more of

the stock of the related borrower; or

(ii) The borrower, directly or acting through one or more other persons, owns or has the power to

vote 25 percent or more of the voting stock of a related borrower, and meets at least one of the

following three conditions:

(A) The borrower shares a common directorate or management with a related borrower. A

common directorate is deemed to exist when a majority of the directors, trustees, or other

persons performing similar functions of one borrower also serves the other borrower in a

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4359

12 CFR 614.4359(a)(3)(ii)(A) (enhanced display) page 41 of 66
Table 1

Attribution rule Criteria per § 614.4359 Attribute

(A) Liability Borrower has primary or secondary liability Yes.*

*to the extent of the

borrower's liability

Borrower's liability is taken out of an abundance of caution No.*

Look-through notes (BC only) No.

(B) Financial

Interdependence

Source of Repayment:

(Economic survival of the

borrower's operation will

materially impact economic

survival of the related

borrowers operation)

Borrower is obligated to supply 50 percent or more of related

borrower's annual gross receipts, and reliance on the income

from one another is such that the debt service of the related

borrower could not be met if income flow from the borrower is

interrupted or terminated

Yes.

Commingled Operations:

Assets or operations of the borrowers are commingled and

cannot be separated without materially impacting the borrowers'

repayment capacity

Yes.

(C) Control The borrower owns 50 percent or more of the stock of the

related borrower

Yes.

(The borrower, directly or

indirectly, controls the

related borrower)

The borrower owns or has the power to vote 25 percent or more

of the voting stock of a related borrower, and

(1) Shares a common directorate or management with a related

borrower, or

(2) Controls the election of a majority of directors of a related

borrower, or

(3) Exercises a controlling influence over management of a

related borrower's operations through the provisions of

Yes.

like capacity. A common management is deemed to exist if any employee of the borrower

holds the position of chief executive officer, chief operating officer, chief financial officer,

or an equivalent position in the related borrower's organization.

(B) The borrower controls in any manner the election of a majority of directors of a related

borrower.

(C) The borrower exercises or has the power to exercise a controlling influence over

management of a related borrower's operations through the provisions of management

placement or marketing agreements, or providing services such as insurance carrier or

bookkeeping.

(b) Each institution shall make provisions for appropriately designating loans to a related borrower that are

combined with the borrower's loan and attributed to the borrower to ensure that loans to the borrower are

within the lending and leasing limits.

(c) Attribution rules table. For the purposes of applying the lending and leasing limit to the indebtedness of a

borrower, loans to a related borrower shall be combined with loans outstanding to the borrower and

attributed to the borrower when any one of three attribution rules are met as outlined in Table 1.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4359(a)(3)(ii)(B)

12 CFR 614.4359(c) (enhanced display) page 42 of 66
Attribution rule Criteria per § 614.4359 Attribute

management placement or marketing agreements, or providing

services such as insurance carrier or bookkeeping

[58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997. Redesignated and amended at 64 FR 34517, June 28,

1999]

§ 614.4360 Lending and leasing limit violations.

[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, June 28, 1999]

(a) Each loan, except loans that are grandfathered under the provisions of § 614.4361, shall be in compliance

with the lending and leasing limit on the date the loan is made, and at all times thereafter. Except as

provided for in paragraph (b) of this section, loans which are in violation of the lending and leasing limit

shall comply with the provisions of § 615.5090 of this chapter.

(b) Under the following conditions a loan that violates the lending and leasing limit shall be exempt from the

provisions of § 615.5090 of this chapter:

(1) A loan in which the total amount of principal outstanding and undisbursed commitments exceed the

lending and leasing limit because of a decline in permanent capital after the loan was made.

(2) Loans on which funds are advanced pursuant to a commitment that was within the lending and

leasing limit at the time the commitment was made, even if the lending and leasing limit

subsequently declines.

(3) A loan that exceeds the lending and leasing limit as a result of the consolidation of the debt of two or

more borrowers as a consequence of a merger or the acquisition of one borrower's operations by

another borrower. Such a loan may be extended or renewed, for a period not to exceed 1 year from

the date of such merger or acquisition, during which period the institution may advance and/or

readvance funds not to exceed the greater of:

(i) 110 percent of the advances to the borrower in the prior calendar year; or

(ii) 110 percent of the average of the advances to the borrower in the past 3 calendar years.

(c) For all lending and leasing limit violations except those exempted under § 614.4360(b)(3), within 90 days

of the identification of the violation, the institution must develop a written plan prescribing the specific

actions that will be taken by the institution to bring the total amount of loans and commitments

outstanding or attributed to that borrower within the new lending and leasing limit, and must document

the plan in the loan file.

(d) All leases, except those permitted under § 614.4361, reading “effective date of this subpart” in §

614.4361(a) and “effective date of these regulations” in § 614.4361(b) as “effective date of this

amendment,” must comply with the lending and leasing limit on the date the lease is made, and at all

times after that.

(e) Nothing in this section limits the authority of the FCA to take administrative action, including, but not

limited to, monetary penalties, as a result of lending and leasing limit violations.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4360

12 CFR 614.4360(e) (enhanced display) page 43 of 66
§ 614.4361 Transition.

[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, 34518, June 28, 1999]

§ 614.4362 Loan and lease concentration risk mitigation policy.

The board of directors of each title I, II, and III System institution must adopt and ensure implementation of a written

policy to effectively measure, limit and monitor exposures to concentration risks resulting from the institution's

lending and leasing activities.

(a) A loan (not including a commitment) made or attributed to a borrower prior to the effective date of this

subpart, which does not comply with the limits contained in this subpart, will not be considered a violation

of the lending and leasing limits during the existing contract terms of such loans. A new loan must

conform with the rules set forth in this subpart. A new loan includes but is not limited to:

(1) Funds advanced in excess of existing commitment;

(2) A different borrower is substituted for a borrower who is subsequently released; or

(3) An additional person becomes an obligor on the loan.

(b) A commitment made prior to the effective date of these regulations which exceeds the lending and

leasing limit may be funded to the full extent of the legal commitment. Any advances that exceed the

lending and leasing limit are subject to the provisions prescribed in § 614.4360.

(a) Policy elements. The policy must include:

(1) A purpose and objective;

(2) Clearly defined and consistently used terms;

(3) Quantitative methods to measure and limit identified exposures to significant and reasonably

foreseeable loan and lease concentration risks (as set forth in paragraph (b) of this section); and

(4) Internal controls that delineate authorities delegated to management, authorities retained by the

board, and a process for addressing exceptions and reporting requirements.

(b) Quantitative methods.

(1) At a minimum, the quantitative methods included in the policy must measure and limit identified

exposures to significant and reasonably foreseeable concentration risks emanating from:

(i) A single borrower;

(ii) A single-industry sector;

(iii) A single counterparty; or

(iv) Other lending activities unique to the institution because of its territory, the nature and scope of

its activities and its risk-bearing capacity.

(2) In determining concentration limits, the policy must consider other risk factors that could identify

significant and reasonably foreseeable loan and lease losses. Such risk factors could include

borrower risk ratings, the institution's relationship with the borrower, the borrower's knowledge and

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4361

12 CFR 614.4362(b)(2) (enhanced display) page 44 of 66
[76 FR 29997, May 24, 2011]

Subparts K–L [Reserved]

Subpart M—Loan Approval Requirements

§ 614.4450 General requirements.

Authority for loan approval is vested in the Farm Credit banks and associations.

[51 FR 41947, Nov. 20, 1986]

§ 614.4460 Loan approval responsibility.

Approval of the following loans is the responsibility of each district board of directors. The responsibility may be

discharged by prior approval of such loans by the appropriate bank board, or establishment of a policy under which

the authority to approve such loans is delegated to bank management (except paragraphs (d) and (e) of this section

which cannot be delegated to management). If the approval of such loans is to be delegated to bank management,

the loans are to be submitted promptly for post review by the bank board and a report disclosing all material facts

relating to the credit relationship involved shall be submitted annually by bank management to the district board.

[38 FR 27837, Oct. 9, 1973, as amended at 39 FR 29585, Aug. 16, 1974. Redesignated at 46 FR 51878, Oct. 22, 1981, and

amended at 51 FR 41947, Nov. 20, 1986; 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989; 56 FR 2674, Jan. 24, 1991]

experience, loan structure and purpose, type or location of collateral (including loss given default

ratings), loans to emerging industries or industries outside of an institution's area of expertise, outof-territory loans, counterparties, or weaknesses in due diligence practices.

(a) Loans to a member of the Farm Credit Administration Board.

(b) Loans to a member of the district board.

(c) Loans to a cooperative of which a member of a bank board of directors is a member of the board of

directors, an officer, or employee.

(d) Loans to the president of a Farm Credit bank.

(e) Loans to employees of the Farm Credit Administration.

(f) Loans where directors, officers or employees designated above:

(1) Are to receive proceeds of the loan in excess of an amount prescribed by an appropriate bank board,

or

(2) Are stockholders or owners of equity in a legal entity to which the loan is to be made wherein they

have a significant personal or beneficial interest in the loan proceeds thereof or the security, or

(3) Are endorsers, guarantors or co-makers in excess of an amount prescribed by an appropriate bank

board.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4450

12 CFR 614.4460(f)(3) (enhanced display) page 45 of 66
§ 614.4470 Loans subject to bank approval.

[47 FR 49832, Nov. 3, 1982, as amended at 58 FR 40324, July 28, 1993; 60 FR 20010, Apr. 24, 1995]

Subpart N [Reserved]

Subpart O—Special Lending Programs

§ 614.4525 General.

(a) The following loans (unless such loans are of a type prohibited under part 612) shall be subject to prior

approval of the bank supervising the association in which the loan application originates:

(1) Loans to a director of the association.

(2) Loans to a director of an association which is under joint management when the application

originates in one of the associations.

(3) Loans to an employee of the association.

(4) Loans to an employee of an association which is under joint management when the application

originates in one of the associations.

(5) Loans to bank employees when the application originates in one of the associations supervised by

the employing bank.

(b) Loans to any borrower shall be subject to the prior approval of the bank supervising the association in

which the loan application originates whenever a director or an employee of the association or an

employee of the bank supervising the association:

(1) Will receive proceeds of the loan in excess of the amount prescribed by the supervising bank board,

or

(2) Has a significant personal or beneficial interest in the loan, the proceeds, or the security, or controls

the borrower, or

(3) Is an endorser, guarantor, or comaker with respect to the loan in excess of an amount prescribed by

the supervising bank board.

(c) Any loan which will result in any one borrower being obligated (as defined in subpart J of this part) in

excess of an amount established by the supervising bank under its policies for delegation of authority to

associations shall be subject to prior approval of the supervising bank.

(a) To provide the best possible credit service to farmers, ranchers, and producers or harvesters of aquatic

products, bank and association boards may adopt policies permitting the bank or association to enter into

agreements with agents, dealers, cooperatives, other lenders, and individuals to facilitate its making of

loans to eligible farmers, ranchers, and producers or harvesters of aquatic products.

(b) A bank or association, pursuant to its board policies, may enter into an agreement with third parties that

will accrue to the benefit of the borrower and the lender to perform functions in the making or servicing of

loans other than the evaluation and approval of loans. When such an agreement is developed, and the

territory covered by the agreement extends outside the territorial limits of the originating association or

bank, the written consent of all affected banks or associations is required. Reasonable compensation

may be paid for services rendered.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4470

12 CFR 614.4525(b) (enhanced display) page 46 of 66
[47 FR 12146, Mar. 22, 1982. Redesignated at 53 FR 35454, Sept. 14, 1988, and amended at 55 FR 24886, June 19, 1990; 61 FR

67187, Dec. 20, 1996]

§ 614.4530 Special loans, production credit associations and agricultural credit associations.

Under policies approved by the bank board and procedures developed by the bank, production credit associations

and agricultural credit associations may make the following special types of loans on commodities covered by price

support programs. Notwithstanding the regulations covering other loans made by an association, loans may be

made to members on any commodity for which a Commodity Credit Corporation price support program is in effect,

at such rate of interest and upon such terms as the bank board may prescribe subject to the following conditions:

[37 FR 11424, June 7, 1972. Redesignated at 46 FR 51878, Oct. 22, 1981, and amended at 55 FR 24886, June 19, 1990]

Subpart P—Farm Credit Bank and Agricultural Credit Bank Financing of Other Financing

Institutions

Source: 63 FR 36547, July 7, 1998, unless otherwise noted.

(c) Production credit associations and agricultural credit associations may enter into agreements with private

dealers or cooperatives permitting them to take applications for loans from the association to purchase

farm or aquatic equipment, supplies, and machinery. Such agreements shall normally be limited to

persons or businesses selling to farmers, ranchers, or producers or harvesters of aquatic products and

shall contain credit limits consistent with sound credit standards. When the sales territory of a dealer or

cooperative extends outside the territory of the originating association or the Farm Credit district, written

consent of each bank and association affected shall be obtained before making such loans. Reasonable

compensation may be paid or charged to a dealer or cooperative for services rendered in connection with

such programs.

(d) Farm Credit System institutions that are direct lenders may enter into memoranda of understanding

among themselves or with other lenders for the simultaneous processing and closing of loans to a mutual

borrower. The basic policies and principles of each System lender shall apply.

(a) The commodity offered as security for the loan shall be eligible for price support under a Commodity

Credit Corporation price support program and shall be stored in a bonded public warehouse, holding

storage agreement for such commodity approved by Commodity Credit Corporation.

(b) The member shall have complied with all Commodity Credit Corporation eligibility requirements.

(c) The loan shall mature not later than 30 days prior to the expiration of the period during which the

Commodity Credit Corporation loan or other price support may be obtained on the commodity and shall

be secured by pledge of negotiable warehouse receipts covering the commodity.

(d) The borrower shall appoint the association as his attorney-in-fact to obtain a Commodity Credit

Corporation loan (or other such price support as is available) in the event that the borrower fails to do so

prior to maturity or repayment of the loan.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4525(c)

12 CFR 614.4530(d) (enhanced display) page 47 of 66
§ 614.4540 Other financing institution access to Farm Credit Banks and agricultural credit

banks for funding, discount, and other similar financial assistance.

[63 FR 36547, July 7, 1998, as amended at 69 FR 29862, May 26, 2004]

(a) Basic criteria for access. Any national bank, State bank, trust company, agriculture credit corporation,

incorporated livestock loan company, savings association, credit union, or any association of agricultural

producers engaged in the making of loans to farmers and ranchers, and any corporation engaged in the

making of loans to producers or harvesters of aquatic products may become an other financing

institution (OFI) that funds, discounts, and obtains other similar financial assistance from a Farm Credit

Bank or agricultural credit bank in order to extend short- and intermediate-term credit to eligible borrowers

for authorized purposes pursuant to sections 1.10(b) and 2.4(a) and (b) of the Act. Each OFI shall be duly

organized and qualified to make loans and leases under the laws of each jurisdiction in which it operates.

(b) Assured access. Each Farm Credit Bank or agricultural credit bank must fund, discount, or provide other

similar financial assistance to any creditworthy OFI that:

(1) Maintains at least 15 percent of its loan volume at a seasonal peak in loans and leases to farmers,

ranchers, aquatic producers and harvesters. The Farm Credit Bank or agricultural credit bank shall

not include the loan assets of the OFI's parent, affiliates, or subsidiaries when determining

compliance with the requirement of this paragraph; and

(2) Executes a general financing agreement with the Farm Credit Bank or agricultural credit bank that

establishes a financing or discount relationship for at least 2 years.

(c) Underwriting standards. Each Farm Credit Bank and agricultural credit bank shall establish objective

policies, procedures, pricing guidelines, and loan underwriting standards for determining the

creditworthiness of each OFI applicant. A copy of such policies, procedures, guidelines, and standards

shall be made available, upon request to each OFI and OFI applicant.

(d) Denial of OFI access. A Farm Credit Bank or an agricultural credit bank may deny the funding request of

any creditworthy OFI that meets the conditions in paragraph (b) of this section only when such request

would:

(1) Adversely affect a Farm Credit Bank or agricultural credit bank's ability to:

(i) Achieve and maintain established or projected capital levels; or

(ii) Raise funds in the money markets; or

(2) Otherwise expose the Farm Credit Bank or agricultural credit bank to safety and soundness risks.

(e) Notice to applicants. Each Farm Credit Bank or agricultural credit bank shall render its decision on an OFI

application in as expeditious a manner as is practicable. Upon reaching a decision on an application, the

Farm Credit Bank or agricultural credit bank shall provide prompt written notice of its decision to the

applicant. When the Farm Credit Bank or agricultural credit bank makes an adverse credit decision on an

application, the written notice shall include the specific reason(s) for the decision.

(f) Reports to the board of directors. Each Farm Credit Bank and agricultural credit bank shall provide its

board of directors with a written annual report regarding the scope of OFI program activities during the

preceding fiscal year.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4540

12 CFR 614.4540(f) (enhanced display) page 48 of 66
§ 614.4550 Place of discount.

A Farm Credit Bank or agricultural credit bank may provide funding, discounting, or other similar financial assistance

to any OFI applicant. However, a Farm Credit Bank or agricultural credit bank cannot fund, discount, or extend other

similar financial assistance to an OFI that maintains its headquarters, or has more than 50 percent of its

outstanding loan volume to eligible borrowers who conduct agricultural or aquatic operations in the chartered

territory of another Farm Credit bank unless it notifies such bank in writing within five (5) business days of receiving

the OFI's application for financing. Two or more Farm Credit banks cannot simultaneously fund the same OFI.

[69 FR 29863, May 26, 2004]

§ 614.4560 Requirements for OFI funding relationships.

[63 FR 36547, July 7, 1998, as amended at 69 FR 10906, Mar. 9, 2004; 69 FR 29863, May 26, 2004]

§ 614.4570 Recourse and security.

(a) As a condition for extending funding, discount and other similar financial assistance to an OFI, each Farm

Credit Bank or agricultural credit bank shall require every OFI to:

(1) Execute a general financing agreement pursuant to the regulations in subpart C of part 614; and

(2) Purchase non-voting stock in its Farm Credit Bank or agricultural credit bank pursuant to the bank's

bylaws.

(b) A Farm Credit Bank or agricultural credit bank shall extend funding, discount and other similar financial

assistance to an OFI only for purposes and terms authorized under sections 1.10(b) and 2.4(a) and (b) of

the Act.

(c) Rural home loans to borrowers who are not bona fide farmers, ranchers, and aquatic producers and

harvesters are subject to the restrictions in § 613.3030 of this chapter. Loans that an OFI makes to

processing and marketing operators who supply less than 20 percent of the throughput shall be included

in the calculation that § 613.3010(b)(1) of this chapter establishes for Farm Credit Banks and agricultural

credit banks.

(d) The borrower rights requirements in part C of title IV of the Act, and the regulations in part 617 of this

chapter shall apply to all loans that an OFI funds or discounts through a Farm Credit Bank or agricultural

credit bank, unless such loans are subject to the Truth-in-Lending Act, 15 U.S.C. 1601 et seq.

(e) As a condition for obtaining funding, discount and other similar financial assistance from a Farm Credit

Bank or agricultural credit bank, all State banks, trust companies, or State-chartered savings associations

shall execute a written consent that authorizes their State regulators to furnish examination reports to the

Farm Credit Administration upon its request. Any OFI that is not a depository institution shall consent in

writing to examination by the Farm Credit Administration as a condition precedent for obtaining funding,

discount and other similar financial assistance from a Farm Credit Bank or agricultural credit bank, and

file such consent with its Farm Credit funding bank.

(a) Full recourse and guarantee. All obligations that are funded or discounted through a Farm Credit Bank or

agricultural credit bank shall be endorsed with the full recourse or unconditional guarantee of the OFI.

(b) General collateral.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4550

12 CFR 614.4570(b) (enhanced display) page 49 of 66
§ 614.4580 Limitation on the extension of funding, discount and other similar financial

assistance to an OFI.

§ 614.4590 Equitable treatment of OFIs and Farm Credit System associations.

(1) Each Farm Credit Bank and agricultural credit bank shall take as collateral all notes, drafts, and other

obligations that it funds or discounts for each OFI; and

(2) Each Farm Credit Bank and agricultural credit bank shall perfect, in accordance with State law, a

senior security interest in any and all obligations and the proceeds thereunder that the OFI pledges

as collateral.

(c) Supplemental collateral.

(1) Each Farm Credit Bank and agricultural credit bank shall develop policies and loan underwriting

standards that establish uniform and objective requirements to determine the need and amount of

supplemental collateral or other credit enhancements that each OFI shall provide as a condition for

obtaining funding, discount and other similar financial assistance from such Farm Credit bank.

(2) The amount, type, and quality of supplemental collateral or other credit enhancements required for

each OFI shall be established in the general financing agreement and shall be proportional to the

level of risk that the OFI poses to the Farm Credit Bank or agricultural credit bank.

(a) No obligation shall be purchased from or discounted for and no loan shall be made or other similar

financial assistance extended by a Farm Credit Bank or agricultural credit bank to an OFI if the amount of

such obligation added to the aggregate liabilities of such OFI, whether direct or contingent (other than

bona fide deposit liabilities), exceeds ten times the paid-in and unimpaired capital and surplus of such OFI

or the amount of such liabilities permitted under the laws of the jurisdiction creating such OFI, whichever

is less.

(b) It shall be unlawful for any national bank that is indebted to any Farm Credit Bank or agricultural credit

bank, on paper discounted or purchased, to incur any additional indebtedness, if by virtue of such

additional indebtedness its aggregate liabilities, direct or contingent, will exceed the limitation described

in paragraph (a) of this section.

(a) Each Farm Credit Bank and agricultural credit bank shall apply comparable and objective loan

underwriting standards and pricing requirements to both OFIs and Farm Credit System direct lender

associations.

(b) The total charges that a Farm Credit Bank or agricultural credit bank assesses an OFI through

capitalization requirements, interest rates, and fees shall be comparable to the charges that the same

Farm Credit Bank or agricultural credit bank imposes on its direct lender associations. Any variation

between the overall funding costs that OFIs and direct lender associations are charged by the same

funding bank shall result from differences in credit risk and administrative costs to the Farm Credit Bank

or agricultural credit bank.

(c) Upon request, each Farm Credit Bank or agricultural credit bank must provide each OFI and OFI applicant,

that has or is seeking to establish a funding relationship with the Farm Credit Bank or agricultural credit

bank, a copy of its policies, procedures, loan underwriting standards, and pricing guidelines for OFIs. The

pricing guidelines must identify the specific components that make up the cost of funds for OFIs, and the

amount of these components expressed in basis points.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4570(b)(1)

12 CFR 614.4590(c) (enhanced display) page 50 of 66
[63 FR 36547, July 7, 1998, as amended at 69 FR 29863, May 26, 2004]

§ 614.4595 Public disclosure about OFIs.

A Farm Credit Bank or agricultural credit bank may disclose to members of the public the name, address, telephone

number, and Internet Web site address of any affiliated OFI only if such OFI, through a duly authorized officer,

consents in writing. Each Farm Credit Bank and agricultural credit bank must adopt policies and procedures for

requesting, obtaining, and maintaining the consent of its OFIs and for disclosing this information to the public.

[69 FR 29863, May 26, 2004]

§ 614.4600 Insolvency of an OFI.

If an OFI that is indebted to a Farm Credit Bank or agricultural credit bank becomes insolvent, is in process of

liquidation, or fails to service its loans properly, the Farm Credit Bank or agricultural credit bank may take over such

loans and other assets that the OFI pledged as collateral. Once the Farm Credit Bank or agricultural credit bank

exercises its remedies, it shall have the authority to make additional advances, to grant renewals and extensions,

and to take such other actions as may be necessary to collect and service loans to the OFI's borrower. The funding

Farm Credit Bank or agricultural credit bank may also liquidate the OFI's loans and other assets in order to achieve

repayment of the debt.

Subpart Q—Banks for Cooperatives and Agricultural Credit Banks Financing International

Trade

§ 614.4700 Financing foreign trade receivables.

(d) Upon request of any OFI or OFI applicant, that has or is seeking to establish a funding relationship with the

Farm Credit Bank or agricultural credit bank, the bank must explain in writing the reasons for any variation

in the overall funding costs it charges to OFIs and affiliated direct lender associations. The written

explanation must compare the cost of funds that the Farm Credit Bank or agricultural credit bank charges

the OFIs and affiliated direct lender associations. When possible, the written explanation shall compare

the costs of funding that the bank charges several OFIs and Farm Credit associations that are similar in

size. However, the Farm Credit Bank or agricultural credit bank must not disclose financial or confidential

information about any individual Farm Credit association.

(a) Banks for cooperatives and agricultural credit banks, under policies adopted by their boards of directors,

are authorized to finance foreign trade receivables on behalf of eligible cooperatives to include the

following:

(1) Advances against collections;

(2) Trade acceptances;

(3) Factoring; and

(4) Open accounts.

(b) To reduce credit, political, and other risks associated with foreign trade receivable financing, the banks for

cooperatives and agricultural credit banks shall avail themselves of such guarantee and insurance plans

as are available in the United States and other countries, such as the Foreign Credit Insurance Association

and the Export-Import Bank of the United States. Exceptions may be made where a prospective borrower

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4590(d)

12 CFR 614.4700(b) (enhanced display) page 51 of 66
[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24886, June 19, 1990; 62 FR 4445, Jan. 30, 1997]

§ 614.4710 [Reserved]

§ 614.4720 Letters of credit.

Banks for cooperatives and agricultural credit banks, under policies adopted by their boards of directors, may issue,

advise, or confirm import or export letters of credit in accordance with the Uniform Commercial Code, or the

Uniform Customs and Practice for Documentary Credits, to or on behalf of its customers. In addition, as a matter of

sound banking practice, letters of credit shall be issued in conformity with the list which follows.

has had a longstanding successful business relationship with the eligible cooperative borrower or an

eligible cooperative which is not a borrower if the prospective borrower has a high credit rating as

determined by the bank.

(c) When financing a draft drawn on a foreign importer, the banks should retain recourse to the exporter

unless their credit evaluation of and experience with the importer indicate recourse is not necessary or

unless appropriate guarantees or insurance plans are used.

(d) The financing of foreign trade receivables shall be limited by the policies of each bank's board of directors.

The policies shall provide a method of determining the maximum amount in dollars, by country, to be

financed and establishing a maximum percentage of the amount of a draft drawn on a foreign party

against which the bank may advance funds. The banks shall take into consideration the following factors:

(1) The reputation and financial strength of the foreign importer.

(2) The reputation and payment record of the class of importers in the same country as the subject

importer in regard to prompt payment of drafts drawn upon them.

(3) The quality of the supporting documents offered with the draft.

(4) The degree of ease with which necessary foreign exchange conversion can be made, or the extent to

which foreign currency exposure may be hedged by forward or future contracts.

(5) The reputation and financial strength of the exporter.

(e) The banks may establish foreign trade receivable financing programs by which eligible parties pledge

collections to the bank, and then may borrow from the bank up to a stated maximum percentage of the

total amount of receivables pledged at any one time.

(f) When financing foreign trade receivables, the banks shall take such precautions and obtain such credit

information as necessary to ascertain that all parties to the transaction(s) being financed are reputable

and capable of performing their responsibilities under the contract of sale.

(g) When financing foreign trade receivables, the banks shall determine that all shipments are covered by

maritime insurance while on the high seas.

(h) Countries where credit is to be extended will be analyzed periodically and systematically on a centralized

basis. The resulting country studies will be disseminated to all banks for cooperatives and agricultural

credit banks to be used as inputs in credit grading decisions.

(a) Each letter of credit shall be in writing and shall conspicuously state that it is a letter of credit, or be

conspicuously entitled as such.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4700(c)

12 CFR 614.4720(a) (enhanced display) page 52 of 66
[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997; 64 FR 43049, Aug. 9, 1999]

§ 614.4800 Guarantees and contracts of suretyship.

A bank for cooperatives or an agricultural credit bank, under a policy approved by the bank's board of directors, may

lend its credit, be itself a surety to indemnify another, or otherwise become a guarantor if an eligible cooperative

substantially benefits from the performance of the transaction involved. A bank may guarantee the debt of eligible

cooperatives and foreign parties or otherwise agree to make payments on the occurrence of readily ascertainable

events if the guarantee or agreement specifies a maximum monetary liability. Guarantees may be secured or

unsecured, and can include, but are not limited to, such events as nonpayment of taxes, rentals, customs duties,

costs of transport, and loss of or nonconformance of shipping documents. The bank's customer shall have an

unqualified obligation to reimburse the bank for payments made under a guarantee or surety.

[55 FR 24887, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997]

§ 614.4810 Standby letters of credit.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997; 62 FR 51015, Sept. 30, 1997]

(b) The letter of credit shall contain a specified expiration date or be for a definite term.

(c) The letter of credit shall contain a sum certain.

(d) The bank's obligation to pay should arise only upon fulfilling the terms and conditions as specified in the

letter of credit. The bank must not be called upon to determine questions of fact or law at issue between

the account party and the beneficiary.

(e) The bank's customer should have an unqualified obligation to reimburse the bank for payments made

under the letter of credit.

(f) All letters of credit shall be irrevocable.

(a) The banks for cooperatives and agricultural credit banks are authorized to issue on behalf of parties

eligible for financing under regulations § 614.4010(d) or § 614.4020 standby letters of credit that

represent an obligation to the beneficiary on the part of the issuer:

(1) To repay money borrowed by, advanced to, or for the account of the account party, or

(2) To make payment on account of any indebtedness undertaken by the account party, or

(3) To make payment on account of any default by the account party in the performance of an

obligation.

(b) As a matter of sound banking practice, banks for cooperatives and agricultural credit banks shall evaluate

applications for standby letters of credit on the basis of the loan underwriting standards adopted

pursuant to § 614.4150 of the regulations.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4720(b)

12 CFR 614.4810(b) (enhanced display) page 53 of 66
§ 614.4900 Foreign exchange.

(a) Before a bank for cooperatives or an agricultural credit bank may engage in any financial transaction

which transports monetary instruments from any place within the United States to or through any place

outside the United States or to any place within the United States, the bank must have policies adopted by

the bank's board of directors governing such transactions and must have established bank procedures to

safeguard the interests of the stockholders of the bank in regard to such transactions.

(b) Under policies adopted by the bank's board of directors, a bank for cooperatives or an agricultural credit

bank may engage in currency exchange activities necessary to service individual transactions that may be

financed under the regulations authorizing export, import, and other internationally related credit and

financial services. These currency exchange activities shall not include any loans or commitments

intended to finance speculative futures transactions by eligible borrowers in foreign currencies. The bank

may engage, on behalf of the eligible borrowers or on its own behalf, in bona fide hedging transactions

and positions, where such transactions or positions normally reduce risks in the conduct and

management of international financial activities. The bank's policies should include established

guidelines for:

(1) Net overnight positions, by currency.

(2) Maturity distribution, by currency, of foreign currency assets, liabilities, and foreign exchange

contracts.

(3) Outstanding contracts with individual customers and banks.

(4) Credit approval procedures safeguarding against delivery or settlement risk.

(5) Total value of outstanding contracts—spot and forward.

(c) A bank for cooperatives or an agricultural credit bank is responsible for its compliance with the laws of

the United States in regard to reporting requirements of the Department of the Treasury pertaining to

currency exchange activities and international transfers of monetary instruments.

(d) A bank for cooperatives or an agricultural credit bank engaged in foreign exchange trading shall have

written policies describing the scope of trading activity authorized, delegation of authority, types of

services offered, trading limits, reporting requirements, and internal accounting controls.

(e) The bank's trading guideline policies should provide for reporting procedures adequate to inform

management properly of trading activities and to facilitate detection of lack of compliance with policy

directives.

(f) The bank's policies shall establish foreign exchange delivery limits for eligible customers with relationship

to the customer's financial capability to bear the financial risks assumed. The bank will be expected to

maintain documentary evidence that a customer's delivery exposure is reasonable, and that responsible

bank officers routinely review outstanding delivery exposure of individual customers.

(g) The bank's personnel policies shall include written standards of conduct for those involved with foreign

exchange activities, including the following which should be prohibited:

(1) Trading with entities affiliated with the bank or with members of the board of directors.

(2) Foreign exchange and deposit transactions with other bank employees.

(3) Personal business relationships with foreign exchange and money brokers with whom the bank

deals.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4900

12 CFR 614.4900(g)(3) (enhanced display) page 54 of 66
[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997]

Subpart R—Secondary Market Authorities

§ 614.4910 Basic authorities.

[54 FR 1155, Jan. 12, 1989]

Subpart S—Flood Insurance Requirements

Source: 80 FR 43254, July 21, 2015, unless otherwise noted.

§ 614.4920 Purpose and scope.

§ 614.4925 Definitions.

For purposes of this subpart:

(h) The bank's policies should provide detailed instructions regarding the need for bank officers to disclose

the limits of responsibility and liability of the bank when it holds positions or executes contracts for the

account of eligible parties. The bank's policies regarding the respective procedures should provide

reasonable assurance that reports on trading activities are current and complete, and that the opportunity

for concealment of unauthorized transactions is kept at the absolute minimum.

(i) The banks for cooperatives and agricultural credit banks shall use the Funding Corporation for purposes

of trading foreign exchange. All foreign exchange transactions shall be made by the Funding Corporation

on behalf of the banks consistent with instructions received from the respective banks.

(j) Guidelines (b) through (i) of this section will not apply if a bank purchases or sells foreign exchange

through a commercial bank and has no foreign exchange risk exposure.

(a) Any bank or association of the Farm Credit System, except a bank for cooperatives, with direct lending

authority may originate agricultural real estate loans for sale to one or more certified agricultural

mortgage marketing facilities under title VIII of the Act.

(b) Any bank or association of the Farm Credit System, except a bank for cooperatives, may operate as an

agricultural mortgage marketing facility under title VIII of the Act, either acting alone or jointly with other

banks and/or associations, if so certified by the Federal Agricultural Mortgage Corporation.

(a) Purpose. This subpart implements the National Flood Insurance Act of 1968 and the Flood Disaster

Protection Act of 1973, as amended (42 U.S.C. 4001–4129).

(b) Scope. This subpart, except for §§ 614.4940 and 614.4950, applies to loans secured by buildings or

mobile homes located or to be located in areas determined by the Administrator of the Federal

Emergency Management Agency to have special flood hazards. Sections 614.4940 and 614.4950 apply to

loans secured by buildings or mobile homes, regardless of location.

1968 Act means the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as

amended (42 U.S.C. 4001–4129).

Administrator of FEMA means the Administrator of the Federal Emergency Management Agency.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4900(h)

12 CFR 614.4925 “Administrator of FEMA” (enhanced display) page 55 of 66
Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above

ground and affixed to a permanent site, and a walled and roofed structure while in the course of

construction, alteration, or repair.

Community means a State or a political subdivision of a State that has zoning and building code jurisdiction

over a particular area having special flood hazards.

Designated loan means a loan secured by a building or mobile home that is located or to be located in a special

flood hazard area in which flood insurance is available under the 1968 Act.

Mobile home means a structure, transportable in one or more sections, that is built on a permanent chassis and

designed for use with or without a permanent foundation when attached to the required utilities. The term

mobile home does not include a recreational vehicle. For purposes of this subpart, the term mobile home

means a mobile home on a permanent foundation. The term mobile home includes a manufactured home

as that term is used in the NFIP.

Mutual aid society means an organization—

(1) Whose members share a common religious, charitable, educational, or fraternal bond;

(2) That covers losses caused by damage to members' property pursuant to an agreement, including

damage caused by flooding, in accordance with this common bond; and

(3) That has a demonstrated history of fulfilling the terms of agreements to cover losses to members'

property caused by flooding.

NFIP means the National Flood Insurance Program authorized under the 1968 Act.

Private flood insurance means an insurance policy that:

(1) Is issued by an insurance company that is:

(i) Licensed, admitted, or otherwise approved to engage in the business of insurance by the

insurance regulator of the State or jurisdiction in which the property to be insured is located; or

(ii) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the

State or jurisdiction in which the property to be insured is located in the case of a policy of

difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential

commercial property;

(2) Provides flood insurance coverage that is at least as broad as the coverage provided under an SFIP

for the same type of property, including when considering deductibles, exclusions, and conditions

offered by the insurer. To be at least as broad as the coverage provided under an SFIP, the policy

must, at a minimum:

(i) Define the term “flood” to include the events defined as a “flood” in an SFIP;

(ii) Contain the coverage specified in an SFIP, including that relating to building property coverage;

personal property coverage, if purchased by the insured mortgagor(s); other coverages; and

increased cost of compliance coverage;

(iii) Contain deductibles no higher than the specified maximum, and include similar non-applicability

provisions, as under an SFIP, for any total policy coverage amount up to the maximum available

under the NFIP at the time the policy is provided to the lender;

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4925 “Building”

12 CFR 614.4925 “Private flood insurance” (2)(iii) (enhanced display) page 56 of 66
[80 FR 43254, July 21, 2015, as amended at 84 FR 4973, Feb. 20, 2019]

§ 614.4930 Requirement to purchase flood insurance where available.

(iv) Provide coverage for direct physical loss caused by a flood and may only exclude other causes

of loss that are excluded in an SFIP. Any exclusions other than those in an SFIP may pertain

only to coverage that is in addition to the amount and type of coverage that could be provided

by an SFIP or have the effect of providing broader coverage to the policyholder; and

(v) Not contain conditions that narrow the coverage provided in an SFIP;

(3) Includes all of the following:

(i) A requirement for the insurer to give written notice 45 days before cancellation or non-renewal

of flood insurance coverage to:

(A) The insured; and

(B) The System institution that made the designated loan secured by the property covered by

the flood insurance, or the servicer acting on its behalf;

(ii) Information about the availability of flood insurance coverage under the NFIP;

(iii) A mortgage interest clause similar to the clause contained in an SFIP; and

(iv) A provision requiring an insured to file suit not later than one year after the date of a written

denial of all or part of a claim under the policy; and

(4) Contains cancellation provisions that are as restrictive as the provisions contained in an SFIP.

Residential improved real estate means real estate upon which a home or other residential building is located or

to be located.

Servicer means the person responsible for:

(1) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including

amounts for taxes, insurance premiums, and other charges with respect to the property securing the

loan; and

(2) Making payments of principal and interest and any other payments from the amounts received from

the borrower as may be required under the terms of the loan.

SFIP means, for purposes of § 614.4925, a standard flood insurance policy issued under the NFIP in effect as

of the date private flood insurance is provided to a System institution.

Special flood hazard area means the land in the flood plain within a community having at least a one percent

chance of flooding in any given year, as designated by the Administrator of FEMA.

Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and

an assignment of the loan to the person advancing the funds.

(a) In general. A System institution shall not make, increase, extend, or renew any designated loan unless the

building or mobile home and any personal property securing the loan is covered by flood insurance for the

term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4925 “Private flood insurance” (2)(iv)

12 CFR 614.4930(a) (enhanced display) page 57 of 66
balance of the designated loan or the maximum limit of coverage available for the particular type of

property under the 1968 Act. Flood insurance coverage under the 1968 Act is limited to the building or

mobile home and any personal property that secures a loan and not the land itself.

(b) Table funded loans. A System institution that acquires a loan from a mortgage broker or other entity

through table funding shall be considered to be making a loan for the purposes of this subpart.

(c) Private flood insurance —

(1) Mandatory acceptance. A System institution must accept private flood insurance, as defined in §

614.4925, in satisfaction of the flood insurance purchase requirement in paragraph (a) of this

section if the policy meets the requirements for coverage in paragraph (a) of this section.

(2) Compliance aid for mandatory acceptance. A System institution may determine that a policy meets

the definition of private flood insurance in § 614.4925, without further review of the policy, if the

following statement is included within the policy or as an endorsement to the policy: “This policy

meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the

corresponding regulation.”

(3) Discretionary acceptance. A System institution may accept a flood insurance policy issued by a

private insurer that is not issued under the NFIP and that does not meet the definition of private flood

insurance in § 614.4925 in satisfaction of the flood insurance purchase requirement of this section if

the policy:

(i) Provides coverage in the amount required by paragraph (a) of this section;

(ii) Is issued by an insurer that is licensed, admitted, or otherwise approved to engage in the

business of insurance by the insurance regulator of the State or jurisdiction in which the

property to be insured is located; or in the case of a policy of difference in conditions, multiple

peril, all risk, or other blanket coverage insuring nonresidential commercial property, is issued

by a surplus lines insurer recognized, or not disapproved, by the insurance regulator of the State

or jurisdiction where the property to be insured is located;

(iii) Covers both the mortgagor(s) and the mortgagee(s) as loss payees, except in the case of a

policy that is provided by a condominium association, cooperative, homeowners association, or

other applicable group and for which the premium is paid by the condominium association,

cooperative, homeowners association, or other applicable group as a common expense; and

(iv) Provides sufficient protection of the designated loan, consistent with general safety and

soundness principles, and the System institution documents its conclusion regarding

sufficiency of the protection of the loan in writing.

(4) Mutual aid societies. Notwithstanding the requirements of paragraph (c)(3) of this section, a System

institution may accept a plan issued by a mutual aid society, as defined in § 614.4925, in satisfaction

of the flood insurance purchase requirement of this section if:

(i) The FCA has determined that such plans qualify as flood insurance for purposes of the Act;

(ii) The plan provides coverage in the amount required by paragraph (a) of this section;

(iii) The plan covers both the mortgagor(s) and the mortgagee(s) as loss payees; and

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4930(b)

12 CFR 614.4930(c)(4)(iii) (enhanced display) page 58 of 66
[80 FR 43254, July 21, 2015, as amended at 84 FR 4973, Feb. 20, 2019]

§ 614.4932 Exemptions.

The flood insurance requirement prescribed by § 614.4930 does not apply with respect to:

§ 614.4935 Escrow requirement.

(iv) The plan provides sufficient protection of the designated loan, consistent with general safety

and soundness principles, and the System institution documents its conclusion regarding

sufficiency of the protection of the loan in writing.

(a) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of

FEMA, who publishes and periodically revises the list of States falling within this exemption;

(b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of

one year or less; or

(c) Any structure that is a part of any residential property but is detached from the primary residential

structure of such property and does not serve as a residence. For purposes of this paragraph (c):

(1) “A structure that is a part of a residential property” is a structure used primarily for personal, family,

or household purposes, and not used primarily for agricultural, commercial, industrial, or other

business purposes;

(2) A structure is “detached” from the primary residential structure if it is not joined by any structural

connection to that structure; and

(3) “Serve as a residence” shall be based upon the good faith determination of the System institution

that the structure is intended for use or actually used as a residence, which generally includes

sleeping, bathroom, or kitchen facilities.

(a) In general —

(1) Applicability. Except as provided in paragraph (a)(2) or paragraph (c) of this section, a System

institution, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for

any flood insurance required under § 614.4930 for any designated loan secured by residential

improved real estate or a mobile home that is made, increased, extended, or renewed on or after

January 1, 2016, payable with the same frequency as payments on the designated loan are required

to be made for the duration of the loan.

(2) Exceptions. Paragraph (a)(1) of this section does not apply if:

(i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;

(ii) The loan is in a subordinate position to a senior lien secured by the same residential improved

real estate or mobile home for which the borrower has obtained flood insurance coverage that

meets the requirements of § 614.4930;

(iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by

a policy that:

(A) Meets the requirements of § 614.4930;

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4930(c)(4)(iv)

12 CFR 614.4935(a)(2)(iii)(A) (enhanced display) page 59 of 66
(B) Is provided by a condominium association, cooperative, homeowners association, or other

applicable group; and

(C) The premium for which is paid by the condominium association, cooperative, homeowners

association, or other applicable group as a common expense;

(iv) The loan is a home equity line of credit;

(v) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains

nonperforming until it is permanently modified or until the entire amount past due, including

principal, accrued interest, and penalty interest incurred as the result of past due status, is

collected or otherwise discharged in full; or

(vi) The loan has a term of no longer than 12 months.

(3) Duration of exception. If a System institution, or a servicer acting its behalf, determines at any time

during the term of a designated loan secured by residential improved real estate or a mobile home

that is made, increased, extended, or renewed on or after January 1, 2016, that an exception under

paragraph (a)(2) of this section does not apply, then the System institution, or the servicer acting on

its behalf, shall require the escrow of all premiums and fees for any flood insurance required under §

614.4930 as soon as reasonably practicable and, if applicable, shall provide any disclosure required

under section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA).

(4) Escrow account. The System institution, or a servicer acting on its behalf, shall deposit the flood

insurance premiums and fees on behalf of the borrower in an escrow account. This escrow account

will be subject to escrow requirements adopted pursuant to section 10 of RESPA, which generally

limits the amount that may be maintained in escrow accounts for certain types of loans and requires

escrow account statements for those accounts, only if the loan is otherwise subject to RESPA.

Following receipt of a notice from the Administrator of FEMA or other provider of flood insurance

that premiums are due, the System institution, or a servicer acting on its behalf, shall pay the amount

owed to the insurance provider from the escrow account by the date when such premiums are due.

(b) Notice. For any loan for which a System institution is required to escrow under paragraph (a)(1) or

paragraph (c)(2) of this section or may be required to escrow under paragraph (a)(3) of this section during

the term of the loan, the System institution, or a servicer acting on its behalf, shall mail or deliver a written

notice with the notice provided under § 614.4955 informing the borrower that the System institution is

required to escrow all premiums and fees for required flood insurance, using language that is

substantially similar to model clauses on the escrow requirement in appendix A to this subpart.

(c) Small lender exception —

(1) Qualification. Except as may be required under applicable State law, paragraphs (a), (b), and (d) of

this section do not apply to a System institution:

(i) That has total assets of less than $1 billion as of December 31 of either of the two prior

calendar years; and

(ii) On or before July 6, 2012:

(A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or

any other charges in an escrow account for the entire term of any loan secured by

residential improved real estate or a mobile home; and

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4935(a)(2)(iii)(B)

12 CFR 614.4935(c)(1)(ii)(A) (enhanced display) page 60 of 66
[80 FR 43256, July 21, 2015]

§ 614.4940 Required use of standard flood hazard determination form.

(B) Did not have a policy of consistently and uniformly requiring the deposit of taxes,

insurance premiums, fees, or any other charges in an escrow account for any loans

secured by residential improved real estate or a mobile home.

(2) Change in status. If a System institution previously qualified for the exception in paragraph (c)(1) of

this section, but no longer qualifies for the exception because it had assets of $1 billion or more for

two consecutive calendar year ends, the System institution must escrow premiums and fees for

flood insurance pursuant to paragraph (a) of this section for any designated loan made, increased,

extended, or renewed on or after July 1 of the first calendar year of changed status.

(d) Option to escrow —

(1) In general. A System institution, or a servicer acting on its behalf, shall offer and make available to

the borrower the option to escrow all premiums and fees for any flood insurance required under §

614.4930 for any loan secured by residential improved real estate or a mobile home that is

outstanding on January 1, 2016, or July 1 of the first calendar year in which the System institution

has had a change in status pursuant to paragraph (c)(2) of this section, unless:

(i) The loan or the System institution qualifies for an exception from the escrow requirement under

paragraph (a)(2) or (c) of this section, respectively;

(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or

(iii) The System institution is required to escrow flood insurance premiums and fees pursuant to

paragraph (a) of this section.

(2) Notice. For any loan subject to paragraph (d) of this section, the System institution, or a servicer

acting on its behalf, shall mail or deliver to the borrower no later than June 30, 2016, or September

30 of the first calendar year in which the System institution has had a change in status pursuant to

paragraph (c)(2) of this section, a notice in writing, or if the borrower agrees, electronically, informing

the borrower of the option to escrow all premiums and fees for any required flood insurance and the

method(s) by which the borrower may request the escrow, using language similar to the model

clause in appendix B to this subpart.

(3) Timing. The System institution, or the servicer acting on its behalf, must begin escrowing premiums

and fees for flood insurance as soon as reasonably practicable after the System institution, or

servicer, receives the borrower's request to escrow.

(a) Use of form. A System institution shall use the standard flood hazard determination form developed by

the Administrator of FEMA when determining whether the building or mobile home offered as collateral

security for a loan is or will be located in a special flood hazard area in which flood insurance is available

under the 1968 Act. The standard flood hazard determination form may be used in a printed,

computerized, or electronic manner. A System institution may obtain the standard flood hazard

determination form from FEMA's Web site at www.fema.gov.

(b) Retention of form. A System institution shall retain a copy of the completed standard flood hazard

determination form, in either hard copy or electronic form, for the period of time the System institution

owns the loan.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4935(c)(1)(ii)(B)

12 CFR 614.4940(b) (enhanced display) page 61 of 66
§ 614.4945 Force placement of flood insurance.

§ 614.4950 Determination fees.

(a) Notice and purchase of coverage. If a System institution, or a servicer acting on behalf of the System

institution, determines at any time during the term of a designated loan, that the building or mobile home

and any personal property securing the designated loan is not covered by flood insurance or is covered by

flood insurance in an amount less than the amount required under § 614.4930, then the System

institution, or a servicer acting on its behalf, shall notify the borrower that the borrower should obtain

flood insurance, at the borrower's expense, in an amount at least equal to the amount required under §

614.4930, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days

after notification, then the System institution, or its servicer, shall purchase insurance on the borrower's

behalf. The System institution, or its servicer, may charge the borrower for the cost of premiums and fees

incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the

date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.

(b) Termination of force-placed insurance —

(1) Termination and refund. Within 30 days of receipt by a System institution, or by a servicer acting on

its behalf, of a confirmation of a borrower's existing flood insurance coverage, the System institution,

or its servicer, shall:

(i) Notify the insurance provider to terminate any insurance purchased by the System institution, or

its servicer, under paragraph (a) of this section; and

(ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the

System institution, or by its servicer, under paragraph (a) of this section during any period

during which the borrower's flood insurance coverage and the insurance coverage purchased by

the System institution, or its servicer, were each in effect, and any related fees charged to the

borrower with respect to the insurance purchased by the System institution, or its servicer,

during such period.

(2) Sufficiency of demonstration. For purposes of confirming a borrower's existing flood insurance

coverage under paragraph (b) of this section, a System institution, or a servicer acting on its behalf,

shall accept from the borrower an insurance policy declarations page that includes the existing flood

insurance policy number and the identity of, and contact information for, the insurance company or

agent.

(a) General. Notwithstanding any Federal or State law other than the Flood Disaster Protection Act of 1973, as

amended (42 U.S.C. 4001–4129), any System institution, or a servicer acting on behalf of the System

institution, may charge a reasonable fee for determining whether the building or mobile home securing

the loan is located or will be located in a special flood hazard area. A determination fee may also include,

but is not limited to, a fee for life-of-loan monitoring.

(b) Borrower fee. The determination fee authorized by paragraph (a) of this section may be charged to the

borrower if the determination:

(1) Is made in connection with a making, increasing, extending, or renewing of the loan that is initiated

by the borrower;

(2) Reflects the Administrator of FEMA's revision or updating of flood plain areas or flood-risk zones;

(3) Reflects the Administrator of FEMA's publication of a notice or compendium that:

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4945

12 CFR 614.4950(b)(3) (enhanced display) page 62 of 66
§ 614.4955 Notice of special flood hazards and availability of Federal disaster relief assistance.

(i) Affects the area in which the building or mobile home securing the loan is located; or

(ii) By determination of the Administrator of FEMA, may reasonably require a determination

whether the building or mobile home securing the loan is located in a special flood hazard area;

or

(4) Results in the purchase of flood insurance coverage by the lender, or its servicer, on behalf of the

borrower under § 614.4945.

(c) Purchaser or transferee fee. The determination fee authorized by paragraph (a) of this section may be

charged to the purchaser or transferee of a loan in the case of the sale or transfer of the loan.

(a) Notice requirement. When a System institution makes, increases, extends, or renews a loan secured by a

building or a mobile home located or to be located in a special flood hazard area, the System institution

shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood

insurance is available under the 1968 Act for the collateral securing the loan.

(b) Contents of notice. The written notice must include the following information:

(1) A warning, in a form approved by the Administrator of FEMA, that the building or the mobile home is

or will be located in a special flood hazard area;

(2) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood

Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b));

(3) A statement, where applicable, that flood insurance coverage is available from private insurance

companies that issue standard flood insurance policies on behalf of the NFIP or directly from the

NFIP;

(4) A statement that flood insurance that provides the same level of coverage as a standard flood

insurance policy under the NFIP also may be available from a private insurance company that issues

policies on behalf of the company;

(5) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles,

exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of

the NFIP and policies issued on behalf of private insurance companies and that the borrower should

direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an

insurance agent; and

(6) A statement whether Federal disaster relief assistance may be available in the event of damage to

the building or mobile home caused by flooding in a Federally declared disaster.

(c) Timing of notice. The System institution shall provide the notice required by paragraph (a) of this section

to the borrower within a reasonable time before the completion of the transaction, and to the servicer as

promptly as practicable after the System institution provides notice to the borrower and in any event no

later than the time the System institution provides other similar notices to the servicer concerning hazard

insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of

the notice to the borrower.

(d) Record of receipt. The System institution shall retain a record of the receipt of the notices by the borrower

and the servicer for the period of time it owns the loan.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4950(b)(3)(i)

12 CFR 614.4955(d) (enhanced display) page 63 of 66
[80 FR 43254, July 21, 2015, as amended at 80 FR 43257, July 21, 2015]

§ 614.4960 Notice of servicer's identity.

Appendix A to Subpart S of Part 614—Sample Form of Notice of Special Flood Hazards and

Availability of Federal Disaster Relief Assistance

Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance

We are giving you this notice to inform you that:

The building or mobile home securing the loan for which you have applied is or will be located in an area with

special flood hazards.

The area has been identified by the Administrator of the Federal Emergency Management Agency (FEMA) as a

special flood hazard area using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the

following community: ______. This area has a one percent (1%) chance of a flood equal to or exceeding the base

flood elevation (a 100-year flood) in any given year. During the life of a 30-year mortgage loan, the risk of a 100-year

flood in a special flood hazard area is 26 percent (26%).

(e) Alternate method of notice. Instead of providing the notice to the borrower required by paragraph (a) of

this section, a System institution may obtain satisfactory written assurance from a seller or lessor that,

within a reasonable time before the completion of the sale or lease transaction, the seller or lessor has

provided such notice to the purchaser or lessee. The System institution shall retain a record of the written

assurance from the seller or lessor for the period of time it owns the loan.

(f) Use of sample form of notice. A System institution will be considered to be in compliance with the

requirement for notice to the borrower of this section by providing written notice to the borrower

containing the language presented in appendix A to this subpart within a reasonable time before the

completion of the transaction. The notice presented in appendix A to this subpart satisfies the borrower

notice requirements of the 1968 Act.

(a) Notice requirement. When a System institution makes, increases, extends, renews, sells, or transfers a

loan secured by a building or mobile home located or to be located in a special flood hazard area, it shall

notify the Administrator of FEMA (or the Administrator's designee) in writing of the identity of the servicer

of the loan. The Administrator of FEMA has designated the insurance provider to receive the System

institution's notice of the servicer's identity. This notice may be provided electronically if electronic

transmission is satisfactory to the Administrator of FEMA's designee.

(b) Transfer of servicing rights. The System institution shall notify the Administrator of FEMA (or the

Administrator's designee) of any change in the servicer of a loan described in paragraph (a) of this section

within 60 days after the effective date of the change. This notice may be provided electronically if

electronic transmission is satisfactory to the Administrator of FEMA's designee. Upon any change in the

servicing of a loan described in paragraph (a) of this section, the duty to provide notice under this

paragraph (b) shall transfer to the transferee servicer.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR 614.4955(e)

12 CFR 614.4960(b) (enhanced display) page 64 of 66
Federal law allows a lender and borrower jointly to request the Administrator of FEMA to review the determination of

whether the property securing the loan is located in a special flood hazard area. If you would like to make such a

request, please contact us for further information.

____ The community in which the property securing the loan is located participates in the National Flood Insurance

Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase

flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew

flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at

your expense.

• At a minimum, flood insurance purchased must cover the lesser of:

Flood insurance coverage under the NFIP is limited to the building or mobile home and any personal property that

secures your loan and not the land itself.

• Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages

incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP

requirements.

• Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and

your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose

not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that

structure.

Availability of Private Flood Insurance Coverage

Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy

either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance that

provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from

private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles,

exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of the NFIP and

policies issued on behalf of private insurance companies and contact an insurance agent as to the availability, cost,

and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

Federal law may require a lender or its servicer to escrow all premiums and fees for flood insurance that covers any

residential building or mobile home securing a loan that is located in an area with special flood hazards. If your

lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance

premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the

duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay

the flood insurance provider.]

(1) The outstanding principal balance of the loan; or

(2) the maximum amount of coverage allowed for the type of property under the NFIP.

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Appendix-A-to-Subpart-S-of-Part-614(1)

12 CFR Appendix-A-to-Subpart-S-of-Part-614(2) (enhanced display) page 65 of 66
____ Flood insurance coverage under the NFIP is not available for the property securing the loan because the

community in which the property is located does not participate in the NFIP. In addition, if the non-participating

community has been identified for at least one year as containing a special flood hazard area, properties located in

the community will not be eligible for Federal disaster relief assistance in the event of a Federally declared flood

disaster.

[80 FR 43258, July 21, 2015]

Appendix B to Subpart S of Part 614—Sample Clause for Option to Escrow for Outstanding Loans

Escrow Option Clause

You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any

residential building or mobile home that is located in an area with special flood hazards and that secures your loan.

If you choose this option:

• Your payments will be deposited in an escrow account to be paid to the flood insurance provider.

• The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your

lender or its servicer.

• The payments you make into the escrow account will accumulate over time and the funds will be used to pay your

flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the

flood insurance premium is due.

To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert

Name of Lender or Servicer] at [Insert Contact Information].

[Insert Instructions for Selecting to Escrow]

[80 FR 43258, July 21, 2015]

12 CFR Part 614 (up to date as of 3/07/2024)

Loan Policies and Operations 12 CFR Appendix-A-to-Subpart-S-of-Part-614(2)

12 CFR Appendix-A-to-Subpart-S-of-Part-614(2) (enhanced display) page 66 of 66
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 615 (up to date as of 3/07/2024)

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding... 12 CFR Part 615 (Mar. 7, 2024)

12 CFR Part 615 (Mar. 7, 2024) (enhanced display) page 1 of 55
Part 615 Funding and Fiscal Affairs, Loan Policies and Operations, and Funding

Operations

Subpart A Funding

§ 615.5000 General responsibilities.

§ 615.5010 Funding Corporation.

§ 615.5030 Borrowings from commercial banks.

§ 615.5040 Borrowings from financial institutions other than commercial banks.

Subpart B Collateral

§ 615.5045 Definitions.

§ 615.5050 Collateral requirements.

§ 615.5060 Special collateral requirement.

§ 615.5090 Reduction in carrying value of collateral.

Subpart C Issuance of Bonds, Notes, Debentures and Similar Obligations

§ 615.5100 Authority to issue.

§ 615.5101 Requirements for issuance.

§ 615.5102 Issuance of debt obligations through the Funding Corporation.

§§ 615.5103-615.5104 [Reserved]

§ 615.5105 Consolidated Systemwide notes.

Subpart D Other Funding

§ 615.5110 Authority to issue (other funding).

§ 615.5120 Purchase eligibility requirement.

§ 615.5130 Procedures.

Subpart E Investment Management

§ 615.5131 Definitions.

§ 615.5132 Investment purposes.

§ 615.5133 Investment management.

§ 615.5134 Liquidity reserve.

§ 615.5136 Emergencies impeding normal access of Farm Credit banks to capital markets.

§ 615.5140 Eligible investments.

§ 615.5142 [Reserved]

§ 615.5143 Management of ineligible investments and reservation of authority to require

divestiture.

§ 615.5144 Banks for cooperatives and agricultural credit banks.

Subpart F Property, Transfers of Capital, and Other Investments

§ 615.5170 Real and personal property.

§ 615.5171 Transfer of capital from banks to associations.

§ 615.5172 Production credit association and agricultural credit association investment in

farmers' notes given to cooperatives and dealers.

§ 615.5173 Stock of the Federal Agricultural Mortgage Corporation.

12 CFR Part 615 (up to date as of 3/07/2024)

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding... 12 CFR Part 615 (Mar. 7, 2024)

12 CFR Part 615 (Mar. 7, 2024) (enhanced display) page 2 of 55
§ 615.5174 Farmer Mac securities.

§ 615.5175 Investments in Farm Credit System institution preferred stock.

Subpart G Risk Assessment and Management

§ 615.5180 Bank interest rate risk management program.

§ 615.5182 Interest rate risk management by associations and other Farm Credit System

institutions other than banks.

Subpart H Capital Adequacy

§ 615.5200 Capital planning.

§ 615.5201 Definitions.

§ 615.5205 Minimum permanent capital standards.

§ 615.5206 Permanent capital ratio computation.

§ 615.5207 Capital adjustments and associated reductions to assets.

§ 615.5208 Allotment of allocated investments.

§§ 615.5209-615.5212 [Reserved]

§ 615.5215 Distribution of earnings.

§ 615.5216 [Reserved]

Subpart I Issuance of Equities

§ 615.5220 Capitalization bylaws.

§ 615.5230 Implementation of cooperative principles.

§ 615.5240 Regulatory capital requirements.

§ 615.5245 Limitations on association preferred stock.

§ 615.5250 Disclosure requirements for sales of borrower stock.

§ 615.5255 Disclosure and review requirements for sales of other equities.

Subpart J Retirement of Equities and Payment of Dividends

§ 615.5260 Retirement of eligible borrower stock.

§ 615.5270 Retirement of other equities.

§ 615.5280 Retirement in event of default.

§ 615.5290 Retirement of capital stock and participation certificates in event of restructuring.

§ 615.5295 Payment of dividends.

Subpart K [Reserved]

Subpart L Establishment of Minimum Capital Ratios for an Individual Institution

§ 615.5350 General—Applicability.

§ 615.5351 Standards for determination of appropriate individual institution minimum capital

ratios.

§ 615.5352 Procedures.

§ 615.5353 Relation to other actions.

§ 615.5354 Enforcement.

Subpart M Issuance of a Capital Directive

§ 615.5355 Purpose and scope.

12 CFR Part 615 (up to date as of 3/07/2024)

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding... 12 CFR Part 615 (Mar. 7, 2024)

12 CFR Part 615 (Mar. 7, 2024) (enhanced display) page 3 of 55
§ 615.5356 Notice of intent to issue a capital directive.

§ 615.5357 Response to notice.

§ 615.5358 Decision.

§ 615.5359 Issuance of a capital directive.

§ 615.5360 Reconsideration based on change in circumstances.

§ 615.5361 Relation to other administrative actions.

Subpart N [Reserved]

Subpart O Book-Entry Procedures for Farm Credit Securities

§ 615.5450 Definitions.

§ 615.5451 Book-entry and definitive securities.

§ 615.5452 Law governing rights and obligations of Federal Reserve Banks, Farm Credit banks,

and Funding Corporation; rights of any person against Federal Reserve Banks, Farm

Credit banks, and Funding Corporation.

§ 615.5453 Law governing other interests.

§ 615.5454 Creation of participant's security entitlement; security interests.

§ 615.5455 Obligations of the Farm Credit banks and the Funding Corporation; no adverse

claims.

§ 615.5456 Authority of Federal Reserve Banks.

§ 615.5457 Withdrawal of eligible book-entry securities for conversion to definitive form.

§ 615.5458 Waiver of regulations.

§ 615.5459 Liability of Farm Credit banks, Funding Corporation and Federal Reserve Banks.

§ 615.5460 Additional provisions.

§ 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit securities, including

coupons.

§ 615.5462 Restrictive endorsement of bearer securities.

Subpart P Global Debt Securities

§ 615.5500 Definitions.

§ 615.5502 Issuance of global debt securities.

Subpart Q Bankers' Acceptances

§ 615.5550 Bankers' acceptances.

Subpart R [Reserved]

Subpart S Federal Agricultural Mortgage Corporation Securities

§ 615.5570 Book-entry procedures for Federal Agricultural Mortgage Corporation Securities.

PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND

OPERATIONS, AND FUNDING OPERATIONS

Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9,

12 CFR Part 615 (up to date as of 3/07/2024)

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12 CFR 615 (enhanced display) page 4 of 55
5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074,

2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2279aa, 2279aa–3,

2279aa–4, 2279aa–6, 2279aa–8, 2279aa–10, 2279aa–12); sec. 301(a), Pub. L. 100–233, 101 Stat. 1568, 1608, as

amended by sec. 301(a), Pub. L. 103–399, 102 Stat 989, 993 (12 U.S.C. 2154 note); sec. 939A, Pub. L. 111–203,

124 Stat. 1326, 1887 (15 U.S.C. 78o–7 note).

Subpart A—Funding

§ 615.5000 General responsibilities.

[54 FR 1158, Jan. 12, 1989]

§ 615.5010 Funding Corporation.

[54 FR 1158, Jan. 12, 1989]

§ 615.5030 Borrowings from commercial banks.

Each System bank board, by resolution, shall authorize all commercial bank borrowings by that System bank.

[54 FR 1159, Jan. 12, 1989, as amended at 75 FR 35968, June 24, 2010]

§ 615.5040 Borrowings from financial institutions other than commercial banks.

The Farm Credit banks may borrow from other financial institutions, such as insurance companies, Federal

agencies, or Federal reserve banks.

(a) The System banks, acting through the Federal Farm Credit Banks Funding Corporation (Funding

Corporation), have the primary responsibility for obtaining funds for the lending operations of the System

institutions.

(b) The System's funding operations have a significant impact upon the investment community, the general

public, and the national economy in both the volume and the manner by which funds are raised. The Farm

Credit Administration supervises compliance with the statutory collateral requirements for the debt

obligations issued. The Chairman of the Farm Credit Administration, under policies adopted by the Board,

consults with the Secretary of the Treasury concerning the System's funding activities, pursuant to section

5.10 of the Act.

(a) The Funding Corporation shall issue, market, and handle the obligations of the banks issued under section

4.2(b) through (d) of the Act and interbank or intersystem flow of funds as may from time to time be

required, and, upon request of the banks, shall handle investment portfolios. The Funding Corporation

shall maintain accurate and timely records. The System banks shall provide for the sale of such

obligations through the Funding Corporation by negotiation, offer, bid, or syndicate sale, and for the

delivery of such obligations by book entry, wire transfer, or such other means as may be appropriate.

(b) The interaction of the System with the financial community shall be conducted principally through the

Funding Corporation. The Funding Corporation shall be subject to regulation and examination by the Farm

Credit Administration.

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[37 FR 11434, June 7, 1972, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989]

Subpart B—Collateral

Source: 54 FR 1159, Jan. 12, 1989, unless otherwise noted.

§ 615.5045 Definitions.

§ 615.5050 Collateral requirements.

(a) Cost means the actual amount paid for any asset.

(b) Market value means the price at which a willing seller would sell to a willing buyer, neither under any

compulsion to buy or sell.

(c) Unpaid balance means total principal and accrued interest owed.

(d) Secured interbank loan means a loan from one Farm Credit System bank to another Farm Credit System

bank, secured by assets of the borrowing Farm Credit System bank.

(a) Each bank shall have on hand at the time of issuance of any notes, bonds, debentures, or other similar

obligations, and at all times thereafter maintain, free from any lien or other pledge, assets consisting of

notes and other obligations representing loans made under the authority of the Act, real or personal

property acquired in connection with loans made under the Act, obligations of the United States or any

agency thereof direct or fully guaranteed, other bank assets (including marketable securities) approved by

the Farm Credit Administration, cash, or cash equivalents approved by the Farm Credit Administration, in

an aggregate value equal to the total amount of notes, bonds, debentures, or other similar obligations

outstanding for which the bank is primarily liable.

(b) The collateral value of eligible investments (as defined in § 615.5140) shall be the lower of cost or market

value.

(c)

(1) Except as otherwise provided in this paragraph, the collateral value of notes and other obligations

representing loans made under the authority of any Farm Credit Act shall be the unpaid balance of

such loans adjusted for any allowance for credit losses (except as provided for in § 615.5090).

(2) The collateral value of loans in process of liquidation or foreclosure, judgments, and sales contracts

shall be the unpaid balance of such loans, judgments, and contracts adjusted for any allowance for

credit losses.

(3) The collateral value of loans which have been restructured by any action, such as an extension,

deferment, or partial release, shall be the new unpaid balance of the loans adjusted for any

allowance for credit losses.

(4) The collateral value of property acquired in the liquidation of loans shall be the book value of such

property adjusted for any allowance for credit losses.

(5) Collateral shall not include the amount of any loan that exceeds the maximum amount authorized

under the Act or part 614 of these regulations.

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[54 FR 1159, Jan. 12, 1989, as amended at 87 FR 27492, May 9, 2022]

§ 615.5060 Special collateral requirement.

(6) Collateral may include the collateral value of secured interbank loans, computed as provided in §

615.5050(c)(1), provided that the assets securing the loan could serve as collateral supporting the

issuance of obligations under § 615.5050(a). In computing its eligible collateral, the borrowing bank

shall not count the assets securing such loan.

(d) Each bank shall have procedures which will ensure that the bank is in compliance with the statutory

requirements for maintenance of collateral. Such procedures shall include provisions for:

(1) Adequate safekeeping facilities;

(2) Methods to determine that debt instruments meet all requirements of law and regulations;

(3) A report signed by an authorized bank officer at each regular meeting of the board of directors

certifying the eligibility and the adequacy of collateral. Items to be reported will include but not be

limited to the total amount of eligible collateral, amount of ineligible loans, amount of deductions,

and the amount of excess collateral; and

(4) Written procedures and practices to ensure that there will be a high degree of accuracy in protecting

and accounting for the collateral.

(a) An attorney lien certification need not be obtained at the time a note is accepted as collateral if the

counsel for the bank or association has determined, in writing, that the bank or association procedures

provide sufficient safeguards to ensure that a real estate mortgage loan, within the meaning of section

1.7(a) of the Act, made by the bank or association will be secured by a first lien or its equivalent on the

borrower's interest in the primary real estate security. However, the note shall be withdrawn from collateral

upon the expiration of 1 year from the date of the loan closing, unless, before the end of such period:

(1) An attorney has certified that the bank or association has a first lien or its equivalent from a security

standpoint in the primary real estate security for the loan; or

(2) The bank or association has obtained a title insurance policy insuring that it has a first lien or its

equivalent from a security standpoint in the primary real estate security for the loan, and all of the

following requirements are satisfied:

(i) The final policy was issued by a title insurance company that has been licensed to issue such

policies by the appropriate state insurance regulatory body or bodies, has not been barred or

suspended, and has been approved by the lending institution;

(ii) The standard form on which the final policy was issued has been approved by the counsel for

the lending institution;

(iii) The final policy was issued for an amount at least equal to the balance outstanding on the real

estate mortgage loan or, if separate policies are issued to insure separate tracts, the minimum

amount insured by each policy shall bear the same ratio to the outstanding balance of the loan

that the appraised value of the tract insured by that policy bears to the appraised value of all the

real estate security for the loan; and

(iv) Personnel meeting written standards of training and experience in real estate title matters

prescribed by the counsel for the lending institution certified in writing that:

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[54 FR 1159, Jan. 12, 1989, as amended at 59 FR 3787, Jan. 27, 1994]

§ 615.5090 Reduction in carrying value of collateral.

When the bank or Farm Credit Administration determines that a loan did not conform to the requirements of the law

or regulations at the time the loan was closed, such loan shall be withdrawn from collateral until the cause of

ineligibility is remedied. When a loan has been classified as a loss loan, the bank shall adjust the collateral value of

the loan accordingly.

Subpart C—Issuance of Bonds, Notes, Debentures and Similar Obligations

§ 615.5100 Authority to issue.

The Act authorizes each bank of the System, subject to the collateral requirements of section 4.3(c) of the Act, to

issue:

[54 FR 1160, Jan. 12, 1989]

§ 615.5101 Requirements for issuance.

Except as provided in section 4.2(e) of the Act, each debt obligation shall meet the following requirements:

(A) They reviewed the final policy and that the policy complies with standards prescribed by

such counsel; and

(B) The final policy insures that a first lien or its equivalent from a security standpoint has

been obtained on the primary real estate security for the loan.

(b) A loan participation agreement to which a System bank or association is a participant and involving a loan

originated by another lender shall constitute an obligation meeting the collateral requirements of §

615.5050(a).

(a) Notes, bonds, debentures, or other similar obligations;

(b) Consolidated obligations, together with any or all banks organized and operating under the same title of

the Act;

(c) Systemwide obligations, together with other banks of the System; and

(d) Investment bonds to the authorized purchasers subject to the limitations contained in the regulations set

forth in subpart D.

(a) Each debt obligation shall be issued through the Federal Farm Credit Banks Funding Corporation acting

for System banks.

(b) Each debt obligation shall be authorized by resolution of the board(s) of directors of the issuer(s). Each

participating bank shall provide, in its authorizing resolution, for its primary liability on the portion of any

consolidated or Systemwide obligation issued on its behalf and be jointly and severally liable for the

payment of any additional sums as called upon by the Farm Credit Administration, in accordance with

section 4.4 of the Act, in the event any bank primarily liable therefor is unable to pay.

(c) Each issuance of debt obligations shall meet the collateral requirements set forth in subpart B.

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[54 FR 1160, Jan. 12, 1989]

§ 615.5102 Issuance of debt obligations through the Funding Corporation.

[54 FR 1160, Jan. 12, 1989]

§§ 615.5103-615.5104 [Reserved]

§ 615.5105 Consolidated Systemwide notes.

Consolidated Systemwide notes authorized under § 615.5100(b) shall be subject to the following provisions unless

otherwise approved by the Farm Credit Administration:

[42 FR 32227, June 24, 1977, as amended at 47 FR 28609, July 1, 1982; 54 FR 1160, Jan. 12, 1989; 60 FR 20011, Apr. 24, 1995]

Subpart D—Other Funding

§ 615.5110 Authority to issue (other funding).

Any Farm Credit bank may issue Farm Credit Investment Bonds directly to those eligible as set forth in §

615.5120(a). The bonds are subject to the limitations contained in the Federal Reserve Board's Regulation Q.

(d) Each issuance of debt obligations shall be approved by the Farm Credit Administration.

(e)

(1) Consultation with the Secretary of the Treasury required by 31 U.S.C. 9108 shall be conducted by

System representatives and shall have occurred prior to each debt issuance.

(2) Under policies adopted by the Board of the Farm Credit Administration, the Chairman will consult

with the Secretary of the Treasury on a regular basis concerning the exercise by the System of the

powers conferred under section 4.2 of the Act.

(a) The amount, maturities, rates or interest, terms and conditions of participation by the System banks in

each issue of joint, consolidated or Systemwide obligations shall be determined by the Funding

Corporation established pursuant to section 4.9 of the Act, acting for the banks of the System, subject to

the approval of the Farm Credit Administration in accordance with § 615.5102.

(b) The Funding Corporation shall plan and develop funding guidelines, priorities, and objectives based upon

the asset/liability management policies of the System institutions and the requirements of the market.

The guidelines, priorities, and objectives shall be designed to ensure that the debt marketing

responsibilities of the Funding Corporation will continue to provide flexibility for the banks and are fiscally

sound.

(c) For all debt issuances conducted by the Funding Corporation, the specific prior approval of the Farm

Credit Administration must be obtained prior to the distribution and sale of the obligation pursuant to

section 4.9 of the Act.

(a) Maturities shall be not less than five days nor more than 365 days.

(b) Prices shall be on a discount yield basis or as determined by the Funding Corporation.

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[43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978]

§ 615.5120 Purchase eligibility requirement.

[43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978, as amended at 56 FR 2675, Jan. 24, 1991; 61 FR 67187, Dec. 20, 1996]

(a) Limitations. Eligibility to purchase Farm Credit Investment Bonds shall be limited to members and

employees of the Farm Credit banks and associations, except any bank officers, directors, and employees

who are involved in setting the term or rate, to retired employees who are beneficiaries of a pension or

retirement program of the Farm Credit banks or associations, and to retired employees of the Farm Credit

Administration. A member of a Farm Credit association or a bank for cooperatives need not be an active

borrower to be eligible. A member of any Farm Credit institution may purchase investment bonds from

any of the institutions in the district which offer the purchase program. Patrons, members, employees, or

stockholder of other financing institutions discounting loans with a Farm Credit Bank or agricultural credit

bank or of any legal entity which is a borrower from any Farm Credit institution as such are ineligible as

they are not members of a Farm Credit institution. Stock or participation certificates shall not be sold

merely to qualify a party for the purchase of Farm Credit Investment Bonds. For purposes of this section

“member” means a stockholder or participation certificate holder who acquired stock or participation

certificates to obtain a loan, to purchase stock for investment or to qualify for other services of the

association or bank. A person who assumes a loan is not a member unless he becomes a stockholder or

participation certificate holder in connection with that loan. Employee means a regular full-time employee

of a Farm Credit bank or association. Retired employee means a retiree who is a direct beneficiary of a

pension or retirement program of a Farm Credit bank or association or the Farm Credit Administration

under civil service retirement.

(b) Form and ownership. Farm Credit Investment Bonds are registered bonds issued in definitive or book-entry

form depending on investor preference. The registration used must express the actual ownership of an

interest in the bond and will be considered by the issuing institution as conclusive of such ownership and

interest. No designation of an attorney, agent, or other representative to request or receive payment on

behalf of the owner or coowner, nor any restriction on the right of the owner or coowner to receive

payment of the bond or interest, except as provided in this section may be made in the registration or

otherwise. Registrations requested in applications for the purchase shall be clear, accurate, complete, and

conform with one of the registration provisions set forth in this section, and include the appropriate

taxpayer identifying number. Registrations requested will be inscribed on the face of the bond if in

definitive form or on the confirmation of investment if in book-entry form. The following provisions shall

apply for registration of Farm Credit Investment Bonds:

(1) In all cases the member's name (whether a natural person, fiduciary, or legal entity) or employee's

name must appear as owner of the bond.

(2) A bond may be registered in the name of a fiduciary only if the fiduciary is in fact the member.

(3) A member or employee may not use a form of registration (such as a gift to a minor, irrevocable

trust, etc.) which would divest himself of ownership. However, a minor may be named as coowner or

beneficiary.

(4) If a member is a natural person, a second natural person, member or nonmember, may be named as

coowner or beneficiary. Coownership may not involve a fiduciary or private organization.

(5) In the coownership form the connective “or” shall serve the same purpose as “joint tenants with right

of survivorship.”

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§ 615.5130 Procedures.

Procedures relating to issuance, pricing, payment of interest, redemption, replacement of lost or stolen bonds and

other matters shall be promulgated under the authority of this regulation as operating instructions to banks and

associations.

[37 FR 11434, June 7, 1972]

Subpart E—Investment Management

§ 615.5131 Definitions.

For purposes of this subpart, the following definitions apply:

Asset-backed securities (ABS) mean investment securities that provide for ownership of a fractional undivided

interest or collateral interests in specific assets of a trust that are sold and traded in the capital markets.

For the purposes of this subpart, ABS exclude mortgage-backed securities that are defined in this section.

Asset class means a group of securities that exhibit similar characteristics and behave similarly in the

marketplace. Asset classes include, but are not limited to, money market instruments, municipal

securities, corporate bond securities, MBS, ABS, and any other asset class as determined by FCA.

Country risk classification (CRC) as defined in § 628.2 of this chapter.

Diversified investment fund (DIF) means an investment company registered under section 8 of the Investment

Company Act of 1940.

Government-sponsored enterprise (GSE) means an entity established or chartered by the United States

Government to serve public purposes specified by the United States Congress but whose debt obligations

are not explicitly guaranteed by the full faith and credit of the United States Government.

Loans are defined by § 621.2 of this chapter and they are calculated quarterly (as of the last day of March, June,

September, and December) by using the average daily balance of loans during the quarter.

Market risk means the risk to the financial condition of your institution because the value of your holdings may

decline if interest rates or market prices change. Exposure to market risk is measured by assessing the

effect of changing rates and prices on either the earnings or economic value of an individual instrument, a

portfolio, or the entire institution.

Mortgage-backed securities (MBS) means securities that are either:

(1) Pass-through securities or participation certificates that represent ownership of a fractional

undivided interest in a specified pool of residential (excluding home equity loans), multifamily or

commercial mortgages; or

(2) A multiclass security (including collateralized mortgage obligations and real estate mortgage

investment conduits) that is backed by a pool of residential, multifamily or commercial real estate

mortgages, pass through MBS, or other multiclass MBSs.

Obligor means an issuer, guarantor, or other person or entity who has an obligation to pay a debt, including

interest due, by a specified date or when payment is demanded.

Resecuritization as defined in § 628.2 of this chapter.

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[64 FR 28895, May 28, 1999, as amended at 70 FR 51589, Aug. 31, 2005; 77 FR 66370, Nov. 5, 2012; 83 FR 27499, June 12, 2018;

85 FR 52253, Aug. 25, 2020]

§ 615.5132 Investment purposes.

[77 FR 66371, Nov. 5, 2012, as amended at 87 FR 27492, May 9, 2022]

§ 615.5133 Investment management.

Sponsor means a person or entity that initiates a transaction by selling or pledging to a specially created issuing

entity, such as a trust, a group of financial assets that the sponsor either has originated itself or has

purchased.

United States (U.S.) Government agency means an instrumentality of the U.S. Government whose obligations are

fully guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S.

Government.

You means a Farm Credit bank, association, or service corporation.

(a) Each Farm Credit bank may hold eligible investments, listed under § 615.5140, in an amount not to exceed

35 percent of its total outstanding loans, to comply with its liquidity requirements in § 615.5134, manage

surplus short-term funds, and manage interest rate risk under § 615.5180. To comply with this

calculation, the 30-day average daily balance of investments is divided by loans. Investments are

calculated at amortized cost. Loans are calculated as defined in § 615.5131. For the purpose of this

calculation, loans include accrued interest and do not include any allowance for credit loss adjustments.

Compliance with the calculation is measured on the last day of every month.

(b) The following investments may be excluded when calculating the amount of eligible investments held by

the Farm Credit bank pursuant to § 615.5132(a):

(1) Eligible investments listed under § 615.5140 that are pledged by a Farm Credit bank to meet margin

requirements for derivative transactions; and

(2) Any other investments FCA determines are appropriate for exclusion.

(a) Responsibilities of board of directors. The board of directors must adopt written policies for managing the

institution's investment activities. The board must also ensure that management complies with these

policies and that appropriate internal controls are in place to prevent loss. At least annually, the board, or a

designated committee of the board, must review the sufficiency of these investment policies.

(b) Investment policies—general requirements. Investment policies must address the purposes and objectives

of investments; risk tolerance; delegations of authority; internal controls; due diligence; and reporting

requirements. The investment policies must fully address the extent of pre-purchase analysis that

management must perform for various classes of investments. The investment policies must also

address the means for reporting, and approvals needed for, exceptions to established policies. A Farm

Credit bank's investment policy must address portfolio diversification and obligor limits under paragraphs

(f) and (g) of this section. Investment policies must be sufficiently detailed, consistent with, and

appropriate for the amounts, types, and risk characteristics of its investments.

(c) Investment policies—risk tolerance. Investment policies must establish risk limits for eligible investments

and for the entire investment portfolio. The investment policies must include concentration limits to

ensure prudent diversification of credit, market, and, as applicable, liquidity risks in the investment

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portfolio. Risk limits must be based on all relevant factors, including the institution's objectives, capital

position, earnings, and quality and reliability of risk management systems and must take into

consideration the interest rate risk management program required by § 615.5180 or § 615.5182, as

applicable. Investment policies must identify the types and quantity of investments that the institution will

hold to achieve its objectives and control credit risk, market risk, and liquidity risk as applicable. Each

association or service corporation that holds significant investments and each Farm Credit bank must

establish risk limits in its investment policies, as applicable, for the following types of risk:

(1) Credit risk. Investment policies must establish:

(i) Credit quality standards. Credit quality standards must be established for single or related

obligors, sponsors, secured and unsecured exposures, and asset classes or obligations with

similar characteristics.

(ii) Concentration limits. Concentration limits must be established for single or related obligors,

sponsors, geographical areas, industries, unsecured exposures, asset classes or obligations

with similar characteristics.

(iii) Criteria for selecting brokers and, dealers. Each institution must buy and sell eligible

investments with more than one securities firm. The institution must define its criteria for

selecting brokers and dealers used in buying and selling investments.

(iv) Collateral margin requirements on repurchase agreements. To the extent the institution engages

in repurchase agreements, it must regularly mark the collateral to fair market value and ensure

appropriate controls are maintained over collateral held.

(2) Market risk. Investment policies must set market risk limits for specific types of investments and for

the investment portfolio.

(3) Liquidity risk —

(i) Liquidity at Farm Credit banks. Investment policies must describe the liquidity characteristics of

eligible investments that the bank will hold to meet its liquidity needs and other institutional

objectives.

(ii) Liquidity at associations. Investment policies must describe the liquid characteristics of eligible

investments that the association will hold.

(4) Operational risk. Investment policies must address operational risks, including delegations of

authority and internal controls under paragraphs (d) and (e) of this section.

(d) Delegation of authority. All delegations of authority to specified personnel or committees must state the

extent of management's authority and responsibilities for investments.

(e) Internal controls. Each institution must:

(1) Establish appropriate internal controls to detect and prevent loss, fraud, embezzlement, conflicts of

interest, and unauthorized investments.

(2) Establish and maintain a separation of duties between personnel who supervise or execute

investment transactions and personnel who supervise or engage in all other investment-related

functions.

(3) Maintain records and management information systems that are appropriate for the level and

complexity of the institution's investment activities.

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(4) Implement an effective internal audit program to review, at least annually, the investment

management practices including internal controls, reporting processes, and compliance with FCA

regulations. This annual review's scope must be appropriate for the size, risk and complexity of the

investment portfolio.

(f) Farm Credit bank portfolio diversification —

(1) Well-diversified portfolio. Subject to the exemptions set forth in paragraph (f)(3) of this section, each

Farm Credit bank must maintain a well-diversified investment portfolio as set forth in paragraph

(f)(2) of this section.

(2) Investment portfolio diversification requirements. A well-diversified investment portfolio means that,

at a minimum, investments are comprised of different asset classes, maturities, industries,

geographic areas, and obligors. These diversification requirements apply to each individual security

that the Farm Credit bank holds within a DIF. In addition, except as exempted by paragraph (f)(3) of

this section, no more than 15 percent of the investment portfolio may be invested in any one asset

class. Securities within each DIF count toward the appropriate asset class. Measurement of this

diversification requirement must be based on the portfolio valued at amortized cost.

(3) Exemptions from investment portfolio diversification requirements. The following investments are

not subject to the 15-percent investment portfolio diversification requirement specified in paragraph

(f)(2) of this section:

(i) Investments that are fully guaranteed as to the timely payment of principal and interest by a

U.S. Government agency;

(ii) Investments that are fully and explicitly guaranteed as to the timely payment of principal and

interest by a GSE, except that no more than 50 percent of the investment portfolio may be

comprised of GSE MBS. Investments in Farmer Mac securities are governed by § 615.5174 and

are not subject to this limitation; and

(iii) Money market instruments identified in § 615.5131.

(g) Farm Credit bank obligor limit. No more than 10 percent of a Farm Credit bank's total capital (Tier 1 and

Tier 2) as defined by § 628.2 of this chapter may be invested in any one obligor. This obligor limit does not

apply to investments in obligations that are fully guaranteed as to the timely payment of principal and

interest by U.S. Government agencies or fully and explicitly guaranteed as to the timely payment of

principal and interest by GSEs. For a DIF, both the DIF itself and the entities obligated to pay the underlying

debt are obligors.

(h) Due diligence —

(1) Pre-purchase analysis —

(i) Eligibility and compliance with investment policies. Before purchasing an investment, the

institution must conduct sufficient due diligence to determine whether the investment is eligible

under § 615.5140 and complies with its board's investment policies. The institution must

document its assessment and retain any supporting information used in that assessment. The

institution may hold an investment that does not comply with its investment policies only with

the prior approval of its board.

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(ii) Valuation. Prior to purchase, the institution must verify the fair market value of the investment

(unless it is a new issue) with a source that is independent of the broker, dealer, counterparty or

other intermediary to the transaction.

(iii) Risk assessment. At purchase, the institution must at a minimum include an evaluation of the

credit risk (including country risk when applicable), liquidity risk, market risk, interest rate risk,

and underlying collateral of the investment, as applicable. This assessment must be

commensurate with the complexity and type of the investment. The institution must also

perform stress testing on any structured investment that has uncertain cash flows, including all

MBS and ABS, before purchase. The stress test must be commensurate with the type and

complexity of the investment and must enable the institution to determine that the investment

does not expose its capital, earnings, or liquidity if applicable, to risks that are greater than

those specified in its investment policies. The stress testing must comply with the

requirements in paragraph (h)(4)(ii) of this section. The institution must document and retain

its risk assessment and stress tests conducted on investments purchased.

(2) Ongoing value determination. At least monthly, the institution must determine the fair market value of

each investment in its portfolio and the fair market value of its whole investment portfolio.

(3) Ongoing analysis of credit risk. The institution must establish and maintain processes to monitor and

evaluate changes in the credit quality of each investment in its portfolio and in its whole investment

portfolio on an ongoing basis.

(4) Quarterly stress testing.

(i) The institution must stress test its entire investment portfolio, including stress tests of each

investment individually and the whole portfolio, at the end of each quarter. The stress tests

must enable the institution to determine that its investment securities, both individually and on

a portfolio-wide basis, do not expose its capital, earnings, or liquidity if applicable, to risks that

exceed the risk tolerance specified in its investment policies. If the institution's portfolio risk

exceeds its investment policy limits, the institution must develop a plan to comply with those

limits.

(ii) The institution's stress tests must be defined in a board-approved policy and must include

defined parameters for the security types purchased. The stress tests must be comprehensive

and appropriate for the institution's risk profile. At a minimum, the stress tests must be able to

measure the price sensitivity of investments over a range of possible interest rates and yield

curve scenarios. The stress test methodology must be appropriate for the complexity, structure,

and cash flows of the investments in the institution's portfolio. The institution must rely to the

maximum extent practicable on verifiable information to support all its stress test assumptions,

including prepayment and interest rate volatility assumptions. The institution must document

the basis for all assumptions used to evaluate the security and its underlying collateral. The

institution must also document all subsequent changes in its assumptions.

(5) Presale value verification. Before the institution sells an investment, it must verify its fair market

value with an independent source not connected with the sale transaction.

(i) Reports to the board of directors. At least quarterly, the institution's management must report on the

following to its board of directors or a designated board committee:

(1) Plans and strategies for achieving the board's objectives for the investment portfolio;

12 CFR Part 615 (up to date as of 3/07/2024)

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding... 12 CFR 615.5133(h)(1)(ii)

12 CFR 615.5133(i)(1) (enhanced display) page 15 of 55
[83 FR 27499, June 12, 2018; 83 FR 30833, July 2, 2018]

§ 615.5134 Liquidity reserve.

(2) Whether the investment portfolio effectively achieves the board's objectives;

(3) The current composition, quality, and the risk and liquidity profiles of the investment portfolio;

(4) The performance of each class of investments and the entire investment portfolio, including all gains

and losses realized during the quarter on individual investments that the institution sold before

maturity and why they were liquidated;

(5) Potential risk exposure to changes in market interest rates as identified through quarterly stress

testing and any other factors that may affect the value of its investment holdings;

(6) How investments affect its capital, earnings, and overall financial condition;

(7) Any deviations from the board's policies (must be specifically identified);

(8) The status and performance of each investment described in § 615.5143(a) and (b) or that does not

comply with the institution's investment policies; including the expected effect of these investments

on its capital, earnings, liquidity, as applicable, and collateral position; and

(9) The terms and status of any required divestiture plan or risk reduction plan.

(a) Liquidity policy —

(1) Board responsibility. The board of each Farm Credit bank must adopt a written liquidity policy. The

liquidity policy must be compatible with the investment management policies that the bank's board

adopts pursuant to § 615.5133 of this part. At least once every year, the bank's board must review its

liquidity policy, assess the sufficiency of its liquidity policy, and make any revisions it deems

necessary. The board of each Farm Credit bank must ensure that adequate internal controls are in

place so that management complies with and carries out this liquidity policy.

(2) Policy content. At a minimum, the liquidity policy of each Farm Credit bank must address:

(i) The purpose and objectives of the liquidity reserve;

(ii) Diversification requirements for the liquidity reserve portfolio;

(iii) The target amount of days of liquidity that the bank needs based on its business model and risk

profile;

(iv) Delegations of authority pertaining to the liquidity reserve; and

(v) Reporting requirements, which at a minimum must require management to report to the board

at least once every quarter about compliance with the bank's liquidity policy and the

performance of the liquidity reserve portfolio. However, management must report any deviation

from the bank's liquidity policy, or failure to meet the board's liquidity targets to the board

before the end of the quarter if such deviation or failure has the potential to cause material loss

to the bank.

12 CFR Part 615 (up to date as of 3/07/2024)

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12 CFR 615.5134(a)(2)(v) (enhanced display) page 16 of 55
Liquidity

level Instruments

Discount (multiply

by)

Level 1 • Cash, including cash due from traded but not yet settled debt 100 percent

• Overnight money market investment 100 percent

• Obligations of U.S. Government agencies with a final remaining

maturity of 3 years or less

97 percent

• GSE senior debt securities that mature within 60 days, excluding

securities issued by the Farm Credit System

95 percent

• Diversified investment funds comprised exclusively of Level 1

instruments

95 percent

Level 2 • Obligations of U.S. Government agencies with a final remaining

maturity of more than 3 years

97 percent

• MBS that are fully guaranteed by a U.S. Government agency as to the

timely repayment of principal and interest

95 percent

• Diversified investment funds comprised exclusively of Levels 1 and 2

instruments

95 percent

Level 3 • GSE senior debt securities with maturities exceeding 60 days,

excluding senior debt securities of the Farm Credit System

93 percent for all

Level 3 instruments

• MBS that are fully guaranteed by a GSE as to the timely repayment of

principal and interest

• Money market instruments maturing within 90 days

• Diversified investment funds comprised exclusively of levels 1, 2, and

3 instruments

(b) Liquidity reserve requirement. Each Farm Credit bank must maintain at all times a liquidity reserve

sufficient to fund at least 90 days of the principal portion of maturing obligations and other borrowings of

the bank. At a minimum, each Farm Credit Bank must hold instruments in its liquidity reserve listed and

discounted in the Table below that are sufficient to cover:

(1) Days 1 through 15 only with Level 1 instruments;

(2) Days 16 through 30 only with Level 1 and Level 2 instruments; and

(3) Days 31 through 90 with Level 1, Level 2, and Level 3 instruments.

(c) Unencumbered. All investments that a Farm Credit bank holds in its liquidity reserve and supplemental

liquidity buffer in accordance with this section must be unencumbered. For the purpose of this section, an

investment is unencumbered if it is free of lien, and it is not explicitly or implicitly pledged to secure,

collateralize, or enhance the credit of any transaction. Additionally, an unencumbered investment held in

the liquidity reserve cannot be used as a hedge against interest rate risk if liquidation of that particular

investment would expose the bank to a material risk of loss.

(d) Marketable. All investments that a Farm Credit bank holds in its liquidity reserve in accordance with this

section must be readily marketable. For the purposes of this section, an investment is marketable if it:

(1) Can be easily and quickly converted into cash with little or no loss in value;

(2) Exhibits low credit and market risks;

12 CFR Part 615 (up to date as of 3/07/2024)

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12 CFR 615.5134(d)(2) (enhanced display) page 17 of 55
[78 FR 23455, Apr. 18, 2013; 78 FR 26701, May 8, 2013, as amended at 83 FR 27501, June 12, 2018]

§ 615.5136 Emergencies impeding normal access of Farm Credit banks to capital markets.

An emergency shall be deemed to exist whenever a financial, economic, agricultural, national defense, or other

crisis could impede the normal access of Farm Credit banks to the capital markets. Whenever the Farm Credit

Administration determines, after consultation with the Federal Farm Credit Banks Funding Corporation to the extent

practicable, that such an emergency exists, the Farm Credit Administration Board may, in its sole discretion, adopt a

resolution that:

(3) Has ease and certainty of valuation; and

(4) Except for money market instruments, can be easily bought and sold in active and sizeable markets

without significantly affecting prices.

(e) Supplemental liquidity buffer. Each Farm Credit bank must hold supplemental liquid assets in excess of

the 90-day minimum liquidity reserve. The supplemental liquidity buffer must be comprised of cash and

qualified eligible investments authorized by § 615.5140 of this part. A Farm Credit bank must be able to

liquidate any qualified eligible investment in its supplemental liquidity buffer within the liquidity policy

timeframe established in the bank's liquidity policy at no less than 80 percent of its book value. A Farm

Credit bank must remove from its supplemental liquidity buffer any investment that has, at any time, a

market value that is less than 80 percent of its book value. Each investment in the supplemental liquidity

buffer that has a market value of at least 80 percent of its book value, but does not qualify for Levels 1, 2,

or 3 of the liquidity reserve, must be discounted to (multiplied by) 90 percent of its market value. The

amount of supplemental liquidity that each Farm Credit bank holds, at minimum, must meet the

requirements of its board's liquidity policy, provide excess liquidity beyond the days covered by the

liquidity reserve, and satisfy the applicable portions of the bank's CFP in accordance with paragraph (f).

(f) Contingency Funding Plan (CFP). The board of each Farm Credit bank must adopt a CFP to ensure

sources of liquidity are sufficient to fund normal operations under a variety of stress events. Such stress

events include, but are not limited to market disruptions, rapid increase in loan demand, unexpected

draws on unfunded commitments, difficulties in renewing or replacing funding with desired terms and

structures, requirements to pledge collateral with counterparties, and reduced market access. Each Farm

Credit bank must maintain an adequate level of unencumbered and marketable assets in its liquidity

reserve that can be converted into cash to meet its net liquidity needs for 30 days based on estimated

cash inflows and outflows under an acute stress scenario. The board of directors must review and

approve the CFP at least once every year and make adjustments to reflect changes in the bank's risk

profile and market conditions. The CFP must:

(1) Be customized to the financial condition and liquidity risk profile of the bank and the board's liquidity

risk tolerance policy.

(2) Identify funding alternatives that the Farm Credit bank can implement whenever access to funding is

impeded, which must include, at a minimum, arrangements for pledging collateral to secure funding

and possible initiatives to raise additional capital.

(3) Require periodic stress testing that analyzes the possible effects on the bank's cash inflows and

outflows, liquidity position, profitability and solvency under a variety of stress scenarios.

(4) Establish a process for managing events that imperil the bank's liquidity, and assign appropriate

personnel and implement executable action plans that carry out the CFP.

12 CFR Part 615 (up to date as of 3/07/2024)

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12 CFR 615.5136 (enhanced display) page 18 of 55
[77 FR 66372, Nov. 5, 2012]

§ 615.5140 Eligible investments.

(a) Modifies the amount, qualities, and types of eligible investments that Farm Credit banks are authorized to

hold pursuant to § 615.5132 of this subpart;

(b) Modifies or waives the liquidity requirement(s) in § 615.5134 of this subpart; and/or

(c) Authorizes other actions as deemed appropriate.

(a) Farm Credit banks —

(1) Investment eligibility criteria. A Farm Credit bank may purchase an investment only if it satisfies the

following investment eligibility criteria:

(i) The investment must be purchased and held for one or more investment purposes authorized in

§ 615.5132.

(ii) The investment must be one of the following:

(A) A non-convertible senior debt security;

(B) A money market instrument with a maturity of 1 year or less;

(C) A portion of an MBS or ABS that is fully guaranteed as to the timely payment of principal

and interest by a U.S. Government agency;

(D) A portion of an MBS or ABS that is fully and explicitly guaranteed as to the timely payment

of principal and interest by a GSE;

(E) The senior-most position of an MBS or ABS that a U.S. Government agency does not fully

guarantee as to the timely payment of principal and interest or a GSE does not fully and

explicitly guarantee as to the timely payment of principal and interest, provided that the

MBS satisfies the definition of “mortgage related security” in 15 U.S.C. 78c(a)(41);

(F) An obligation of an international or multilateral development bank in which the U.S. is a

voting member; or

(G) Shares of a diversified investment fund registered under the Investment Company Act of

1940, if its portfolio consists solely of securities that satisfy paragraph (a)(1)(ii)(A), (B),

(C), (D), (E), or (F) of this section, or are eligible under § 615.5174. The investment

company's risk and return objectives and use of derivatives must be consistent with the

Farm Credit bank's investment policies.

(iii) At least one obligor of the investment must have very strong capacity to meet its financial

commitment for the expected life of the investment. If any obligor whose capacity to meet its

financial commitment is being relied upon to satisfy this requirement is located outside the

U.S., either:

(A) That obligor's sovereign host country must have the highest or second-highest consensus

Country Risk Classification (0 or 1) as published by the Organization for Economic

Cooperation and Development (OECD) or be an OECD member that is unrated; or

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12 CFR 615.5140(a)(1)(iii)(A) (enhanced display) page 19 of 55
(B) The investment must be fully guaranteed as to the timely payment of principal and interest

by a U.S. Government agency.

(iv) The investment must exhibit low credit risk and other risk characteristics consistent with the

purpose or purposes for which it is held.

(v) The investment must be denominated in U.S. dollars.

(2) Resecuritizations. Notwithstanding any other provision of this section, System banks may not

purchase resecuritizations (except when both principal and interest are fully and explicitly

guaranteed by the U.S. Government or a GSE) without approval under paragraph (e) of this section.

(b) Farm Credit associations —

(1) Risk management investments. Each Farm Credit System association, with the approval of its

funding bank, may purchase and hold investments to manage risks. Each association must identify

and evaluate how the investments that it purchases contributes to management of its risks. Only

securities that are issued by, or are unconditionally guaranteed or insured as to the timely payment

of principal and interest by, the United States Government or its agencies are investments that

associations may acquire for risk management purposes under this paragraph (b).

(2) Secondary market Government-guaranteed loans. In addition to investing in the securities described

in paragraph (b)(1) of this section, each Farm Credit System association may also manage risk by

holding those portions of loans that:

(i) Lenders, which are not Farm Credit System institutions, originate and then sell in the secondary

market; and

(ii) The United States Department of Agriculture fully and unconditionally guarantees or insures as

to both principal and interest.

(3) Risk management requirements. Each association that purchases investments pursuant to

paragraphs (b)(1) and (2) of this section must document how its investment activities contribute to

managing risks as required by paragraph (b)(1) of this section. Such documentation must address

and evidence that the association:

(i) Complies with § 615.5133(a), (b), (c), (d), (e), (h), and (i). These investment management

processes must be appropriate for the size, risk and complexity of the association's investment

portfolio.

(ii) Complies with § 615.5182 for investments that exhibit interest rate risk that could lead to

significant declines in net income or in the market value of capital.

(iii) Assesses how these investments impact the association's overall credit risk profile and how

these investment purchases aid in diversifying, hedging, or mitigating overall credit risk.

(iv) Considers and evaluates any other relevant factors unique to the association or to the nature of

the investments that could affect the association's overall risk-bearing capacity, including but

not limited to management experience and capability to understand and manage unique risks

in investments purchased.

(4) Association investment portfolio limit. The total amount of investments purchased and held under

this section must not exceed 10 percent of the association's total outstanding loans. In computing

this limit:

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12 CFR 615.5140(b)(4) (enhanced display) page 20 of 55
(i) Include in the numerator the daily (point-in-time) balance of all investments purchased and held

under this section. Unless otherwise directed by FCA, associations must use the investment

balance on the last business day of the quarter when calculating the numerator of the portfolio

limit under this paragraph. For this calculation, value investments at amortized cost and

accrued interest.

(ii) Include in the denominator the 90-day average daily balance of total outstanding loans as

defined in § 615.5131. For this calculation, value loans at amortized cost and include accrued

interest. The denominator does not include any allowance for credit loss adjustments.

(iii) Exclude from the numerator the following:

(A) Equity investments in unincorporated business entities authorized in § 611.1150 of this

chapter;

(B) Equity investments in Rural Business Investment Companies organized under 7 U.S.C.

2009cc et seq.;

(C) Equity investments in Class B Farmer Mac stock authorized in § 615.5173; and

(D) Farmer Mac agricultural mortgage-backed securities under § 615.5174.

(5) Funding bank supervision of association investments.

(i) The association must not purchase and hold investments without the funding bank's prior

approval. The bank must review the association's prior approval requests and explain in writing

its reasons for approving or denying the request. The prior approval is required before the

association engages in investment activities and with any significant change(s) in investment

strategy.

(ii) In deciding whether to approve an association's request to purchase and hold investments, the

bank must evaluate and document that the association:

(A) Has adequate policies, procedures, and controls, in place for its investment accounting

and reporting;

(B) Has capable staff with the necessary expertise to manage the risks in investments; and

(C) Complies with paragraph (b)(3) of this section.

(iii) The bank must review annually the investment portfolio of every association that it funds. This

annual review must evaluate whether the association's investments manage risks over time,

and the continued adequacy of the associations' risk management practices.

(6) Transition for association investments.

(i) An association is not required to divest of any investment held on January 1, 2019 that was

authorized under § 615.5140 as contained in 12 CFR part 615 revised as of January 1, 2018 or

otherwise by official written FCA action that allowed the association to continue to hold such

investment. Once such investment matures, the association must not renew it unless the

investment is authorized pursuant to this section.

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12 CFR 615.5140(b)(6)(i) (enhanced display) page 21 of 55
[83 FR 27502, June 12, 2018; 83 FR 30833, July 2, 2018, as amended at 85 FR 62949, Oct. 6, 2020; 85 FR 70955, Nov. 6, 2020; 87

FR 27492, May 9, 2022]

§ 615.5142 [Reserved]

§ 615.5143 Management of ineligible investments and reservation of authority to require

divestiture.

(ii) No association is required to divest of investments if a decline in total outstanding loans

causes it to exceed the portfolio limit in paragraph (b)(4) of this section. However, the

institution must not purchase new investments unless, after they are purchased, the total

amount of investments held falls within the portfolio limit.

(c) Reservation of authority. FCA may, on a case-by-case basis, determine that a particular investment you are

holding poses inappropriate risk, notwithstanding that it satisfies the investment eligibility criteria. If so,

we will notify you as to the proper treatment of the investment.

(d) [Reserved]

(e) Other investments approved by FCA. You may purchase and hold investments that we approve. Your

request for our approval must explain the risk characteristics of the investment and your purpose and

objectives for making the investment.

(a) Investments ineligible when purchased. Investments that do not satisfy the eligibility criteria set forth in §

615.5140(a) or (b) or investments FCA had not approved under § 615.5140(e), as applicable, at the time

of purchase are ineligible. System institutions must not purchase ineligible investments. If the institution

determines that it has purchased an ineligible investment, it must notify FCA within 15 calendar days after

the determination. The institution must divest of the investment no later than 60 calendar days after

determining that the investment is ineligible unless FCA approves, in writing, a plan that authorizes the

institution to divest the investment over a longer period. Until the institution divests of the ineligible

investment:

(1) A Farm Credit bank must not use the ineligible investment to satisfy its liquidity requirement(s) under

§ 615.5134;

(2) The institution must include the ineligible investment in the portfolio limit calculation defined in §

615.5132 or § 615.5140(b)(4), as applicable; and

(3) A Farm Credit bank must exclude the ineligible investment as collateral under § 615.5050.

(b) Investments that no longer satisfy investment eligibility criteria. If the institution determines that an

investment (that satisfied the eligibility criteria set forth in § 615.5140(a) or (b), as applicable, when

purchased) no longer satisfies the criteria, or that an investment that FCA approved pursuant to §

615.5140(e), no longer satisfies the conditions of approval, the institution may continue to hold the

investment, subject to the following requirements:

(1) The institution must notify FCA within 15 calendar days after such determination;

(2) A Farm Credit bank must not use the ineligible investment to satisfy its liquidity requirement(s) under

§ 615.5134;

(3) The institution must include the ineligible investment in the portfolio limit calculation defined in §

615.5132 or § 615.5140(b)(4), as applicable;

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12 CFR 615.5143(b)(3) (enhanced display) page 22 of 55
[83 FR 27503, June 12, 2018; 83 FR 30833, July 2, 2018]

§ 615.5144 Banks for cooperatives and agricultural credit banks.

As may be authorized by the banks for cooperatives' or agricultural credit banks boards of directors ownership

investment may be made in foreign business entities solely for the purpose of obtaining credit information and

other services needed to facilitate transactions which may be financed under section 3.7(b) of the Farm Credit Act

Amendments of 1980. Such an investment shall not exceed the level required to access credit and other services of

the entity and shall not be made for earnings purposes. The business entity shall be deemed to be principally

engaged in providing credit information to and performing such servicing functions for its members where such

activities constitute a materially important line of business to its members. Also, investments must be made by a

bank for cooperatives or agricultural credit bank for its own account and not on behalf of its members. The bank for

cooperatives or agricultural credit bank shall use only those services provided by the business entity as necessary

to facilitate transactions authorized by section 3.7(b) of the Farm Credit Act Amendments of 1980.

[46 FR 55088, Nov. 6, 1981, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989; 61 FR 67187, Dec. 20, 1996.

Redesignated at 64 FR 28899, May 28, 1999]

Subpart F—Property, Transfers of Capital, and Other Investments

§ 615.5170 Real and personal property.

Real estate and personal property may be acquired, held, or disposed of by any Farm Credit institution for the

necessary and normal operations of its business. The purchase, lease, or construction of office quarters shall be

limited to facilities reasonably necessary to meet the foreseeable requirements of the institution. Property shall not

be acquired if it involves, or appears to involve, a bank or association in the real estate or other unrelated business.

[50 FR 48554, Nov. 26, 1985. Redesignated at 58 FR 63056, Nov. 30, 1993, and amended at 60 FR 20011, Apr. 24, 1995]

§ 615.5171 Transfer of capital from banks to associations.

(4) A Farm Credit bank may continue to include the investment as collateral under § 615.5050 at the

lower of cost or market value; and

(5) The institution must develop a plan to reduce the investment's risk to the institution.

(c) Reservation of authority. FCA retains the authority to require the institution to divest of any investment at

any time for failure to comply with § 615.5132(a) or § 615.5140(a), (b), or (e), or for safety and soundness

reasons. The timeframe set by FCA will consider the expected loss on the transaction (or transactions)

and the effect on the institution's financial condition and performance.

(a) Definitions for this section —

(1) Transfer of capital means any payment or forbearance by a Farm Credit Bank or agricultural credit

bank (collectively, bank) to an affiliated association, including but not limited to:

(i) The purchase of nonvoting stock or participation certificates;

(ii) The payment of cash;

(iii) Debt forgiveness or reduction;

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12 CFR 615.5171(a)(1)(iii) (enhanced display) page 23 of 55
[64 FR 49961, Sept. 15, 1999]

§ 615.5172 Production credit association and agricultural credit association investment in

farmers' notes given to cooperatives and dealers.

(iv) Interest rate concessions or interest-free loans;

(v) The transfer of loans at other than fair market value;

(vi) The reduction or elimination of standard loan servicing or other fees; and

(vii) The assumption of operating or other expenses, such as legal fees or insurance premiums.

(2) Preferential transfer of capital means a transfer of capital that is not available to all similarly situated

affiliated associations.

(3) Nonroutine transfer of capital means a transfer of capital that is not available in the ordinary course

of business.

(b) Considerations for preferential or nonroutine transfers of capital. Before authorizing a preferential or

nonroutine transfer of capital, a bank board of directors must take into account and document whether:

(1) The transfer of capital is in the best interests of all of the shareholders;

(2) The bank will be able to achieve its capital adequacy and business plan goals after making the

transfer of capital; and

(3) The transfer of capital is the “least cost” alternative available and will enable the association to

maintain sound, adequate, and constructive service to borrowers.

(c) Notification requirements. At least 30 days before making a preferential or nonroutine transfer of capital to

an affiliated association, banks must provide shareholders and the Chief Examiner of the Farm Credit

Administration with a description of the transfer and the documentation required by paragraph (b) of this

section.

(a) In accordance with policies prescribed by the board of directors of the Farm Credit Bank or agricultural

credit bank and each production credit association and agricultural credit association (hereinafter

association(s)), such association(s) may invest in notes, conditional sales contracts, and other similar

obligations given to cooperatives and private dealers by farmers and ranchers eligible to borrow from

such associations.

(b) Such notes and other obligations evidencing purchases of farm machinery, supplies, equipment, home

appliances, and other items of a capital nature handled by cooperatives and private dealers will be eligible

for purchase as investments.

(c) The total amount which an association may invest in such obligations at any one time shall not exceed 15

percent of the balance of its loans outstanding at the close of the association's preceding fiscal year. In

addition, the total amount which an association may invest in such obligations that are originated by any

one cooperative or private dealer, at any one time, shall not exceed 50 percent of association capital and

surplus.

(d) All notes in which an association invests shall be endorsed with full recourse against the cooperative or

dealer. The association shall contact each notemaker who meets the association's credit standards to

encourage him to become a borrower.

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12 CFR 615.5172(d) (enhanced display) page 24 of 55
[54 FR 1158, Jan. 12, 1989, as amended at 55 FR 24888, June 19, 1990; 55 FR 38313, Sept. 18, 1990. Redesignated at 58 FR

63056, Nov. 30, 1993]

§ 615.5173 Stock of the Federal Agricultural Mortgage Corporation.

Banks and associations of the Farm Credit System are authorized to purchase and hold Class B common stock of

the Federal Agricultural Mortgage Corporation pursuant to section 8.4 of the Farm Credit Act.

[58 FR 63058, Nov. 30, 1993]

§ 615.5174 Farmer Mac securities.

(a) General authority. You may purchase and hold mortgage securities that are issued or guaranteed as to

both principal and interest by the Federal Agricultural Mortgage Corporation (Farmer Mac securities). You

may purchase and hold Farmer Mac securities for the purposes of managing credit and interest rate risks,

and furthering your mission to finance agriculture. The total value of your Farmer Mac securities cannot

exceed your total outstanding loans, as defined by § 615.5131.

(b) Board and management responsibilities. Your board of directors must adopt written policies that will

govern your investments in Farmer Mac securities. All delegations of authority to specified personnel or

committees must state the extent of management's authority and responsibilities for managing your

investments in Farmer Mac securities. The board of directors must also ensure that appropriate internal

controls are in place to prevent loss, in accordance with § 615.5133(e). Management must submit

quarterly reports to the board of directors on the performance of all investments in Farmer Mac

securities. Annually, your board of directors must review these policies and the performance of your

Farmer Mac securities and make any changes that are needed.

(c) Policies. Your board of directors must establish investment policies for Farmer Mac securities that include

your:

(1) Objectives for holding Farmer Mac securities.

(2) Credit risk parameters including:

(i) The quantities and types of Farmer Mac mortgage securities that are collateralized by qualified

agricultural mortgages, rural home loans, and loans guaranteed by the Farm Service Agency.

(ii) Product and geographic diversification for the loans that underlie the security; and

(iii) Minimum pool size, minimum number of loans in each pool, and maximum allowable premiums

or discounts on these securities.

(3) Liquidity risk tolerance and the liquidity characteristics of Farmer Mac securities that are suitable to

meet your institutional objectives. A bank may not include Farmer Mac mortgage securities in the

liquidity reserve maintained to comply with § 615.5134.

(4) Market risk limits based on the effects that the Farmer Mac securities have on your capital and

earnings.

(d) Stress test. You must perform stress tests, in accordance with § 615.5133(h)(1)(iii) and (h)(4), on

mortgage securities, issued or guaranteed by Farmer Mac, that are backed by loans that you did not

originate.

(e) You. Means a Farm Credit bank, association, or service corporation.

12 CFR Part 615 (up to date as of 3/07/2024)

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding... 12 CFR 615.5173

12 CFR 615.5174(e) (enhanced display) page 25 of 55
[64 FR 28899, May 28, 1999, as amended at 70 FR 51590, Aug. 31, 2005; 77 FR 66374, Nov. 5, 2012; 83 FR 27503, June 12, 2018]

§ 615.5175 Investments in Farm Credit System institution preferred stock.

Except as provided for in § 615.5171, Farm Credit banks, associations and service corporations may only purchase

preferred stock issued by another Farm Credit System institution, including the Federal Agricultural Mortgage

Corporation, with the written prior approval of the Farm Credit Administration. The request for approval should

explain the terms and risk characteristics of the investment and the purpose and objectives for making the

investment.

[70 FR 53908, Sept. 13, 2005]

Subpart G—Risk Assessment and Management

Source: 63 FR 39225, July 22, 1998, unless otherwise noted.

§ 615.5180 Bank interest rate risk management program.

(a) The board of directors of each Farm Credit bank must develop, implement, and effectively oversee an

interest rate risk management program tailored to the needs of the institution. The program must

establish a risk management process that effectively identifies, measures, monitors, and controls interest

rate risk. The board of directors of each Farm Credit bank must be knowledgeable of the nature and level

of interest rate risk taken by the institution.

(b) Senior management is responsible for ensuring that interest rate risk is properly managed on both a longrange and a day-to-day basis.

(c) The board of directors of each Farm Credit bank must adopt an interest rate risk management section of

an asset/liability management policy that establishes interest rate risk exposure limits as well as the

criteria to determine compliance with these limits. At a minimum, the interest rate risk management

section must establish policies and procedures for the bank to:

(1) Address the purpose and objectives of interest rate risk management;

(2) Identify and analyze the causes of risks within its existing balance sheet structure;

(3) Measure the potential effect of these risks on projected earnings and market values by conducting

interest rate shock tests and simulations of multiple economic scenarios at least on a quarterly

basis and by considering the effect of investments on interest rate risk based on the results of the

stress testing required under § 615.5133(h)(4);

(4) Describe and implement actions needed to obtain its desired risk management objectives;

(5) Identify exception parameters and approvals needed for any exceptions to the requirements of the

board's policies;

(6) Describe delegations of authority;

(7) Describe reporting requirements, including exceptions to limits contained in the board's policies;

(8) Consider the nature and purpose of derivative contracts and establish counterparty risk thresholds

and limits for derivatives.

12 CFR Part 615 (up to date as of 3/07/2024)

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12 CFR 615.5180(c)(8) (enhanced display) page 26 of 55
[77 FR 66374, Nov. 5, 2012, as amended at 83 FR 27503, June 12, 2018]

§ 615.5182 Interest rate risk management by associations and other Farm Credit System

institutions other than banks.

Any association or other Farm Credit System institution other than Farm Credit banks, excluding the Federal

Agricultural Mortgage Corporation, with interest rate risk that could lead to significant declines in net income or in

the market value of capital must comply with the requirements of § 615.5180. The interest rate risk management

program required under § 615.5180 must be commensurate with the level of interest rate risk of the institution.

[77 FR 66375, Nov. 5, 2012]

Subpart H—Capital Adequacy

Source: 53 FR 39247, Oct. 6, 1988, unless otherwise noted.

§ 615.5200 Capital planning.

(d) At least quarterly, management of each Farm Credit bank must report to its board of directors, or a

designated committee of the board, describing the nature and level of interest rate risk exposure. Any

deviations from the board's policy on interest rate risk must be specifically identified in the report and

approved by the board or designated committee of the board.

(a) The Board of Directors of each System institution shall determine the amount of regulatory capital needed

to assure the System institution's continued financial viability and to provide for growth necessary to meet

the needs of its borrowers. The minimum capital standards specified in this part and part 628 of this

chapter are not meant to be adopted as the optimal capital level in the System institution's capital

adequacy plan. Rather, the standards are intended to serve as minimum levels of capital that each System

institution must maintain to protect against the credit and other general risks inherent in its operations.

(b) Each Board of Directors shall establish, adopt, and maintain a formal written capital adequacy plan as a

part of the financial plan required by § 618.8440 of this chapter. The plan shall include the capital targets

that are necessary to achieve the System institution's capital adequacy goals as well as the minimum

permanent capital, common equity tier 1 (CET1) capital, tier 1 capital, total capital, and tier 1 leverage

ratios (including the unallocated retained earnings (URE) and URE equivalents minimum) standards. The

plan shall expressly acknowledge the continuing and binding effect of all board resolutions adopted in

accordance with § 628.20(b)(1)(xiv), (c)(1)(xiv), and (d)(1)(xi) of this chapter, and with § 628.21 of this

chapter. The plan shall address any projected dividend payments, patronage payments, equity

retirements, or other action that may decrease the System institution's capital or the components thereof

for which minimum amounts are required by this part and part 628 of this chapter. The plan shall set forth

the circumstances and minimum timeframes in which equities may be redeemed or revolved consistent

with the System institution's applicable bylaws or board of directors' resolutions.

(c) In addition to factors that must be considered in meeting the minimum standards, the board of directors

shall also consider at least the following factors in developing the capital adequacy plan:

(1) Capability of management and the board of directors (the assessment of which may be a part of the

assessments required in paragraphs (b)(2)(ii) and (b)(7)(i) of § 618.8440 of this chapter);

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12 CFR 615.5200(c)(1) (enhanced display) page 27 of 55
[86 FR 54356, Oct. 1, 2021, as amended at 87 FR 27492, May 9, 2022]

§ 615.5201 Definitions.

For the purpose of this subpart, the following definitions apply:

(2) Quality of operating policies, procedures, and internal controls;

(3) Quality and quantity of earnings;

(4) Asset quality and the adequacy of the allowance for credit losses to absorb potential loss within the

loan and lease portfolios;

(5) Sufficiency of liquid funds;

(6) Needs of a System institution's customer base; and

(7) Any other risk-oriented activities, such as funding and interest rate risks, potential obligations under

joint and several liability, contingent and off-balance-sheet liabilities or other conditions warranting

additional capital.

Allocated investment means earnings allocated but not paid in cash by a System bank to an association or other

recipient.

Deferred tax assets (DTAs) means an amount of income taxes refundable or recoverable in future years as a

result of temporary differences and net operating loss or tax credit carryforwards that exist at the

reporting date. There are three types of DTAs and they arise from:

(1) A temporary difference that a System institution could realize through a net loss carryback;

(2) A temporary difference that a System institution could not realize through net loss carryback; and

(3) An operating loss and tax credit carryforward.

Nonagreeing association means an association that does not have an allotment agreement in effect with a Farm

Credit Bank or agricultural credit bank pursuant to § 615.5207(b)(2).

Permanent capital, subject to adjustments as described in § 615.5207, includes:

(1) Current year earnings;

(2) Allocated and unallocated earnings (which, in the case of earnings allocated in any form by a System

bank to any association or other recipient and retained by the bank, must be considered, in whole or

in part, permanent capital of the bank or of any such association or other recipient as provided under

an agreement between the bank and each such association or other recipient);

(3) All surplus;

(4) Stock issued by a System institution, except:

(i) Stock that may be retired by the holder of the stock on repayment of the holder's loan, or

otherwise at the option or request of the holder;

(ii) Stock that is protected under section 4.9A of the Act or is otherwise not at risk;

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12 CFR 615.5201 “Permanent capital” (4)(ii) (enhanced display) page 28 of 55
[81 FR 49773, July 28, 2016, as amended at 86 FR 54356, Oct. 1, 2021; 87 FR 27492, May 9, 2022]

§ 615.5205 Minimum permanent capital standards.

Each institution shall at all times maintain permanent capital at a level of at least 7 percent of its risk-adjusted asset

base.

[62 FR 4446, Jan. 30, 1997]

(iii) Farm Credit Bank equities required to be purchased by Federal land bank associations in

connection with stock issued to borrowers that is protected under section 4.9A of the Act;

(iv) Capital subject to revolvement, unless:

(A) The bylaws of the System institution clearly provide that there is no express or implied

right for such capital to be retired at the end of the revolvement cycle or at any other time;

and

(B) The System institution clearly states in the notice of allocation that such capital may only

be retired at the sole discretion of the board of directors in accordance with statutory and

regulatory requirements and that the institution does not grant any express or implied right

to have such capital retired at the end of the revolvement cycle or at any other time;

(5) [Reserved]

(6) Financial assistance provided by the Farm Credit System Insurance Corporation that the FCA

determines appropriate to be considered permanent capital; and

(7) Any other debt or equity instruments or other accounts the FCA has determined are appropriate to be

considered permanent capital. The FCA may permit one or more System institutions to include all or

a portion of such instrument, entry, or account as permanent capital, permanently or on a temporary

basis, for purposes of this part.

Preferred stock means stock that is permanent capital and has dividend and/or liquidation preference over

common stock.

Risk-adjusted asset base means “standardized total risk-weighted assets” as defined in § 628.2 of this chapter,

adjusted in accordance with § 615.5207 and excluding the deduction in paragraph (2) of that definition for

the amount of the System institution's adjusted allowance for credit losses that is not included in tier 2

capital.

Stock means stock and participation certificates.

System bank means a Farm Credit bank as defined in § 619.9140 of this chapter, which includes Farm Credit

Banks, agricultural credit banks, and banks for cooperatives.

System institution means a System bank, an association of the Farm Credit System, and their successors, and

any other institution chartered by the Farm Credit Administration (FCA) that the FCA determines should be

considered a System institution for the purposes of this subpart.

Term preferred stock means preferred stock with an original maturity of at least 5 years and on which, if

cumulative, the board of directors has the option to defer dividends, provided that, at the beginning of

each of the last 5 years of the term of the stock, the amount that is eligible to be counted as permanent

capital is reduced by 20 percent of the original amount of the stock (net of redemptions).

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12 CFR 615.5205 (enhanced display) page 29 of 55
§ 615.5206 Permanent capital ratio computation.

[81 FR 49774, July 28, 2016]

§ 615.5207 Capital adjustments and associated reductions to assets.

For the purpose of computing the System institution's permanent capital ratio, the following adjustments must be

made prior to assigning assets to risk-weight categories and computing the ratio:

(a) The System institution's permanent capital ratio is determined on the basis of the financial statements of

the System institution prepared in accordance with generally accepted accounting principles.

(b) The System institution's asset base and permanent capital are computed using average daily balances for

the most recent 3 months.

(c) The System institution's permanent capital ratio is calculated by dividing the System institution's

permanent capital, adjusted in accordance with § 615.5207 (the numerator), by the risk-adjusted asset

base (the denominator) as defined in § 615.5201, to derive a ratio expressed as a percentage.

(a) Where two System institutions have stock investments in each other, such reciprocal holdings must be

eliminated to the extent of the offset. If the investments are equal in amount, each System institution

must deduct from its assets and its permanent capital an amount equal to the investment. If the

investments are not equal in amount, each System institution must deduct from its permanent capital and

its assets an amount equal to the smaller investment. The elimination of reciprocal holdings required by

this paragraph must be made prior to making the other adjustments required by this section.

(b) Where an association has an equity investment in a System bank, the double counting of capital is

eliminated in the following manner:

(1) For a purchased investment, each association must deduct its investment in a System bank from its

permanent capital. Each System bank will consider all purchased stock investments as its

permanent capital.

(2) For an allocated investment, each System bank and each of its affiliated associations may enter into

an agreement that specifies, for computing permanent capital only, a dollar amount and/or

percentage allotment of the association's allocated investment between the bank and the

association. Section 615.5208 provides conditions for allotment agreements or defines allotments in

the absence of such agreements.

(c) A Farm Credit Bank or agricultural credit bank and a recipient, other than an affiliated association, of

allocated earnings from such bank may enter into an agreement specifying a dollar amount and/or

percentage allotment of the recipient's allocated earnings in the bank between the bank and the recipient.

Such agreement must comply with § 615.5208, except that, in the absence of an agreement, the allocated

investment must be allotted 100 percent to the allocating bank and 0 percent to the recipient. All equities

of the bank that are purchased by a recipient are considered as permanent capital of the issuing bank.

(d) A bank for cooperatives and a recipient of allocated earnings from such bank may enter into an

agreement specifying a dollar amount and/or percentage allotment of the recipient's allocated earnings in

the bank between the bank and the recipient. Such agreement must comply with § 615.5208, except that,

in the absence of an agreement, the allocated investment must be allotted 100 percent to the allocating

bank and 0 percent to the recipient. All equities of a bank that are purchased by a recipient shall be

considered as permanent capital of the issuing bank.

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12 CFR 615.5207(d) (enhanced display) page 30 of 55
[81 FR 49774, July 28, 2016]

§ 615.5208 Allotment of allocated investments.

(e) Where a System institution has an equity investment in another System institution to capitalize a loan

participation interest, the investing System institution must deduct from its permanent capital an amount

equal to its investment in the participating System institution.

(f) Each System institution must deduct from permanent capital any equity investment in a service

corporation chartered under section 4.25 of the Act or the Funding Corporation chartered under section

4.9 of the Act.

(g) Each System institution must deduct from its permanent capital an amount equal to all goodwill,

whenever acquired.

(h) Each System institution must deduct from its risk-adjusted asset base any item deducted from permanent

capital under this section.

(i) Where a System bank and an association have an enforceable written agreement to share losses on

specifically identified assets on a predetermined quantifiable basis, such assets must be counted in each

System institution's risk-adjusted asset base in the same proportion as the System institutions have

agreed to share the loss.

(j) The permanent capital of a System institution must exclude any accumulated other comprehensive

income (loss) as reported under GAAP.

(k) For purposes of calculating capital ratios under this part, deferred-tax assets are subject to the conditions,

limitations, and restrictions described in § 628.22(a)(3) of this chapter.

(l) [Reserved]

(a) The following conditions apply to agreements that a System bank enters into with an affiliated association

pursuant to § 615.5207(b)(2):

(1) The agreement must be for a term of 1 year or longer.

(2) The agreement must be entered into on or before its effective date.

(3) The agreement may be amended according to its terms, but no more frequently than annually except

in the event that a party to the agreement is merged or reorganized.

(4) On or before the effective date of the agreement, a certified copy of the agreement, and any

amendments thereto, must be sent to the field office of the Farm Credit Administration responsible

for examining the System institution. A copy must also be sent within 30 calendar days of adoption

to the bank's other affiliated associations.

(5) Unless the parties otherwise agree, if the System bank and the association have not entered into a

new agreement on or before the expiration of an existing agreement, the existing agreement will

automatically be extended for another 12 months, unless either party notifies the Farm Credit

Administration in writing of its objection to the extension prior to the expiration of the existing

agreement.

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12 CFR 615.5208(a)(5) (enhanced display) page 31 of 55
[81 FR 49774, July 28, 2016]

(b) In the absence of an agreement between a System bank and one or more associations, or in the event that

an agreement expires and at least one party has timely objected to the continuation of the terms of its

agreement, the following formula applies with respect to the allocated investments held by those

associations with which there is no agreement (nonagreeing associations), and does not apply to the

allocated investments held by those associations with which the bank has an agreement (agreeing

associations):

(1) The allotment formula must be calculated annually.

(2) The permanent capital ratio of the System bank must be computed as of the date that the existing

agreement terminates, using a 3-month average daily balance, excluding the allocated investment

from nonagreeing associations but including any allocated investments of agreeing associations

that are allotted to the bank under applicable allocation agreements. The permanent capital ratio of

each nonagreeing association must be computed as of the same date using a 3-month average daily

balance, and must be computed excluding its allocated investment in the bank.

(3) If the permanent capital ratio of the System bank calculated in accordance with paragraph (b)(2) of

this section is 7 percent or above, the allocated investment of each nonagreeing association whose

permanent capital ratio calculated in accordance with paragraph (b)(2) of this section is 7 percent or

above must be allotted 50 percent to the bank and 50 percent to the association.

(4) If the permanent capital ratio of the System bank calculated in accordance with paragraph (b)(2) of

this section is 7 percent or above, the allocated investment of each nonagreeing association whose

capital ratio is below 7 percent must be allotted to the association until the association's capital ratio

reaches 7 percent or until all of the investment is allotted to the association, whichever occurs first.

Any remaining unallotted allocated investment must be allotted 50 percent to the bank and 50

percent to the association.

(5) If the permanent capital ratio of the System bank calculated in accordance with paragraph (b)(2) of

this section is less than 7 percent, the amount of additional capital needed by the bank to reach a

permanent capital ratio of 7 percent must be determined, and an amount of the allocated investment

of each nonagreeing association must be allotted to the System bank, as follows:

(i) If the total of the allocated investments of all nonagreeing associations is greater than the

additional capital needed by the bank, the allocated investment of each nonagreeing

association must be multiplied by a fraction whose numerator is the amount of capital needed

by the bank and whose denominator is the total amount of allocated investments of the

nonagreeing associations, and such amount must be allotted to the bank. Next, if the

permanent capital ratio of any nonagreeing association is less than 7 percent, a sufficient

amount of unallotted allocated investment must then be allotted to each nonagreeing

association, as necessary, to increase its permanent capital ratio to 7 percent, or until all such

remaining investment is allotted to the association, whichever occurs first. Any unallotted

allocated investment still remaining must be allotted 50 percent to the bank and 50 percent to

the nonagreeing association.

(ii) If the additional capital needed by the bank is greater than the total of the allocated investments

of the nonagreeing associations, all of the remaining allocated investments of the nonagreeing

associations must be allotted to the bank.

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12 CFR 615.5208(b)(5)(ii) (enhanced display) page 32 of 55
§§ 615.5209-615.5212 [Reserved]

§ 615.5215 Distribution of earnings.

The boards of directors of System institutions may not reduce the permanent capital of the institution through the

payment of patronage refunds or dividends, or the retirement of stock or allocated equities except retirements

pursuant to §§ 615.5280 and 615.5290 if, after or due to the action, the permanent capital of the institution would

fail to meet the minimum permanent capital adequacy standard established under § 615.5205 for that period. This

limitation shall not apply to the payment of noncash patronage refunds by any institution exempt from Federal

income tax if the entire refund paid qualifies as permanent capital at the issuing institution. Any System institution

subject to Federal income tax may pay patronage refunds partially in cash if the cash portion of the refund is the

minimum amount required to qualify the refund as a deductible patronage distribution for Federal income tax

purposes and the remaining portion of the refund paid qualifies as permanent capital.

[53 FR 39247, Oct. 6, 1988, as amended at 53 FR 40046, Oct. 13, 1988]

§ 615.5216 [Reserved]

Subpart I—Issuance of Equities

Source: 53 FR 40046, Oct. 13, 1988, unless otherwise noted.

§ 615.5220 Capitalization bylaws.

(a) The board of directors of each System bank and association shall, pursuant to section 4.3A of the Farm

Credit Act of 1971 (Act), adopt capitalization bylaws, subject to the approval of its voting shareholders,

that set forth:

(1) Classes of equities and the manner in which they shall be issued, transferred, converted and retired;

(2) For each class of equities, a description of the class(es) of persons to whom such stock may be

issued, voting rights, dividend rights and preferences, and priority upon liquidation, including rights, if

any, to share in the distribution of the residual estate;

(3) The number of shares and par value of equities authorized to be issued for each class of equities.

However, the bylaws need not state a number or value limit for these equities:

(i) Equities that are required to be purchased as a condition of obtaining a loan, lease, or related

service.

(ii) Non-voting stock resulting from the conversion of voting stock due to repayment of a loan.

(iii) Non-voting equities that are issued to an association's funding bank in conjunction with any

agreement for a transfer of capital between the association and the bank.

(iv) Equities resulting from the distribution of earnings.

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12 CFR 615.5220(a)(3)(iv) (enhanced display) page 33 of 55
[81 FR 49775, July 28, 2016, as amended at 86 FR 54357, Oct. 1, 2021]

§ 615.5230 Implementation of cooperative principles.

(4) For Farm Credit Banks, agricultural credit banks (with respect to loans other than to cooperatives),

and associations, the percentage or dollar amount of equity investment (which may be expressed as

a range within which the board of directors may from time to time determine the requirement) that

will be required to be purchased as a condition for obtaining a loan, which amount shall be not less

than 2 percent of the loan amount or $1,000, whichever is less;

(5) For banks for cooperatives and agricultural credit banks (with respect to loans to cooperatives), the

percentage or dollar amount of equity or guaranty fund investment (which may be expressed as a

range within which the board may from time to time determine the requirement) that serves as a

target level of investment in the bank for patronage-sourced business, which amount shall not be

less than, 2 percent of the loan amount or $1,000, whichever is less;

(6) The manner in which equities will be retired, including a provision stating that equities other than

those protected under section 4.9A of the Act are retireable at the sole discretion of the board,

provided minimum capital adequacy standards established by the Farm Credit Administration, and

the capital requirements established by the board of directors of the System institution, are met;

(7) The manner in which earnings will be allocated and distributed, including the basis on which

patronage will be paid, which shall be in accord with cooperative principles; and

(8) For System banks, the manner in which the capitalization requirements of the Farm Credit bank shall

be allocated and equalized from time to time among its owners.

(b) The board of directors of each service corporation (including the Farm Credit Leasing Services

Corporation) shall adopt capitalization bylaws, subject to the approval of its voting shareholders, that set

forth the requirements of paragraphs (a)(1), (2), and (3) of this section to the extent applicable. Such

bylaws shall also set forth the manner in which equities will be retired and the manner in which earnings

will be distributed.

(a) Voting stockholders of Farm Credit banks and associations shall be accorded full voting rights in

accordance with cooperative principles, including those set forth in § 611.350 of this chapter. Except as

otherwise required by statute or regulation, and except as modified by paragraphs (b) and (c) of this

section, the voting rights of each voting shareholder are as follows:

(1) Each voting stockholder of a Farm Credit Bank has only one vote that is assigned a weight

proportional to the number of that association's voting stockholders and has the right to vote in the

election of each stockholder-elected director and to cumulate such votes and distribute them among

the candidates in the stockholder's discretion, except that cumulative voting for directors may be

eliminated if 75 percent of the associations that are stockholders of the Farm Credit Bank vote in

favor of elimination. In a vote to eliminate cumulative voting, each association shall be accorded one

vote.

(2) Each voting stockholder of an agricultural credit bank has only one vote, unless another voting

scheme has been approved by the Farm Credit Administration.

(3) Each voting stockholder of an association or bank for cooperatives has only one vote, regardless of

the number of shares owned or the number of loans outstanding. Unless regional election of

directors is provided for in the bylaws pursuant to § 615.5230(b), each voting stockholder of an

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12 CFR 615.5230(a)(3) (enhanced display) page 34 of 55
association or bank for cooperatives has the right to vote in the election of each stockholder-elected

director. Unless otherwise provided in the capitalization bylaws, each voting stockholder of an

association or bank for cooperatives is allowed to cumulate such votes and distribute them among

the candidates in the stockholder's discretion. Cumulative voting is not allowed in the regional

election of stockholder-elected directors.

(b) The regional election of stockholder-elected directors is only permitted under the following conditions:

(1) A bylaw establishing regional elections is approved by a majority of voting stockholders, voting in

person or by proxy, prior to implementation.

(2) The bylaw provides that the use of regional election of stockholder-elected directors does not

prevent all voting stockholders of the institution, regardless of the region where they reside or

conduct agricultural or aquatic operations, from voting in any stockholder vote to remove a director.

(3) There are an approximately equal number of voting stockholders in each of the institution's voting

regions. Regions will have an approximately equal number of voting stockholders if the number of

voting stockholders in any one region does not exceed the number of voting stockholders in any

other region by more than 25 percent. At least once every 3 years, the institution must count the

number of voting stockholders in each region and, if the regions do not have an approximately equal

number of stockholders, the regional boundaries must be adjusted to achieve such result.

(4) An institution may provide for more than one director to represent a region. Institutions providing for

more than one director to represent a region will determine the equitability of the regions by dividing

the number of voting stockholders in that region by the number of director positions representing

that region, and the resulting quotient shall be the number that is compared to the number of voting

stockholders in other regions.

(5) Each voting stockholder is accorded the right to vote in the election of each stockholder-elected

director for his or her region.

(c) Each equityholder of each institution shall be equitably treated in the operation of the institution.

(1) Each issuance of preferred stock (other than preferred stock outstanding on October 5, 1988, and

stock into which such outstanding stock is converted that has substantially similar preferences)

shall be approved by a majority of the shares voting of each class of equities adversely affected by

the preference, voting as a class, whether or not such classes are otherwise authorized to vote;

(2) Any dividends paid to the holders of common stock and participation certificates shall be on a per

share basis and without preference as to rate or priority of payment between classes of common

stock, between classes of participation certificates, between classes of common stock and classes

of participation certificates, or between holders of the same class of stock or participation

certificates, except that any class of common stock or participation certificates that result from the

conversion of allocated surplus may be subordinated to other classes of common stock and

participation certificates in the payment of dividends.

(3) Any patronage refunds that are paid shall be paid in accordance with cooperative principles, on an

equitable and nondiscriminatory basis determined by the board of directors in accordance with the

capitalization bylaws, provided that any earning pools that may be established for the payment of

patronage shall be established on a rational and equitable basis that will ensure that each patron of

the institution receives its fair share of the earnings of the institution and bears its fair share of the

expenses of the institution.

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12 CFR 615.5230(c)(3) (enhanced display) page 35 of 55
[53 FR 40046, Oct. 13, 1988, as amended at 54 FR 6118, Feb. 8, 1989; 60 FR 57921, Nov. 24, 1995; 62 FR 4446, Jan. 30, 1997; 62

FR 49908, Sept. 24, 1997; 63 FR 39228, July 22, 1998; 70 FR 53908, Sept. 13, 2005; 71 FR 5763, Feb. 2, 2006; 75 FR 18743, Apr.

12, 2010]

§ 615.5240 Regulatory capital requirements.

[81 FR 49776, July 28, 2016]

§ 615.5245 Limitations on association preferred stock.

[70 FR 53908, Sept. 13, 2005]

§ 615.5250 Disclosure requirements for sales of borrower stock.

(4) All classes of common stock and participation certificates (except those resulting from a conversion

of allocated surplus) must be accorded the same priority with respect to impairment and restoration

of impairment and have the same rights and priority upon liquidation.

(a) The capitalization bylaws shall enable the institution to meet the capital adequacy standards established

under subpart H of this part, part 628 of this chapter, and the capital requirements established by the

board of directors of the System institution.

(b) In order to qualify as permanent capital, equities issued under the bylaws must meet the following

requirements:

(1) Retirement must be solely at the discretion of the board of directors and not upon a date certain

(other than the original maturity date of preferred stock) or upon the happening of any event, such as

repayment of the loan, and not pursuant to any automatic retirement or revolvement plan;

(2) Retirement must be at not more than book value;

(3) The institution must have made the disclosures required by this subpart;

(4) For common stock and participation certificates, dividends must be noncumulative and payable only

at the discretion of the board; and

(5) For cumulative preferred stock, the board of directors must have discretion to defer payment of

dividends.

(a) The board of directors of each association offering preferred stock must adopt a policy that addresses

the association's conditions or limits on the amount of preferred stock that any one holder, or small

number of holders may acquire.

(b) Each association offering preferred stock must make the stock available for purchase to each of its

members on the same basis.

(c) An association may not extend credit for purchases of preferred stock in the association.

(a) For sales of borrower stock, which for this subpart means equities purchased as a condition for obtaining

a loan, a System institution must provide a prospective borrower with the following documents prior to

loan closing:

(1) The institution's most recent annual report filed under part 620 of this chapter;

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12 CFR 615.5250(a)(1) (enhanced display) page 36 of 55
[81 FR 49776, July 28, 2016]

§ 615.5255 Disclosure and review requirements for sales of other equities.

(2) The institution's most recent quarterly report filed under part 620 of this chapter, if more recent than

the annual report;

(3) A copy of the institution's capitalization bylaws; and

(4) A written description of the terms and conditions under which the equity is issued. In addition to

specific terms and conditions, the description must disclose:

(i) That the equity is an at-risk investment and not a compensating balance;

(ii) That the equity is retireable only at the discretion of the board of directors consistent with the

institution's bylaws and only if minimum capital standards established under subpart H of this

part and part 628 of this chapter are met and that such retirement may also require the

approval of the FCA;

(iii) Whether the institution presently meets its minimum capital standards established under

subpart H of this part and part 628 of this chapter;

(iv) Whether the institution knows of any reason the institution may not meet its capital standards

on the next earnings distribution date; and

(v) The rights, if any, to share in patronage payments.

(b) Notwithstanding the provisions of paragraph (a) of this section, no materials previously provided to a

purchaser (except the disclosures required by paragraph (a)(4) of this section) need be provided again

unless the purchaser requests such materials.

(a) A bank, association, or service corporation must submit a proposed disclosure statement to the Farm

Credit Administration (FCA) for review and clearance prior to the proposed sale of any other equities,

which for this subpart means equities not purchased as a condition for obtaining a loan.

(b) An institution may not offer to sell other equities until a disclosure statement is reviewed and cleared by

the FCA.

(c) A disclosure statement must include:

(1) All of the information required by parts 620 and 628 of this chapter in the annual report to

shareholders as of a date within 135 days of the proposed sale. An institution may satisfy this

requirement by referring to its most recent annual report to shareholders and the most recent

quarterly report filed with the FCA, provided such reports contain the required information;

(2) The information required by § 615.5250(a)(3) and (4); and

(3) A discussion of the intended use of the sale proceeds.

(d) An institution is not required to provide the materials identified in paragraphs (c)(1) and (2) of this section

to a purchaser who previously received them unless the purchaser requests it.

(e) For any class of stock where each purchaser and each subsequent transferee acquires at least $250,000

of the stock and meets the definition of “accredited investor” or “qualified institutional buyer” contained in

17 CFR 230.501 and 230.144A, a disclosure statement submitted pursuant to this section is deemed

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12 CFR 615.5255(e) (enhanced display) page 37 of 55
[81 FR 49776, July 28, 2016]

Subpart J—Retirement of Equities and Payment of Dividends

§ 615.5260 Retirement of eligible borrower stock.

reviewed and cleared by the FCA and an institution may treat stock that meets all requirements of this

part as permanent capital for the purpose of meeting the minimum permanent capital standards

established under subpart H of this part, unless the FCA notifies the institution to the contrary within 30

days of receipt of a complete disclosure statement submission. A complete disclosure statement

submission includes the proposed disclosure statement plus any additional materials requested by the

FCA.

(f) For all other issuances, a disclosure statement submitted pursuant to this section is deemed cleared by

the FCA, and an institution may treat stock that meets all requirements of this part as permanent capital

for the purpose of meeting the minimum permanent capital standards established under subpart H

unless the FCA notifies the institution to the contrary within 60 days of receipt of a complete disclosure

statement submission. A complete disclosure statement submission includes the proposed disclosure

statement plus any additional materials requested by the FCA.

(g) Upon request, the FCA will inform the institution how it will treat the proposed issuance for other

regulatory capital ratios or computations.

(h) No institution, officer, director, employee, or agent shall, in connection with the sale of equities, make any

disclosure, through a disclosure statement or otherwise, that is inaccurate or misleading, or omit to make

any statement needed to prevent other disclosures from being misleading.

(i) Each bank and association must establish a method to disclose and make information on insider

preferred stock purchases and retirements readily available to the public. At a minimum, each institution

offering preferred stock must make this information available upon request.

(j) The requirements of this section do not apply to the sale of Farm Credit System institution equities to:

(1) Other Farm Credit System institutions;

(2) Other financing institutions in connection with a lending or discount relationship; or

(3) Non-Farm Credit System lenders that purchase equities in connection with a loan participation

transaction.

(k) In addition to the requirements of this section, each institution is responsible for ensuring its compliance

with all applicable Federal and state securities laws.

(a) Definitions. For the purposes of this subpart the following definitions shall apply:

(1) Eligible borrowers stock means:

(i) Stock, participation certificates or allocated equities outstanding on January 6, 1988, or

purchased as a condition of obtaining a loan prior to the earlier of the date of shareholder

approval of capitalization bylaws under section 4.3A of the Act or October 6, 1988; and

(ii) Any stock, participation certificates or allocated equities for which such eligible borrower stock

is exchanged in connection with a merger, consolidation, or other reorganization or a transfer of

territory. Eligible borrower stock does not include equities for which eligible borrower stock is

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12 CFR 615.5260(a)(1)(ii) (enhanced display) page 38 of 55
[53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 62 FR 4447, Jan. 30, 1997; 63 FR 39228, July 22, 1998]

§ 615.5270 Retirement of other equities.

required to be exchanged pursuant to the bylaws adopted under section 4.3A or equities for

which eligible borrower stock is voluntarily exchanged except in connection with a merger,

consolidation or other reorganization or a transfer of territory.

(2) Retirement in the ordinary course of business means:

(i) Retirement upon repayment of a loan or under a retirement or revolvement plan in effect prior to

January 6, 1988, and for eligible borrower stock issued after that date, at the time the loan was

made; or

(ii) Retirement pursuant to §§ 615.5280 and 615.5290.

(3) Par value means:

(i) In the case of stock, par value;

(ii) In the case of participation certificates and other equities, face or equivalent value; or

(iii) In the case of participation certificates and allocated surplus subject to retirement under a

revolving cycle and retired out or order pursuant to §§ 615.5280 and 615.5290 or otherwise

under the Act, par or face value discounted at a rate determined by the institution to reflect the

present value of the equity as of the date of such retirement.

(b) When an institution retires eligible borrower stock in the ordinary course of business, such equities shall

be retired at par, even if book value is less than par.

(c) When a Farm Credit Bank retires stock for the sole purpose of enabling an association to retire eligible

borrower stock that was issued in connection with a long term real estate loan, such stock shall be retired

at par even if its book value is less than par.

(a) Equities other than eligible borrower stock shall be retired at not more than their book value.

(b) Subject to the redemption restrictions in part 628 of this chapter, no equities shall be retired, except

pursuant to §§ 615.5280 and 615.5290 or term stock at its stated maturity, unless after retirement the

institution would continue to meet the minimum permanent capital standards established under subpart

H of this part, part 628 of this chapter, and the capital requirements established by the board of directors

of the System institution.

(c) A System bank, association, or service corporation board of directors may delegate authority to retire atrisk stock to institution management if:

(1) The board has determined that the institution's capital position is adequate;

(2) All retirements are in accordance with applicable provisions of part 628 of this chapter and the

institution's capital adequacy plan or capital restoration plan;

(3) After any retirements, the institution's permanent capital ratio will be in excess of 9 percent, its

capital conservation buffer set forth in § 628.11 of this chapter will be above 2.5 percent, and its

leverage buffer set forth in § 628.11 of this chapter will be above 1.0 percent;

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[81 FR 49777, July 28, 2016]

§ 615.5280 Retirement in event of default.

(4) The institution will continue to satisfy all applicable regulatory capital standards after any

retirements; and

(5) Management reports the aggregate amount and net effect of stock purchases and retirements to the

board of directors each quarter.

(d) Each board of directors of a System bank, association, or service corporation that issues preferred stock

must adopt a written policy covering the retirement of preferred stock that complies with this paragraph

and part 628 of this chapter. The policy must, at a minimum:

(1) Establish any delegations of authority to retire preferred stock and the conditions of delegation,

which must meet the requirements of paragraph (c) of this section and include minimum levels for

regulatory capital standards as applicable and commensurate with the volatility of the preferred

stock.

(2) Identify limitations on the amount of stock that may be retired during a single quarterly (or shorter)

time period;

(3) Ensure that all stockholder requests for retirement are treated fairly and equitably;

(4) Prohibit any insider, including institution officers, directors, employees, or agents, from retiring any

preferred stock in advance of the release of material non-public information concerning the

institution to other stockholders; and

(5) Establish when insiders may retire their preferred stock.

(e) The institution's board must review its policy at least annually to ensure that it continues to be appropriate

for the institution's current financial condition and consistent with its long-term goals established in its

capital adequacy plan.

(a) When the debt of a holder of eligible borrower stock issued by a production credit association, Federal

land bank association, Federal land credit association or agricultural credit association is in default, such

institution may, but shall not be required to, retire at par eligible borrower stock owned by such borrower

on which the institution has a lien, in total or partial liquidation of the debt.

(b) When the debt of a holder of stock, participation certificates or other equities issued by a production

credit association, Federal land bank association, Federal land credit association or agricultural credit

association is in default, such institution may, but shall not be required to, retire at book value not to

exceed par all or part of such equities, other than eligible borrower stock as defined in § 615.5260(a)(1),

owned by such borrower on which the institution has a lien, in total or partial liquidation of the debt.

(c) When the debt of a holder of equities or guaranty fund certificates issued by a bank for cooperatives or

agricultural credit bank is in default the bank may, but shall not be required to, retire all or part of such

equities qualify or guaranty fund investments owned by the borrower on which the bank has a lien, in total

or partial liquidation of the debt. If such investments qualify as eligible borrower stock, it shall be retired

at par, as defined in § 615.5260(a)(3). All other investments shall be retired at a rate determined by the

institution to reflect its present value on the date of retirement.

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12 CFR 615.5280(c) (enhanced display) page 40 of 55
[53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 61 FR 67187, Dec. 20, 1996; 62 FR 13213, Mar. 19, 1997;

69 FR 10907, Mar. 9, 2004]

§ 615.5290 Retirement of capital stock and participation certificates in event of restructuring.

[81 FR 49777, July 28, 2016]

(d) When the debt of a holder of the equities of a Farm Credit Bank or agricultural credit bank is in default the

bank may, but shall not be required to, retire all or part of such equities owned by the borrower on which

the bank has a lien, in total or partial liquidation of the debt. If such equities qualify as eligible borrower

stock or are retired solely to permit a Federal land bank association to retire eligible borrower stock under

§ 615.5280(a), they shall be retired at par. All other equities shall be retired at book value not to exceed

par.

(e) Any retirements made under this section by a Federal land bank association shall be made only upon the

specific approval of, or in accordance with, approval procedures issued by the association's funding bank.

(f) Prior to making any retirement pursuant to this section, except retirements pursuant to paragraphs (c) and

(d) of this section, the institution shall provide the borrower with written notice of the following matters;

(1) A statement that the institution has declared the borrower's loan to be in default;

(2) A statement that the institution will retire all or part of the equities of the borrower in total or partial

liquidation of his or her loan;

(3) A description of the effect of the retirement on the relationship of the borrower to the institution;

(4) A statement of the amount of the outstanding debt that will be owed to the institution after the

retirement of the borrower's equities; and

(5) The date on which the institution will retire the equities of the borrower.

(g) The notice required by this section shall be provided in person at least 10 days prior to the retirement of

any equities of a holder, or by mailing a copy of the notice by first class mail to the last known address of

the equity holder at least 13 days prior to the retirement of such person's equities.

(h) The requirements of this section may be satisfied by notices given pursuant to §§ 617.7405, 617.7410,

617.7420, and 617.7425 of this chapter that contain the information required by this section.

(a) If a Farm Credit Bank or agricultural credit bank forgives and writes off, under § 617.7415 of this chapter,

any of the principal outstanding on a loan made to any borrower, where appropriate the Federal land bank

association of which the borrower is a member and stockholder shall cancel the same dollar amount of

borrower stock held by the borrower in respect of the loan, up to the total amount of such stock, and to

the extent provided for in the bylaws of the Bank relating to its capitalization, the Farm Credit Bank or

agricultural credit bank shall retire an equal amount of stock owned by the Federal land bank association.

(b) If an association forgives and writes off, under § 617.7415 of this chapter, any of the principal outstanding

on a loan made to any borrower, the association shall cancel the same dollar amount of borrower stock

held by the borrower in respect of the loan, up to the total amount of such loan.

(c) Notwithstanding paragraphs (a) and (b) of this section, the borrower shall be entitled to retain at least one

share of stock to maintain the borrower's membership and voting interest.

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12 CFR 615.5290(c) (enhanced display) page 41 of 55
§ 615.5295 Payment of dividends.

[70 FR 53909, Sept. 13, 2005, as amended at 81 FR 49777, July 28, 2016]

Subpart K [Reserved]

Subpart L—Establishment of Minimum Capital Ratios for an Individual Institution

Source: 62 FR 4448, Jan. 30, 1997, unless otherwise noted.

§ 615.5350 General—Applicability.

(a) The board of directors of a bank, association, or service corporation must declare a dividend on a class of

stock before any dividends may be paid to stockholders.

(b) No bank, association, or service corporation may declare or pay any dividend unless after declaration or

payment of the dividend the institution would continue to meet its regulatory capital standards under this

part.

(c) Each System bank, association, and service corporation must exclude any accrued but unpaid dividends

from regulatory capital computations under this part and part 628 of this chapter.

(a) The rules and procedures specified in this subpart are applicable to a proceeding to establish required

minimum capital ratios that would otherwise be applicable to an institution under §§ 615.5205 and

628.10 of this chapter. The Farm Credit Administration is authorized to establish such minimum capital

requirements for an institution as the Farm Credit Administration, in its discretion, deems to be necessary

or appropriate in light of the particular circumstances of the institution. Proceedings under this subpart

also may be initiated to require an institution having capital ratios greater than those set forth in §

615.5205 or § 628.10 of this chapter to continue to maintain those higher ratios.

(b) The Farm Credit Administration may require higher minimum capital ratios for an individual institution in

view of its circumstances. For example, higher capital ratios may be appropriate for:

(1) An institution receiving special supervisory attention;

(2) An institution that has, or is expected to have, losses resulting in capital inadequacy;

(3) An institution with significant exposure due to operational risk, interest rate risk, the risks from

concentrations of credit, certain risks arising from other products, services, or related activities, or

management's overall inability to monitor and control financial risks presented by concentrations of

credit and related services activities;

(4) An institution exposed to a high volume of, or particularly severe, problem loans;

(5) An institution that is growing rapidly; or

(6) An institution that may be adversely affected by the activities or condition of System institutions with

which it has significant business relationships or in which it has significant investments.

(7) An institution with significant exposures to declines in net income or in the market value of its capital

due to a change in interest rates and/or the exercising of embedded or explicit options.

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[62 FR 4448, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998; 81 FR 49777, July 28, 2016]

§ 615.5351 Standards for determination of appropriate individual institution minimum capital

ratios.

The appropriate minimum capital ratios for an individual institution cannot be determined solely through the

application of a rigid mathematical formula or wholly objective criteria. The decision is necessarily based in part on

subjective judgment grounded in Agency expertise. The factors to be considered in the determination will vary in

each case and may include, for example:

[62 FR 4448, Jan. 30, 1997, as amended at 87 FR 27492, May 9, 2022]

§ 615.5352 Procedures.

(a) The conditions or circumstances leading to the Farm Credit Administration's determination that higher

minimum capital ratios are appropriate or necessary for the institution;

(b) The exigency of those circumstances or potential problems;

(c) The overall condition, management strength, and future prospects of the institution and, if applicable,

affiliated institutions;

(d) The institution's capital, adverse assets (including nonaccrual and nonperforming loans), allowance for

credit loss, and other ratios compared to the ratios of its peers or industry norms; and

(e) The views of the institution's directors and senior management.

(a) Notice. When the Farm Credit Administration determines that minimum capital ratios greater than those

set forth in § 615.5205 or § 628.10 of this chapter are necessary or appropriate for a particular institution,

the Farm Credit Administration will notify the institution in writing of the proposed minimum capital ratios

and the date by which they should be reached (if applicable) and will provide an explanation of why the

ratios proposed are considered necessary or appropriate for the institution.

(b) Response.

(1) The institution may respond to any or all of the items in the notice. The response should include any

matters which the institution would have the Farm Credit Administration consider in deciding

whether individual minimum capital ratios should be established for the institution, what those

capital ratios should be, and, if applicable, when they should be achieved. The response must be in

writing and delivered to the designated Farm Credit Administration official within 30 days after the

date on which the institution received the notice. In its discretion, the Farm Credit Administration

may extend the time period for good cause. The Farm Credit Administration may shorten the time

period with the consent of the institution or when, in the opinion of the Farm Credit Administration,

the condition of the institution so requires, provided that the institution is informed promptly of the

new time period.

(2) Failure to respond within 30 days or such other time period as may be specified by the Farm Credit

Administration shall constitute a waiver of any objections to the proposed minimum capital ratios or

the deadline for their achievement.

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[62 FR 4448, Jan. 30, 1997, as amended at 81 FR 49778, July 28, 2016]

§ 615.5353 Relation to other actions.

In lieu of, or in addition to, the procedures in this subpart, the required minimum capital ratios for an institution may

be established or revised through a written agreement or cease and desist proceedings under part C of title V of the

Act, or as a condition for approval of an application.

§ 615.5354 Enforcement.

An institution that does not have or maintain the minimum capital ratios applicable to it, whether required in subpart

H of this part or part 628 of this chapter, in a decision pursuant to this subpart, in a written agreement or temporary

or final order under part C of title V of the Act, or in a condition for approval of an application, or an institution that

has failed to submit or comply with an acceptable plan to attain those ratios, will be subject to such administrative

action or sanctions as the Farm Credit Administration considers appropriate. These sanctions may include the

issuance of a capital directive pursuant to subpart M of this part or other enforcement action, assessment of civil

money penalties, and/or the denial or condition of applications.

[81 FR 49778, July 28, 2016]

Subpart M—Issuance of a Capital Directive

Source: 62 FR 4449, Jan. 30, 1997, unless otherwise noted.

(c) Decision. After the close of the institution's response period, the Farm Credit Administration will decide,

based on a review of the institution's response and other information concerning the institution, whether

individual minimum capital ratios should be established for the institution and, if so, the ratios and the

date the requirements will become effective. The institution will be notified of the decision in writing. The

notice will include an explanation of the decision, except for a decision not to establish individual

minimum capital requirements for the institution.

(d) Submission of plan. The decision may require the institution to develop and submit to the Farm Credit

Administration, within a time period specified, an acceptable plan to reach the minimum capital ratios

established for the institution by the date required.

(e) Reconsideration based on change in circumstances. If, after the Farm Credit Administration's decision in

paragraph (c) of this section, there is a change in the circumstances affecting the institution's capital

adequacy or its ability to reach the required minimum capital ratios by the specified date, either the

institution or the Farm Credit Administration may propose a change in the minimum capital ratios for the

institution, the date when the minimums must be achieved, or the institution's plan (if applicable). The

Farm Credit Administration may decline to consider proposals that are not based on a significant change

in circumstances or are repetitive or frivolous. Pending a decision on reconsideration, the Farm Credit

Administration's original decision and any plan required under that decision shall continue in full force and

effect.

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12 CFR 615.5354 (enhanced display) page 44 of 55
§ 615.5355 Purpose and scope.

[62 FR 4449, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998; 81 FR 49778, July 28, 2016]

§ 615.5356 Notice of intent to issue a capital directive.

The Farm Credit Administration will notify an institution in writing of its intention to issue a capital directive. The

notice will state:

§ 615.5357 Response to notice.

(a) This subpart is applicable to proceedings by the Farm Credit Administration to issue a capital directive

under sections 4.3(b) and 4.3A(e) of the Act. A capital directive is an order issued to an institution that

does not have or maintain capital at or greater than the minimum ratios set forth in § 615.5205 or §

628.10 of this chapter; or established for the institution under subpart L of this part, by a written

agreement under part C of title V of the Act, or as a condition for approval of an application. A capital

directive may order the institution to:

(1) Achieve the minimum capital ratios applicable to it by a specified date;

(2) Adhere to a previously submitted plan to achieve the applicable capital ratios;

(3) Submit and adhere to a plan acceptable to the Farm Credit Administration describing the means and

time schedule by which the institution shall achieve the applicable capital ratios;

(4) Take other action, such as reduction of assets or the rate of growth of assets, restrictions on the

payment of dividends or patronage, or restrictions on the retirement of stock, to achieve the

applicable capital ratios, or reduce levels of interest rate and other risk exposures, or strengthen

management expertise, or improve management information and measurement systems; or

(5) A combination of any of these or similar actions.

(b) A capital directive may also be issued to the board of directors of an institution, requiring such board to

comply with the requirements of section 4.3A(d) of the Act prohibiting the reduction of permanent capital.

(c) A capital directive issued under this rule, including a plan submitted under a capital directive, is

enforceable in the same manner and to the same extent as an effective and outstanding cease and desist

order which has become final as defined in section 5.25 of the Act. Violation of a capital directive may

result in assessment of civil money penalties in accordance with section 5.32 of the Act.

(a) The reasons for issuance of the capital directive;

(b) The proposed contents of the capital directive, including the proposed date for achieving the minimum

capital requirement; and

(c) Any other relevant information concerning the decision to issue a capital directive.

(a) An institution may respond to the notice by stating why a capital directive should not be issued and/or by

proposing alternative contents for the capital directive or seeking other appropriate relief. The response

shall include any information, mitigating circumstances, documentation, or other relevant evidence that

supports its position. The response may include a plan for achieving the minimum capital ratios

applicable to the institution. The response must be in writing and delivered to the Farm Credit

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12 CFR 615.5357(a) (enhanced display) page 45 of 55
§ 615.5358 Decision.

After the closing date of the institution's response period, or receipt of the institution's response, if earlier, the Farm

Credit Administration may seek additional information or clarification of the response. Thereafter, the Farm Credit

Administration will determine whether or not to issue a capital directive, and if one is to be issued, whether it should

be as originally proposed or in modified form.

§ 615.5359 Issuance of a capital directive.

§ 615.5360 Reconsideration based on change in circumstances.

Upon a change in circumstances, an institution may request the Farm Credit Administration to reconsider the terms

of its capital directive or may propose changes in the plan to achieve the institution's applicable minimum capital

ratios. The Farm Credit Administration also may take such action on its own motion. The Farm Credit

Administration may decline to consider requests or proposals that are not based on a significant change in

circumstances or are repetitive or frivolous. Pending a decision on reconsideration, the capital directive and plan

shall continue in full force and effect.

§ 615.5361 Relation to other administrative actions.

A capital directive may be issued in addition to, or in lieu of, any other action authorized by law, including cease and

desist proceedings, civil money penalties, or the conditioning or denial of applications. The Farm Credit

Administration also may, in its discretion, take any action authorized by law, in lieu of a capital directive, in response

to an institution's failure to achieve or maintain the applicable minimum capital ratios.

Subpart N [Reserved]

Subpart O—Book-Entry Procedures for Farm Credit Securities

Source: 61 FR 67192, Dec. 20, 1996, unless otherwise noted.

Administration within 30 days after the date on which the institution received the notice. In its discretion,

the Farm Credit Administration may extend the time period for good cause. The Farm Credit

Administration may shorten the 30-day time period:

(1) When, in the opinion of the Farm Credit Administration, the condition of the institution so requires,

provided that the institution shall be informed promptly of the new time period;

(2) With the consent of the institution; or

(3) When the institution already has advised the Farm Credit Administration that it cannot or will not

achieve its applicable minimum capital ratios.

(b) Failure to respond within 30 days or such other time period as may be specified by the Farm Credit

Administration shall constitute a waiver of any objections to the proposed capital directive.

(a) A capital directive will be served by delivery to the institution. It will include or be accompanied by a

statement of reasons for its issuance.

(b) A capital directive is effective immediately upon its receipt by the institution, or upon such later date as

may be specified therein, and shall remain effective and enforceable until it is stayed, modified, or

terminated by the Farm Credit Administration.

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12 CFR 615.5361 (enhanced display) page 46 of 55
§ 615.5450 Definitions.

In this subpart, unless the context otherwise requires or indicates:

(a) Adverse claim means a claim that a claimant has a property interest in a security and that it is a violation

of the rights of the claimant for another person to hold, transfer, or deal with the security.

(b) Book-entry security means a Farm Credit security issued or maintained in the Book-entry System.

(c) Book-entry System means the automated book-entry system operated by the Federal Reserve Banks,

acting as the fiscal agent for the Farm Credit banks, through which book-entry securities are issued,

recorded, transferred and maintained in book-entry form.

(d) Definitive Farm Credit security means a Farm Credit security in engraved or printed form, or that is

otherwise represented by a certificate.

(e) Eligible book-entry security means a book-entry security issued or maintained in the Book-entry System,

which by the terms of its securities documentation, is eligible to be converted from book-entry into

definitive form.

(f) Entitlement Holder means a person to whose account an interest in a book-entry security is credited on

the records of a securities intermediary.

(g) Farm Credit banks means one or more Farm Credit Banks, agricultural credit banks, and banks for

cooperatives.

(h) Farm Credit securities means consolidated notes, bonds, debentures, or other similar obligations of the

Farm Credit banks and Systemwide notes, bonds, debentures, or similar obligations of the Farm Credit

banks issued under sections 4.2(c) and 4.2(d), respectively, of the Act, or laws repealed thereby.

(i) Federal Reserve Bank means a Federal Reserve Bank or Branch acting as agent for the Farm Credit banks

and the Funding Corporation.

(j) Federal Reserve Bank Operating Circular means the publication issued by each Federal Reserve Bank that

sets forth the terms and conditions under which the Federal Reserve Bank maintains book-entry securities

accounts and transfers book-entry securities.

(k) Funding Corporation means the Federal Farm Credit Banks Funding Corporation established pursuant to

section 4.9 of the Act, which issues Farm Credit securities on behalf of the Farm Credit banks.

(l) Funds Account means a reserve and/or clearing account at a Federal Reserve Bank to which debits or

credits are posted for transfers against payment, book-entry securities transaction fees, or principal and

interest payments.

(m) Participant means a person that maintains a participant's securities account with a Federal Reserve Bank.

(n) Participant's Securities Account means an account in the name of a participant at a Federal Reserve Bank

to which book-entry securities held for a participant are or may be credited.

(o) Person means an individual, corporation, company, governmental entity, association, firm, partnership,

trust, estate, representative and any other similar organization, but does not mean the United States, a

Farm Credit bank, the Funding Corporation or a Federal Reserve Bank.

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12 CFR 615.5450(o) (enhanced display) page 47 of 55
[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

§ 615.5451 Book-entry and definitive securities.

Subject to subpart C of this part:

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

§ 615.5452 Law governing rights and obligations of Federal Reserve Banks, Farm Credit banks,

and Funding Corporation; rights of any person against Federal Reserve Banks, Farm Credit

banks, and Funding Corporation.

(p) Revised Article 8 means Uniform Commercial Code, Revised Article 8, Investment Securities (with

Conforming and Miscellaneous Amendments to Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text, and has

the same meaning as in 31 CFR 357.2.

(q) Securities Documentation means the applicable statement of terms, trust indenture, securities agreement,

offering circular or other documents establishing the terms of a book-entry security.

(r) Securities Intermediary means:

(1) A person that is registered as a “clearing agency” under the Federal securities laws; a Federal

Reserve Bank; any other person that provides clearance or settlement services with respect to a

book-entry security that would require it to register as a clearing agency under the Federal securities

laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing

corporation, including promulgation of rules, are subject to regulation by a Federal or State

governmental authority; or

(2) A person (other than an individual, unless such individual is registered as a broker or dealer under the

Federal securities laws) including a bank or broker, that in the ordinary course of its business

maintains securities accounts for others and is acting in that capacity.

(s) Security means a Farm Credit security as defined in paragraph (h) of this section.

(t) Security Entitlement means the rights and property interest of an entitlement holder with respect to a

book-entry security.

(u) State means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any

other territory or possession of the United States.

(v) Transfer Message means an instruction of a participant to a Federal Reserve Bank to effect a transfer of a

book-entry security maintained in the Book-entry System, as set forth in Federal Reserve Bank Operating

Circulars.

(a) Farm Credit banks operating under the same title of the Act may issue consolidated securities in bookentry form.

(b) Farm Credit banks may issue Systemwide securities in book-entry form.

(c) Consolidated and Systemwide securities also may be issued in either registered or bearer definitive form.

(a) Except as provided in paragraph (b) of this section, the following are governed solely by the regulations

contained in this subpart O, the securities documentation, and Federal Reserve Bank Operating Circulars:

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12 CFR 615.5452(a) (enhanced display) page 48 of 55
[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

§ 615.5453 Law governing other interests.

(1) The rights and obligations of the Farm Credit banks, the Funding Corporation, and the Federal

Reserve Banks with respect to:

(i) A book-entry security or security entitlement, and

(ii) The operation of the Book-entry System as it applies to Farm Credit securities; and

(2) The rights of any person, including a participant, against the Farm Credit banks, the Funding

Corporation, and the Federal Reserve Banks with respect to:

(i) A book-entry security or security entitlement, and

(ii) The operation of the Book-entry System as it applies to Farm Credit securities.

(b) A security interest in a security entitlement that is in favor of a Federal Reserve Bank from a participant

and that is not recorded on the books of a Federal Reserve Bank pursuant to § 615.5454(c)(1) of this

subpart, is governed by the law (not including the conflict-of-law rules) of the jurisdiction where the head

office of the Federal Reserve Bank maintaining the participant's securities account is located. A security

interest in a security entitlement that is in favor of a Federal Reserve Bank from a person that is not a

participant, and that is not recorded on the books of a Federal Reserve Bank pursuant to §

615.5454(c)(1)of this subpart, is governed by the law determined in the manner specified in § 615.5453 of

this subpart.

(c) If the jurisdiction specified in the first sentence of paragraph (b) of this section is a State that has not

adopted revised Article 8 (see 31 CFR 357.2) then the law specified in paragraph (b) of this section shall

be the law of that State as though revised Article 8 had been adopted by that State.

(a) To the extent not inconsistent with these regulations, the law (not including the conflict-of-law rules) of a

securities intermediary's jurisdiction governs:

(1) The acquisition of a security entitlement from the securities intermediary;

(2) The rights and duties of the securities intermediary and entitlement holder arising out of a security

entitlement;

(3) Whether the securities intermediary owes any duties to an adverse claimant to a security entitlement;

(4) Whether an adverse claim can be asserted against a person who acquires a security entitlement

from the securities intermediary or a person who purchases a security entitlement or interest therein

from an entitlement holder; and

(5) Except as otherwise provided in paragraph (c) of this section, the perfection, effect of perfection or

non-perfection and priority of a security interest in a security entitlement.

(b) The following rules determine a “securities intermediary's jurisdiction” for purposes of this section:

(1) If an agreement between the securities intermediary and its entitlement holder specifies that it is

governed by the law of a particular jurisdiction, that jurisdiction is the securities intermediary's

jurisdiction.

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§ 615.5454 Creation of participant's security entitlement; security interests.

(2) If an agreement between the securities intermediary and its entitlement holder does not specify the

governing law as provided in paragraph (b)(1) of this section, but expressly specifies that the

securities account is maintained at an office in a particular jurisdiction, that jurisdiction is the

securities intermediary's jurisdiction.

(3) If an agreement between the securities intermediary and its entitlement holder does not specify a

jurisdiction as provided in paragraph (b)(1) or (b)(2) of this section, the securities intermediary's

jurisdiction is the jurisdiction in which is located the office identified in an account statement as the

office serving the entitlement holder's account.

(4) If an agreement between the securities intermediary and its entitlement holder does not specify a

jurisdiction as provided in paragraph (b)(1) or (b)(2) of this section and an account statement does

not identify an office serving the entitlement holder's account as provided in paragraph (b)(3) of this

section, the securities intermediary's jurisdiction is the jurisdiction in which is located the chief

executive office of the securities intermediary.

(c) Notwithstanding the general rule in paragraph (a)(5) of this section, the law (but not the conflict-of-law

rules) of the jurisdiction in which the person creating a security interest is located governs whether and

how the security interest may be perfected automatically or by filing a financing statement.

(d) If the jurisdiction specified in paragraph (b) of this section is a State that has not adopted revised Article 8

(see 31 CFR 357.2), then the law for the matters specified in paragraph (a) of this section shall be the law

of that State as though revised Article 8 had been adopted by that State. For purposes of the application

of the matters specified in paragraph (a) of this section, the Federal Reserve Bank maintaining the

securities account is a clearing corporation, and the participant's interest in a book-entry security is a

security entitlement.

(a) A participant's security entitlement is created when a Federal Reserve Bank indicates by book entry that a

book-entry security has been credited to a participant's securities account.

(b) A security interest in a security entitlement of a participant in favor of the United States to secure deposits

of public money, including without limitation deposits to the Treasury tax and loan accounts, or other

security interest in favor of the United States that is required by Federal statute, regulation, or agreement,

and that is marked on the books of a Federal Reserve Bank is thereby effected and perfected, and has

priority over any other interest in the securities. Where a security interest in favor of the United States in a

security entitlement of a participant is marked on the books of a Federal Reserve Bank, such Federal

Reserve Bank may rely, and is protected in relying, exclusively on the order of an authorized representative

of the United States directing the transfer of the security. For purposes of this paragraph, an “authorized

representative of the United States” is the official designated in the applicable regulations or agreement to

which a Federal Reserve Bank is a party, governing the security interest.

(c)

(1) The Farm Credit Banks, the Funding Corporation, and the Federal Reserve Banks have no obligation

to agree to act on behalf of any person or to recognize the interest of any transferee of a security

interest or other limited interest in favor of any person except to the extent of any specific

requirement of Federal law or regulation or to the extent set forth in any specific agreement with the

Federal Reserve Bank on whose books the interest of the participant is recorded. To the extent

required by such law or regulation or set forth in an agreement with a Federal Reserve Bank, or the

Federal Reserve Bank Operating Circular, a security interest in a security entitlement that is in favor

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[62 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

§ 615.5455 Obligations of the Farm Credit banks and the Funding Corporation; no adverse

claims.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

of a Federal Reserve Bank, a Farm Credit Bank, the Funding Corporation, or a person may be created

and perfected by a Federal Reserve Bank marking its books to record the security interest. Except as

provided in paragraph (b) of this section, a security interest in a security entitlement marked on the

books of a Federal Reserve Bank shall have priority over any other interest in the securities.

(2) In addition to the method provided in paragraph (c)(1) of this section, a security interest, including a

security interest in favor of a Federal Reserve Bank, may be perfected by any method by which a

security interest may be perfected under applicable law as described in § 615.5452(b) or § 615.5453

of this subpart. The perfection, effect of perfection or non-perfection and priority of a security

interest are governed by that applicable law. A security interest in favor of a Federal Reserve Bank

shall be treated as a security interest in favor of a clearing corporation in all respects under that law,

including with respect to the effect of perfection and priority of the security interest. A Federal

Reserve Bank Operating Circular shall be treated as a rule adopted by a clearing corporation for such

purposes.

(a) Except in the case of a security interest in favor of the United States or a Federal Reserve Bank or

otherwise as provided in § 615.5454(c)(1), for the purposes of this subpart O, the Farm Credit banks, the

Funding Corporation and the Federal Reserve Banks shall treat the participant to whose securities

account an interest in a book-entry security has been credited as the person exclusively entitled to issue a

transfer message, to receive interest and other payments with respect thereof and otherwise to exercise

all the rights and powers with respect to such security, notwithstanding any information or notice to the

contrary. The Federal Reserve Banks, the Farm Credit banks, and the Funding Corporation are not liable to

a person asserting or having an adverse claim to a security entitlement or to a book-entry security in a

participant's securities account, including any such claim arising as a result of the transfer or disposition

of a book-entry security by a Federal Reserve Bank pursuant to a transfer message that the Federal

Reserve Bank reasonably believes to be genuine.

(b) The obligation of the Farm Credit banks and the Funding Corporation to make payments (including

payments of interest and principal) with respect to book-entry securities is discharged at the time

payment in the appropriate amount is made as follows:

(1) Interest or other payments on book-entry securities are either credited by a Federal Reserve Bank to a

funds account maintained at the Federal Reserve Bank or otherwise paid as directed by the

participant.

(2) Book-entry securities are redeemed in accordance with their terms by a Federal Reserve Bank

withdrawing the securities from the participant's securities account in which they are maintained and

by either crediting the amount of the redemption proceeds, including both principal and interest,

where applicable, to a funds account at the Federal Reserve Bank or otherwise paying such principal

and interest as directed by the participant. No action by the participant is required in connection with

the redemption of a book-entry security.

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§ 615.5456 Authority of Federal Reserve Banks.

§ 615.5457 Withdrawal of eligible book-entry securities for conversion to definitive form.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997]

§ 615.5458 Waiver of regulations.

The Farm Credit Administration reserves the right, in the Farm Credit Administration's discretion, to waive any

provision(s) of the regulations in this subpart in any case or class of cases for the convenience of the Farm Credit

banks and the Funding Corporation or in order to relieve any person(s) of unnecessary hardship, if such action is not

inconsistent with law, does not adversely affect any substantial existing rights, and the Farm Credit Administration

is satisfied that such action will not subject the Farm Credit banks and the Funding Corporation to any substantial

expense or liability.

(a) Each Federal Reserve Bank is hereby authorized as fiscal agent of the Farm Credit banks and the Funding

Corporation to perform functions with respect to the issuance of book-entry securities offered and sold by

the Farm Credit banks and the Funding Corporation to which this subpart applies, in accordance with the

terms of the securities documentation and the provisions of this subpart:

(1) To service and maintain book-entry securities in accounts established for such purposes;

(2) To make payments of principal and interest, as directed by the Farm Credit banks and the Funding

Corporation;

(3) To effect transfer of book-entry securities between participants' securities accounts as directed by

the participants;

(4) To effect conversions between book-entry securities and definitive Farm Credit securities with

respect to those securities as to which conversion rights are available pursuant to the applicable

securities documentation; and

(5) To perform such other duties as fiscal agent as may be requested by the Farm Credit banks and the

Funding Corporation.

(b) Each Federal Reserve Bank may issue Operating Circulars not inconsistent with this subpart, governing

the details of its handling of book-entry securities, security entitlements, and the operation of the Bookentry System under this subpart.

(a) Eligible book-entry securities may be withdrawn from the Book-entry System by requesting delivery of like

definitive Farm Credit securities.

(b) A Federal Reserve Bank shall, upon receipt of appropriate instructions to withdraw eligible book-entry

securities from book-entry in the Book-entry System, convert such securities into definitive Farm Credit

securities and deliver them in accordance with such instructions.

(c) Farm Credit securities which are to be delivered upon withdrawal may be issued in either registered or

bearer form, to the extent permitted by the applicable securities documentation.

(d) All requests for withdrawal of eligible book-entry securities must be made prior to the maturity or the

applicable date of call of the Farm Credit securities.

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12 CFR 615.5458 (enhanced display) page 52 of 55
§ 615.5459 Liability of Farm Credit banks, Funding Corporation and Federal Reserve Banks.

The Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks may rely on the information

provided in a transfer message or other transaction documentation, and are not required to verify the information.

The Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks shall not be liable for any action

taken in accordance with the information set out in the transfer message, other transaction documentation, or

evidence submitted in support thereof.

§ 615.5460 Additional provisions.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997]

§ 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit securities, including

coupons.

§ 615.5462 Restrictive endorsement of bearer securities.

When consolidated and Systemwide bearer securities of the Farm Credit banks are being presented to Federal

Reserve Banks, for redemption, exchange, or conversion to book entry, such securities may be restrictively

endorsed. The restrictive endorsement shall be placed thereon in substantially the same manner and with the same

(a) Additional requirements. In any case or any class of cases arising under the regulations in this subpart,

the Farm Credit banks and the Funding Corporation may require such additional evidence and a bond of

indemnity, with or without surety, as may in the judgment of the Farm Credit banks and the Funding

Corporation be necessary for the protection of the interests of the Farm Credit banks and the Funding

Corporation.

(b) Notice of attachment for Farm Credit securities in the Book-entry System. The interest of a debtor in a

security entitlement may be reached by a creditor only by legal process upon the securities intermediary

with whom the debtor's securities account is maintained, except where a security entitlement is

maintained in the name of a secured party, in which case the debtor's interest may be reached by legal

process upon the secured party. These regulations do not purport to establish whether a Federal Reserve

Bank is required to honor an order or other notice of attachment in any particular case or class of cases.

(c) Conversion of definitive securities into book-entry securities. Definitive Farm Credit securities may be

converted to book-entry form in accordance with the terms of the applicable securities documentation

and Federal Reserve Operating Circular.

(a) Relief on the account of the loss, theft, destruction, mutilation, or defacement of any definitive

consolidated or Systemwide securities of the Farm Credit banks and coupons of such securities may be

granted on the same basis and to the same extent as relief may be granted under the statutes of the

United States and the regulations of the Department of the Treasury on the account of the loss, theft,

destruction, mutilation, or defacement of United States securities and coupons of such securities.

(b) Applicants for relief under paragraph (a) of this section, shall present claims and proof of loss:

(1) To the Division of Special Investments, Bureau of the Public Debt, P.O. Box 396, Parkersburg, WV

26102–0396, in the case of consolidated or Systemwide securities of the Farm Credit banks issued

prior to May 1, 1978; or

(2) To the Federal Farm Credit Banks Funding Corporation, 10 Exchange Place, Suite 1401, Jersey City,

NJ 07302, in the case of consolidated or Systemwide securities issued on or after May 1, 1978.

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12 CFR 615.5462 (enhanced display) page 53 of 55
effects as prescribed in United States Treasury Department regulations, now or hereafter in force, governing like

transactions in United States bonds; and consolidated or Systemwide securities of the Farm Credit banks so

endorsed shall be prepared for shipment and shipped in the manner prescribed in such regulations for United States

bearer securities. (See 31 CFR part 328.)

Subpart P—Global Debt Securities

§ 615.5500 Definitions.

In this subpart, unless the context otherwise requires or indicates:

[60 FR 57919, Nov. 24, 1995]

§ 615.5502 Issuance of global debt securities.

[60 FR 57919, Nov. 24, 1995]

Subpart Q—Bankers' Acceptances

§ 615.5550 Bankers' acceptances.

Banks for cooperatives may rediscount with other purchasers the acceptances they have created. The bank for

cooperatives' board of directors, under established policies, may delegate this authority to management.

[71 FR 65387, Nov. 8, 2006]

Subpart R [Reserved]

Subpart S—Federal Agricultural Mortgage Corporation Securities

§ 615.5570 Book-entry procedures for Federal Agricultural Mortgage Corporation Securities.

(a) Global debt securities means consolidated Systemwide debt securities issued by the Funding Corporation

on behalf of the Farm Credit banks under section 4.2(d) of the Act through a fiscal agent or agents and

distributed either exclusively outside the United States or simultaneously inside and outside the United

States.

(b) Global agent means any fiscal agent, other than the Federal Reserve Banks, used by the Funding

Corporation to facilitate the sale of global debt securities.

(a) The Funding Corporation may provide for the sale of global debt securities on behalf of the Farm Credit

banks through a global agent or agents by negotiation, offer, bid, or syndicate sale, and deliver such

obligations by book-entry, wire transfer, or such other means as may be appropriate.

(b) The Funding Corporation Board of Directors shall establish appropriate criteria for the selection of global

agents and shall approve each global agent.

(a) The Federal Agricultural Mortgage Corporation (Farmer Mac) is a Federally chartered instrumentality of

the United States and an institution of the Farm Credit System, subject to the examination and regulation

of the Farm Credit Administration.

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[61 FR 31394, June 20, 1996, as amended at 61 FR 67195, Dec. 20, 1996]

(b) Farmer Mac, either in its own name or through an affiliate controlled or owned by Farmer Mac, is

authorized by section 8.6 of the Act:

(1) To issue and/or guarantee the timely payment of principal and interest on securities representing

interests in or obligations backed by pools of agricultural real estate loans (guaranteed securities);

and

(2) To issue debt obligations (which, together with the guaranteed securities described in paragraph

(b)(1) of this section, are referred to as Farmer Mac securities). Farmer Mac may prescribe the

forms, the denominations, the rates of interest, the conditions, the manner of issuance, and the

prices of Farmer Mac securities.

(c) Farmer Mac securities shall be governed by §§ 615.5450, and 615.5452 through 615.5460. In interpreting

those sections for purposes of this subpart, unless the context requires otherwise, the term “Farmer Mac

securities” shall be read for “Farm Credit securities,” and “Farmer Mac” shall be read for “Farm Credit

banks” and “Funding Corporation.” These terms shall be read as though modified where necessary to

effectuate the application of the designated sections of subpart O of this part to Farmer Mac.

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Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 616 Leasing

§ 616.600 Definitions.

§ 616.6100 Purchase and sale of interests in leases.

§ 616.6200 Out-of-territory leasing.

§ 616.6300 Leasing policies, procedures, and underwriting standards.

§ 616.6400 Documentation.

§ 616.6500 Investment in leased assets.

§ 616.6600 Leasing limit.

§ 616.6700 Stock purchase requirements.

§ 616.6800 Disclosure requirements.

PART 616—LEASING

Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.9,

3.10, 3.20, 3.28, 4.3, 4.3A, 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.25, 4.26, 4.27, 4.28,

4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.3, 7.6, 7.8, 7.12, 7.13 of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015,

2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2130, 2131,

2141, 2149, 2154, 2154a, 2199, 2200, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2211, 2212, 2213,

2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a–2, 2279a–3, 2279b, 2279c–1, 2279f, 2279f–1).

Source: 64 FR 34518, June 28, 1999, unless otherwise noted.

§ 616.600 Definitions.

For the purposes of this part, the following definitions apply:

This content is from the eCFR and is authoritative but unofficial.

(a) Interests in leases means ownership interests in any aspect of a lease transaction, including, but not

limited to, servicing rights.

(b) Lease means any contractual obligation to own and lease, or lease with the option to purchase, equipment

or facilities used in the operations of persons eligible to borrow under part 613 of this chapter.

(c) Sale with recourse means a sale of a lease or an interest in a lease in which the seller:

(1) Retains some risk of loss from the transferred asset for any cause except the seller's breach of usual

and customary warranties or representations designed to protect the purchaser against fraud or

misrepresentation; or

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12 CFR 616.600(c)(1) (enhanced display) page 1 of 4
§ 616.6100 Purchase and sale of interests in leases.

(2) Has an obligation to make payments to any party resulting from:

(i) Default on the lease by the lessee or guarantor or any other deficiencies in the lessee's

performance;

(ii) Changes in the market value of the assets after transfer;

(iii) Any contractual relationship between the seller and purchaser incident to the transfer that, by

its terms, could continue even after final payment, default, or other termination of the assets

transferred; or

(iv) Any other cause, except that the retention of servicing rights alone shall not constitute

recourse.

(a) Authority to buy interests in leases. A Farm Credit System institution may buy leases and interests in

leases.

(b) Policies. Each Farm Credit System institution that sells or buys interests in leases must do so only under a

policy adopted by its board of directors that addresses the following:

(1) The types of leases in which the institution may buy or sell an interest and the types of interests

which may be bought or sold;

(2) The underwriting standards for the purchase of interests in leases;

(3) Such limits on the aggregate lease payments and residual amount of interests in leases that the

institution may buy from a single institution as are necessary to diversify risk, and such limits on the

aggregate amounts the institution may buy from all institutions as are necessary to assure that

service to the territory is not impeded;

(4) Identification and reporting of leases in which interests are sold or bought;

(5) Requirements for securing from the selling lessor in a timely manner adequate financial and other

information about the lessee needed to make an independent judgment; and

(6) Any limits or conditions to which sales or purchases are subject that the board considers

appropriate, including arbitration.

(c) Purchase and sale agreements. Each agreement to buy or sell an interest in a lease must, at a minimum:

(1) Identify the particular lease(s) to be covered by the agreement;

(2) Provide for the transfer of lessee information on a timely and continuing basis;

(3) Identify the nature of the interest(s) sold or bought;

(4) Specify the rights and obligations of the parties and the terms and conditions of the sale;

(5) Contain any terms necessary for the appropriate administration of the lease, including lease

servicing and monitoring of the servicer and authorization and conditions for action in the event of

lessee distress or default;

(6) Provide for a method of resolution of disagreements arising under the agreement;

(7) Specify whether the contract is assignable by either party; and

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Leasing 12 CFR 616.600(c)(2)

12 CFR 616.6100(c)(7) (enhanced display) page 2 of 4
§ 616.6200 Out-of-territory leasing.

A System institution may make leases outside its chartered territory.

§ 616.6300 Leasing policies, procedures, and underwriting standards.

The board of each institution engaged in lease underwriting must adopt a written policy (or policies). Management,

at the direction of the board, must develop procedures that reflect lease practices that control risk and comply with

all applicable laws and regulations. Any leasing activity must comply with the lending policies and loan underwriting

requirements in § 614.4150 of this chapter. An institution engaged in the making, buying, or syndicating of leases

also must adopt written policies and procedures that address the additional risks associated with leasing. Written

policies and procedures must address the following, if applicable:

(8) In the case of lease transactions through agents, comply with § 614.4325(h) of this chapter, reading

the term “lease” or “leases” in place of the term “loan” or “loans,” as applicable.

(d) Independent judgment. Each institution that buys an interest in a lease must make a judgment on the

payment ability of the lessee that is independent of the originating or lead lessor and any intermediary

seller or broker. This must occur before the purchase of the interest and before any servicing action that

alters the terms of the original agreement. The institution must not delegate such judgment to any

person(s) not employed by the institution. A Farm Credit System institution that buys a lease or any

interest in a lease may use information, such as appraisals or inspections, provided by the originating or

lead lessor, or any intermediary seller or broker; however, the buying Farm Credit System institution must

independently evaluate such information when exercising its judgment. The independent judgment must

be documented by a payment analysis that considers factors set forth in § 616.6300. The payment

analysis must consider such financial and other lessee information as would be required by a prudent

lessor and must include an evaluation of the capacity and reliability of the servicer. Boards of directors of

jointly managed institutions must adopt procedures to ensure the interests of their respective

shareholders are protected in participation between such institutions.

(e) Sales with recourse. When a lease or interest in a lease is sold with recourse:

(1) For the purpose of determining the lending and leasing limit in subpart J of part 614 of this chapter,

the lease must be considered, to the extent of the recourse or guaranty, a lease by the buyer to the

seller, and in addition, the seller must aggregate the lease with other obligations of the lessee; and

(2) The lease subject to the recourse agreement must be considered an asset sold with recourse for the

purpose of computing capital ratios.

(f) Similar entity lease transactions. The provisions of § 613.3300 of this chapter that apply to interests in

loans made to similar entities apply to interests in leases made to similar entities. In applying these

provisions, the term “loan” shall be read to include the term “lease” and the term “principal amount” shall

be read to include the term “lease amount.”

(a) Appropriateness of the lease amount, purpose, and terms and conditions, including the residual value

established at the inception of the lease;

(b) Process for estimating the leased asset's market value during the lease term;

(c) Types of equipment and facilities the institution will lease;

(d) Remarketing of leased property and associated risks;

12 CFR Part 616 (up to date as of 3/07/2024)

Leasing 12 CFR 616.6100(c)(8)

12 CFR 616.6300(d) (enhanced display) page 3 of 4
§ 616.6400 Documentation.

Each institution must document that any asset it leases is within its statutory authority.

§ 616.6500 Investment in leased assets.

An institution may acquire property to be leased that is consistent with current or planned leasing programs.

§ 616.6600 Leasing limit.

All leases made by Farm Credit System institutions shall be subject to the lending and leasing limit in subpart J of

part 614 of this chapter.

§ 616.6700 Stock purchase requirements.

§ 616.6800 Disclosure requirements.

(e) Property tax and sales tax reporting;

(f) Title and ownership of leased assets;

(g) Title and licensing for motor vehicles;

(h) Liability associated with ownership, including any environmental hazards or risks;

(i) Insurance requirements for both the lessor and lessee;

(j) Classification of leases in accordance with generally accepted accounting principles; and

(k) Tax treatment of lease transactions and associated risks.

(a) Each System institution, except the Farm Credit Leasing Services Corporation, making an equipment lease

under titles II or III of the Act must require the lessee to buy or own at least one share of stock or one

participation certificate in the institution making the lease, in accordance with its bylaws.

(b) The disclosure requirements of § 615.5250(a) and (b) of this chapter apply to stock (or participation

certificates) bought as a condition for obtaining a lease.

(a) Each System institution must give to each lessee a copy of all lease documents signed by the lessee

within a reasonable time following lease closing.

(b) Each System institution must make its decision on a lease application as soon as possible and provide

prompt written notice of its decision to the applicant.

12 CFR Part 616 (up to date as of 3/07/2024)

Leasing 12 CFR 616.6300(e)

12 CFR 616.6800(b) (enhanced display) page 4 of 4
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 617 Borrower Rights

Subpart A General

§ 617.7000 Definitions.

§ 617.7005 When may electronic communications be used in the borrower rights process?

§ 617.7010 May borrower rights be waived?

§ 617.7015 What happens to borrower rights when a loan is sold?

Subpart B Disclosure of Effective Interest Rates

§ 617.7100 Who must make and who is entitled to receive an effective interest rate disclosure?

§ 617.7105 When must a qualified lender disclose the effective interest rate to a borrower?

§ 617.7110 How should a qualified lender disclose the cost of borrower stock or participation

certificates?

§ 617.7115 How should a qualified lender disclose loan origination charges?

§ 617.7120 How should a qualified lender present the disclosures to a borrower?

§ 617.7125 How should a qualified lender determine the effective interest rate?

§ 617.7130 What initial disclosures must a qualified lender make to a borrower?

§ 617.7135 What subsequent disclosures must a qualified lender make to a borrower?

Subpart C Disclosure of Differential Interest Rates

§ 617.7200 What disclosures must a qualified lender make to a borrower on loans offered with

more than one rate of interest?

Subpart D Actions on Applications; Review of Credit Decisions

§ 617.7300 When acting on a loan application, what are the notice requirements and review

rights?

§ 617.7305 What is a CRC and who are the members?

§ 617.7310 What is the review process of the CRC?

§ 617.7315 What records must the qualified lender maintain on behalf of the CRC?

Subpart E Distressed Loan Restructuring; State Agricultural Loan Mediation

Programs

§ 617.7400 What protections exist for borrowers who meet all loan obligations?

§ 617.7405 On what policies are loan restructurings based?

§ 617.7410 When and how does a qualified lender notify a borrower of the right to seek loan

restructuring?

§ 617.7415 How does a qualified lender decide to restructure a loan?

§ 617.7420 How will a decision on an application for restructuring be issued?

This content is from the eCFR and is authoritative but unofficial.

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Borrower Rights

12 CFR Part 617 (Mar. 7, 2024)

12 CFR Part 617 (Mar. 7, 2024) (enhanced display) page 1 of 19
§ 617.7425 What type of notice should be given to a borrower before foreclosure?

§ 617.7430 Are institutions required to participate in state agricultural loan mediation

programs?

Subpart F Distressed Loan Restructuring Directive

§ 617.7500 What is a directive used for and what may it require?

§ 617.7505 How will the qualified lender know when FCA is considering issuing a distressed

loan restructuring directive?

§ 617.7510 What should the qualified lender do when it receives notice of a distressed loan

restructuring directive?

§ 617.7515 How does the FCA decide whether to issue a directive?

§ 617.7520 How does the FCA issue a directive and when will it be effective?

§ 617.7525 May FCA use other enforcement actions?

Subpart G Right of First Refusal

§ 617.7600 What are the definitions used in this subpart?

§ 617.7605 How should System institutions document whether the borrower had the financial

resources to avoid foreclosure?

§ 617.7610 What should the System institution do when it decides to sell acquired agricultural

real estate?

§ 617.7615 What should the System institution do when it decides to lease acquired

agricultural real estate?

§ 617.7620 What should the System institution do when it decides to sell acquired agricultural

real estate at a public auction?

§ 617.7625 Whom should the System institution notify?

§ 617.7630 Does this Federal requirement affect any state property laws?

PART 617—BORROWER RIGHTS

Authority: Secs. 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.36, 5.9, 5.17 of the Farm Credit Act (12

U.S.C. 2199, 2200, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2219a, 2243, 2252).

Source: 69 FR 10907, 10908, Mar. 9, 2004, unless otherwise noted.

Subpart A—General

§ 617.7000 Definitions.

For the purposes of this part, the following terms apply:

Adjustable rate loan means a loan where the interest rate payable over the term of the loan may change. This

includes adjustable rate, variable rate, or other similarly designated loans.

Adverse credit decision means a credit decision where a qualified lender:

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12 CFR Part 617 (Mar. 7, 2024)

12 CFR 617.7000 “Adverse credit decision” (enhanced display) page 2 of 19
(1) Decides not to make a loan to an applicant;

(2) Approves a loan in an amount less than the applicant requested; or

(3) Denies an application for restructuring.

Applicant means any person who completes and executes a loan application from a qualified lender.

Application for restructuring means a written request from a borrower to restructure a distressed loan. The

request must be submitted on the appropriate forms prescribed by the qualified lender and accompanied

by sufficient financial information and repayment projections, where appropriate, as required by the

qualified lender to support a sound credit decision.

Distressed loan means a loan that the borrower does not have the financial capacity to pay according to its

terms, as determined by the qualified lender, and exhibits one or more of the following characteristics:

(1) The borrower is demonstrating adverse financial and repayment trends.

(2) The loan is delinquent or past due under the terms of the loan contract.

(3) One or both of the factors listed in paragraphs (1) and (2) of this section, together with inadequate

collateralization, present a high probability of loss to the qualified lender.

Effective interest rate means a measure of the cost of credit, expressed as an annual percentage rate, that

shows the effect of the following costs, if any, on the interest rate on a loan charged by a qualified lender

to a borrower:

(1) The amount of any stock or participation certificates that a borrower is required to buy to obtain the

loan; and

(2) Any loan origination charges paid by a borrower to a qualified lender to obtain the loan.

Foreclosure proceeding means:

(1) A foreclosure or similar legal proceeding to enforce a lien on property, whether real or personal, that

secures a non-interest-earning asset or distressed loan; or

(2) The seizing of and realizing on non-real property collateral, other than collateral subject to a statutory

lien arising under titles I and II of the Act, to effect collection of a nonaccrual or distressed loan.

Independent evaluator means an individual who is a qualified evaluator and who satisfies the standards of §

614.4260, subpart F of this chapter, and the standards set by the qualified lender for the type of property

to be evaluated. The independent evaluator may not be an employee or agent of a qualified lender or have

a relationship with the lender or any of its officers or directors in contravention of part 612 of this chapter.

Interest rate means the stated contract rate of interest.

Loan means an extension of credit made to a farmer, rancher, or producer or harvester of aquatic products, for

any agricultural or aquatic purpose and other credit needs of the borrower, including financing for basic

processing and marketing that directly relates to the borrower's operations and those of other eligible

farmers, ranchers, and producers or harvesters of aquatic products.

Loan application means a complete oral or written request for an extension of credit made in accordance with a

qualified lender's procedures for the type of credit requested. An application is complete when the

qualified lender receives all the information normally obtained and used in evaluating applications for

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12 CFR 617.7000 “Adverse credit decision” (1)

12 CFR 617.7000 “Loan application” (enhanced display) page 3 of 19
[69 FR 10907, 10908, Mar. 9, 2004, as amended at 69 FR 16459, Mar. 30, 2004]

§ 617.7005 When may electronic communications be used in the borrower rights process?

Qualified lenders may use, with the parties' agreement, electronic commerce (E-commerce), including electronic

communications for borrower rights disclosures. Part 609 of this chapter addresses when a qualified lender may

use E-commerce. Consistent with these rules, a qualified lender should interpret part 617 broadly to allow electronic

transmissions, communications, records, and submissions. However, electronic communications may not be used

for a notice of default, acceleration, repossession, foreclosure, eviction, or the right to cure when a borrower's

primary residence secures the loan. In these instances, a qualified lender must use paper disclosures.

§ 617.7010 May borrower rights be waived?

[69 FR 10907, 10908, Mar. 9, 2004, as amended at 70 FR 18968, Apr. 12, 2005]

credit. This information may include credit reports, supporting information for the credit requested, and

reports by governmental agencies or other persons necessary to guarantee, insure, or provide security for

the credit or collateral.

Qualified lender means:

(1) A System institution, except a bank for cooperatives, that makes loans as defined in this section; and

(2) Each bank, institution, corporation, company, credit union, and association described in section

1.7(b)(1)(B) of the Act (commonly referred to as an other financing institution), but only with respect

to loans discounted or pledged under section 1.7(b)(1).

Restructure and restructuring of a loan means a reamortization, renewal, deferral of principal or interest,

monetary concessions, or the taking of any other action to modify the terms of, or forbear on, a loan.

(a) A qualified lender may not obtain a waiver of borrower rights, except as indicated in paragraphs (b) and (c)

of this section.

(b) A borrower may waive rights relating to distressed loan restructuring, credit reviews, and the right of first

refusal when a loan is guaranteed by the Small Business Administration or in connection with a loan sale

as provided in § 617.7015. Waivers obtained pursuant to this paragraph must be voluntary and in writing.

The document evidencing the waiver must clearly explain the rights the borrower is being asked to waive.

(c) A borrower may waive all borrower rights provided for in part 617 of these regulations in connection with a

loan syndication transaction with non-System lenders that are otherwise not required by section

4.14A(a)(6) of the Act to provide borrower rights. For purposes of this paragraph, a “loan syndication” is a

multi-lender transaction in which each member of the lending syndicate has a direct contractual

relationship with the borrower, but does not include a transaction created for the primary purpose of

avoiding borrower rights. Waivers obtained pursuant to this paragraph must be voluntary and in writing.

The document evidencing the waiver must clearly disclose the rights the borrower is waiving. Additionally,

the borrower's written waiver must contain a statement that the borrower was represented by legal

counsel in connection with execution of the waiver.

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Borrower Rights

12 CFR 617.7000 “Qualified lender”

12 CFR 617.7010(c) (enhanced display) page 4 of 19
§ 617.7015 What happens to borrower rights when a loan is sold?

Subpart B—Disclosure of Effective Interest Rates

Source: 69 FR 16459, Mar. 30, 2004, unless otherwise noted.

(a) What happens when a qualified lender sells a loan to another qualified lender? A loan made by a qualified

lender and subsequently sold, in whole or in part, to another qualified lender is subject to the borrower

rights provisions of title IV of the Act.

(b) What happens when a qualified lender sells a loan into the secondary market?

(1) Except as provided in paragraph (b)(2) of this section, the borrower rights provisions of sections

4.14, 4.14A, 4.14B, 4.14C, 4.14D, and 4.36 of the Act do not apply to a loan made on or after February

10, 1996, and designated for sale into a secondary market at the time the loan was made.

(2) Borrower rights apply to a loan designated for sale under paragraph (b)(1) of this section but not sold

into a secondary market during the 180-day period that begins on the date of designation. The

provisions of paragraph (b)(1) of this section will subsequently apply on the date of sale if the loan is

later sold into a secondary market.

(c) What happens when a qualified lender sells a loan to a nonqualified lender?

(1) Except for loans sold to another qualified lender or designated for sale into a secondary market, a

qualified lender must comply with one of the following requirements before selling a loan or interest

in a loan subject to borrower rights:

(i) The qualified lender and borrower must agree to include provisions in the loan contract with the

borrower, or a written modification thereto, that ensure that the buyer of the loan will be

obligated to provide the borrower the same rights a qualified lender must provide; or

(ii) The qualified lender must obtain from the borrower a signed written consent to the sale, which

clearly states the borrower waives statutory borrower rights.

(2) Before the qualified lender obtains the borrower's consent to the sale of the loan and the waiver of

borrower rights under paragraph (c)(1)(ii) of this section, the qualified lender must disclose in writing

to the borrower:

(i) A complete description of the statutory rights the borrower will waive;

(ii) Any changes in the loan terms or conditions that will occur if the qualified lender does not sell

the loan;

(iii) That waiving borrower rights will not become effective unless the qualified lender sells the loan;

and

(iv) That borrower rights will become effective again if any qualified lender repurchases the loan or

any interest in the loan.

(3) The consent to the loan sale and waiver of borrower rights shall have no effect until the qualified

lender sells the loan. Borrower rights become effective again if any qualified lender repurchases the

loan or any interest in the loan.

(4) A qualified lender may not make a loan conditioned on the borrower consenting to the loan's sale and

a waiver of borrower rights.

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7015

12 CFR 617.7015(c)(4) (enhanced display) page 5 of 19
§ 617.7100 Who must make and who is entitled to receive an effective interest rate disclosure?

§ 617.7105 When must a qualified lender disclose the effective interest rate to a borrower?

§ 617.7110 How should a qualified lender disclose the cost of borrower stock or participation

certificates?

The cost of borrower stock or participation certificates must be included in the effective interest rate calculation at

the time the stock or participation certificate is purchased in connection with a loan transaction. For subsequent

loans to existing borrowers, only the cost of new stock or participation certificates, if any, purchased in connection

with a new loan or advance of new funds must be included in the effective interest rate calculation for the

transaction.

§ 617.7115 How should a qualified lender disclose loan origination charges?

Any one-time charge paid by a borrower to a qualified lender in consideration for making a loan must be included in

the effective interest rate as a loan origination charge. These include, but are not limited to, loan origination fees,

application fees, and conversion fees. Loan origination charges also include any payments made by a borrower to a

qualified lender to reduce the interest rate that would otherwise be charged, including any charges designated as

“points.”

(a) A qualified lender must make the disclosures required by subparts B and C of this part to borrowers for all

loans not subject to the Truth in Lending Act.

(b) For a single loan involving more than one borrower, a qualified lender is required to provide only one set of

disclosures to borrowers. All borrowers may designate, in writing, one person who will receive the

effective interest rate disclosure. If the borrowers do not designate a particular recipient, the lender may

provide the disclosure to at least one of the borrowers who is primarily liable for repayment of the loan.

(a) Disclosure to prospective borrowers. A qualified lender must provide written effective interest rate

disclosure for each loan no later than the time of loan closing.

(b) Disclosure to existing borrowers.

(1) A qualified lender must provide a new effective interest rate disclosure to an existing borrower on or

before the date:

(i) The borrower executes a new promissory note or other comparable evidence of indebtedness;

(ii) The borrower purchases additional stock or participation certificates as a condition of obtaining

new funds from the qualified lender; or

(iii) The borrower pays an additional loan origination charge to the qualified lender as a condition of

obtaining new funds.

(2) A qualified lender is not required to provide a new effective interest rate disclosure when it advances

new funds to an existing borrower if none of the conditions of paragraph (b)(1) of this section apply

and the advance is made pursuant to a preexisting contract that specifically provides for future

advances.

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Borrower Rights

12 CFR 617.7100

12 CFR 617.7115 (enhanced display) page 6 of 19
§ 617.7120 How should a qualified lender present the disclosures to a borrower?

A qualified lender must:

§ 617.7125 How should a qualified lender determine the effective interest rate?

§ 617.7130 What initial disclosures must a qualified lender make to a borrower?

(a) Disclose the effective interest rate and other information required by subparts B and C of this part clearly

and conspicuously in writing, in a form that is easy to read and understand and that the borrower may

keep; and

(b) Not combine the disclosures with any information not directly related to the information required by §§

617.7130 and 617.7135.

(a) A qualified lender must calculate the effective interest rate on a loan using the discounted cash flow

method showing the effect of the time value of money.

(b) For all loans, the cash flow stream used for calculating the effective interest rate of a loan must include:

(1) Principal and interest;

(2) The cost of stock or participation certificates that a borrower is required to purchase in connection

with the loan; and

(3) Loan origination charges described in § 617.7115.

(c) A qualified lender must establish policies and procedures for EIR disclosures that clearly show the effect

of the cost of borrower stock (or participation certificates) and loan origination charges on the interest

rate of a loan. A qualified lender must also establish policies and procedures for determining major

assumptions used in calculating the effective interest rate, e.g., criteria on how the cost of borrower stock

(or participation certificates) and loan origination charges are assigned or allocated among multiple loans

obtained by a borrower simultaneously.

(a) Required disclosures—in general. A qualified lender must disclose in writing:

(1) The interest rate on the loan;

(2) The effective interest rate of the loan;

(3) The amount of stock or participation certificates that a borrower is required to purchase in

connection with the loan and included in the calculation of the effective interest rate of the loan;

(4) All loan origination charges included in the effective interest rate;

(5) That stock or participation certificates that borrowers are required to purchase are at risk and may

only be retired at the discretion of the board of the institution; and

(6) The various types of loan options available to borrowers, with an explanation of the terms and

borrower rights that apply to each type of loan.

(b) Adjustable rate loans. A qualified lender must provide the following information for adjustable rate loans

in addition to the requirements of paragraph (a) of this section:

(1) The circumstances under which the rate can be adjusted;

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12 CFR 617.7120

12 CFR 617.7130(b)(1) (enhanced display) page 7 of 19
[69 FR 16459, Mar. 30, 2004, , as amended at 74 FR 67972, Dec. 22, 2009]

§ 617.7135 What subsequent disclosures must a qualified lender make to a borrower?

(2) How much the rate can be adjusted at any one time and how much the rate can be adjusted during

the term of the loan;

(3) How often the rate can be adjusted;

(4) Any limitations on the amount or frequency of adjustments;

(5) The specific factors that the qualified lender may take into account in making adjustments to the

interest rate on the loan; and

(6) If the borrower's interest rate is directly tied to a widely publicized external index:

(i) How and where the borrower may obtain information on changes to the index; and

(ii) When the qualified lender will provide written notice of changes to the borrower's interest rate.

(a) Notice of interest rate change.

(1) A qualified lender must provide written notice to a borrower of any change in interest rate on the

borrower's existing loan, containing the following information:

(i) The new interest rate on the loan;

(ii) The date on which the new rate is effective; and

(iii) The factors used to adjust the interest rate on the loan.

(2) If the borrower's interest rate is directly tied to a widely publicized external index, a qualified lender

must provide written notice to the borrower of the rate change either:

(i) Within forty-five (45) days after the effective date of the change; or

(ii) As part of the borrower's first regularly scheduled billing statement affected by the rate change.

(3) If the borrower's interest rate is not directly tied to a widely publicized external index, a qualified

lender must send written notice to the borrower of the rate change within ten (10) days after the

effective date of the change.

(b) Notice to adjustable rate loan borrowers with interest rates directly tied to a widely publicized external

index. A qualified lender must provide the written disclosure required by § 617.7130(b)(6) to applicable

borrowers who were not previously given the disclosure no later than the qualified lender's next regularly

scheduled correspondence to those borrowers occurring after April 1, 2010.

(c) Notice of increase in stock purchase requirement. If a qualified lender increases the amount of stock (or

participation certificates) a borrower must own during the term of a loan, the lender must send a written

notice to the borrower at least ten (10) days prior to the effective date of the increase. The notice must

state:

(1) The new effective interest rate on the outstanding balance for the remaining term of the borrower's

loan;

(2) The date on which the new rate is effective; and

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12 CFR 617.7130(b)(2)

12 CFR 617.7135(c)(2) (enhanced display) page 8 of 19
[69 FR 16459, Mar. 30, 2004, , as amended at 74 FR 67972, Dec. 22, 2009]

Subpart C—Disclosure of Differential Interest Rates

§ 617.7200 What disclosures must a qualified lender make to a borrower on loans offered with

more than one rate of interest?

A qualified lender that offers more than one rate of interest to borrowers must notify each borrower of the right to

request a review of the interest rate charged on his or her loan no later than the time of loan closing. At the request

of a borrower, the lender must:

[69 FR 16459, Mar. 30, 2004]

Subpart D—Actions on Applications; Review of Credit Decisions

§ 617.7300 When acting on a loan application, what are the notice requirements and review

rights?

Each qualified lender must make its decision on a loan application as quickly as possible. The qualified lender must

provide prompt written notice of its decision to the applicant. The qualified lender is required to notify all primary

applicants. If a loan application has more than one primary applicant, the qualified lender may send the original

notice to the applicant designated to receive notices and may send copies to all other applicants. If the qualified

lender makes an adverse credit decision on a loan application, the notice must include:

§ 617.7305 What is a CRC and who are the members?

The board of directors of each qualified lender must establish one or more CRCs to review adverse credit decisions

made by a qualified lender. The CRC may only review adverse credit decisions at the request of the applicant or

borrower. The CRC has the ultimate decision-making authority on the loan or application under review. CRC

(3) The reason for the increase in the borrower stock (or participation certificates) purchase

requirement.

(a) Provide a review of the loan to determine if the proper interest rate has been established;

(b) Explain to the borrower in writing the basis for the interest rate charged; and

(c) Explain to the borrower in writing how the credit status of the borrower may be improved to receive a

lower interest rate on the loan.

(a) The specific reasons for the qualified lender's decision;

(b) A statement that the applicant may request a review of the decision;

(c) A statement that a written request for review must be made within 30 days after the applicant receives the

qualified lender's notice; and

(d) A brief explanation of the process for seeking review of the decision, including the independent collateral

evaluation review process, whom to contact for access to information, and the applicant's right to appear

in person before the credit review committee (CRC).

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Borrower Rights

12 CFR 617.7135(c)(3)

12 CFR 617.7305 (enhanced display) page 9 of 19
members are selected by the board of directors of each qualified lender and must include at least one of the

qualified lender's farmer-elected board members. The loan officer involved in the adverse credit decision being

reviewed may not serve on the CRC when it reviews that loan.

§ 617.7310 What is the review process of the CRC?

(a) How will an applicant or borrower know when the CRC will consider the review request? The qualified

lender must inform the applicant or borrower 15 days in advance of the CRC meeting where the applicant

or borrower's request will be reviewed.

(b) Who may make a personal appearance before the CRC? Each applicant or borrower who has requested a

review may appear in person before the CRC. The applicant or borrower may be accompanied by counsel

or other representative when seeking a reversal of a decision on a loan or an application for restructuring.

(c) What documents may the CRC consider? An applicant or borrower may submit any documents or other

evidence to support the information contained in the loan or application for restructuring. The documents

should demonstrate that the application for a loan or restructuring satisfies the credit standards of the

qualified lender and is an eligible loan or application for restructuring. Additionally, the applicant or

borrower is entitled to a copy of each independent collateral evaluation used by the qualified lender.

(d) May an applicant obtain a new collateral evaluation even if collateral was not a reason for the adverse

credit decision? As part of a CRC review, an applicant may request an independent collateral evaluation of

the agricultural real estate securing the loan or being offered as security, regardless of whether collateral

was an identified reason for the adverse credit decision. The independent collateral evaluation may be for

any interest(s) in the property securing the loan, except stock or participation certificates issued by the

qualified lender and held by the applicant or borrower.

(1) Who may conduct an independent collateral evaluation? The independent collateral evaluation must

be conducted by an independent evaluator. The CRC must provide the applicant or borrower with a

list of three independent evaluators approved by the qualified lender within 30 days of the request for

an independent collateral evaluation. The applicant or borrower must select and engage the services

of an evaluator from the list. The evaluation must comply with the collateral evaluation requirements

of part 614, subpart F, of this chapter. The qualified lender must provide the applicant or borrower a

copy of part 614, subpart F, for presentation to the selected independent evaluator. A copy of part

614, subpart F, signed by the evaluator is a required exhibit in the subsequent evaluation report.

(2) When must an applicant or borrower obtain the independent collateral evaluation and who pays for

the evaluation? The applicant or borrower must enter into a contractual arrangement for evaluation

services within 30 days of receiving the names of three approved independent evaluators. The

contractual arrangement must be a written contract for services that complies with the lender's

appraisal standards. The evaluation must be completed within a reasonable period of time, taking

into consideration any extenuating circumstance. The applicant or borrower is responsible for the

costs of the independent evaluation.

(3) How does the CRC use an independent collateral evaluation when making a decision? The CRC will

consider the results of any independent collateral evaluation before making a final determination

with respect to the loan or restructuring, except the CRC is not required to consider a collateral

evaluation that does not conform to the collateral evaluation standards described in part 614,

subpart F, of this chapter.

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7310

12 CFR 617.7310(d)(3) (enhanced display) page 10 of 19
§ 617.7315 What records must the qualified lender maintain on behalf of the CRC?

A qualified lender must maintain a complete file of all requests for CRC reviews, including participation in state

mediation programs, the minutes of each CRC meeting, and the disposition of each review by the CRC.

Subpart E—Distressed Loan Restructuring; State Agricultural Loan Mediation Programs

§ 617.7400 What protections exist for borrowers who meet all loan obligations?

§ 617.7405 On what policies are loan restructurings based?

Loan restructurings must be made in accordance with the policy adopted by the supervising bank board of directors

under section 4.14A(g) of the Act.

§ 617.7410 When and how does a qualified lender notify a borrower of the right to seek loan

restructuring?

(e) When must the CRC issue a decision? The CRC must reach a decision, and it must be the final decision of

the qualified lender, not later than 30 days after the meeting on the request under review. The CRC must

make every reasonable effort to conduct reviews and render decisions in as expeditious a manner as

possible. After making its decision, the committee must promptly notify the applicant or borrower in

writing of the decision and the reasons for the decision.

(a) A qualified lender may not foreclose on a loan because the borrower failed to post additional collateral

when the borrower has made all accrued payments of principal, interest, and penalties on the loan.

(b) A qualified lender may not require a borrower to reduce the outstanding principal balance of a loan by any

amount that exceeds the regularly scheduled principal installment when due and payable, unless:

(1) The borrower sells or otherwise disposes of part, or all, of the collateral without the prior approval of

the qualified lender and the proceeds from the sale or disposition are not applied to the loan; or

(2) The parties agree otherwise in writing.

(c) After a borrower has made all accrued payments of principal, interest, and penalties on a loan, the

qualified lender may not enforce acceleration of the borrower's repayment schedule due to the borrower's

untimely payment of those principal, interest, or penalty payments.

(d) If a qualified lender places a loan in non-interest-earning status and this results in an adverse action being

taken against the borrower, such as revoking any undisbursed loan commitment, the lender must

document the change of status and promptly notify the borrower in writing of the action and the reasons

for taking it. If the borrower was not delinquent on any principal, interest, or penalty payment at the time

of such action and the borrower's request to have the loan placed back into accrual status is denied, the

borrower may obtain a review of the denial before the CRC pursuant to § 617.7310 of this part. The

borrower must request this review within 30 days after receiving the lender's notice.

(a) What are the notice requirements? When a qualified lender determines that a loan is, or has become,

distressed, the lender must provide one of the following written notices to the borrower stating that the

loan may be suitable for restructuring.

(1) A notice stating that the loan has been identified as distressed and that the borrower has the right to

request a restructuring of the loan (nonforeclosure notice).

12 CFR Part 617 (up to date as of 3/07/2024)

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12 CFR 617.7310(e)

12 CFR 617.7410(a)(1) (enhanced display) page 11 of 19
§ 617.7415 How does a qualified lender decide to restructure a loan?

(2) A notice that the loan has been identified as distressed, that the borrower has the right to request a

restructuring of the loan, and that the alternative to restructuring may be foreclosure (45-day notice).

The qualified lender must provide this notice to the borrower no later than 45 days before the

qualified lender begins foreclosure proceedings with respect to any loan outstanding to the

borrower. This notice must specifically state that if the loan is restructured and the borrower does

not perform under the restructure agreement (as described in § 617.7410(e)), the qualified lender

may initiate foreclosure proceedings without further notice.

(b) What should each notice include?

(1) A copy of the policy the qualified lender established governing the treatment of distressed loans; and

(2) All materials necessary for the borrower to submit an application for restructuring.

(c) What notice should a qualified lender send to a borrower who is a debtor in a bankruptcy proceeding? The

qualified lender should send a notice that identifies the loan as distressed and the statutory right to file an

application for a restructuring. The notice may also restate the language from the automatic stay

provision to emphasize that the notice is not intended as an attempt to collect, assess, or recover a claim.

(d) Whom should the qualified lender notify? The qualified lender is required to notify all primary obligors. If

the obligors identify one party to receive notices, the qualified lender should send the original notice to

that person and send copies to the other obligors. For borrowers in a bankruptcy proceeding, the qualified

lender should send the notice to the borrower and, if retained, the borrower's counsel.

(e) When is a qualified lender required to send another restructure notice to a borrower whose loan was

previously restructured? A qualified lender must notify a borrower of the right to file another application to

restructure the loan if the qualified lender sent the nonforeclosure notice to the borrower and the borrower

has performed on the previous restructure agreement. Performance means that a borrower has made six

consecutive monthly payments, four consecutive quarterly payments, three consecutive semiannual

payments, or two consecutive annual payments. However, a qualified lender is not required to send

another notice if they previously sent a 45-day notice, as described in § 617.7410(a)(2), and a borrower

did not perform under a restructure agreement, as described above.

(f) Does the borrower have the opportunity to meet with the qualified lender after receiving the restructure

notice? The qualified lender must provide any borrower to whom a notice has been sent with a reasonable

opportunity to meet personally with a representative of the lender. The borrower and lender may meet to

review the status of the loan, the financial condition of the borrower, and the suitability of the loan for

restructuring. A meeting to discuss a loan that is in a non-interest-earning status may also involve

developing a plan for restructuring, if the qualified lender determines the loan is suitable for restructuring.

(g) May the qualified lender voluntarily consider restructuring for a borrower who did not submit a

restructuring application? A qualified lender may, in the absence of an application for restructuring from a

borrower, propose restructuring to an individual borrower.

(a) What criteria does a qualified lender use to evaluate an application for restructuring? The qualified lender

should consider the following:

(1) Whether the cost to the lender of restructuring the loan is equal to or less than the cost of

foreclosure, considering all relevant criteria. These criteria include:

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Borrower Rights

12 CFR 617.7410(a)(2)

12 CFR 617.7415(a)(1) (enhanced display) page 12 of 19
(i) The present value of interest and principal foregone by the lender in carrying out the application

for restructuring;

(ii) Reasonable and necessary administrative expenses involved in working with the borrower to

finalize and implement the application for restructuring;

(iii) Whether the borrower's application for restructuring included a preliminary restructuring plan

and cash flow analysis, taking into account income from all sources to be applied to the debt

and all assets to be pledged, that show a reasonable probability that orderly debt retirement will

occur as a result of the proposed restructuring; and

(iv) Whether the borrower has furnished, or is willing to furnish, complete and current financial

statements in a form acceptable to the qualified lender.

(2) Whether the borrower is applying all income over and above necessary and reasonable living and

operating expenses to the payment of primary obligations;

(3) Whether the borrower has the financial capacity and the management skills to protect the collateral

from diversion, dissipation, or deterioration;

(4) Whether the borrower is capable of working out existing financial difficulties, taking into

consideration any prior restructuring of the loan, reestablishing a viable operation, and repaying the

loan on a rescheduled basis; and

(5) In the case of a distressed loan that is not delinquent, whether restructuring consistent with sound

lending practices may be taken to reasonably ensure that the loan will not have to be placed into

non-interest-earning status in the future.

(b) What should be included in determining the cost of foreclosure?

(1) The difference between the outstanding balance due, as provided by the loan documents, and the

liquidation value of the loan, taking into consideration the borrower's repayment capacity and the

liquidation value of the collateral used to secure the loan;

(2) The estimated cost of maintaining a loan classified as a high-risk asset;

(3) The estimated cost of administrative and legal actions necessary to foreclose a loan and dispose of

property acquired as the result of the foreclosure, including attorneys' fees and court costs;

(4) The estimated cost of value changes in collateral used to secure a loan during the period beginning

on the date of the initiation of an action to foreclose or liquidate the loan and ending on the date of

the disposition of the collateral; and

(5) All other costs incurred as the result of the foreclosure or liquidation of a loan.

(c) What should the qualified lender do if the borrower and the qualified lender cannot agree on the financial

projections used in the application for restructuring? If the borrower and lender are not able to agree on

supportable or realistic financial projections, the lender may use benchmarks to determine the operational

input costs and chattel security values. These benchmarks may include, but are not limited to, the

borrower's 5-year production average; averages in the county where the farming operation is located,

based on data from United States Department of Agriculture, local colleges or universities, or other

recognized authority; and other such reasonable sources.

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7415(a)(1)(i)

12 CFR 617.7415(c) (enhanced display) page 13 of 19
§ 617.7420 How will a decision on an application for restructuring be issued?

§ 617.7425 What type of notice should be given to a borrower before foreclosure?

The qualified lender must send the 45-day notice, as described in § 617.7410(a)(2), no later than 45 days before any

qualified lender begins foreclosure proceedings. The notice informs the borrower in writing that the loan may be

suitable for restructuring and that the qualified lender will review any suitable loan for possible restructuring. The

45-day notice must include a copy of the policy and the materials described in § 617.7410(b). The notice must also

state that if the loan is restructured, the borrower must perform under this restructure agreement. If the borrower

does not perform, the qualified lender may initiate foreclosure.

(d) How does the qualified lender decide whether to restructure or foreclose? If a qualified lender determines

the potential cost to the lender of restructuring the loan as proposed in the application for restructuring is

less than or equal to the potential cost of foreclosure, the qualified lender must restructure the loan. If two

or more restructuring alternatives are available, the qualified lender must restructure the loan using the

alternative that results in the least cost to the lender.

(e) What documentation should the qualified lender retain? In the event that an application for restructuring is

denied, a qualified lender must maintain sufficient documentation to demonstrate compliance with

paragraphs (a), (b), and (c) of this section, as applicable.

(a) When must a qualified lender make a decision on an application for restructuring? Each qualified lender

must provide a written decision on an application for restructuring and provide this decision to the

borrower within 15 days from the conclusion of the negotiations used to develop the application for

restructuring.

(b) How does a qualified lender notify the borrower of the decision? On reaching a decision on an application

for restructuring, the qualified lender must provide written notice in any manner that requires a primary

obligor to acknowledge receipt of the lender's decision. In the case of a loan involving one or more

primary obligors, the original notice may be provided to the primary obligor identified to receive such

notice, with copies provided by regular mail to the other obligors.

(c) What notice is required if the restructuring request is denied? When an application for restructuring is

denied, the notice must include:

(1) The specific reason(s) for the denial and any critical assumptions and relevant information on which

the specific reasons are based, except that any confidential information shall not be disclosed;

(2) A statement that the borrower may request a review of the denial;

(3) A statement that any request for review must be made in writing within 7 days after receiving such

notice.

(4) A brief explanation of the process for seeking review of the denial, including the appraisal review

process and the right to appear before the CRC, pursuant to § 617.7310 of this part, accompanied by

counsel or any other representative, if the borrower chooses.

(a) Does the notice have to inform the borrower that foreclosure is possible? The notice must inform the

borrower that the alternative to restructuring may be foreclosure. If the notice does not inform the

borrower of potential foreclosure, then the qualified lender must send a second notice at least 45 days

before foreclosure is initiated.

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7415(d)

12 CFR 617.7425(a) (enhanced display) page 14 of 19
§ 617.7430 Are institutions required to participate in state agricultural loan mediation

programs?

Subpart F—Distressed Loan Restructuring Directive

§ 617.7500 What is a directive used for and what may it require?

§ 617.7505 How will the qualified lender know when FCA is considering issuing a distressed loan

restructuring directive?

When FCA intends to issue a distressed loan restructuring directive, it will notify the qualified lender in writing. The

notice will state:

(b) How are borrowers who are debtors in a bankruptcy proceeding notified? A qualified lender must restate

the language from the automatic stay provision to emphasize that the notice is not intended to be an

attempt to collect, assess, or recover a claim. The qualified lender should send the notice to the borrower

and, if retained, the borrower's counsel.

(c) May a qualified lender foreclose on a loan when there is a restructuring application on file? No qualified

lender may foreclose or continue any foreclosure proceeding with respect to a distressed loan before the

lender has completed consideration of any pending application for restructuring and CRC consideration, if

applicable. This section does not prevent a lender from taking any action necessary to avoid the

dissipation of assets or the diversion, dissipation, or deterioration of collateral if the lender has

reasonable grounds to believe that such diversion, dissipation, or deterioration may occur.

(a) If initiated by a borrower, System institutions must participate in state mediation programs certified under

section 501 of the Agricultural Credit Act of 1987 and present and explore debt restructuring proposals

advanced in the course of such mediation. If provided in the certified program, System institutions may

initiate mediation at any time.

(b) System institutions must cooperate in good faith with requests for information or analysis of information

made in the course of mediation under any loan mediation program.

(c) No System institution may make a loan secured by a mortgage or lien on agricultural property to a

borrower on the condition that the borrower waive any right under the agricultural loan mediation program

of any state.

(d) A state mediation may proceed at the same time as the loan restructuring process of § 617.7415 or at any

other appropriate time.

(a) A distressed loan restructuring directive is an order issued to a qualified lender when FCA has determined

that the lender has violated section 4.14A of the Act.

(b) A distressed loan restructuring directive requires the qualified lender to comply with the specific

distressed loan restructuring requirements in the Act.

(c) A distressed loan restructuring directive is enforceable in the same manner and to the same extent as an

effective and outstanding cease and desist order that has become final. Any violation of a distressed loan

restructuring directive may result in FCA assessing civil money penalties or seeking a court order

pursuant to section 5.31 or 5.32 of the Act.

(a) The reasons FCA intends to issue a distressed loan restructuring directive;

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7425(b)

12 CFR 617.7505(a) (enhanced display) page 15 of 19
§ 617.7510 What should the qualified lender do when it receives notice of a distressed loan

restructuring directive?

§ 617.7515 How does the FCA decide whether to issue a directive?

After the closing date of the qualified lender's response period, or following receipt of the qualified lender's

response, FCA must decide if there is sufficient information to support the issuance of a directive or if additional

information is necessary. Once FCA has received sufficient information, it must decide whether to issue a directive

as originally proposed or as modified.

§ 617.7520 How does the FCA issue a directive and when will it be effective?

A distressed loan restructuring directive is effective immediately on receipt by the qualified lender, or on such later

date as may be specified by FCA, and will remain effective and enforceable until it is stayed, modified, or terminated

by FCA.

§ 617.7525 May FCA use other enforcement actions?

FCA may issue a distressed loan restructuring directive in addition to, or instead of, any other action allowed by law,

including cease and desist proceedings, civil money penalties, or the granting or conditioning of any application or

other requests by the System institution.

Subpart G—Right of First Refusal

§ 617.7600 What are the definitions used in this subpart?

In addition to the definitions in § 617.7000, the following definitions apply to this subpart.

(b) The proposed contents of the distressed loan restructuring directive; and

(c) Any other relevant information.

(a) A qualified lender should respond to the notice by stating why FCA should not issue a distressed loan

restructuring directive, by proposing changes to the directive, or by seeking other suitable relief. The

response must include any information, documentation, or other relevant evidence that supports the

qualified lender's position. The response may include a plan for achieving compliance with the distressed

loan restructuring requirements of the Act. The response must be in writing and delivered to FCA within

30 days after the date on which the qualified lender received the notice. In its discretion, FCA may extend

the time period for good cause. FCA may shorten the 30-day period with the consent of the qualified

lender or when FCA determines that providing the full 30 days would result in a borrower not receiving

distressed loan restructuring rights.

(b) If the qualified lender fails to respond within 30 days or such other time period specified by FCA, this

failure will constitute a waiver of any objections to the proposed distressed loan restructuring directive.

Acquired agricultural real estate or property means agricultural real estate acquired by a System institution as a

result of a loan foreclosure or a voluntary conveyance by a borrower who, as determined by the institution,

does not have the financial resources to avoid foreclosure.

Previous owner means:

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Borrower Rights

12 CFR 617.7505(b)

12 CFR 617.7600 “Previous owner” (enhanced display) page 16 of 19
§ 617.7605 How should System institutions document whether the borrower had the financial

resources to avoid foreclosure?

The right of first refusal applies only to borrowers who did not have the financial resources to avoid foreclosure or

voluntary conveyance. A System institution must clearly document in its files whether the borrower had the

resources to avoid foreclosure or voluntary conveyance.

§ 617.7610 What should the System institution do when it decides to sell acquired agricultural

real estate?

(1) The prior record owner who was a borrower from a System institution and did not have the financial

resources, as determined by the institution, to avoid foreclosure on acquired agricultural real estate;

or

(2) The prior record owner who is not a borrower and whose acquired agricultural real estate was used

as collateral for a loan to a System borrower.

System institution means a Farm Credit System institution, except a bank for cooperatives, which makes loans

as defined in § 617.7000.

(a) Notify the previous owner,

(1) Within 15 days of the System institution's decision to sell acquired agricultural real estate, it must

notify the previous owner, by certified mail, of the property's appraised fair market value as

established by an accredited appraiser and of the previous owner's right to:

(i) Buy the property at the appraised fair market value, or

(ii) Offer to buy the property at a price less than the appraised value.

(2) That any offer must be received within 30 days of receipt of the notice.

(b) Act on an offer to buy the acquired agricultural real estate at the appraised value. Within 15 days after the

receipt of the previous owner's offer to buy the acquired agricultural real estate at the appraised value, the

System institution must accept the offer and sell the property to the previous owner if the offer was

received within 30 days of the notice required in paragraph (a)(2) of this section.

(c) Act on an offer to buy the acquired agricultural real estate at less than the appraised value.

(1) The System institution must consider the offer if it was received within 30 days of the notice required

in paragraph (a)(2) of this section.

(2) If the System institution accepts this offer, it must notify the previous owner of the decision and sell

the acquired agricultural real estate to the previous owner within 15 days of receiving the offer to buy

the acquired agricultural real estate at a value less than the appraised value.

(3) If the System institution rejects this offer, it must notify the previous owner of the decision within 15

days of receiving the offer to buy the acquired agricultural real estate at a value less than the

appraised value. The previous owner has 15 days from receipt of the notice to submit an offer to buy

at such price or under such terms and conditions. The System institution may not sell the acquired

agricultural real estate to any other person:

(i) At a price equal to, or less than, that offered by the previous owner; or

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12 CFR 617.7600 “Previous owner” (1)

12 CFR 617.7610(c)(3)(i) (enhanced display) page 17 of 19
§ 617.7615 What should the System institution do when it decides to lease acquired agricultural

real estate?

(ii) On different terms or conditions than those extended to the previous owner without first

notifying the previous owner by certified mail and providing an opportunity to buy the property

at such price or under such terms and conditions.

(d) For purposes of this section, financing by the System institution is not a term or condition of the sale of

acquired agricultural real estate. A System institution is not required to provide financing to the previous

owner for purchase of acquired agricultural real estate.

(a) Notify the previous owner,

(1) Within 15 days of the System institution's decision to lease acquired agricultural real estate, it must

notify the previous owner, by certified mail, of the property's appraised rental value, as established by

an accredited appraiser, and of the previous owner's right to:

(i) Lease the property at a rate equivalent to the appraised rental value of the property, or

(ii) Offer to lease the property at rate that is less than the appraised rental value of the property.

(2) That any offer must be received within 15 days of receipt of the notice.

(b) Act on an offer to lease the acquired agricultural real estate at a rate equivalent to the appraised rental

value of the property.

(1) Within 15 days after receipt of such offer, the System institution may accept the offer to lease the

property at the appraised rental value and lease the property to the previous owner, or

(2) Within 15 days after receipt of such offer, the System institution may reject the offer to lease the

property at the appraised rental value when the institution determines that the previous owner:

(i) Does not have the resources available to conduct a successful farming or ranching operation;

or

(ii) Cannot meet all the payments, terms, and conditions of such lease.

(c) Act on an offer to lease the acquired agricultural real estate at a rate that is less than the appraised rental

value of the property.

(1) The System institution must consider the offer to lease the property at a rate that is less than the

appraised rental value of the property. Notice of the decision to accept or reject such offer must be

provided to the previous owner within 15 days of receipt of the offer.

(2) If the System institution accepts the offer to lease the property at less than the appraised rental

value, it must notify the previous owner and lease the property to the previous owner.

(3) If the institution rejects the offer, the System institution must notify the previous owner of this

decision. The previous owner has 15 days after receipt of the notice in which to agree to lease the

property at such rate or under such terms and conditions. The System institution may not lease the

property to any other person:

(i) At a rate equal to or less than that offered by the previous owner; or

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Borrower Rights

12 CFR 617.7610(c)(3)(ii)

12 CFR 617.7615(c)(3)(i) (enhanced display) page 18 of 19
§ 617.7620 What should the System institution do when it decides to sell acquired agricultural

real estate at a public auction?

System institutions electing to sell or lease acquired agricultural real estate or a portion of it through a public

auction, competitive bidding process, or other similar public offering must:

§ 617.7625 Whom should the System institution notify?

Each certified mail notice requirement in this section is fully satisfied by mailing one certified mail notice to the last

known address of the previous owner or owners.

§ 617.7630 Does this Federal requirement affect any state property laws?

The rights provided under section 4.36 of the Act and this section do not affect any right of first refusal under the

law of the state in which the property is located.

(ii) On different terms and conditions than those that were extended to the previous owner without

first informing the previous owner by certified mail and providing an opportunity to lease the

property at such rate or under such terms and conditions.

(a) Notify the previous owner, by certified mail, of the availability of such property. The notice must contain

the minimum amount, if any, required to qualify a bid as acceptable to the institution and any terms or

conditions to which such sale or lease will be subject;

(b) Accept the offer by the previous owner if the System institution receives two or more qualified bids in the

same amount, the bids are the highest received, and one of the qualified bids is from the previous owner;

and

(c) Not discriminate against a previous owner in these proceedings.

12 CFR Part 617 (up to date as of 3/07/2024)

Borrower Rights

12 CFR 617.7615(c)(3)(ii)

12 CFR 617.7630 (enhanced display) page 19 of 19
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 618 General Provisions

Subpart A Related Services

§ 618.8000 Definitions.

§ 618.8005 Eligibility.

§ 618.8010 Related services authorization process.

§ 618.8015 Policy guidelines.

§ 618.8020 Feasibility requirements.

§ 618.8025 Feasibility reviews.

§ 618.8030 Out-of-territory related services.

Subpart B Member Insurance

§ 618.8040 Authorized insurance services.

Subparts C–F [Reserved]

Subpart G Releasing Information

§ 618.8300 General regulation.

§ 618.8310 Lists of borrowers and stockholders.

§ 618.8320 Data regarding borrowers and loan applicants.

§ 618.8325 Disclosure of loan documents.

§ 618.8330 Production of documents and testimony during litigation.

§ 618.8340 [Reserved]

Subpart H Disposition of Obsolete Records

§ 618.8360 [Reserved]

§ 618.8370 [Reserved]

Subpart I [Reserved]

Subpart J Internal Controls

§ 618.8430 Internal controls.

§ 618.8440 Planning.

PART 618—GENERAL PROVISIONS

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7, 4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit

Act (12 U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183, 2200, 2211, 2218, 2243, 2244, 2252).

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR Part 618 (Mar. 7, 2024)

12 CFR 618 (enhanced display) page 1 of 14
Subpart A—Related Services

Source: 60 FR 34099, June 30, 1995, unless otherwise noted.

§ 618.8000 Definitions.

For the purposes of this subpart, the following definitions shall apply:

[60 FR 34099, June 30, 1995, as amended at 69 FR 43514, July 21, 2004]

§ 618.8005 Eligibility.

[60 FR 34099, June 30, 1995, as amended at 62 FR 4450, Jan. 30, 1997; 69 FR 43514, July 21, 2004]

(a) Program means the method or procedures used to deliver a related service. This distinguishes the

particulars of how a related service will be provided from the type of activity or concept.

(b) Related service means any service or type of activity provided by a System bank or association that is

appropriate to the recipient's operations, including control of related financial matters. The term “related

service” includes, but is not limited to, technical assistance, financial assistance, financially related

services and insurance, but does not include lending or leasing activities.

(c) System banks and associations means Farm Credit Banks, agricultural credit banks, banks for

cooperatives, agricultural credit associations, production credit associations, Federal land bank

associations, Federal land credit associations, and service corporations formed pursuant to section 4.25

of the Act.

(a) Farm Credit Banks and associations may offer related services appropriate to on-farm and aquatic

operations to persons eligible to borrow as defined in §§ 613.3000 (a) and (b), 613.3010, and 613.3300 of

this chapter.

(b) Banks for cooperatives may offer related services to entities eligible to borrow as defined in §§ 613.3100,

613.3200, and 613.3300 of this chapter.

(c) Agricultural credit banks may offer related services appropriate to on-farm and aquatic operations of

persons eligible to borrow specified in paragraph (a) of this section and may offer related services to

entities eligible to borrow as specified in paragraph (b) of this section.

(d) Service corporations formed pursuant to section 4.25 of the Act may offer related services to persons

eligible to borrow from the owners of the service corporation, pursuant to paragraphs (a), (b), (c), and (e)

of this section.

(e) System banks and associations may provide related services to recipients that do not otherwise meet the

requirements of this section in connection with loan applications, loan servicing, and other transactions

between these recipients and persons eligible to borrow as defined in paragraphs (a), (b), or (c) of this

section, as long as the service provided is requested by an eligible borrower or necessary to the

transaction between the parties. Such services include, but are not limited to, fee appraisals of

agricultural assets provided to any Federal agency, commercial banks, and other lenders.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8000

12 CFR 618.8005(e) (enhanced display) page 2 of 14
§ 618.8010 Related services authorization process.

(a) Authorities. System banks and associations may only offer related services that meet the criteria

specified in this regulation and are authorized by the FCA.

(b) New service proposals.

(1) A System bank or association that proposes or intends to offer a related service that the FCA has not

previously authorized must submit to the FCA, in writing, a proposal that includes a description of

the service, a statement of how it meets the regulatory definition of “related services” in §

618.8000(b), and the risk analysis cited in § 618.8020(b)(3). The FCA will evaluate the proposed

service based on the information submitted, and may also consider whether there are extenuating

circumstances or other compelling reasons that justify the proposed service or support a

determination that the service is not authorized. This evaluation will focus primarily on Systemwide

issues rather than on institution or program-specific factors.

(2) When authorizing a proposed related service, at its discretion, the FCA may impose special

conditions or limitations on any related service or program to offer a related service.

(3) At its discretion the FCA may, at any time during its evaluation of a proposed related service, publish

the proposed related service in the FEDERAL REGISTER for public comment.

(4) Within 60 days of the FCA receiving a completed proposal, including any additional information the

FCA may require, the FCA will act on the request to authorize a new service. The FCA shall approve

the request, deny the request, or publish the service for public comment in the FEDERAL REGISTER. For

good cause and prior to the expiration of the 60 days, the FCA may extend this period for an

additional 60 days.

(5) Within the time period established in paragraph (b)(4) of this section, the FCA shall notify the

requesting institution of its actions. Following notification of the requesting institution, the FCA will

notify all System banks and associations of its determination on the proposed service by bookletter

or other means. If a service is not authorized, the reasons for denial will be included in the

notifications to the System and the requesting institution.

(c) Previously authorized services.

(1) For related services that have been authorized by the FCA, any System bank or association may

develop a program and subsequently offer the related service to eligible recipients, subject to any

special conditions or institutional limits placed by the FCA. These programs will be subject to review

and evaluation during the examination and enforcement process.

(2) The FCA shall make available to all System banks and associations a list of such related services

(“related services list” or “list”) and will update the list in accordance with paragraph (b)(5) of this

section. The list will contain the following:

(i) A description of each related service; and

(ii) The types of institutions authorized to offer each type of related service;

(iii) Identification of any special conditions on how the related service may be offered. The special

conditions and description of the service will be fully detailed in FCA's notice to System

institutions under paragraph (b)(5) of this section.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8010

12 CFR 618.8010(c)(2)(iii) (enhanced display) page 3 of 14
§ 618.8015 Policy guidelines.

§ 618.8020 Feasibility requirements.

For every related service program a System bank or association provides, it must document program feasibility. The

feasibility analysis shall include the following:

(3) At least 10 business days prior to implementing a related service program already on the list, the

System bank or association must notify the FCA Office of Examination field office responsible for

examining that institution in writing and provide it with a description of the proposed related service

program.

(a) The board of directors of each System bank or association providing related services must adopt a policy

addressing related services. The policy shall include clearly stated purposes, objectives, and operating

parameters for offering related services and a requirement that each service offered be consistent with

the institution's business plan and long-term strategic goals. Such policy shall also be subject to review

under an appropriate internal control policy.

(b) All related services must be offered to recipients on an optional basis. If the institution requires a related

service as a condition to borrow, it must inform the recipient that the related service can be obtained from

the institution or from any other person or entity offering the same or similar related services.

(c) All fees for related services must be separately identified from loan interest charges and disclosed to the

recipient of the service prior to providing or implementing the service.

(a) Support for the determination that the related service is authorized; and

(b) An overall cost-benefit analysis that demonstrates program feasibility, taking into consideration the

following items:

(1) An analysis of how the program relates to or promotes the institution's business plan and strategic

goals, and whether offering the service is consistent with the long-term goals described in its capital

plan;

(2) An analysis of the expected financial returns of the program which, at a minimum, must include an

evaluation of market, pricing, competition issues, and expected profitability. This analysis should

include an explanation of how the program will contribute to the overall financial health of the

institution; and

(3) An analysis of the risk in the program, including:

(i) An evaluation of the operational costs and risks involved in offering the program, such as

management and personnel requirements, training requirements, and capital outlays;

(ii) An evaluation of the financial liability that may be incurred as a result of offering the program

and any insurance or other measures that are necessary to minimize these risks; and

(iii) An evaluation of the conflicts of interest, whether real or perceived, that may arise as a result of

offering the program and any steps that are necessary to eliminate or appropriately manage

these conflicts.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8010(c)(3)

12 CFR 618.8020(b)(3)(iii) (enhanced display) page 4 of 14
§ 618.8025 Feasibility reviews.

[60 FR 34099, June 30, 1995; 60 FR 42029, Aug. 15, 1995]

§ 618.8030 Out-of-territory related services.

Subpart B—Member Insurance

(a) Prior to an association offering a related service program for the first time or offering a service that it did

not offer during the most recently completed business cycle (generally 1 year), the board of directors of

the funding bank must verify that the association has performed a feasibility analysis pursuant to §

618.8020. The bank review is limited to a determination that the feasibility analysis is complete and that

the analysis establishes that it is feasible for the association to provide the program. Any conclusion by

the bank that the feasibility analysis is incomplete or fails to demonstrate program feasibility must be

fully supported and communicated to the association in writing within 60 days of its submission to the

bank.

(b) Prior to a service corporation offering a service for the first time or offering a service that it did not offer

during the most recently completed business cycle (generally 1 year), the owners of the service

corporation must verify that the service corporation has performed a feasibility analysis pursuant to §

618.8020. If the owners all agree, one bank with a significant ownership interest can be delegated this

responsibility.

(a) System banks and associations may offer related services outside their chartered territories subject to the

following conditions:

(1) The System bank or association obtains consent from all chartered institutions currently offering the

same type of service in the territory in which the service is to be provided; or

(2) If no System bank or association is currently offering the same type of service in the territory, then

the out-of-territory institution must obtain the consent of at least one direct lender institution

chartered in the territory in which the related service is to be provided.

(3) The consent obtained pursuant to paragraphs (a)(1) and (a)(2) of this section shall be in the form of

a written agreement with specific terms and conditions including timeframes.

(b) System banks and associations providing out-of-territory services must fulfill all requirements of subparts

A and B of this part 618.

(c) An institution that consents to another bank or association providing a related service in its chartered

territory must meet the requirements of this section, but need not comply with the other requirements of

subparts A and B of this part 618, unless the program consented to imposes a financial obligation on the

consenting institution. If a financial obligation exists, then the consenting institution must comply with §§

618.8015, 618.8020 and 618.8025.

(d) Service corporations must follow the requirements of this section in offering related services out-ofterritory. A service corporation cannot consent to an out-of-territory institution providing services in its

chartered territory.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8025

12 CFR 618.8030(d) (enhanced display) page 5 of 14
§ 618.8040 Authorized insurance services.

(a) Farm Credit System banks (excluding banks for cooperatives) (hereinafter banks) and associations may

sell to their members and borrowers, on an optional basis, credit or term life and credit disability

insurance appropriate to protect the loan commitment in the event of death or disability of the debtors.

The sale of other insurance necessary to protect a member's or borrower's farm or aquatic unit is

permitted, but limited to hail and multiple-peril crop insurance, title insurance, and insurance necessary to

protect the facilities and equipment of aquatic members and borrowers. A member or borrower shall have

the option, without coercion from the bank or association, to accept or reject such insurance.

(b) Bank and association board policies governing the provision of member insurance programs shall be

established within the following general guidelines:

(1) A System bank or association may provide credit or term-life or credit-disability insurance only to

persons who have a loan or lease with any System bank or association, without regard to whether

such institution is the provider. Term-life insurance coverage may continue after the loan has been

repaid or the lease terminated, provided the member can reasonably be expected to borrow again

within 2 years, and provided the continuation of insurance is not contrary to state law.

(2) A debtor-creditor relationship is not required for the sale of other insurance specified in paragraph (a)

of this section, as long as purchasers are members of a System bank or association. For the

purposes of this section, “member” means someone eligible to borrow who is a stockholder or

participation certificate holder and who acquired stock or participation certificates to obtain a loan,

for investment purposes, or to qualify for other services of the association or bank.

(3) In making insurance available through private insurers, each bank shall approve the programs of

more than two insurers for each type of insurance offered in the bank's chartered territory, provided

that more than two insurers for each type of insurance have proposed programs to the bank that will,

in all likelihood, have long-term viability, and meet the requirements of § 618.8040(b)(4)(i) of this

section. The banks shall make a reasonable and good faith effort to attract more than two qualified

insurers for each insurance program offered to borrowers in all States of the bank's chartered

territory. Where the bank is unable to approve more than two insurers, the bank shall document its

efforts to attract additional qualified insurers for the affected insurance program and State. The

banks may provide comparative information relating to costs and quality of approved programs and

the financial condition of approved companies.

(4) Member insurance services may be offered only if:

(i) The insurance program has been approved by the bank or association from among eligible

programs made available to it by insurers—

(A) Meeting reasonable financial and quality of service standards prescribed by the bank; and

(B) Licensed under State law to do business in the State(s) in which the insurance is offered:

(ii) The bank or association has the capacity to render authorized insurance services in an effective

and efficient manner;

(iii) There exists the probability that the service will generate sufficient revenue to cover all costs;

(iv) Rendering the insurance service will not have an adverse effect on the credit or other operations

of the bank or association; and

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8040

12 CFR 618.8040(b)(4)(iv) (enhanced display) page 6 of 14
(v) In making insurance available through approved insurers, the board of directors of the bank or

association shall make a reasonable and good faith effort to select and offer at least two

approved insurers for each type of insurance made available to the members and borrowers. In

the event that the bank or association has selected less than two insurers for any insurance

program, such bank or association shall document the reasons why it is unable to offer

members and borrowers additional insurers for the affected insurance program.

(5) All costs to members and borrowers for insurance services provided shall be disclosed separately

from interest charges.

(6) Bank and association personnel shall not benefit from insurance sales by receipt of commissions or

gifts from underwriting insurance companies. However, employees may participate in an incentive

plan under which incentive compensation is provided based on the sale of insurance.

(i) In any single year, for all employees except full-time insurance personnel or full-time

supervisors or managers of insurance departments, incentive compensation attributable to

sales of all types of insurance cannot exceed an amount equivalent to 5 percent of the

recipient's annual base salary.

(ii) In any single year, for full-time insurance personnel and full-time supervisors and managers of

insurance departments, incentive compensation for sales of credit life and similar types of

insurance (i.e. insurance that pays on a loan or mortgage upon the death or disability of the

debtor) cannot exceed an amount equivalent to 5 percent of the recipient's annual base salary.

(iii) No incentive compensation limit applies to sales of other insurance (crop, title, etc.) by full-time

insurance personnel or full-time supervisors or managers of insurance departments.

(7) Term insurance may be written for the amount of coverage desired by the member or borrower, but in

no case may the amount of term insurance, credit life insurance, or a combination of the two with an

institution of the System, be in excess of total loan commitments to the member or borrower by the

institution writing the insurance.

(8) The banks may, only by agreement with an insurer, offer services traditionally furnished by insurers to

the Farm Credit System. This shall include master marketers when considering the sale of Federal

crop insurance. The banks shall not underwrite insurance, adjust claim payments or settlements, or

train and school or service adjustors or insurance agents.

(9) No bank or association shall, directly or indirectly, condition the extension of credit or provision of

other service on the purchase of insurance sold or endorsed by a bank or association. At the time

insurance sold or endorsed by a bank or association is offered to a member or borrower, a bank or

association shall present a written notice that the service is optional. The notice shall be in

prominent type and separately signed by the member or borrower. The bank or association shall

explain to the member or borrower that purchase of insurance from the association is optional and

that the member or borrower will not be discriminated against for obtaining the insurance elsewhere.

(10) No bank or association shall, directly or indirectly, discriminate in any manner against any agent,

broker, or insurer that is not affiliated with such bank or association, or against any party who

purchases insurance through any such nonaffiliated insurance agent, broker, or insurer.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8040(b)(4)(v)

12 CFR 618.8040(b)(10) (enhanced display) page 7 of 14
[47 FR 38867, Sept. 3, 1982, as amended at 53 FR 35305, Sept. 13, 1988; 56 FR 65990, Dec. 20, 1991. Redesignated and amended

at 60 FR 34099, 34101, June 30, 1995]

Subparts C–F [Reserved]

Subpart G—Releasing Information

§ 618.8300 General regulation.

Except as necessary in performing official duties or as authorized by Farm Credit Administration regulations (§§

618.8300 through 618.8330), no director or employee of a bank, association, or agency thereof shall disclose

information of a type not ordinarily contained in published reports or press releases regarding any such banks or

associations or their borrowers or members.

[37 FR 11442, June 7, 1972. Redesignated at 47 FR 12151, Mar. 22, 1982; 78 FR 77562, Dec. 24, 2013]

§ 618.8310 Lists of borrowers and stockholders.

(11) Bank supervision shall ensure that insurance services offered by approved insurers consistently

provide members or borrowers with a high quality and cost-effective service as prescribed by

policies of the bank's board of directors, but such supervision shall be without any coercion or

suasion from any bank in favor of any agent or insurer.

(12) Records must be maintained by banks and associations in sufficient detail to facilitate the review

and supervision required herein.

(a) Any System institution, for the purpose of protecting the security position of the institution, may provide

lists of borrowers to buyers, warehousemen, and others who deal in produce or livestock of the kind that

secures such loans, except to the extent such actions are prohibited by State laws adopted in accordance

with the Food Security Act of 1985, Pub. L. 99–198, 99 Stat. 1354. Lists of borrowers or stockholders

shall not otherwise be released by any bank or association except in accordance with paragraph (b) of

this section.

(b)

(1) Within 7 days after receipt of a written request by a stockholder, each Farm Credit bank or

association must provide a current list of its stockholders' names, addresses, and classes of stock

held to such requesting stockholder. As a condition to providing the list, the bank or association may

only require that the stockholder agree and certify in writing that the stockholder will:

(i) Utilize the list exclusively for communicating with stockholders for permissible purposes; and

(ii) Not make the list available to any person, other than the stockholder's attorney or accountant,

without first obtaining the written consent of the institution.

(2) As an alternative to receiving a list of stockholders, a stockholder may request the institution mail or

otherwise furnish to each stockholder a communication for a permissible purpose on behalf of the

requesting stockholder. This alternative may be used at the discretion of the requesting stockholder,

provided that the requester agrees to defray the reasonable costs of the communication. In the event

the requester decides to exercise this option, the institution must provide the requester with a written

estimate of the costs of handling and mailing the communication as soon as practicable after

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8040(b)(11)

12 CFR 618.8310(b)(2) (enhanced display) page 8 of 14
[51 FR 39503, Oct. 28, 1986, as amended at 53 FR 35457, Sept. 14, 1988; 61 FR 67188, Dec. 20, 1996; 71 FR 5763, Feb. 2, 2006;

78 FR 77561, Dec. 24, 2013]

§ 618.8320 Data regarding borrowers and loan applicants.

receipt of the stockholder's request to furnish a communication. However, a stockholder may not

exercise this option when requesting the list to distribute campaign material for election to the

institution board or board committees. Farm Credit banks and associations are prohibited from

distributing or mailing campaign material under § 611.320(e) of this chapter.

(3) For purposes of paragraph (b) of this section “permissible purpose” is defined to mean matters

relating to the business operations of the institutions. This includes matters relating to the

effectiveness of management, the use of institution assets, the distribution by stockholder

candidates of campaign material for election to the institution board or board committees, and the

performance of directors and officers. This does not include communications involving commercial,

social, political, or charitable causes, communications relating to the enforcement of a personal

claim or the redress of a personal grievance, or proposals advocating that the bank or association

violate any Federal, State, or local law or regulation.

(c) In connection with preparing and submitting an electronic report of all System accounts and exposures to

the Farm Credit Administration in accordance with the requirements of § 621.15 of this chapter, each

bank and association may provide information from its lists of borrowers and stockholders to the

Reporting Entity as defined in § 621.2 of this chapter.

(a) Except as provided in paragraph (b) of this section, the directors, officers, and employees of every bank

and association shall hold in strict confidence all information regarding the character, credit standing, and

property of borrowers and applicants for loans. They shall not exhibit or quote the following documents:

Loan applications; supplementary statements by applicants; letters and statements relative to the

character, credit standing, and property of borrowers and applicants; recommendations of loan

committees; and reports of inspectors, fieldmen, investigators, and appraisers.

(b) The requirements of paragraph (a) of this section are subject to the following exceptions.

(1) Examiners and other authorized representatives of the Farm Credit Administration and the bank

concerned shall have free access to all information, records, and files.

(2) In connection with a legitimate law enforcement inquiry, accredited representatives of any agency or

department of the United States may be given access to information upon presentation of official

identification and a written request specifying:

(i) The particular information desired; and

(ii) That the information is relevant to the law enforcement inquiry and will be used only for the

purpose for which it is sought.

(3) The chairman of the presidents committees and the presidents of the banks may supply statistical

and other impersonal information pertaining to groups of borrowers, applicants, and loans, in

response to requests from any department or independent office of the Government of the United

States, or responsible private organizations, with the understanding that the information will not be

published.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8310(b)(3)

12 CFR 618.8320(b)(3) (enhanced display) page 9 of 14
[37 FR 11442, June 7, 1972. Redesignated at 47 FR 12151, Mar. 22, 1982, and amended at 53 FR 35457, Sept. 14, 1988; 56 FR

2675, Jan. 24, 1991; 58 FR 51994, Oct. 6, 1993; 59 FR 46734, Sept. 12, 1994; 61 FR 67188, Dec. 20, 1996; 62 FR 25831, May 12,

1997; 64 FR 43049, Aug. 9, 1999; 75 FR 35968, June 24, 2010; 78 FR 77562, Dec. 24, 2013]

(4) Information concerning borrowers may be given for the confidential use of any Farm Credit

institution in contemplation of the extension of credit, administration of credit, or the collection of

loans.

(5) Impersonal information based solely on transactions or experience with a borrower, such as

amounts of loans, terms, and payment records, may be given by a bank or association to any reliable

organization for its confidential use in contemplation of the extension of credit or to a consumer

reporting agency.

(6) Credit information concerning any borrower may be given when such borrower consents thereto in

writing.

(7) An unsuccessful applicant for credit which primarily is for personal, family, or household purposes, if

his application was rejected either wholly or partly because of information contained in a consumer

report from a consumer reporting agency shall be advised as required in section 615(a) of the Fair

Credit Reporting Act (84 Stat. 1133), and if his application was rejected either wholly or partly

because of information obtained from a person other than a consumer reporting agency shall be

advised as required in section 615(b) thereof.

(8)

(i) Any information or analysis of information requested during the course of mediation by a State

agency, governor's office or mediator under any State mediation program certified under

section 501 of the Agricultural Credit Act of 1987, may be provided to the State agency,

governor's office or mediator, with the approval of the borrower.

(ii) Information concerning borrowers contained in an appraisal report may be given by a Farm

Credit institution to any State agency certifying and licensing real estate appraisers provided

that the Farm Credit institution:

(A) Certifies that the information is required in connection with an employee's application for

certification and licensure and that the institution has taken appropriate steps to protect

the confidentiality of any borrower information that is not essential to the State's

evaluation of the application; and

(B) Determines that the State certification and licensing program makes reasonable

provisions for protecting the confidentiality of the borrower information contained in the

appraisal report.

(9) Collateral evaluation reports may be released to a loan applicant, when required by the Equal Credit

Opportunity Act or related regulations.

(10) In connection with preparing and submitting an electronic report of all System accounts and

exposures to the Farm Credit Administration in accordance with the requirements of § 621.15 of this

chapter, each bank and association may provide data on its accounts and exposures to the

Reporting Entity as defined in § 621.2 of this chapter.

(c) The exceptions in paragraph (b) of this section shall be exercised by Farm Credit institutions with full

awareness of the requirements of the Fair Credit Reporting Act.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8320(b)(4)

12 CFR 618.8320(c) (enhanced display) page 10 of 14
§ 618.8325 Disclosure of loan documents.

[51 FR 39504, Oct. 28, 1986, as amended at 53 FR 35458, Sept. 14, 1988; 56 FR 2675, Jan. 24, 1991; 59 FR 46734, Sept. 12, 1994;

61 FR 67188, Dec. 20, 1996]

(a) For purposes of this section, the following definitions shall apply:

(1) Borrower means any signatory to a loan contract who is either primarily or secondarily liable on such

contract, including guarantors, endorsers, cosigners or the like.

(2) Execution of the loan means the time at which the borrower and the qualified lender have entered

into a legal, binding, and enforceable loan contract and any subsequent amendment or modification

of such contract.

(3) Loan means a loan made to a farmer, rancher, or producer or harvester of aquatic products, for any

agricultural or aquatic purpose and other credit needs of the borrower, including financing for basic

processing and marketing directly related to the borrower's operations and those of other eligible

farmers, ranchers, and producers or harvesters of aquatic products.

(4) Loan contract means any written agreement under which a qualified lender lends or agrees to lend

funds to a borrower in consideration for, among other things, the borrower's promise to repay the

loaned funds at an agreed-upon rate of interest.

(5) Loan document means any form, application, agreement, contract, instrument, or other writing to

which a borrower affixes his signature or seal and which the qualified lender intends to retain in its

files as evidence relating to the loan contract entered into between it and the borrower, but shall not

include any document related to a loan which the borrower has not signed.

(6) Qualified lender means:

(i) A System institution that makes loans (as defined in paragraph (a)(3) of this section) except a

bank for cooperatives; and

(ii) Each bank, institution, corporation, company, union, and association described in section

1.7(b)(1)(B) of the Act, but only with respect to loans discounted or pledged under section

1.7(b)(1) of the Act.

(b) Each qualified lender shall provide a copy of all loan documents to the borrower or the borrower's legal

representative at the execution of the loan. Subsequently, upon written request of a borrower or a

borrower's legal representative, a qualified lender shall provide, as soon as practicable, a copy of any loan

documents signed by the borrower, a copy of other documents delivered by such borrower to that

qualified lender, and a copy of each collateral evaluation of the borrower's assets made or used by the

qualified lender. To the extent that a collateral evaluation may contain confidential third party information,

the lender may protect such confidential third party information by withholding any information that would

disclose identifying characteristics of the third party or his property. One copy shall be furnished free of

charge. The lender may assess reasonable copying charges for any additional copies requested by the

borrower.

(c) Each System bank and association shall have available in its offices copies of the institution's articles of

incorporation or charter and bylaws for inspection and shall furnish a copy of such documents to any

owner of stock or participation certificates upon request.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8325

12 CFR 618.8325(c) (enhanced display) page 11 of 14
§ 618.8330 Production of documents and testimony during litigation.

[64 FR 43049, Aug. 9, 1999]

§ 618.8340 [Reserved]

Subpart H—Disposition of Obsolete Records

§ 618.8360 [Reserved]

§ 618.8370 [Reserved]

Subpart I [Reserved]

Subpart J—Internal Controls

§ 618.8430 Internal controls.

Each Farm Credit institution's board of directors must adopt an internal control policy, providing adequate direction

to the institution in establishing effective control over, and accountability for, operations, programs, and resources.

The policy must include, at a minimum, the following:

(a) If your bank or association is a party to litigation with a borrower or a successor in interest, you or your

directors, officers, or employees may disclose confidential information about that borrower or the

successor in interest during the litigation.

(b) If the Government or your bank or association is not a party to litigation, you or your directors, officers, or

employees may produce confidential documents or testimony only if a court of competent jurisdiction

issues a lawful order signed by a judge.

(a) Direction to management which assigns responsibility for the internal control function (financial, credit,

credit review, collateral, and administrative) to an officer (or officers) of the institution.

(b) Adoption of internal audit and control procedures that evidence responsibility for review and maintenance

of comprehensive and effective internal controls.

(c) Direction for the operation of a program to review and assess its assets. These policies shall include

standards which address the administration of this program, described in the list which follows:

(1) Loan, loan-related assets, and appraisal review standards, including standards for scope of review

selection and standards for workpapers and supporting documentation.

(2) Asset quality classification standards to be utilized in accordance with a standardized classification

system consistent among associations within a district and their funding Farm Credit Bank or

agricultural credit bank.

(3) Standards for assessing credit administration, including the appraisal of collateral.

(4) Standards for the training required to initiate the program.

(d) The role of the audit committee in providing oversight and review of the institution's internal controls.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8330

12 CFR 618.8430(d) (enhanced display) page 12 of 14
[55 FR 24888, June 19, 1990, as amended at 71 FR 5763, Feb. 2, 2006]

§ 618.8440 Planning.

(a) Business plan requirement. No later than 30 days after the commencement of each calendar year, the

board of directors of each Farm Credit System institution must adopt an operational and strategic

business plan for at least the succeeding 3 years.

(b) Content of business plan. The plan must include, at a minimum, the following:

(1) A mission statement.

(2) An annual review of the internal and external factors likely to affect the institution during the planning

period. The review must:

(i) Incorporate the description and assessment of workforce and management strengths and

weaknesses required by paragraph (b)(7)(i) of this section;

(ii) Include an assessment of the needs of the board, including skills and diversity, based on the

annual self-evaluation of the board's performance; and

(iii) Include strategies for correcting identified weaknesses.

(3) Quantifiable goals and objectives.

(4) Pro forma financial statements for each year of the plan.

(5) A detailed operating budget for the first year of the plan.

(6) The capital adequacy plan adopted pursuant to § 615.5200(b) of this chapter.

(7) A human capital plan that includes, at a minimum, the items specified in this paragraph (b)(7). These

items may be contained in other board-approved documents that are adopted annually, provided the

items are summarized in, and incorporated by reference into, the human capital plan.

(i) A description of the institution's workforce and management and an assessment of their

strengths and weaknesses;

(ii) A description of the institution's workforce and management succession programs; and

(iii) Strategies and actions to strive for diversity and inclusion within the institution's workforce and

management.

(8) For each Farm Credit System institution in its exercise of title III lending authorities and direct lender

association, a marketing plan that strategically addresses how the institution will further the

objective of the Act, set forth in section 1.1(b) of the Act, that the System be responsive to the credit

needs of all types of agricultural producers having a basis for credit. The marketing plan must

include, at a minimum, the items specified in this paragraph (b)(8). These items may be contained in

other board-approved documents that are adopted annually, provided the items are summarized in,

and incorporated by reference into, the marketing plan.

(i) A description of the institution's chartered territory by market segment, including the

characteristics of demography, geography, and types of agriculture practiced; and

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8440

12 CFR 618.8440(b)(8)(i) (enhanced display) page 13 of 14
[77 FR 25587, May 1, 2012]

(ii) Strategies and actions to market the institution's products and services to all eligible and

creditworthy persons, with specific outreach toward diversity and inclusion within each market

segment.

(c) Board reporting requirements.

(1) Each institution must report annually to its board of directors on the progress the institution has

made in accomplishing the strategies and actions required by paragraph (b)(7)(iii) of this section.

(2) Each institution subject to paragraph (b)(8) of this section must report annually to its board of

directors on the progress the institution has made in accomplishing the strategies and actions

required by paragraph (b)(8)(ii) of this section.

12 CFR Part 618 (up to date as of 3/07/2024)

General Provisions 12 CFR 618.8440(b)(8)(ii)

12 CFR 618.8440(c)(2) (enhanced display) page 14 of 14
FCA Regulation Part 618 – GENERAL PROVISIONS; Subpart A – Related Services

Below is a copy of the Related Services List. It was originally published as Appendix A to the preamble 

of the final rule on Related Services at 12 CFR Part 618 (60 FR 34090 (PDF)) on June 30, 1995. Any 

changes to the list will be subject to the regulations at 12 CFR 618.8010(b)(5) and (c)(2). If there are any 

questions about the Related Services List, please contact the Farm Credit Administration at (703) 883-

4056 or info-line@fca.gov. 

RELATED SERVICES LIST

Authorized 

Institutions

Type of 

Service

Description Special Conditions

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA, 

SC

Estate Planning 

Service

Providing information and 

assistance concerning 

development of estate plans.

Does not include providing 

legal counsel or advice or 

executing the estate planning 

documents.

ACB, FCB, BC, 

ACA, PCA, 

FLBA, FLCA, 

SC

Fee Appraisal 

Service

Providing real and personal 

property appraisals and 

evaluations. (Note: appraisals 

done in conjunction with 

making or servicing System 

loans are not considered related 

services for the purpose of this 

regulation.)

ACB, FCB, BC, 

ACA, PCA, 

FLBA, FLCA, 

SC

Recordkeeping 

Service

Providing record keeping 

systems tailored to recipients' 

needs. Includes Agrifax®, and 

clerking services associated 

with the auction of farm-related 

personal property.

ACB, FCB, BC, 

ACA, PCA, 

FLBA, FLCA, 

SC

Tax Planning 

and Preparation 

Preparing tax returns and 

assisting recipients in 

understanding tax implications 

of alternative management 

decisions and strategies.

ACB (Title 1 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA, 

SC

Farm Business 

Consulting 

Assisting with business 

planning for on-farm or aquatic 

operations. Includes such 

activities as assisting individuals 

in defining business goals, 

identifying management 

problems, and formulating or 

Institutions must have 

procedures in place to eliminate 

or, where appropriate, 

effectively manage conflicts of 

interest between the credit and 

business consulting functions. 
2 

Authorized 

Institutions

Type of 

Service

Description Special Conditions

analyzing alternative strategies 

for achieving goals. Institution 

personnel may not be involved 

in making management 

decisions.

ACB (Title III), 

BC, SC

Cooperative 

Business 

Consulting 

Providing consulting services to 

cooperatives or other eligible 

recipients to assist management 

and directors in making 

business decisions. May include 

educational seminars, 

development of computer 

services, business analysis, 

feasibility studies, and activity 

coordination (e.g., coordination 

of activities on mergers or 

formation of joint ventures). 

Institution personnel may not be 

involved in making 

management decisions.

Institutions must have 

procedures in place to eliminate 

or, where appropriate, 

effectively manage conflicts of 

interest between the credit and 

business consulting functions.

ACB (Title III), 

BC

Foreign 

Currency 

Exchange 

Providing foreign currency 

exchange services necessary to 

individual transactions that may 

be financed under Title III, 

section 3.7(b) of the Farm 

Credit Act of 1971, as amended.

Subject to the criteria under 12 

CFR 614.4900. 

ACB, BC, FCB Financial Risk 

Management 

for Customers

Providing risk management 

products that enable customers 

to hedge interest rate risk 

inherent in their balance sheets.

Limited to the following 

derivative products: 

• Interest rate swaps, caps, 

collars and floors;

• Forward rate agreements; 

and 

• Exchange-traded and 

over-the-counter interest 

rate options on eligible 

interest rate futures 

contracts 

1) Interest rate swaps should 

be included with the 

borrower's total debt when 

calculating lending limits 

under 12 CFR part 614, 

subpart J. For swaps where 

the bank keeps an offsetting 

position, it must include the 

credit risk of the swaps with 

the borrower's total debt 

when calculating lending 

limits. Credit limits for each 

counter-party should be 

determined by reviewing 

the potential magnitude of 

adverse payment increases 

over the life of the swap. 
3

Authorized 

Institutions

Type of 

Service

Description Special Conditions

(Products may be offered as part 

of loan packages or as standalone hedging tools.)

2) Financial risk management 

programs are subject to 

annual audits by a Certified 

Public Accountant. 

Insurance Services

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Credit Life 

Insurance,

Mortgage Life 

Insurance, or 

Mortgage 

Accidental 

Death Insurance

Coverage that pays off or 

reduces an outstanding loan or 

mortgage in the event of the 

insured's death.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Term Life 

Insurance

Group or individual term life 

insurance coverage that is 

renewable at the end of the 

term.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Credit 

Disability and 

Accident 

Insurance or 

Mortgage 

Disability 

Insurance

Insurance that provides for loan 

or mortgage payments, or some 

degree of income protection, if 

the insured is disabled.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Hospital 

Income 

Insurance

Insurance that provides a 

specified amount of income 

while the insured is 

hospitalized. A form of credit 

disability insurance, and subject 

to the debtor-creditor 

requirement.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Multiple-Peril 

Crop Insurance 

(including 

insurance 

provided by the 

Federal Crop 

Insurance 

Corporation)

Insurance covering hazards 

incident to the growing and 

storage of crops.
4

Authorized 

Institutions

Type of 

Service

Description Special Conditions

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Crop Hail 

Insurance

Insurance providing protection 

against damage or loss of crops 

due to hail or certain other 

named perils.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Hay (or Other 

Crop) Fire 

Insurance

Insurance that covers loss of hay 

or other crops due to fire.

ACB (Title I 

and II), FCB, 

ACA, PCA, 

FLBA, FLCA

Title Insurance Insurance against loss or 

damage resulting from defects 

or failure of title or from the 

enforcement of liens existing 

against title at the time of the 

insurance.
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 619 Definitions

§ 619.9000 The Act.

§ 619.9010 Additional security.

§ 619.9015 Agricultural credit associations.

§ 619.9020 Agricultural credit banks.

§ 619.9025 Agricultural land.

§ 619.9050 Associations.

§ 619.9060 Bank for cooperatives.

§ 619.9110 Consolidation.

§ 619.9130 Differential interest rates.

§ 619.9135 Direct lender.

§ 619.9140 Farm Credit bank(s).

§ 619.9145 Farm Credit Bank.

§ 619.9146 Farm Credit institutions.

§ 619.9155 Federal land credit association.

§ 619.9170 Fixed interest rate.

§ 619.9180 Fixed interest spread.

§ 619.9185 Funding Corporation.

§ 619.9195 [Reserved]

§ 619.9200 Loss-sharing agreements.

§ 619.9210 Merger.

§ 619.9230 Open-end mortgage loan plans.

§ 619.9235 Outside director.

§ 619.9240 Participation agreement.

§ 619.9250 Participation certificates.

§ 619.9260 Primary security.

§ 619.9270 Qualified Public Accountant or External Auditor.

§ 619.9310 Senior officer.

§ 619.9320 Shareholder or stockholder.

§ 619.9330 Speculative purposes.

§ 619.9335 Supplemental retirement plan or supplemental executive retirement plan.

§ 619.9338 Unincorporated business entities.

§ 619.9340 Variable interest rate.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR Part 619 (Mar. 7, 2024)

12 CFR Part 619 (Mar. 7, 2024) (enhanced display) page 1 of 6
PART 619—DEFINITIONS

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 of Pub. L. 102–552. 106 Stat. 4102.

Source: 37 FR 11446, June 7, 1972, unless otherwise noted.

§ 619.9000 The Act.

The Farm Credit Act of 1971; Pub. L. 92–181 and amendments.

§ 619.9010 Additional security.

Supplementary collateral to the primary security taken in connection with the loan.

§ 619.9015 Agricultural credit associations.

Agricultural credit associations are associations created by the merger of one or more Federal land bank

associations or Federal land credit associations and one or more production credit associations and which have

received a transfer of authority to make and participate in long-term real estate mortgage loans pursuant to section

7.6 of the Act.

[55 FR 24888, June 19, 1990]

§ 619.9020 Agricultural credit banks.

Agricultural credit banks are those banks created by the merger of a Farm Credit Bank and a bank for cooperatives

pursuant to section 7.0 of the Act.

[55 FR 24888, June 19, 1990]

§ 619.9025 Agricultural land.

Land improved or unimproved which is devoted to or available for the production of crops and other products such

as but not limited to fruits and timber or for the raising of livestock.

[37 FR 11446, June 7, 1972. Redesignated at 55 FR 24888, June 19, 1990]

§ 619.9050 Associations.

The term associations includes (individually or collectively) Federal land bank associations, Federal land credit

associations, production credit associations, and agricultural credit associations.

[55 FR 24888, June 19, 1990]

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR 619

12 CFR 619.9050 (enhanced display) page 2 of 6
§ 619.9060 Bank for cooperatives.

A bank for cooperatives is a bank that is operating under section 3.0 of the Act.

[61 FR 67188, Dec. 20, 1996]

§ 619.9110 Consolidation.

Creation of one new organizational entity from two or more existing entities or parts thereof.

§ 619.9130 Differential interest rates.

An interest rate program under which different rates of interest may be made applicable to individual or classes of

loans on the basis of type, purpose, amount, quality of loan, or a combination of these factors.

§ 619.9135 Direct lender.

The term direct lender refers to Farm Credit banks and associations (production credit associations, agricultural

credit associations, and Federal land credit associations) authorized to lend to eligible borrowers identified in §

613.3000.

[55 FR 24889, June 19, 1990]

§ 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.

[88 FR 82244, Nov. 24, 2023]

§ 619.9145 Farm Credit Bank.

The term Farm Credit Bank refers to a bank resulting from the mandatory merger of the Federal land bank and the

Federal intermediate credit bank in each Farm Credit district pursuant to section 410 of the Agricultural Credit Act of

1987, Pub. L. 100–233, or any bank resulting from a merger of two or more Farm Credit Banks.

[55 FR 24889, June 19, 1990]

§ 619.9146 Farm Credit institutions.

Except as otherwise defined, the term Farm Credit institutions refers to all institutions identified in section 1.2 of the

Act and are chartered and regulated by the Farm Credit Administration but excludes bridge System banks chartered

by the Farm Credit Administration Board pursuant to section 5.61C(h)(2) of the Act.

[88 FR 82244, Nov. 24, 2023]

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR 619.9060

12 CFR 619.9146 (enhanced display) page 3 of 6
§ 619.9155 Federal land credit association.

The term Federal land credit association refers to a Federal land bank association that has received a transfer of

direct long-term real estate lending authority pursuant to section 7.6 of the Act.

[55 FR 24889, June 19, 1990]

§ 619.9170 Fixed interest rate.

The rate of interest specified in the note or loan document which will prevail as the maximum rate chargeable to the

borrower during the period of the loan.

§ 619.9180 Fixed interest spread.

A percentage to be added to the cost of money to the bank or association as the means of establishing a lending

rate.

§ 619.9185 Funding Corporation.

The term Funding Corporation refers to the Federal Farm Credit Banks Funding Corporation established pursuant to

section 4.9 of the Act.

[55 FR 24889, June 19, 1990]

§ 619.9195 [Reserved]

§ 619.9200 Loss-sharing agreements.

A contractual arrangement under which the parties agree to share losses associated with loans or otherwise, as

may be provided for in the agreement.

[42 FR 20457, Apr. 20, 1977]

§ 619.9210 Merger.

Combining of one or more organizational entities into another similar entity.

§ 619.9230 Open-end mortgage loan plans.

A mortgage loan which permits the borrower to obtain additional sums during the term of the loan.

§ 619.9235 Outside director.

A member of a board of directors selected or appointed by the board, who is not a director, officer, employee, agent,

or stockholder of any Farm Credit System institution.

[71 FR 5764, Feb. 2, 2006]

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR 619.9155

12 CFR 619.9235 (enhanced display) page 4 of 6
§ 619.9240 Participation agreement.

A contract under which a lender agrees to sell a portion of a loan to one or more purchasers under specific terms

set forth in the agreement.

§ 619.9250 Participation certificates.

Evidence of investment in a bank or association to which all the rights and obligations of stock attach with the

exception of the right to vote in the affairs of the institution.

§ 619.9260 Primary security.

The basic collateral securing the loan.

§ 619.9270 Qualified Public Accountant or External Auditor.

A qualified public accountant or external auditor is a person who:

[71 FR 76119, Dec. 20, 2006, as amended at 74 FR 28599, June 17, 2009]

§ 619.9310 Senior officer.

The Chief Executive Officer, the Chief Operations Officer, the Chief Financial Officer, the Chief Credit Officer, and the

General Counsel, or persons in similar positions; and any other person responsible for a major policy-making

function.

[71 FR 5764, Feb. 2, 2006]

§ 619.9320 Shareholder or stockholder.

A holder of any equity interest in a Farm Credit institution.

(a) Holds a valid and unrevoked certificate, issued to such person by a legally constituted State authority,

identifying such person as a certified public accountant;

(b) Is licensed to practice as a public accountant by an appropriate regulatory authority of a State or other

political subdivision of the United States;

(c) Is in good standing as a certified and licensed public accountant under the laws of the State or other

political subdivision of the United States in which is located the home office or corporate office of the

institution that is to be audited;

(d) Is not suspended or otherwise barred from practice as an accountant or public accountant before the

Securities and Exchange Commission (SEC) or any other appropriate Federal or State regulatory authority;

and

(e) Is independent of the institution that is to be audited. For the purposes of this definition, the term

“independent” has the same meaning as under the rules and interpretations of the authoritative body

governing overall audit performance. At a minimum, an accountant hired to audit a System institution is

not independent if he or she functions in the role of management, audits his or her own work, or serves in

an advocacy role for the institution.

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR 619.9240

12 CFR 619.9320 (enhanced display) page 5 of 6
[75 FR 18744, Apr. 12, 2010]

§ 619.9330 Speculative purposes.

To buy or sell with the expectation of profiting by fluctuations in price.

[40 FR 49078, Oct. 21, 1975]

§ 619.9335 Supplemental retirement plan or supplemental executive retirement plan.

A nonqualified retirement plan that provides benefits in addition to those covered by other retirement plans for all

employees and funded in whole or part by a Farm Credit institution.

[77 FR 60596, Oct. 3, 2012]

§ 619.9338 Unincorporated business entities.

An Unincorporated Business Entity means a Limited Partnership (LP), Limited Liability Partnership (LLP), Limited

Liability Limited Partnership (LLLP), Limited Liability Company (LLC), Business or other Trust Entity (TE), or other

business entity established and maintained under State law that is not incorporated under any law or chartered

under Federal law.

[78 FR 31834, May 28, 2013]

§ 619.9340 Variable interest rate.

An interest rate on the outstanding loan balances, which may be changed from time to time during the period of the

loan, if provision is made in the note or loan document.

12 CFR Part 619 (up to date as of 3/07/2024)

Definitions 12 CFR 619.9330

12 CFR 619.9340 (enhanced display) page 6 of 6
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 620 Disclosure to Shareholders

Subpart A General

§ 620.1 Definitions.

§ 620.2 Preparing and filing reports.

§ 620.3 Accuracy of reports and assessment of internal control over financial reporting.

Subpart B Annual Report to Shareholders

§ 620.4 Preparing and providing the annual report.

§ 620.5 Contents of the annual report to shareholders.

§ 620.6 Disclosures in the annual report to shareholders relating to directors and senior

officers.

Subpart C Quarterly Report

§ 620.10 Preparing the quarterly report.

§ 620.11 Content of quarterly report to shareholders.

Subpart D Notice to Shareholders

§ 620.15 Notice of significant or material events.

§ 620.17 Special notice provisions for events related to noncompliance with minimum

regulatory capital ratios.

Subpart E Annual Meeting Information Statements and Other Information To Be

Furnished in Connection with Annual Meetings and Director Elections

§ 620.20 Preparing and distributing the information statement.

§ 620.21 Contents of the information statement.

Subpart F Bank and Association Audit and Compensation Committees

§ 620.30 Audit committees.

§ 620.31 Compensation committees.

PART 620—DISCLOSURE TO SHAREHOLDERS

Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252,

2254); sec. 424, Pub. L. 100–233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note); sec. 514, Pub. L. 102–552, 106 Stat.

4102, 4134.

Subpart A—General

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR Part 620 (Mar. 7, 2024)

12 CFR 620 (enhanced display) page 1 of 28
§ 620.1 Definitions.

For the purpose of this part, the following definitions shall apply:

(a) Affiliated organization means any organization, other than a Farm Credit organization, of which a director,

senior officer or nominee for director of the reporting institution is a partner, director, officer, or majority

shareholder.

(b) Association means any of the associations as described in § 619.9050 of this chapter.

(c) Bank means any of the Farm Credit banks as described in § 619.9140 of this chapter.

(d) Direct lender association means any association that is a direct lender as described in § 619.9135 of this

chapter.

(e) Immediate family means spouse, parents, siblings, children, mothers- and fathers-in-law, brothers- and

sisters-in-law, and sons- and daughters-in-law.

(f) Institution means any bank or association chartered by the Act.

(g) Loan means any extension of credit or lease that is recorded as an asset of a reporting institution,

whether made directly or purchased from another lender. The term “loan” includes, but is not limited to,

loans originated through direct negotiations between the reporting institution and a borrower; purchased

loans or interests in loans, including participation interests, retained subordinated participation interests

in loans sold, interests in pools of subordinated participation interests that are held in lieu of retaining a

subordinated participation interest in loans sold; contracts of sale; notes receivable; and other similar

obligations and lease financings.

(h) Material. The term material, when used to qualify a requirement to furnish information as to any subject,

limits the information required to those matters to which there is a substantial likelihood that a

reasonable person would attach importance in making shareholder decisions or determining the financial

condition of the institution.

(i) Normal risk of collectibility means the ordinary risk inherent in the lending operation. Loans that are

deemed to have more than a normal risk of collectibility include, but are not limited to, any adversely

classified loans.

(j) Permanent capital shall have the same meaning as set forth in § 615.5201 of this chapter.

(k) Protected borrower capital means eligible borrower stock as defined in § 615.5260 of this chapter.

(l) Related association means an association within the reporting bank's chartered territory that generates

loans for the bank or whose operations the bank funds.

(m) Related bank means a reporting association's funding bank or the bank for which it generates loans.

(n) Related organization means any Farm Credit institution that is a shareholder of the reporting institution or

in which the reporting institution has an ownership interest.

(o) Report refers to the annual report, quarterly report, notice, or information statement, regardless of form,

required by this part unless otherwise specified.

(p) Signed, when referring to paper form, means a manual signature, and, when referring to electronic form,

means marked in a manner that authenticates each signer's identity.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.1

12 CFR 620.1(p) (enhanced display) page 2 of 28
[51 FR 8656, Mar. 13, 1986, as amended at 51 FR 42086, Nov. 21, 1986; 53 FR 3337, Feb. 5, 1988; 56 FR 29421, June 27, 1991; 56

FR 42649, Aug. 28, 1991; 58 FR 48791, Sept. 20, 1993; 59 FR 37406, July 22, 1994; 62 FR 15092, Mar. 31, 1997; 63 FR 39229, July

22, 1998; 67 FR 16633, Apr. 8, 2002; 70 FR 35357, June 17, 2005; 71 FR 5764, Feb. 2, 2006; 75 FR 18744, Apr. 12, 2010]

§ 620.2 Preparing and filing reports.

For the purposes of this part, the following shall apply:

(q) Significant event means any event that is likely to have a material impact on the reporting institution's

financial condition, results of operations, cost of funds, or reliability of sources of funds. The term

“significant event” includes, but is not limited to, actual or probable noncompliance with the regulatory

minimum permanent capital standards or capital adequacy requirements, stock impairment, the

imposition of or entering into enforcement actions, execution of financial assistance agreements with

other institutions, collateral deficiencies that impact a bank's ability to obtain loan funds, or defaults on

debt obligations.

(a) Copies of each report required by this part, including financial statements and related schedules, exhibits,

and all other papers and documents that are a part of the report, must be sent to the Farm Credit

Administration according to our instructions. Submissions must comply with the requirements of § 620.3

of this part. The Farm Credit Administration must receive the report within the period prescribed under

applicable subpart sections.

(b) The reports must be available for public inspection at the issuing institution and the Farm Credit

Administration office with which the reports are filed. Farm Credit bank reports must also be available for

public inspection at each related association's office(s).

(c) The reports sent to shareholders must comply with the requirements of § 620.3 and electronic delivery of

those reports requires shareholder agreement.

(d) Information in any part of a report may be incorporated by reference in answer or partial answer to any

other item of the report, unless instructions for the report state otherwise.

(e) All items of essentially the same character as items required to be reported in the reports of condition and

performance pursuant to part 621 of this chapter shall be prepared in accordance with the rules set forth

in part 621.

(f) No disclosure required by subparts B and E of this part shall be deemed to violate any regulation of the

Farm Credit Administration.

(g) Each Farm Credit institution shall present its reports in accordance with generally accepted accounting

principles and in a manner that provides the most meaningful disclosure to shareholders.

(1) Any Farm Credit institution that presents its annual and quarterly financial statements on a

combined or consolidated basis shall also include in the report the statement of condition and

statement of income of the institution on a stand-alone basis. The stand-alone statements may be in

summary form and shall disclose the basis of presentation if different from accounting policies of

the combined or consolidated statements.

(2) Any Farm Credit bank that prepares its annual financial statements on a stand-alone basis must also

provide financial information on its related associations as part of its annual report. The information

on the related associations must be presented on a combined basis with the bank's financial

information and, at a minimum, include both a condensed statement of condition and a statement of

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.1(q)

12 CFR 620.2(g)(2) (enhanced display) page 3 of 28
[51 FR 8656, Mar. 13, 1986, as amended at 51 FR 21340, June 12, 1986; 56 FR 29421, June 27, 1991; 58 FR 27923, May 12, 1993;

58 FR 48791, Sept. 20, 1993; 62 FR 15092, Mar. 31, 1997; 66 FR 14301, Mar. 12, 2001; 67 FR 16633, Apr. 8, 2002; 71 FR 76119,

Dec. 20, 2006; 77 FR 60597, Oct. 3, 2012; 85 FR 63430, Oct. 8, 2020]

income. The combined bank and association financial information may either be in the footnotes of

the bank's annual report or located in a supplement to the report. All combined information provided

through either a footnote or a supplement will be considered part of the bank's annual report, subject

to the same annual report preparation, distribution, and accuracy requirements of part 620.

(i) The combined bank and association financial information may be unaudited but must disclose

the basis of presentation if different from accounting policies used for the bank-only financial

statements.

(ii) If the combined bank and association financial information is presented in the form of a

supplement, the supplement must be referenced within the bank's annual report and

accompany the annual report when distributed.

(h)

(1) Each institution's annual report or notice must state, in a prominent location within the report or

notice:

(i) That the institution's quarterly reports are available free of charge on request;

(ii) The approximate dates the quarterly reports will be available; and

(iii) The telephone numbers and addresses (including information on any other distribution method

the institution makes available) where shareholders can request or obtain copies of the

quarterly reports.

(2) Each association must state, in a prominent location within each report:

(i) That the shareholders' investment in the association may be materially affected by the financial

condition and results of operations of the related bank;

(ii) That (if not otherwise provided) a copy of the bank's financial reports to shareholders will be

made available free of charge on request; and

(iii) The telephone numbers and addresses (including information on any other distribution method

the association makes available) where shareholders can request or obtain copies of the

related bank's financial reports.

(3) Each institution shall, after receiving a request for a report, provide the report to the requestor. The

first copy of the requested report shall be provided to the requestor free of charge.

(i) Any events that have affected one or more related organizations of the reporting institution that are likely

to have a material effect on the financial condition, results of operations, cost of funds, or reliability of

sources of funds of the reporting institution shall be considered significant events for the reporting

institution and shall be disclosed in the reports. Any significant event affecting the reporting institution

that occurred during the preceding fiscal quarters that continues to have a material effect on the reporting

institution shall be considered significant events of the current fiscal quarter and shall be disclosed in the

reports.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.2(g)(2)(i)

12 CFR 620.2(i) (enhanced display) page 4 of 28
§ 620.3 Accuracy of reports and assessment of internal control over financial reporting.

[71 FR 76119, Dec. 20, 2006, as amended at 74 FR 28599, June 17, 2009; 86 FR 54357, Oct. 1, 2021]

Subpart B—Annual Report to Shareholders

(a) Prohibition against incomplete, inaccurate, or misleading disclosures. No institution and no employee,

officer, director, or nominee for director of the institution shall make any disclosure to shareholders or the

general public concerning any matter required to be disclosed by this part that is incomplete, inaccurate,

or misleading. When any such person makes disclosure that, in the judgment of the Farm Credit

Administration, is incomplete, inaccurate, or misleading, whether or not such disclosure is made in

disclosure statements required by this part, such institution or person shall make such additional or

corrective disclosure as is necessary to provide shareholders and the general public with a full and fair

disclosure. Unless otherwise determined by the Farm Credit Administration (FCA), the appropriate use of

the limited disclosure authorized by § 628.62(c) of this chapter does not create an incomplete disclosure.

(b) Signatures. The name and position title of each person signing the report must be printed beneath his or

her signature. If any person required to sign the report has not signed the report, the name and position

title of the individual and the reason(s) such individual is unable or refuses to sign must be disclosed in

the report. All reports must be dated and signed on behalf of the institution by:

(1) The chief executive officer (CEO);

(2) The chief financial officer (CFO), or if the institution has no CFO, the officer responsible for preparing

financial reports; and

(3) A board member formally designated by action of the board to certify reports on behalf of individual

board members.

(c) Certification of financial accuracy. The report must be certified as financially accurate by the signatories to

the report. If any signatory is unable to, or refuses to, certify the report, the institution must disclose the

individual's name and position title and the reason(s) such individual is unable or refuses to certify the

report. At a minimum, the certification must include a statement that:

(1) The signatories have reviewed the report,

(2) The report has been prepared in accordance with all applicable statutory or regulatory requirements,

and

(3) The information is true, accurate, and complete to the best of signatories' knowledge and belief. If

the report contains the limited disclosure authorized by § 628.62(c) of this chapter, the statement

may be modified to explain that the completeness of the report was determined in consideration of §

628.62(c).

(d) Management assessment of internal control over financial reporting. Annual reports of those institutions

with over $1 billion in total assets (as of the end of the prior fiscal year) must include a report by

management assessing the effectiveness of the institution's internal control over financial reporting. The

assessment must be conducted during the reporting period and be reported to the institution's board of

directors. Quarterly and annual reports for those institutions with over $1 billion in total assets (as of the

end of the prior fiscal year) must disclose any material change(s) in the internal control over financial

reporting occurring during the reporting period.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.3

12 CFR 620.3(d) (enhanced display) page 5 of 28
§ 620.4 Preparing and providing the annual report.

[51 FR 8656, Mar. 13, 1986. Redesignated and amended at 56 FR 29421, 29422, June 27, 1991; 62 FR 15093, Mar. 31, 1997; 66 FR

14301, Mar. 12, 2001; 67 FR 16633, Apr. 8, 2002; 71 FR 76119, Dec. 20, 2006; 72 FR 68061, Dec. 4, 2007; 77 FR 60597, Oct. 3,

2012]

§ 620.5 Contents of the annual report to shareholders.

The report must contain the following items in substantially the same order:

(a) Each institution of the Farm Credit System must:

(1) Prepare and send to the Farm Credit Administration an electronic copy of its annual report within 75

calendar days of the end of its fiscal year;

(2) Publish a copy of its annual report on its Web site when it sends the report electronically to the Farm

Credit Administration;

(3) Provide prior written notification to its shareholders that the institution will publish its annual report

on the institution's Web site when the report is sent electronically to the Farm Credit Administration;

and

(4) Within 90 calendar days of the end of its fiscal year, prepare and provide to its shareholders an

annual report substantively identical to the copy of the report sent to the Farm Credit Administration

under paragraph (a)(1) of this section.

(b)

(1) A bank must provide its annual report to the shareholders of all related associations if the bank

experiences a significant event that has a material effect on those associations.

(2) Any bank that is required by paragraph (b)(1) of this section to provide its annual report must

coordinate its distribution with its related associations.

(c) The report must contain, at a minimum, the information required by §§ 620.5 and 620.6. In addition, the

report must contain such other information as is necessary to make the required statements, in light of

the circumstances under which they are made, not misleading.

(a) Description of business. The description must include a brief discussion of the following items:

(1) The territory served;

(2) The persons eligible to borrow;

(3) The types of lending activities engaged in and related services offered. Each bank shall also briefly

describe the lending and related services offered by its related associations, as well as related

services offered to the borrowers in the bank's chartered territory by any service corporation

chartered under the Act in which it has an ownership interest. Each association shall briefly describe

the lending and related services offered by its related organizations or incorporate by reference

relevant portions of the related bank's report, if such report is provided to association shareholders;

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.4

12 CFR 620.5(a)(3) (enhanced display) page 6 of 28
(4) Any significant developments within the last 5 years that had or could have a material impact on

earnings, interest rates to borrowers, patronage, or dividends, including, but not limited to, changes in

the reporting entity, changes in patronage policies and practices, and financial assistance provided

by or to the institution through loss-sharing or capital preservation agreements or from any other

source;

(5) Any acquisition or disposition of material assets during the last fiscal year, other than in the ordinary

course of business;

(6) Any material change during the last fiscal year in the manner of conducting the business;

(7) Any seasonal characteristics of the institution's business;

(8) Any concentrations of more than 10 percent of its assets in particular commodities or particular

types of agricultural activity or business, and the institution's dependence, if any, upon a single

customer, or a few customers, including other financing institutions (OFIs), the loss of any one of

which would have a material effect on the institution; and

(9) A brief description of the business of any related Farm Credit institution, as described in § 619.9146

of this chapter, and the nature of the institution's relationship with such organization.

(10) For associations, in a separate section of the annual report, discuss the interdependent relationship

between the association and its funding bank, including, but not limited to, the financial relationship,

a service provider relationship, other material operational relationships, and other specific issues or

areas that create a material interdependent relationship between the association and its funding

bank. This separate section may incorporate by reference information from other sections of the

annual report. At a minimum, the separate section must include the statement required by §

620.2(h)(2)(i) of this part and the following information required elsewhere in this section, if

applicable:

(i) The association's obligation to borrow only from the bank unless the bank gives the association

approval to borrow elsewhere;

(ii) The major terms of any capital preservation, loss sharing, or financial assistance agreements

between the association and the bank;

(iii) Any statutory or bank bylaw provisions authorizing bank access to the capital of the

association; and

(iv) The extent the bank assumed the association's exposure to interest rate risk.

(11) For banks and associations, business relationships with unincorporated business entities (UBEs).

(i) Except as provided in paragraph (a)(12)(ii) of this section, describe the business relationship

with any UBE, as defined in § 611.1151 of this chapter, that was organized by the bank or

association or in which the bank or association has an equity interest. Include in the description

the name of the UBE, the type of business entity, the purpose for which the UBE was organized,

the scope of its activities, and the level of ownership. If the bank or association does not have

an equity interest, but manages the operations of a UBE that is controlled by a System

institution, describe this business relationship and any fees received.

(ii) If the UBE is organized for the purpose of acquiring and managing unusual or complex

collateral associated with loans, the bank or association need only disclose the name of the

UBE, the type of business entity, and the purpose for which the UBE was organized.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(a)(4)

12 CFR 620.5(a)(11)(ii) (enhanced display) page 7 of 28
(b) Description of property. State the location of and briefly describe the principal offices, i.e., headquarters,

and major facilities where the institution makes and services its loans, and other materially important

physical properties (other than property acquired in the course of collecting a loan) of the institution.

(c) Legal proceedings and enforcement actions.

(1) Describe briefly any material pending legal proceedings, other than ordinary routine litigation

incidental to the business, to which the institution is a party, of which any of its property is the

subject, or which involved claims that the institution may be required by contract or operation of law,

to satisfy.

(2) Describe the type of and reason for each enforcement action in effect, i.e., agreements, cease and

desist orders, temporary cease and desist orders, prohibitions and removals of officers or directors,

or civil money penalties, if any, imposed or assessed on the institution or its officers or directors and

the amount of any civil money penalties assessed.

(d) Description of capital structure.

(1) Describe each class of stock and participation certificates the institution is authorized to issue and

the rights, duties, and liabilities of each class. The description shall include:

(i) The number of shares of each class outstanding;

(ii) The par or face value;

(iii) The voting and dividend rights;

(iv) The order of priority upon impairment or liquidation;

(v) The institution's retirement policies and restrictions on transfer;

(vi) The statutory requirement that a borrower purchase stock as a condition to obtaining a loan;

(vii) The manner in which the stock is purchased (i.e., promissory note to the issuer, or cash not

advanced by issuing institution);

(viii) The statutory authority of the institution to require additional capital contributions, if any; and

(ix) The statutory and regulatory restrictions regarding retirement of stock and distribution of

earnings pursuant to § 615.5215 of this chapter, and any requirements to add capital under a

plan approved by the Farm Credit Administration pursuant to § 615.5350, § 615.5351, §

615.5353, § 615.5357, or § 628.301 of this chapter.

(2) Describe regulatory minimum capital standards, and the institution's compliance with such

standards. For banks, also discuss any related associations that are not currently in compliance with

the standards.

(3) State whether the institution is currently prohibited from retiring stock or distributing earnings by the

statutory and regulatory restrictions described in paragraph (d)(1)(ix) of this section, or knows of any

reason such prohibitions may apply during the fiscal year subsequent to the fiscal year just ended.

(4) Describe the institution's capital adequacy requirements and the minimum stock purchase

requirement in effect.

(e) Description of liabilities.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(b)

12 CFR 620.5(e) (enhanced display) page 8 of 28
(1) Describe separately the institution's insured and uninsured debt, indicating the type, amount,

maturity, and interest rates of each category of obligations outstanding at the end of the fiscal year

just ended. Describe the nature of the insurance provided under part E of title V of the Act. Describe

any applicable statutory and regulatory restrictions on the institution's ability to incur debt.

(2) Describe fully the institution's rights and obligations under any agreement, formal or informal,

between the institution and any other person or entity having to do with capital preservation, loss

sharing, or any other form of financial assistance.

(3) Describe any statutory authorities or obligations to contribute to or on behalf of another institution of

the Farm Credit System.

(4) Describe supplemental retirement plans funded by the institution on behalf of senior officers and

employees. The description for each plan must include the:

(i) Plan name;

(ii) Present value of accumulated benefits;

(iii) Payments made during the reporting period;

(iv) Funded and unfunded obligations; and

(v) Off-balance sheet amounts, including benefits earned but not vested.

(f) Selected financial data. Furnish in comparative columnar form for each of the last 5 fiscal years the

following financial data, if material:

(1) For banks and direct lender associations —

(i) Balance sheet.

(A) Total assets.

(B) Investments.

(C) Loans.

(D) Allowance for credit losses.

(E) Net loans.

(F) Other property owned.

(G) Total liabilities.

(H) Obligations with maturities less than 1 year.

(I) Obligations with maturities longer than 1 year.

(J) Protected borrower capital.

(K) At-risk capital.

(1) Stock and participation certificates.

(2) Allocated surplus.

(3) Unallocated surplus.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(e)(1)

12 CFR 620.5(f)(1)(i)(K)(3) (enhanced display) page 9 of 28
(ii) Statement of income.

(A) Net interest income.

(B) Provision for credit losses.

(C) Extraordinary items.

(D) Net income.

(iii) Key financial ratios.

(A) Return on average assets.

(B) Return on average protected borrower capital and at-risk capital.

(C) Net interest margin as a percentage of average earning assets.

(D) Protected and at-risk capital-to-total assets.

(E) Net chargeoffs-to-average loans.

(F) Allowance for credit losses-to-loans.

(iv) Net income distributed.

(A) Dividends.

(B) Patronage refunds.

(1) Cash.

(2) Stock.

(3) Allocated surplus.

(2) For all banks (on a bank-only basis) :

(i) Permanent capital ratio.

(ii) CET1 capital ratio.

(iii) Tier 1 capital ratio.

(iv) Total capital ratio.

(v) Tier 1 leverage ratio.

(3) For all associations:

(i) Permanent capital ratio.

(ii) CET1 capital ratio.

(iii) Tier 1 capital ratio.

(iv) Total capital ratio.

(v) Tier 1 leverage ratio.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(f)(1)(ii)

12 CFR 620.5(f)(3)(v) (enhanced display) page 10 of 28
(4) For all banks (on a bank only basis) and for all associations. The following ratios shall be disclosed in

comparative columnar form in each annual report through fiscal year end 2021, only as long as these

ratios are part of the previous 5 fiscal years of financial data required under paragraphs (f)(2) and (3)

of this section:

(i) Core surplus ratio.

(ii) Total surplus ratio.

(iii) For banks only, net collateral ratio.

(g) Management's discussion and analysis of financial condition and results of operations. Fully discuss any

material aspects of the institution's financial condition, changes in financial condition, and results of

operations during the last 2 fiscal years, identifying favorable and unfavorable trends, and significant

events or uncertainties. In addition to the items enumerated below, the discussion shall provide such

other information as is necessary to an understanding of the institution's financial condition, changes in

financial condition, and results of operations.

(1) Loan portfolio.

(i) Describe the types of loans in the portfolio by major category (e.g., agricultural real estate

mortgage loans, rural home loans, agricultural production loans, processing and marketing

loans, farm business loans, and international loans), indicating the approximate percentage of

the total dollar portfolio represented by each major category. Associations that make

agricultural production loans shall provide the information required for such loans by major

subcategory (e.g., cash grains, field crops, livestock, dairy, poultry, and timber). For each

category and subcategory, discuss any special features of the loans that may be material to the

evaluation of risk and any economic or business conditions that have had or are likely to have a

material impact on their collectibility. For banks, also disclose separately the aggregate amount

of loans outstanding to related associations and other financial institutions.

(ii) Describe the geographic distribution of the loan portfolio by State or other significant

geographic division, if any.

(iii) Purchases and sales of loans.

(A) Describe any material participation in the Federal Agricultural Mortgage Corporation

program or origination of loans for resale.

(B) Disclose the amount of purchased loans, loans sold with recourse, retained subordinated

participation interests in loans sold, and interests in pools of subordinated participation

interests that are held in lieu of retaining a subordinated participation interest in the loans

sold.

(iv) Risk exposure. For the periods covered by the financial statements provide:

(A) An analysis of high-risk assets and loan performance categories, to include, but not limited

to, a discussion of the nature and extent of significant potential credit risks within the loan

portfolio, or other information that could adversely impact performance of the loan

portfolio in the near future;

(B) An analysis of the allowance for credit losses that includes the ratios of the allowance for

credit losses to loans and net chargeoffs to average loans, and a discussion of the

adequacy of the allowance for credit losses given reasonable and supportable forecasts;

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(f)(4)

12 CFR 620.5(g)(1)(iv)(B) (enhanced display) page 11 of 28
(C) Financial assistance given or received under districtwide or Systemwide loss-sharing or

capital preservation agreements or otherwise;

(D) For banks, a description in the aggregate of the recent loss experience of related

associations that are its shareholders, including the items enumerated in paragraphs

(g)(1)(iv) (A), (B), and (C) of this section.

(E) Describe any material obligations with respect to loans sold and the amount of any

material contributions made in connection with loans sold into the secondary market.

Further disclose the amount of risk of loss associated with such obligations and the

amount included in the allowance for credit losses to provide for such risk.

(2) Results of operations.

(i) Describe, on a comparative basis, changes in the major components of net interest income

during the last 2 fiscal years, describing significant factors that contributed to the changes and

quantifying the amount of change(s) due to an increase in volume or the introduction of new

services and the amount due to changes in interest rates earned and paid, based on averages

for each period.

(ii) Describe any unusual or infrequent events or transactions or any significant economic changes,

including, but not limited to, financial assistance received or paid that materially affected

reported income. In each case, indicate the extent to which income was so affected.

(iii) Discuss the factors underlying the material changes, if any, in the return on average assets, the

return on average protected borrower capital and at-risk capital, and the permanent capital ratio

as determined in accordance with part 615, subpart H of this chapter. An explanation of the

basis of the calculation of ratios relating to permanent capital and at-risk capital shall be

included.

(iv) Describe, on a comparative basis, the major components of operating expense, indicating the

reasons for significant increases or decreases.

(v) Describe any other significant components of income or expense, including, but not limited to,

income from investments, that should be described in order to understand the institution's

results of operations.

(vi) Discuss any events affecting a related organization that are likely to have a material effect on

the reporting institution's financial condition, results of operations, cost of funds, or reliability of

sources of funds.

(vii) Describe any known trends or uncertainties that have had, or that the institution reasonably

expects will have, a material impact on net interest income or net income. Disclose any events

known to management that will cause a material change in the relationship between costs and

revenues.

(3) Liquidity and funding sources —

(i) Funding sources.

(A) Describe the average and year end amounts, maturities, and interest rates on outstanding

consolidated System-wide debt obligations, bond obligations, or any other obligations

used to fund the institution's lending operations.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(g)(1)(iv)(C)

12 CFR 620.5(g)(3)(i)(A) (enhanced display) page 12 of 28
(B) Describe existing lines of credit and their terms.

(C) Describe the institution's capital accounts and other sources of lendable funds.

(ii) Liquidity.

(A) Discuss the institution's liquidity policy and the components of asset liquidity, including,

but not limited to, cash, investment securities, and maturing loan repayments. Assess the

ability of the institution to generate adequate amounts of cash to fund its operations and

meet its obligations.

(B) Discuss any known trends that are likely to result in a liquidity deficiency and the course of

action management intends to take to resolve it. Discuss any material increase or

decrease in liquidity that is likely to occur.

(C) Discuss the institution's participation in the Federal Agricultural Mortgage Corporation

secondary market programs authorized by title VIII of the Act and the origination of loans

for resale under other authorities, if any.

(iii) Funds management.

(A) Discuss the institution's interest rate programs and the institution's ability to control

interest rate margins.

(B) Discuss changes in net interest margin (net interest income as a percentage of average

earning assets), explaining the reasons therefor.

(4) Capital resources.

(i) Describe any material commitments to purchase capital assets and the anticipated sources of

funding.

(ii) Describe any material trends or changes in the mix and cost of debt and capital resources. The

discussion shall consider changes in permanent capital, CET1 capital, tier 1 capital, total

capital, the tier 1 leverage ratio, debt, and any off-balance-sheet financial arrangements.

(iii) Describe any favorable or unfavorable trends in the institution's capital resources.

(iv) Discuss and explain any material changes in capital ratios, noting any material adverse

variances from regulatory guidelines.

(v) Discuss the adequacy of the current capital position and any material changes in the capital

plan adopted pursuant to § 615.5200 of this chapter, to the extent that such changes may have

an effect on the institution's minimum stock purchase requirements and its ability to retire

stock and distribute earnings.

(vi) Discuss any trends, commitments, contingencies, or events that are reasonably likely to have a

materially adverse effect upon the institution's ability to meet the regulatory minimum capital

standards and capital adequacy requirements.

(h) Directors and senior officers. In a separate section of the annual report, make the disclosures required in §

620.6 of this part.

(i) Relationship with qualified public accountant.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(g)(3)(i)(B)

12 CFR 620.5(i) (enhanced display) page 13 of 28
[51 FR 8656, Mar. 13, 1986, as amended at 69 FR 16471, Mar. 30, 2004; 70 FR 53909, Sept. 13, 2005; 71 FR 5764, Feb. 2, 2006; 71

FR 76119, Dec. 20, 2006; 72 FR 4414, Jan. 31, 2007; 74 FR 28599, June 17, 2009; 75 FR 18744, Apr. 12, 2010; 77 FR 60597, Oct. 3,

2012; 78 FR 31834, May 28, 2013; 79 FR 17856, Mar. 31, 2014; 81 FR 49778, July 28, 2016; 86 FR 54357, Oct. 1, 2021; 87 FR

27492, May 9, 2022; 88 FR 89286, Dec. 27, 2023]

§ 620.6 Disclosures in the annual report to shareholders relating to directors and senior

officers.

(1) If a change or changes in qualified public accountants have taken place since the last annual report

to shareholders or if a disagreement with a qualified public accountant has occurred that the

institution would be required to report to the Farm Credit Administration under part 621 of this

chapter, the information required by § 621.4(c) and (d) of this chapter must be disclosed.

(2) Disclose the total fees, by the category of services provided, paid during the reporting period to the

qualified public accountant engaged to conduct the institution's financial statement audit. At a

minimum, identify fees paid for audit services, tax services, and non-audit related services. The types

of non-audit services must be identified and indicate audit committee approval of the services.

(j) Financial statements.

(1) Furnish financial statements and related footnotes that have been prepared in accordance with

generally accepted accounting principles and instructions and other requirements of the Farm Credit

Administration and that have been audited in accordance with generally accepted auditing standards

by a qualified public accountant and an opinion expressed thereon. The statements shall include the

following statements and related footnotes for the last 3 fiscal years: balance sheet, statement of

income, statement of changes in protected borrower capital and at-risk capital, and statement of

cash flows.

(2) State that the financial statements were prepared under the oversight of the audit committee,

identifying the members of the audit committee.

(k) Credit and services to young, beginning, and small farmers and ranchers and producers or harvesters of

aquatic products.

(1) Each direct lender association must describe the YBS demographics in its territory and the source of

the demographic data. If there are differences in the methods by which the demographic and YBS

data are presented, these differences must be described.

(2) Each direct lender association must provide a description of its YBS program, including a status

report on each program component as set forth in § 614.4165 (d) of this chapter and the definitions

of “young,” “beginning,” and “small” farmers and ranchers. The discussion must provide such other

information necessary for a comprehensive understanding of the direct lender association's YBS

program and its results.

(3) Each Farm Credit bank must include a summary report of the quantitative YBS data from its affiliated

direct lender associations as described in FCA's instructions for the annual YBS yearend report. The

report must include the definitions of “young,” “beginning,” and “small” farmers and ranchers. A

narrative report may be necessary for an ample understanding of the YBS mission results.

(a) General.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.5(i)(1)

12 CFR 620.6(a) (enhanced display) page 14 of 28
(1) List the names of all directors and senior officers of the institution, indicating the position title and

term of office of each director, and the position, title, and date each senior officer commenced

employment in his or her current position.

(2) Briefly describe the business experience during the past 5 years of each director and senior officer,

including each person's principal occupation and employment during the past 5 years.

(3) For each director and senior officer, list any other business interest where the director or senior

officer serves on the board of directors or as a senior officer. Name the position held and state the

principal business in which the business is engaged.

(b) Compensation of directors. Describe the arrangements under which directors of the institution are

compensated for all services as a director (including total cash compensation and noncash

compensation). Noncash compensation with an annual aggregate value of less than $5,000 does not

have to be reported. State the total cash and reportable noncash compensation paid to all directors as a

group during the last fiscal year. For the purposes of this paragraph, disclosure of compensation paid to

and days served by directors applies to any director who served in that capacity at any time during the

reporting period. If applicable, describe any exceptional circumstances justifying the additional director

compensation as authorized by § 611.400(c) of this chapter. For each director, state:

(1) The number of days served at board meetings;

(2) The total number of days served in other official activities, including any board committee(s);

(3) Any additional compensation paid for service on a board committee, naming the committee; and

(4) The total cash and noncash compensation paid to each director during the last fiscal year.

Reportable compensation includes cash and the value of noncash items provided by a third party to

a director for services rendered by the director on behalf of the reporting Farm Credit institution.

Noncash compensation with an annual aggregate value of less than $5,000 does not have to be

reported.

(c) Compensation of senior officers. Disclose the information on senior officer compensation and

compensation plans as required by this paragraph. The institution must disclose the total amount of

compensation paid to senior officers in substantially the same manner as the tabular form specified in the

Summary Compensation Table (Compensation Table), located in paragraph (c)(3) of this section.

(1) For each of the last 3 completed fiscal years, report the total amount of compensation paid and the

amount of each component of compensation paid to the institution's chief executive officer (CEO),

naming the individual. If more than one person served in the capacity of CEO during any given fiscal

year, individual compensation disclosures must be provided for each CEO.

(2) For each of the last 3 completed fiscal years, report the aggregate amount of compensation paid,

and the components of compensation paid, to all senior officers as a group, stating the number of

officers in the group without naming them.

(i) If applicable, when any employee who is not a senior officer has annual compensation at a level

that is among the five highest paid by the institution during the reporting period, include the

highly compensated employee(s) in the aggregate number and amount of compensation

reported in the Compensation Table. However, exclude any such employee from the

Compensation Table if the employee would be considered highly compensated solely because

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(a)(1)

12 CFR 620.6(c)(2)(i) (enhanced display) page 15 of 28
Summary Compensation Table

Annual

Name of individual or number in group Year Salary Bonus

Deferred/

perquisite Other Total

(a) (b) (c) (d) (e) (f) (g)

CEO 20XX $ $ $ $ $

20XX

20XX

Aggregate No. of Senior Officers (& other highly

compensated employees, if applicable):

(X) 20XX

(X) 20XX

(X) 20XX

of payments related to or change(s) in value of the employee's qualified pension plan provided

that the plan was available to all similarly situated employees on the same basis at the time the

employee joined the plan.

(ii) The report containing the aggregate compensation disclosure must include a statement that

disclosure of information on the total compensation paid during the last fiscal year to any

senior officer, or to any other employee included in the aggregate, is available and will be

disclosed to shareholders of the institution and shareholders of related associations (if

applicable) upon request. This statement must be located directly beneath the Compensation

Table.

(3) The institution must complete the Compensation Table, or something substantially similar, according

to the following instructions:

(i) Amounts shown as “Salary” (column (c)) and “Bonus” (column (d)) must reflect the dollar value

of salary and bonus earned by the senior officer during the fiscal year. Amounts contributed

during the fiscal year by the senior officer pursuant to a plan established under section 401(k)

of the Internal Revenue Code, or similar plan, must be included in the salary column or bonus

column, as appropriate. If the amount of salary or bonus earned during the fiscal year is not

calculable by the time the report is prepared, the reporting institution must provide its best

estimate of the compensation amount(s) and disclose that fact in a footnote to the table.

(ii) Amounts shown as “deferred/perquisites” (column (e)) must reflect the dollar value of other

annual compensation not properly categorized as salary or bonus, including but not limited to:

(A) Deferred compensation earned during the fiscal year, whether or not paid in cash; or

(B) Perquisites and other personal benefits, including the value of noncash items, unless the

annual aggregate value of such perquisites is less than $5,000. Reportable perquisites

include cash and the value of noncash items provided by a third party to a senior officer

for services rendered by the officer on behalf of the reporting institution.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(c)(2)(ii)

12 CFR 620.6(c)(3)(ii)(B) (enhanced display) page 16 of 28
Pension Benefits Table

As of most recent fiscal year-end

Name of individual

Years of

credited

service

Present value of

accumulated

benefits

Payments made

during reporting

period

CEO $ $

Senior Officers as a Group (& other highly

compensated employees, if applicable).

(iii) Compensation amounts reported under the category “Other” (column (f)) must reflect the dollar

value of all other compensation not properly reportable in any other column. Items reported in

this column must be specifically identified and described in a footnote to the table. “Other”

compensation includes, but is not limited to:

(A) The amount paid to the senior officer pursuant to a plan or arrangement in connection with

the resignation, retirement, or termination of such officer's employment with the

institution.

(B) The amount of contributions by the institution on behalf of the senior officer to a vested or

unvested defined contribution plan unless the plan is made available to all employees on

the same basis.

(C) The dollar value of any tax reimbursement provided by the institution.

(D) Any changes in the value of pension benefits.

(iv) Amounts displayed under “Total” (column (g)) shall reflect the sum total of amounts reported in

columns (c), (d), (e), and (f).

(4) If the institution provides a defined benefit plan or a supplemental executive retirement plan (SERP)

to its senior officers, the institution must complete the following Pension Benefits Table, or

something substantially similar, for each plan according to the following instructions:

(i) Report the credited years of service for the CEO and the average credited years of service for

the senior officer group under the plan.

(ii) Report the present value of accumulated benefits for the CEO and the senior officer group under

the plan.

(iii) Report payments made during the reporting period under the plan for the CEO and the senior

officer group.

(5) Provide a description of all compensation, retirement, incentive, and performance plans (plans)

pursuant to which cash or noncash compensation was paid or distributed during the last fiscal year,

or is proposed to be paid or distributed in the future for performance during the last fiscal year, to

those individuals included in the Compensation Table. Provide the information individually for the

chief executive officer and as a group for the senior officers. Information provided for the senior

officer group includes any highly compensated employees whose compensation is reported in the

Compensation Table. The description of each plan must include, but not be limited to:

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(c)(3)(iii)

12 CFR 620.6(c)(5) (enhanced display) page 17 of 28
(i) A summary of how each plan operates and who is covered by the plan. The summary must

include the criteria used to determine amounts payable, including any performance formula or

measure, as well as the time period over which the measurement of compensation will be

determined, payment schedules, and any material amendments to the plan during the last fiscal

year.

(ii) The overall risk and reward structure of the plan as it relates to senior officers' compensation.

The description must include, at a minimum, how each plan is compatible with and promotes

the institution's goals and business strategy and the mission as a Government-sponsored

enterprise.

(iii) A discussion of the relationship between the CEO and senior officers' compensation to the

reporting institution's overall performance. The disclosure must also discuss the relationship

between the CEO's and senior officers' compensation to their performance.

(6) Associations may disclose the information required by paragraph (c) of this section in the Annual

Meeting Information Statement (AMIS) pursuant to subpart E of this part. Associations exercising

this option must include a reference in the annual report stating that the senior officer compensation

information is included in the AMIS and that the AMIS is available for public inspection at the

reporting association offices pursuant to § 620.2(b).

(d) Travel, subsistence, and other related expenses.

(1) Briefly describe your policy addressing reimbursements for travel, subsistence, and other related

expenses as it applies to directors and senior officers. The report shall include a statement that a

copy of the policy is available to shareholders of the institution and shareholders of related

associations (if applicable) upon request.

(2) For each of the last 3 fiscal years, state the aggregate amount of reimbursement for travel,

subsistence, and other related expenses for all directors as a group.

(e) Transactions with senior officers and directors.

(1) State the institution's policies, if any, on loans to and transactions with officers and directors of the

institution.

(2) Transactions other than loans. For each person who served as a senior officer or director on January

1 of the year following the fiscal year of which the report is filed, or at any time during the fiscal year

just ended, describe briefly any transaction or series of transactions other than loans that occurred

at any time since the last annual meeting between the institution and such person, any member of

the immediate family of such person, or any organization with which such person is affiliated.

(i) For transactions relating to the purchase or retirement of preferred stock issued by the

institution, state the name of each senior officer or director that held preferred stock issued by

the institution during the reporting period, the current amount of preferred stock held by the

senior officer or director, the average dividend rate on the preferred stock currently held, and the

amount of purchases and retirements by the individual during the reporting period.

(ii) For all other transactions, state the name of the senior officer or director who entered into the

transaction or whose immediate family member or affiliated organization entered into the

transaction, the nature of the person's interest in the transaction, and the terms of the

transaction. No information need be given where the purchase price, fees, or charges involved

were determined by competitive bidding or where the amount involved in the transaction

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(c)(5)(i)

12 CFR 620.6(e)(2)(ii) (enhanced display) page 18 of 28
(including the total of all periodic payments) does not exceed $5,000, or the interest of the

person arises solely as a result of his or her status as a stockholder of the institution and the

benefit received is not a special or extra benefit not available to all stockholders.

(3) Loans to senior officers and directors.

(i) To the extent applicable, state that the institution (or in the case of an association that does not

carry loans to its senior officers and directors on its books, its related bank) has had loans

outstanding during the last full fiscal year to date to its senior officers and directors, their

immediate family members, and any organizations with which such senior officers or directors

are affiliated that:

(A) Were made in the ordinary course of business; and

(B) Were made on the same terms, including interest rate, amortization schedule, and

collateral, as those prevailing at the time for comparable transactions with other persons.

(ii) To the extent applicable, state that no loan to a senior officer or director, or to any organization

affiliated with such person, or to any immediate family member who resides in the same

household as such person or in whose loan or business operation such person has a material

financial or legal interest, involved more than the normal risk of collectability; provided that no

such statement need be made with respect to any director or senior officer who has resigned

before the time for filing the applicable report with the Farm Credit Administration (but in no

case later than the actual filing), or whose term of office will expire or terminate no later than

the date of the meeting of stockholders to which the report relates.

(iii) If the conditions stated in paragraphs (e)(3)(i) and (ii) of this section do not apply to the loans

of the persons or organizations specified therein, with respect to such loans state:

(A) The name of the officer or director to whom the loan was made or to whose relative or

affiliated organization the loan was made.

(B) The largest aggregate amount of each indebtedness outstanding at any time during the

last fiscal year.

(C) The nature of the loan(s);

(D) The amount outstanding as of the latest practicable date.

(E) The reasons the loan does not comply with the criteria contained in paragraphs (e)(3)(i)

and (e)(3)(ii) of this section.

(F) If the loan does not comply with paragraph (e)(3)(i)(B) of this section, the rate of interest

payable on the loan and the repayment terms.

(G) If the loan does not comply with paragraph (e)(3)(ii) of this section, the amount past due, if

any, and the reason the loan is deemed to involve more than a normal risk of collectability.

(f) Involvement in certain legal proceedings. Describe any of the following events that occurred during the

past 5 years and that are material to an evaluation of the ability or integrity of any person who served as

director or senior officer on January 1 of the year following the fiscal year for which the report is filed or at

any time during the fiscal year just ended:

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(e)(3)

12 CFR 620.6(f) (enhanced display) page 19 of 28
[77 FR 60597, Oct. 3, 2012, as amended at 79 FR 17856, Mar. 31, 2014; 80 FR 10326, Feb. 26, 2015]

Subpart C—Quarterly Report

§ 620.10 Preparing the quarterly report.

[62 FR 15093, Mar. 31, 1997, as amended at 71 FR 76120, Dec. 20, 2006; 74 FR 28600, June 17, 2009; 77 FR 60600, Oct. 3, 2012]

§ 620.11 Content of quarterly report to shareholders.

(1) A petition under the Federal bankruptcy laws or any State insolvency law was filed by or against, or a

receiver, fiscal agent, or similar officer was appointed by a court for the business or property of such

person, or any partnership in which such person was a general partner at or within 2 years before the

time of such filing, or any corporation or business association of which such person was a senior

officer at or within 2 years before the time of such filing;

(2) Such person was convicted in a criminal proceeding or is a named party in a pending criminal

proceeding (excluding traffic violations and other misdemeanors);

(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed,

suspended, or vacated, by any court of competent jurisdiction, permanently or temporarily enjoining

or otherwise limiting such person from engaging in any type of business practice.

(a) Each institution of the Farm Credit System must:

(1) Prepare and send to the Farm Credit Administration an electronic copy of its quarterly report within

40 calendar days after the end of each fiscal quarter, except that no report need be prepared for the

fiscal quarter that coincides with the end of the fiscal year of the institution;

(2) Publish a copy of its quarterly report on its Web site when it electronically sends the report to the

Farm Credit Administration; and

(3) Ensure the report complies with the applicable provisions of §§ 620.2 and 620.3.

(b) The report shall contain, at a minimum, the information specified in § 620.11 and, in addition, such other

material information (including significant events) as is necessary to make the required disclosures, in

light of the circumstances under which they are made, not misleading.

(c) Institutions may use the quarterly report to deliver any notice required under § 620.15. Notices required

under § 620.17 must be issued separately from the quarterly report, unless otherwise authorized by the

Farm Credit Administration.

(a) General. The information required to be included in the quarterly report may be presented in any format

deemed suitable by the institution, except as otherwise required by this section. The report must be

organized in an easily understandable format and not presented in a manner that is misleading.

(b) Rules for condensation. For purposes of this section, major captions to be provided in the financial

statements are the same as those provided in the financial statements contained in the institution's

annual report to shareholders, except that the financial statements included in the quarterly report may be

condensed into major captions in accordance with the rules prescribed under this paragraph. If any

amount that would otherwise be required to be shown by this subpart with respect to any item is not

material, it need not be separately shown. The combination of insignificant items is permitted.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.6(f)(1)

12 CFR 620.11(b) (enhanced display) page 20 of 28
(1) Interim balance sheets. When any major balance sheet caption is less than 10 percent of total assets

and the amount in the caption has not increased or decreased by more than 25 percent since the

end of the preceding fiscal year, the caption may be combined with others.

(2) Interim statements of income. When any major income statement caption is less than 15 percent of

average net income for the 3 most recent fiscal years and the amount in the caption has not

increased or decreased by more than 20 percent since the corresponding interim period of the

preceding fiscal year, the caption may be combined with others. In calculating average net income,

loss years should be excluded. If losses were incurred in each of the 3 most recent fiscal years, the

average loss shall be used for purposes of this test.

(3) The interim financial information shall include disclosure either on the face of the financial

statements or in accompanying footnotes sufficient to make the interim information presented not

misleading. Institutions may presume that users of the interim financial information have read or

have access to the audited financial statements for the preceding fiscal year and the adequacy of

additional disclosure needed for a fair presentation may be determined in that context. Accordingly,

footnote disclosure that would substantially duplicate the disclosure contained in the most recent

audited financial statements (such as a statement of significant accounting policies and practices),

and details of accounts that have not changed significantly in amount or composition since the end

of the most recent completed fiscal year may be omitted. However, disclosure shall be provided of

events occurring subsequent to the end of the most recent fiscal year that have a material impact on

the institution. Disclosures should encompass, for example, significant changes since the end of the

most recently completed fiscal year in such items as accounting principles and practices; estimates

inherent in the preparation of financial statements; status of long-term contracts; capitalization,

including significant new indebtedness or modification of existing financing agreements; and the

reporting entity resulting from business combinations or dispositions.

(4) The interim financial statements furnished shall reflect all adjustments that are, necessary to a fair

statement of the results for the interim periods presented. A statement to that effect shall be

included. Furnish any material information necessary to make the information called for not

misleading, such as a statement that the results for interim periods are not necessarily indicative of

results to be expected for the year.

(c) Required content. A quarterly report must, at a minimum, contain the following items:

(1) Management's discussion and analysis of financial condition and results of operations. Discuss

material changes, if any, to the information provided to shareholders pursuant to § 620.5(g) that

have occurred during the periods specified in paragraphs (c)(2)(i) and (ii) of this section. Such

additional information as is needed to enable the reader to assess material changes in financial

condition and results of operations between the periods specified in paragraphs (c)(2)(i) and (ii) of

this section shall be provided.

(i) Material changes in financial condition. Discuss any material changes in financial condition

from the end of the preceding fiscal year to the date of the most recent interim balance sheet

provided. If the interim financial statements include an interim balance sheet as of the

corresponding interim date of the preceding fiscal year, any material changes in financial

conditions from that date to the date of the most recent interim balance sheet provided also

shall be discussed. If discussions of changes from both the end and the corresponding interim

date of the preceding fiscal year are required, the discussions may be combined at the

discretion of the institution.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.11(b)(1)

12 CFR 620.11(c)(1)(i) (enhanced display) page 21 of 28
[51 FR 21341, June 12, 1986, as amended at 53 FR 3337, Feb. 5, 1988. Redesignated and amended at 56 FR 29421, 29424, June

27, 1991; 67 FR 16633, Apr. 8, 2002; 71 FR 5765, Feb. 2, 2006; 74 FR 28600, June 17, 2009; 77 FR 60600, Oct. 3, 2012]

Subpart D—Notice to Shareholders

Source: 62 FR 15093, Mar. 31, 1997, unless otherwise noted.

(ii) Material changes in results of operations. Discuss any material changes in the institution's

results of operations with respect to the most recent fiscal year-to-date period for which an

income statement is provided and the corresponding year-to-date period of the preceding fiscal

year. Such discussion also shall cover material changes with respect to that fiscal quarter and

the corresponding fiscal quarter in the preceding fiscal year. In addition, if the institution has

elected to provide an income statement for the 12-month period ended as of the date of the

most recent interim balance sheet provided, the discussion also shall cover material changes

with respect to that 12-month period and the 12-month period ended as of the corresponding

interim balance sheet date of the preceding fiscal year.

(2) Interim financial statements. The following financial statements must be provided:

(i) An interim balance sheet as of the end of the most recent fiscal quarter and as of the end of the

preceding fiscal year. A balance sheet for the comparable quarter of the preceding fiscal year is

optional.

(ii) Interim statements of income for the most recent fiscal quarter, for the period between the end

of the preceding fiscal year and the end of the most recent fiscal quarter, and for the

comparable periods for the previous fiscal year.

(iii) Interim statements of changes in protected borrower capital and at-risk capital for the period

between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and

for the comparable period for the preceding fiscal year.

(iv) For banks, interim statements of cash flows for the period between the end of the preceding

fiscal year and the end of the most recent fiscal quarter, and for the comparable period for the

preceding fiscal year. For associations, interim statements of cash flows are optional.

(3) Other related financial items. State that the financial statements were prepared under the oversight

of the audit committee. The interim financial information need not be audited or reviewed by a

qualified public accountant or external auditor prior to filing. If, however, a review of the data is made

in accordance with the established professional standards and procedures for such a review, the

institution may state that a qualified public accountant or external auditor has performed such a

review under the supervision of the institution's audit committee. If such a statement is made, the

report of a qualified public accountant or external auditor on such review must accompany the

interim financial information.

(d) Notices. Institutions using the quarterly report to deliver any notice required under § 620.15 must put the

notice information at the beginning of the quarterly report. The notice must be conspicuous and may not

be part of any footnotes to the quarterly report.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.11(c)(1)(ii)

12 CFR 620.11(d) (enhanced display) page 22 of 28
§ 620.15 Notice of significant or material events.

When a Farm Credit bank or association determines that it has a significant or material event, the institution must

prepare and provide to its shareholders and the Farm Credit Administration a notice disclosing the event(s).

[77 FR 60600, Oct. 3, 2012]

§ 620.17 Special notice provisions for events related to noncompliance with minimum

regulatory capital ratios.

(a) Each bank and association board of directors must establish and maintain a policy identifying the

categories and types of events that may result in a notice under this section. At a minimum, events

covered under this provision include significant events defined in § 620.1(q) and material events defined

in § 620.1(h). The policy must identify how the significance or materiality of an event will be determined.

(b) A notice issued under this section must be made as soon as possible, but not later than 90 days after

occurrence of the event.

(1) Each institution must electronically provide the notice to the Farm Credit Administration at the same

time as distribution of the notice to shareholders.

(2) Delivery of the notice to shareholders may be accomplished by direct communications with the

shareholders, posting the notice on the institution's Web site, as part of the quarterly report to

shareholders, or by publishing the notice in any publication with circulation wide enough to

reasonably assure that all of the institution's shareholders have access to the information in a timely

manner. No matter how the notice is distributed, it must comply with all the provisions of this

section.

(c) Every notice must be dated and signed in a manner similar to the requirements of § 620.3(b).

(d) The information required to be included in a notice issued under this section must be conspicuous, easily

understandable, complete, accurate, and not misleading.

(e) A Farm Credit System institution may be required to issue a notice under this section at the direction of

the Farm Credit Administration.

(a) For purposes of this section, “regulatory capital ratios” include the capital ratios specified in § 628.10 of

this chapter and the permanent capital standard prescribed under § 615.5205 of this chapter.

(b) When a Farm Credit bank or association determines that it is not in compliance with one or more

applicable minimum regulatory capital ratios, that institution must prepare and provide to its shareholders

and the FCA a notice stating that the institution has initially determined it is not in compliance with the

minimum regulatory capital ratio or ratios. Such notice must be given within 30 days following the month

end.

(c) When notice is given under paragraph (b) of this section, the institution must also notify its shareholders

and the FCA when the regulatory capital ratio or ratios that are the subject of such notice decrease by one

half of 1 percent or more from the level reported in the original notice, or from that reported in a

subsequent notice provided under this paragraph (c). This notice must be given within 45 days following

the end of every quarter at which the institution's regulatory capital ratio or ratios decrease as specified.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.15

12 CFR 620.17(c) (enhanced display) page 23 of 28
[81 FR 49778, July 28, 2016]

Subpart E—Annual Meeting Information Statements and Other Information To Be Furnished in

Connection with Annual Meetings and Director Elections

§ 620.20 Preparing and distributing the information statement.

(d) Each institution required to prepare a notice under paragraph (b) or (c) of this section shall provide the

notice to shareholders or publish it in any publication with circulation wide enough to be reasonably

assured that all of the institution's shareholders have access to the information in a timely manner. The

information required to be included in this notice must be conspicuous, easily understandable, and not

misleading.

(e) A notice, at a minimum, shall include:

(1) A statement that:

(i) Briefly describes the minimum regulatory capital ratios established by the FCA and the notice

requirement of paragraph (b) of this section;

(ii) Indicates the institution's current level of capital; and

(iii) Notifies shareholders that the institution's capital is below the FCA minimum regulatory capital

ratio or ratios.

(2) A statement of the effect that noncompliance has had on the institution and its shareholders,

including whether the institution is currently prohibited by statute or regulation from retiring stock or

distributing earnings or whether the FCA has issued a capital directive or other enforcement action

to the institution.

(3) A complete description of any event(s) that may have significantly contributed to the institution's

noncompliance with the minimum regulatory capital ratio or ratios.

(4) A statement that the institution is required by regulation to provide another notice to shareholders

within 45 days following the end of any subsequent quarter at which the regulatory capital ratio or

ratios decrease by one half of 1 percent or more from the level reported in the notice.

(a)

(1) Each Farm Credit bank and association must prepare and provide an information statement

(“statement” or “AMIS”) to its shareholders at least 10 business days, but not more than 30 business

days, before any annual meeting or any director elections.

(2) Each Farm Credit bank and association must provide the Farm Credit Administration an electronic

copy of the AMIS when issued.

(3) In addition to the mailed AMIS, each Farm Credit bank and association may post its AMIS on its Web

site. Any AMIS posted on an institution's Web site must remain on the Web site for a reasonable

period of time, but not less than 30 calendar days.

(b) Every AMIS must be dated and signed in accordance with the requirements of § 620.3(b) of this part.

(c) Every AMIS must be available for public inspection at all offices of the issuing institution pursuant to §

620.2(b) of this part.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.17(d)

12 CFR 620.20(c) (enhanced display) page 24 of 28
[75 FR 18744, Apr. 12, 2010]

§ 620.21 Contents of the information statement.

(a) An AMIS must, at a minimum, address the following items:

(1) Date, time, and place of the meeting(s). Notice of the date, time, and meeting location(s) must be

provided at least 10 business days, but no more than 30 business days, before the meeting. If the

Farm Credit bank or association will use an online meeting space as part of its meeting, the notice

must also specify the date, time, and means of accessing the online meeting space. This

information does not need to be part of an AMIS issued by a Farm Credit bank if no meeting is held.

(2) Voting shareholders. For each class of stock entitled to vote at the meeting, state the number of

shareholders entitled to vote and, when shareholders are asked to vote on preferred stock, the

number of shares entitled to vote. State the record date as of which the shareholders entitled to vote

will be determined and the voting requirements for each matter to be voted upon. If association

directors are nominated or elected by region, describe the regions and state the number of voting

shareholders entitled to vote in each region.

(3) Financial updates. Each AMIS must reference the most recently issued annual report required by

subpart B of this part. The AMIS must also include such other information considered material and

necessary to make the required contents of the AMIS, in light of the circumstances under which it is

made, not misleading.

(i) If any transactions between the institution and its senior officers and directors of the type

required to be disclosed in the annual report to shareholders under § 620.6(e), or any of the

events required to be disclosed in the annual report to shareholders under § 620.6(f) have

occurred since the end of the last fiscal year and were not disclosed in the annual report to

shareholders, the disclosures required by § 620.6(e) and (f) shall be made with respect to such

transactions or events in the information statement. If any material change in the matters

disclosed in the annual report to shareholders pursuant to § 620.6(e) and (f) has occurred

since the annual report to shareholders was prepared, disclosure shall be made of such change

in the information statement.

(ii) If a Farm Credit institution has had a change or changes in its external auditor(s) since the last

annual report to shareholders, or if a disagreement with an external auditor has occurred, the

institution shall disclose the information required by § 621.4(c) and (d) of this chapter.

(4) Directors. State the names and ages of persons currently serving as directors of the institution, their

terms of office, and the periods during which such persons have served. Institutions must also state

the type or types of agriculture or aquaculture engaged in by each director. No information need be

given with respect to any director whose term of office as a director will not continue after any

meeting to which the statement relates.

(i) Identify by name any incumbent director who attended fewer than 75 percent of the board

meetings or any meetings of board committees on which he or she served during the last fiscal

year.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.21

12 CFR 620.21(a)(4)(i) (enhanced display) page 25 of 28
[75 FR 18744, Apr. 12, 2010, as amended at 77 FR 60601, Oct. 3, 2012]

Subpart F—Bank and Association Audit and Compensation Committees

Source: 71 FR 5766, Feb. 2, 2006, unless otherwise noted.

§ 620.30 Audit committees.

Each Farm Credit bank and association must establish and maintain an audit committee. An audit committee is

established by adopting a written charter describing the committee's composition, authorities, and responsibilities

in accordance with this section. All audit committees must maintain records of meetings, including attendance, for

at least 3 fiscal years.

(ii) If any director resigned or declined to stand for reelection since the last annual meeting

because of a policy disagreement with the board, and if the director has provided a notice

requesting disclosure of the nature of the disagreement, state the date of the director's

resignation and summarize the director's description of the disagreement. If the institution

holds a different view of the disagreement, the institution's view may be summarized as well.

(b) An AMIS issued for director elections must also include the information required by this paragraph.

(1) Provide the nominating committee's slate of director-nominees. If fewer than two director-nominees

for each position are named, describe the efforts of the nominating committee to locate two willing

nominees.

(2) Provide, as part of the AMIS, the director-nominee disclosure information collected under § 611.330

of this chapter. Institutions may either restate such information in a standard format or provide

complete copies of each nominee's disclosure statement.

(3) State whether nominations will be accepted from the floor and explain the procedures for making

floor nominations.

(c) When the nominating committee will be elected during director elections, notice to voting shareholders of

this event must be included in the AMIS. The AMIS must describe the balloting procedures that will be

used to elect the nominating committee, including whether floor nominations for committee members will

be permitted. The AMIS must state the number of committee positions to be filled and the names of the

nominees for the committee.

(d) If shareholders are asked to vote on matters not normally required to be submitted to shareholders for

approval, the AMIS must describe fully the material circumstances surrounding the matter, the reason

shareholders are asked to vote, and the vote required for approval of the proposition. The AMIS must

describe any other matter that will be discussed at the meeting upon which shareholder vote is not

required.

(a) Composition. Each member of an audit committee must be a member of the Farm Credit institution's

board of directors. An audit committee may not consist of less than three members and must include any

director designated as a financial expert under § 611.210(a)(2) of this chapter. All audit committee

members should be knowledgeable in at least one of the following: Public and corporate finance, financial

reporting and disclosure, or accounting procedures.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.21(a)(4)(ii)

12 CFR 620.30(a) (enhanced display) page 26 of 28
[53 FR 50339, Dec. 15, 1988, as amended at 71 FR 76120, Dec. 20, 2006]

§ 620.31 Compensation committees.

Each Farm Credit bank and association must establish and maintain a compensation committee by adopting a

written charter describing the committee's composition, authorities, and responsibilities in accordance with this

section. The compensation committee must report only to the board of directors. All compensation committees are

required to maintain records of meetings, including attendance, for at least 3 fiscal years.

(b) Independence. Every audit committee member must be free from any relationship that, in the opinion of

the board, would interfere with the exercise of independent judgment as a committee member.

(c) Resources. Farm Credit institutions must permit their audit committees to contract for independent legal

counsel and expert advisors. If an institution hires a financial expert advisor pursuant to § 611.210(a)(2),

that advisor will also serve as an advisor to the audit committee. Each institution is responsible for

providing monetary and nonmonetary resources to enable its audit committee to contract for external

auditors, outside advisors, and ordinary administrative expenses. A two-thirds majority vote of the full

board of directors is required to deny an audit committee's request for resources.

(d) Duties. Each audit committee must report only to the board of directors. In its capacity as a committee of

the board, the audit committee is responsible for the following:

(1) Financial reports. Each audit committee must oversee management's preparation of the report to

shareholders; review the impact of any significant accounting and auditing developments; review

accounting policy changes relating to preparation of financial statements; and review annual and

quarterly reports prior to release. After the audit committee reviews a financial policy, procedure, or

report, it must record in its minutes its agreement or disagreement with the item(s) under review.

(2) External auditors. The external auditor must report directly to the audit committee. Each audit

committee must:

(i) Determine the appointment, compensation, and retention of external auditors issuing audit

reports of the institution;

(ii) Review the external auditor's work;

(iii) Give prior approval for any non-audit services performed by the external auditor, except the

audit committee may not approve those non-audit services specifically prohibited by FCA

regulation; and

(iv) Comply with the auditor independence provisions of part 621 of this chapter.

(3) Internal controls. Each audit committee must oversee the institution's system of internal controls

relating to preparation of financial reports, including controls relating to the institution's compliance

with applicable laws and regulations. Any internal audit functions of the institution must also be

subject to audit committee review and supervision.

(a) Composition. Each compensation committee must consist of at least three members and all committee

members must be members of the institution's board of directors. Every member must be free from any

relationship that, in the opinion of the board, would interfere with the exercise of independent judgment as

a committee member.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.30(b)

12 CFR 620.31(a) (enhanced display) page 27 of 28
[77 FR 60601, Oct. 3, 2012]

(b) Responsibilities. It is the responsibility of each compensation committee to review the compensation

policies and plans for senior officers and employees and to approve the overall compensation program for

senior officers. In fulfilling its responsibilities, the compensation committee must document that it

determined the:

(1) Institution's projected long-term compensation and retirement benefit obligations are appropriate to

the services performed and not excessive;

(2) Incentive-based compensation programs and payments are reasonable and proportionate to the

services performed and structured so the payout schedule considers the potential for future losses

or undue risks to the institution;

(3) Senior officer compensation, incentive, and benefit programs support the institution's long-term

business strategy and mission, as well as promote safe and sound business practices; and

(4) Compensation programs designed for specific groups of employees, other than senior officers, pose

no imprudent risks to the institution.

(c) Resources. Each institution must provide monetary and nonmonetary resources to enable its

compensation committee to perform its duties.

12 CFR Part 620 (up to date as of 3/07/2024)

Disclosure to Shareholders

12 CFR 620.31(b)

12 CFR 620.31(c) (enhanced display) page 28 of 28
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 621 Accounting and Reporting Requirements

Subpart A Purpose and Definitions

§ 621.1 Purpose and applicability.

§ 621.2 Definitions.

Subpart B General Rules

§ 621.3 Application of generally accepted accounting principles.

§ 621.4 Audit by qualified public accountant.

§ 621.5 Accounting for the allowance for credit losses and chargeoffs.

Subpart C Loan Performance and Valuation Assessment

§ 621.6 Categorizing high-risk loans and other property owned.

§ 621.7 Rule of aggregation.

§ 621.8 Application of payments and income recognition on nonaccrual loans.

§ 621.9 Reinstatement to accrual status.

§ 621.10 Monitoring of performance categories and other property owned.

Subpart D -Reports of Condition and Performance and Accounts and Exposures

§ 621.12 Reports of condition and performance.

§ 621.13 Content and standards—general rules.

§ 621.14 Certification of correctness.

§ 621.15 Reports of accounts and exposures.

Subpart E Auditor Independence

§ 621.30 General.

§ 621.31 Non-audit services.

§ 621.32 Conflicts of interest and rotation.

PART 621—ACCOUNTING AND REPORTING REQUIREMENTS

Authority: Secs. 5.17, 5.19, 5.22A, 8.11 of the Farm Credit Act (12 U.S.C. 2183, 2202, 2202a, 2202d, 2252, 2257a,

2279aa–11); Pub. L. 102–552, 106 Stat. 4102, 4134.

Source: 58 FR 48786, Sept. 20, 1993, unless otherwise noted.

Subpart A—Purpose and Definitions

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR Part 621 (Mar. 7, 2024)

12 CFR 621 (enhanced display) page 1 of 13
§ 621.1 Purpose and applicability.

This part sets forth accounting and reporting requirements to be followed by all banks, associations, and service

corporations chartered under the Act; the Federal Farm Credit Banks Funding Corporation; and, where specifically

indicated, the Federal Agricultural Mortgage Corporation. The requirements set forth in this part are of both general

and specific applicability. Certain requirements focus on areas of financial condition and operating performance

that are of special importance for generating, presenting, and disclosing accurate and reliable information.

[58 FR 48786, Sept. 20, 1993, as amended at 78 FR 31835, May 28, 2013]

§ 621.2 Definitions.

For the purposes of this part, the following definitions shall apply:

Accounts and exposures means data related to any loan, lease, letter of credit, derivative, or, any other asset,

liability, other balance sheet account, or off-balance-sheet exposure of a System institution.

Accrual basis of accounting means the accounting method in which expenses are recorded when incurred,

whether paid or unpaid, and income is reported when earned, whether received or not received.

Adequately secured means the loan is secured by either or both:

(1) Collateral in the form of perfected security interests in, or pledges of, real and/or personal property

(including securities with an estimable value) having a net realizable value sufficient to repay the

loan's outstanding principal and accrued interest.

(2) The guarantee of a financially responsible party in an amount sufficient to repay the loan's

outstanding principal and accrued interest.

Banks and associations mean all Farm Credit Banks, Agricultural credit banks, and associations.

Borrowing entity means the individual(s), partnership, joint venture, trust, corporation, or other business entity, or

any combination thereof, that is primarily obligated on the loan instrument.

Central data repository means a central data warehouse that electronically collects and stores current and

historical data and is created by integrating data from one or more disparate sources.

Generally accepted accounting principles means that body of conventions, rules, and procedures necessary to

define accepted accounting practices at a particular time, as promulgated by the Financial Accounting

Standards Board (FASB) and other authoritative sources recognized as setting standards for the

accounting profession in the United States. Generally accepted accounting principles include not only

broad guidelines of general application but also detailed practices and procedures that constitute

standards by which financial presentations are evaluated.

Generally accepted auditing standards means the standards and guidelines that are generally accepted in the

United States of America and that are adopted by the authoritative body that governs the overall quality of

audit performance.

In the process of collection means debt collection or loan servicing efforts are proceeding in due course and are

reasonably expected to result in the recovery of the loan's principal balance, accrued interest and

penalties or reinstatement of the loan to current status within a reasonable time period.

Institution means any bank, association, or service corporation chartered under the Act; the Federal Farm Credit

Banks Funding Corporation, and where specifically noted, the Federal Agricultural Mortgage Corporation.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.1

12 CFR 621.2 “Institution” (enhanced display) page 2 of 13
[58 FR 48786, Sept. 20, 1993, as amended at 71 FR 76120, Dec. 20, 2006; 74 FR 28600, June 17, 2009; 78 FR 31835, May 28,

2013; 78 FR 77562, Dec. 24, 2013; 85 FR 52253, Aug. 25, 2020]

Subpart B—General Rules

§ 621.3 Application of generally accepted accounting principles.

Each institution shall:

Loan means any extension of credit or lease that is recorded as an asset of a reporting institution, whether

made directly or purchased from another lender. The term “loan” includes, but is not limited to:

(1) Loans originated through direct negotiations between the reporting institution and a borrower;

(2) Purchased loans or interests in loans, including participation interests, retained subordinated

participation interests in loans sold, and interests in pools of subordinated participation interests

that are held in lieu of retaining a subordinated participation interest in loans sold;

(3) Contracts of sale; notes receivable; and

(4) Other similar obligations and lease financing.

Material means the magnitude of an omission or misstatement of accounting information that, in light of

surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the

information would have been changed or influenced by the omission or misstatement.

Net realizable value means the net amount the lender would expect to be realized from the acquisition and

subsequent sale or disposition of a loan's underlying collateral. Generally, net realizable value is equal to

the estimated selling price in the ordinary course of business, less estimated costs of acquisition,

completion, and disposal.

Past due means a contractually scheduled loan payment has not been received in full on or before the

contractual due date and remains due.

Recorded investment means the face amount of the loan increased or decreased by applicable accrued interest

and unamortized premium, discount, finance charges, or acquisition costs, and may also reflect a

previous direct write-down of the investment.

Reporting entity means the Federal Farm Credit Banks Funding Corporation, or other entity approved by the Farm

Credit Administration.

Shared asset means any account or exposure where two or more Farm Credit institutions have assumed a

portion of the asset's benefits or risks. An institution's share in the asset may be established through

means such as syndications, participation agreements, assignments, or other arrangements with System

entities.

Sustained performance means the borrower has resumed on-time payment of the full amount of scheduled

contractual loan payments over a sustained period. In accordance with the contractual payment schedule,

the sustained on-time repayment period is demonstrated by making 6 consecutive monthly payments, 4

consecutive quarterly payments, 3 consecutive semiannual payments, or 2 consecutive annual payments.

The payments considered are those listed in the loan contract as due during the sustained performance

period, regardless of whether scheduled payments are interest-only, unequally amortized principal and

interest, equally amortized principal and interest, or a combination of payment amounts.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.2 “Loan”

12 CFR 621.3 (enhanced display) page 3 of 13
§ 621.4 Audit by qualified public accountant.

(a) Prepare and maintain, on an accrual basis, accurate and complete records of its business transactions as

necessary to prepare financial statements and reports, including reports to the Farm Credit

Administration, in accordance with generally accepted accounting principles, except as otherwise directed

by statutory and regulatory requirements;

(b) Prepare its financial statements and reports, including reports to the shareholders, investors, boards of

directors, institution management and the Farm Credit Administration, in accordance with generally

accepted accounting principles, except as otherwise directed by statutory and regulatory requirements;

and

(c) Prepare and maintain its books and records in such a manner as to facilitate reconciliation with financial

statements and reports prepared from them.

(a) Each institution shall, at least annually, have its financial statements audited by a qualified public

accountant in accordance with generally accepted auditing standards.

(b) The qualified public accountant's opinion of each institution's financial statements must be included as a

part of each annual report to shareholders. The accountant must comply with the auditor independence

provisions of subpart E of this part.

(c) If an institution disagrees with the opinion of a qualified public accountant required by paragraph (b) of

this section, the following actions shall be taken immediately:

(1) The institution shall prepare a brief but thorough written description of the scope and content of the

disagreement, noting each point of disagreement and citing, in all cases, the specific provisions of

generally accepted accounting principles and generally accepted auditing standards upon which the

institution's position in the disagreement is based;

(2) A copy of the institution's final description of the disagreement shall be given to the accountant who

provided the opinion with which the institution disagrees;

(3) The accountant shall have 10 business days to develop and provide a brief but thorough final

response to the institution's description of the disagreement, including all items believed to be

incorrect or incomplete, and citing, in all cases, the specific provisions of generally accepted

accounting principles and generally accepted auditing standards upon which the accountant's

position in the disagreement is based;

(4) Both the institution's final description of the disagreement and the accountant's final response to it

shall be included in the institution's annual report to shareholders directly following the accountant's

opinion of the institution's financial statements; and

(5) The institution shall immediately notify the Chief Examiner, Farm Credit Administration, of any

disagreement with its accountant and shall furnish the Farm Credit Administration with the written

documentation required by paragraphs (c) (1) through (4) of this section.

(d) If an institution selects a qualified public accountant to audit its financial statements and provide an

opinion thereon for its annual report who is different from the accountant whose opinion appeared in the

institution's most recent annual report, the following items shall be sent to the Farm Credit Administration

no later than 15 days after the end of the month in which the change took place and shall be included in

the institution's annual meeting information statement and annual report to shareholders for the year in

which the change of accountants took place:

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.3(a)

12 CFR 621.4(d) (enhanced display) page 4 of 13
[58 FR 48786, Sept. 20, 1993, as amended at 71 FR 76120, Dec. 20, 2006]

§ 621.5 Accounting for the allowance for credit losses and chargeoffs.

Each institution shall:

[58 FR 48786, Sept. 20, 1993, as amended at 74 FR 28600, June 17, 2009; 87 FR 27492, May 9, 2022]

Subpart C—Loan Performance and Valuation Assessment

§ 621.6 Categorizing high-risk loans and other property owned.

Each institution must employ the practices of this section when categorizing high-risk loans and loan-related

assets. A loan must not be put into more than one performance category.

(1) The name and address of the accountant whose opinion appeared in the institution's most recent

annual report to shareholders;

(2) A brief but thorough statement of the reasons the accountant selected for the most recent annual

report was not selected for the current annual report. If the change resulted from a disagreement

with the accountant, the statement shall describe the institution's disagreement with the

accountant's opinion and the accountant's final response to the institution's disagreement prepared

pursuant to paragraph (c) of this section; and

(3) The identification of the highest ranking officer, committee of officers, or board of directors, as

appropriate, that recommended, approved, or otherwise made the decision to change qualified public

accountants.

(a) Maintain at all times an allowance for credit losses that is determined according to generally accepted

accounting principles.

(b) Develop, adopt, and consistently apply policies and procedures governing the establishment and

maintenance of the allowance for credit losses which, at a minimum, conform to the rules, definitions, and

standards set forth in this part and any other applicable requirements.

(c) Charge-off loans, wholly or partially, as appropriate, at the time they are determined to be uncollectible.

(d) Ensure that when an institution or the Farm Credit Administration determines that the value of a loan or

other asset recorded on its books and records exceeds the amount that can reasonably be expected to be

collectible, or when the documentation supporting the recorded asset value is inadequate, the institution

shall immediately charge off the asset in the amount determined to be uncollectible. If the amount

determined to be uncollectible by the institution is different from the amount determined to be

uncollectible by the Farm Credit Administration, the institution shall charge off such amount as the Farm

Credit Administration shall direct.

(a) Nonaccrual loans. A loan is categorized as nonaccrual if there is a known risk to the continued collection

of principal or interest. Once a loan is categorized as nonaccrual, it must remain in that category until

reinstated to accrual status pursuant to § 621.9. Loans placed into nonaccrual status when current are

also subject to the notice and review provisions of part 617 of this chapter. A loan must be categorized as

nonaccrual if one or more of the following conditions exist:

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.4(d)(1)

12 CFR 621.6(a) (enhanced display) page 5 of 13
[85 FR 52253, Aug. 25, 2020]

§ 621.7 Rule of aggregation.

(1) The loan may or may not be past due, but the institution has determined collection of the

outstanding principal and interest, plus future interest accruals, over the full term of the loan is not

expected because of a documented deterioration in the financial condition of the borrower;

(2) The loan is 90 days or more past due and is not otherwise eligible for categorization under paragraph

(c) of this section; or

(3) Legal action, including foreclosure or other forms of collateral conveyance, has been initiated to

collect the outstanding principal and interest.

(b) Formally restructured loans (TDR). A loan is categorized as a formally restructured loan (Troubled Debt

Restructure(TDR)) if the restructuring is determined to be a TDR under generally accepted accounting

principles and the guidance issued by the Financial Accounting Standards Board.

(c) Loans 90 days past due still accruing interest. A loan is categorized as 90 days past due still accruing

interest when it is 90 days or more contractually past due, adequately secured, and in the process of

collection. If the loan is not adequately secured, it cannot be categorized under this category unless there

is evidence to suggest repayment within a reasonable time period of either the past due amount or the

remaining principal and interest owed.

(d) Other property owned. Any real or personal property, other than an interest-earning asset, that has been

acquired as a result of full or partial liquidation of a loan, through foreclosure, deed in lieu of foreclosure,

or other legal means.

(a) When one loan to a borrower is placed in nonaccrual, an institution must immediately evaluate whether its

other loans to that borrower, or related borrowers, should also be placed in nonaccrual. All loans on which

a borrowing entity, or a component of a borrowing entity, is primarily obligated to the reporting institution

shall be considered as one loan unless a review of all pertinent facts supports a reasonable determination

that a particular loan constitutes an independent credit risk and such determination is adequately

documented in the loan file.

(1) A loan shall be considered an independent credit risk if a substantial portion of the loan is

guaranteed as to principal and interest by a government agency.

(2) Other loans shall be considered independent credit risks if and so long as:

(i) The primary sources of repayment are independent for each loan;

(ii) The loans are not cross-collateralized; and

(iii) The principal obligors are different person(s) and/or entity(ies). Related loans will not be

considered independent credit risks if the operations of a related borrower are so financially

interdependent with the borrower's operations that the economic survival of one will materially

affect the economic survival of the other, determined in accordance with § 614.4359(a)(2) of

this chapter.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.6(a)(1)

12 CFR 621.7(a)(2)(iii) (enhanced display) page 6 of 13
[58 FR 48786, Sept. 20, 1993, as amended at 64 FR 34519, June 28, 1999]

§ 621.8 Application of payments and income recognition on nonaccrual loans.

Each institution shall employ the following practices with respect to application of cash payments on nonaccrual

loans:

[58 FR 48786, Sept. 20, 1993, as amended at 87 FR 27492, May 9, 2022]

§ 621.9 Reinstatement to accrual status.

(b) If the evaluation required by paragraph (a) of this section results in a determination that the borrower's

other loans with the institution do not represent an independent credit risk, and full collection of such

loans is not expected, then all of the borrower's loans must be aggregated and classified as nonaccrual. If

such other loans represent an independent credit risk and are fully collectible, then they may remain in

their current performance category.

(c) When an institution becomes aware that a borrower has a loan that has been classified nonaccrual by any

other lender, the institution must re-evaluate the credit risk in its loan to the borrower and then determine

whether an independent credit risk exists.

(a) If the ultimate collectibility of the recorded investment, in whole or in part, is in doubt, any payment

received on such loan shall be applied to reduce the recorded investment to the extent necessary to

eliminate such doubt.

(b) Once the ultimate collectibility of the recorded investment is no longer in doubt, payments received in

cash on such loan may qualify for recognition as interest income if all of the following characteristics are

met at the time the payment is received:

(1) The loan does not have a remaining unrecovered prior chargeoff associated with it, except in cases

where the prior chargeoff was taken as part of a formal restructuring of the loan;

(2) The payment received has come from a source of repayment detailed in the plan of collection;

(3) The loan, after considering the payment, is not contractually past due more than 90 days and is not

expected to become 90 days past due, or a repayment pattern has been established that reasonably

demonstrates future repayment capacity.

(c) The institution shall employ the following practices with respect to earned but uncollected interest income

on loans, leases, contracts, and similar assets that are determined not to be fully collectible:

(1) Earned but uncollected interest income that was accrued in the current fiscal year and is determined

to be uncollectible shall be reversed from interest income; and

(2) Earned but uncollected interest income that was accrued in prior fiscal years and is determined to be

uncollectible shall be charged off against the allowance for credit losses.

(a) Before being reinstated to accrual status, a loan must be current on contractual payments and the

borrower offered servicing in accordance with the institution's policies maintained under either §

614.4170 or part 617 of this chapter, whichever is applicable. Additional reinstatement eligibility

requirements are dependent upon certain characteristics of the loan under review.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.7(b)

12 CFR 621.9(a) (enhanced display) page 7 of 13
[85 FR 52254, Aug. 25, 2020]

§ 621.10 Monitoring of performance categories and other property owned.

Subpart D—-Reports of Condition and Performance and Accounts and Exposures

(1) A loan that was current when placed in nonaccrual status pursuant to § 621.6(a)(1) may be

reinstated to accrual status if the known risks to the continued collection of principal or interest have

been mitigated. If the loan was past due when placed in nonaccrual status, it may only be reinstated

under either paragraph (a)(2) or (a)(3) of this section, as applicable.

(2) A loan placed in nonaccrual status when past due and not adequately secured must remain current

on contractual payments for a period of sustained performance before it may be reinstated.

(3) A loan placed in nonaccrual status when past due and adequately secured must have a recent

repayment pattern demonstrating future repayment capacity to make on-time payments before it

may be reinstated. The repayment pattern is established in one of two ways:

(i) Sustained performance in making on-time contractual payments, or

(ii) A recent history of making on-time partial payments in amounts the same or greater than newly

restructured payment amounts.

(b) Nothing in this section prevents a current loan from being reinstated to accrual status in response to a

Credit Review Committee decision issued under section 4.14D(d) of the Farm Credit Act of 1971, as

amended, when that decision was made in compliance with applicable laws, regulations, and in

accordance with generally accepted accounting principles.

(a) Each institution shall:

(1) Account for, report, and disclose to shareholders, investors, boards of directors, and the Farm Credit

Administration all material items with respect to performance categories and other property owned

in accordance with the rules and definitions set forth in this part and any other applicable

requirements;

(2) In accordance with § 620.5(g)(1)(iv)(A) of this chapter, disclose to shareholders, investors, boards of

directors, and the Farm Credit Administration the nature and extent of significant potential credit

risks within the loan portfolio, or other information that could adversely impact performance of the

loan portfolio in the near future;

(3) Develop, adopt, and consistently apply policies and procedures governing performance categories

and other property owned, which, at a minimum, conform to the definitions, rules, and standards set

forth in this part and such other requirements and procedures as may be required by the Farm Credit

Administration;

(4) Review the loan portfolio at least quarterly to ensure that all high-risk loans have been assigned the

appropriate performance category; and

(5) Review all high-risk loans in the loan portfolio at least quarterly to determine the collectibility of

accrued but uncollected income, if any.

(b) Measures taken to enhance the collectibility of a loan shall not be deemed to relieve an institution of the

requirement to monitor and evaluate the loan for the purpose of determining its performance status.

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.9(a)(1)

12 CFR 621.10(b) (enhanced display) page 8 of 13
§ 621.12 Reports of condition and performance.

[58 FR 48786, Sept. 20, 1993, as amended at 74 FR 28600, June 17, 2009]

§ 621.13 Content and standards—general rules.

Each institution, including the Federal Agricultural Mortgage Corporation, shall prepare reports of condition and

performance:

§ 621.14 Certification of correctness.

Each report of financial condition and performance filed with the Farm Credit Administration shall be certified as

having been prepared in accordance with all applicable regulations and instructions and to be a true and accurate

representation of the financial condition and performance of the institution to which it applies. The reports shall be

certified by the officer of the reporting institution named for that purpose by action of the reporting institution's

board of directors. If the board of directors of the institution has not acted to name an officer to certify the

correctness of its reports of condition and performance, then the reports shall be certified by the president or chief

executive officer of the reporting institution.

§ 621.15 Reports of accounts and exposures.

(a) Each institution, including the Federal Agricultural Mortgage Corporation, shall prepare and file such

reports of condition and performance as may be required by the Farm Credit Administration.

(b) Reports of condition and performance shall be filed four times each year, and at such other times as the

Farm Credit Administration may require. The reports shall be prepared on the accrual basis of accounting

and shall fairly represent the financial condition and performance of each institution at the end of, and

over the period of, each calendar quarter, provided that such additional reports as may be necessary to

ensure timely, complete, and accurate monitoring and evaluation of the affairs, condition, and

performance of Farm Credit institutions may be required, as determined by the Chief Examiner, Farm

Credit Administration.

(c) All reports of condition and performance shall be submitted electronically in accordance with the

instructions prescribed by the Farm Credit Administration and located on its Web site.

(a) In accordance with all applicable laws, regulations, standards, and such instructions and specifications

and on such media as may be prescribed by the Farm Credit Administration;

(b) In accordance with generally accepted accounting principles and such other accounting requirements,

standards, and procedures as may be prescribed by the Farm Credit Administration; and

(c) In such manner as to facilitate their reconciliation with the books and records of reporting institutions.

(a) Responsibilities of banks and associations for preparing and submitting reports. The banks and

associations must prepare and submit an accurate and complete report of all bank and association

accounts and exposures electronically to the Farm Credit Administration pursuant to the requirements of

this part. In order to accomplish such submission, each bank and association must:

(1) Prepare and submit an accurate and complete report of its accounts and exposures electronically to

the Reporting Entity:

12 CFR Part 621 (up to date as of 3/07/2024)

Accounting and Reporting Requirements

12 CFR 621.12

12 CFR 621.15(a)(1) (enhanced display) page 9 of 13
(i) In accordance with the instructions prescribed by the Farm Credit Administration, or as may be

required by the Farm Credit Administration; and

(ii) Within 20 calendar days after each quarter-end date, and at such other times as the Farm Credit

Administration may require.

(2) Submit to the Farm Credit Administration and the Reporting Entity a written certification that the

information provided in the report of accounts and exposures has been prepared in accordance with

all applicable regulations and instructions, and is a true and accurate record of the data maintained

by the bank or association, to the best of its knowledge and belief. The reports shall be certified by

the officer of the reporting bank or association named for that purpose by action of the reporting

bank's or association's board of directors. If the board of directors of the bank or association has not

acted to name an officer to certify to the accuracy of its reports of accounts and exposures, then the

reports shall be certified by the president or chief executive officer of the reporting bank or

association. In the event the bank or association learns of a material error or misstatement in the

information submitted to the Reporting Entity, it must notify the Reporting Entity and the Farm Credit

Administration immediately of the error or misstatement and prepare and submit corrected

information as soon as practicable.

(3) Respond promptly to any questions by the Reporting Entity related to information provided under this

section in connection with the preparation of a report of accounts and exposures, including any data

required to establish, implement and maintain consistent, accurate, and complete shared asset

identification and reporting of shared asset exposures to the Farm Credit Administration.

(4) Develop, implement, and maintain an effective system of internal controls over the data included in

the report of accounts and exposures, including controls for maintaining the confidentiality of

borrower information. The system of internal controls, at a minimum, must comply with the

requirements of applicable Farm Credit Administration regulations, including § 618.8430 of this

chapter.

(b) Responsibilities of the Reporting Entity for preparing and submitting reports. The Reporting Entity must:

(1) Collect, store, and manage the information submitted to it by each bank and association under the

requirements of this section in a central data repository in accordance with Farm Credit

Administration regulations and prescribed instructions.

(2) Prepare and submit an electronic quarterly report of the accounts and exposures of all banks and

associations to the Farm Credit Administration in accordance with the instructions prescribed by the

Farm Credit Administration or as may be required by the Farm Credit Administration.

(3) Establish, implement, and maintain an automated mechanism to ensure the reliable, timely, accurate

and consistent identification of the banks' and associations' shared asset exposures, and report

these exposures and the shared asset identifiers in the electronic quarterly report of accounts and

exposures to the Farm Credit Administration. In connection with establishing and implementing the

automated shared asset identification mechanism, the Reporting Entity may provide the banks and

associations information from the central data repository to identify and report shared asset

exposures.

(4) Submit to the Farm Credit Administration a written certification that the information provided to the

Farm Credit Administration in the report of accounts and exposures of all banks and associations

accurately represents the information provided to it by the banks and associations and that the

Reporting Entity has complied with the requirements of § 621.15(b). The reports shall be certified by

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12 CFR 621.15(b)(4) (enhanced display) page 10 of 13
[78 FR 77562, Dec. 24, 2013]

Subpart E—Auditor Independence

Source: 71 FR 76120, Dec. 20, 2006, unless otherwise noted.

the president or chief executive officer of the Reporting Entity. In the event the Reporting Entity learns

of a material error or misstatement in the information submitted to the Farm Credit Administration, it

must notify the Farm Credit Administration immediately of the error or misstatement and prepare

and submit corrected information as soon as practicable.

(5) Develop, implement, and maintain an effective system of internal controls over the central data

repository, including controls for maintaining the confidentiality of borrower information. The system

of internal controls, at a minimum, must comply with the requirements of applicable Farm Credit

Administration regulations, including § 618.8430 of this chapter and require that the Reporting

Entity:

(i) Develop policies and procedures to ensure that the information submitted in the report of

accounts and exposures to the Farm Credit Administration is complete and consistent with the

information submitted to the Reporting Entity from the banks and associations under §

621.15(a); and

(ii) Specify procedures for monitoring any material corrections or adjustments, in a timely manner,

and provide timely notification and resubmission of the report of accounts and exposures to

the Farm Credit Administration.

(6) Notify the Farm Credit Administration if it is unable to prepare and submit the quarterly report of

accounts and exposures in compliance with the requirements of § 621.15(b)(1) through (b)(3). The

notification:

(i) Must be signed by the chief executive officer, or person in an equivalent position, and submitted

to the Farm Credit Administration as soon as the Reporting Entity becomes aware of its inability

to comply;

(ii) Must explain the reasons for its inability to prepare and submit the report; and

(iii) May include a request that the Farm Credit Administration extend the due date for the quarterly

report of accounts and exposures.

(7) In the event there is a breach of information, immediately provide written notice of the breach to:

(i) The Farm Credit Administration; and

(ii) Each bank and association concerned;

(iii) For the purposes of this section, “breach of information” means any actual or attempted

unauthorized access, possession, use, disclosure, disruption, modification, or destruction of

information in the central data repository, any reports of accounts and exposures, or any other

information received pursuant to § 621.15(a)(1).

(8) Notify the Farm Credit Administration in writing of any request for data contained in the reports of

accounts and exposures that are not explicitly allowed for in § 618.8320(b) of this chapter.

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§ 621.30 General.

Each Farm Credit institution must ensure the independence of all qualified public accountants conducting the

institution's audit by establishing and maintaining policies and procedures governing the engagement of external

auditors. The policies and procedures must incorporate the provisions of this subpart and § 612.2180 of this

chapter.

[71 FR 76120, Dec. 20, 2006, as amended at 86 FR 58559, Oct. 22, 2021]

§ 621.31 Non-audit services.

Non-audit services are any professional services provided by a qualified public accountant during the period of an

audit engagement which are not connected to an audit or review of an institution's financial statements.

§ 621.32 Conflicts of interest and rotation.

(a) A qualified public accountant engaged to conduct a Farm Credit institution's audit may not perform the

following non-audit services for that institution:

(1) Bookkeeping,

(2) Financial information systems design,

(3) Appraisal and valuation services,

(4) Actuarial services,

(5) Internal audit outsourcing services,

(6) Management or human resources functions,

(7) Legal and expert services unrelated to the audit, and

(8) Advocating an institution's interests in litigation, regulatory or administrative investigations and

proceedings unrelated to external audit work.

(b) A qualified public accountant engaged to conduct a Farm Credit institution's audit may only perform nonaudit services, not otherwise prohibited in this section, if the institution's audit committee pre-approves

the services and the services are fully disclosed in the annual report.

(a) Conflicts of interest.

(1) A Farm Credit institution may not engage a qualified public accountant to conduct the institution's

audit if the accountant uses a partner, concurring partner, or lead member in the audit engagement

team who was a director, officer or employee of the Farm Credit institution within the past year.

(2) A Farm Credit institution may not make an employment offer to a partner, concurring partner, or lead

member serving on the institution's audit engagement team during the audit or within 1 year of the

conclusion of the audit engagement.

(b) Rotation. Each institution may engage the same lead and reviewing audit partners of a qualified public

accountant to conduct the institution's audit for no more than 5 consecutive years. The institution must

then require the lead and reviewing audit partners assigned to the institution's audit team to rotate out of

the audit team for 5 years. At the end of 5 years, the institution may again engage the audit services of

those lead and reviewing audit partners.

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Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 622 Rules of Practice and Procedure

Subpart A Rules Applicable to Formal Hearings

§ 622.1 Scope of regulations.

§ 622.2 Definitions.

§ 622.3 Appearance and practice.

§ 622.4 Commencement of proceedings.

§ 622.5 Answer.

§ 622.6 Opportunity for informal settlement.

§ 622.7 Conduct of hearings.

§ 622.8 Rules of evidence.

§ 622.9 Subpoenas.

§ 622.10 Depositions.

§ 622.11 Motions.

§ 622.12 Proposed findings and conclusions; recommended decision.

§ 622.13 Exceptions.

§ 622.14 Briefs.

§ 622.15 Oral argument before the Board.

§ 622.16 Notice of submission to the Board.

§ 622.17 Decision of the Board.

§ 622.18 Filing.

§ 622.19 Service.

§ 622.20 Documents in proceedings confidential.

§ 622.21 Computing time.

§ 622.22 Retained authority.

§§ 622.23-622.50 [Reserved]

Subpart B Rules and Procedures for Assessment and Collection of Civil Money

Penalties

§ 622.51 Definitions.

§ 622.52 Purpose and scope.

§§ 622.53-622.54 [Reserved]

§ 622.55 Notice of assessment of civil money penalty.

§ 622.56 Request for formal hearing on assessment.

§ 622.57 Waiver of hearing; consent.

This content is from the eCFR and is authoritative but unofficial.

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§ 622.58 Hearing on assessment.

§ 622.59 Assessment order.

§ 622.60 Payment of civil money penalty.

§ 622.61 Adjustment of civil money penalties by the rate of inflation under the Federal Civil

Penalties Inflation Adjustment Act of 1990, as amended.

§§ 622.62-622.75 [Reserved]

Subpart C Rules and Procedures Applicable to Suspension or Removal of an

Individual Where Certain Crimes Are Charged or Proven

§ 622.76 Definitions.

§ 622.77 Purpose and scope.

§ 622.78 Suspension, prohibition or removal.

§ 622.79 Petition for informal hearing.

§ 622.80 Informal hearing.

§ 622.81 Default.

§ 622.82 Decision of the Board.

§§ 622.83-622.100 [Reserved]

Subpart D Rules and Procedures Applicable to Formal Investigations

§ 622.101 Definitions.

§ 622.102 Scope.

§ 622.103 Formal investigations are confidential.

§ 622.104 Order to conduct formal investigation.

§ 622.105 Conduct of investigation.

§ 622.106 Service of subpoena and payment of witness fees.

§ 622.107 Transcripts.

PART 622—RULES OF PRACTICE AND PROCEDURE

Authority: Secs. 5.9, 5.10, 5.17, 5.25–5.37 of the Farm Credit Act (12 U.S.C. 2243, 2244, 2252, 2261–2273); 28

U.S.C. 2461 note; and 42 U.S.C. 4012a(f).

Source: 51 FR 21139, June 11, 1986, unless otherwise noted.

Subpart A—Rules Applicable to Formal Hearings

§ 622.1 Scope of regulations.

This subpart prescribes rules of practice and procedure in connection with any formal hearing before the Farm

Credit Administration (FCA) that is required by the Farm Credit Act of 1971, as amended (Act) or is ordered for other

reasons by the FCA. In connection with any particular matter, reference should also be made to any special

requirements of practice and procedure that may be contained in applicable provisions of the Act or the rules

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12 CFR 622.1 (enhanced display) page 2 of 19
adopted by the FCA in subpart B of this part, which special requirements are controlling. The rules in subpart A do

not apply to the informal hearings described in subpart C of this part, to any other informal hearing that may be

ordered by the FCA, or to formal investigations described in subpart D of this part.

§ 622.2 Definitions.

As used in this part:

[51 FR 21139, June 11, 1986, as amended at 53 FR 27284, July 19, 1988; 78 FR 31835, May 28, 2013]

§ 622.3 Appearance and practice.

(a) Act means the Farm Credit Act of 1971, as amended. 12 U.S.C. 2001, et seq.

(b) FCA means the Farm Credit Administration.

(c) Board means the Farm Credit Administration Board.

(d) The terms institution in the System, System institution and institution mean all institutions enumerated in

section 1.2 of the Act, any institution chartered pursuant to or established by the Act, except for the Farm

Credit System Assistance Board and the Farm Credit System Insurance Corporation, and any service

corporation chartered under the Act.

(e) Party means the FCA or a person or institution named as a party in any notice that commences a

proceeding, or any person or institution who is admitted as a party or who has filed a written request and

is entitled as of right to be a party.

(f) Presiding officer means an administrative law judge or any FCA employee or other person designated by

the Board to conduct a hearing.

(g) Ex parte communication means an oral or written communication not on the record with respect to which

reasonable prior notice to all parties is not given. It does not include requests for status reports.

(a) Appearance before the Board or a presiding officer —

(1) By nonattorneys. An individual may appear in his or her own behalf; a member of a partnership may

represent the partnership; a duly authorized officer or other agent of a corporation, trust association

or other entity not specifically listed herein may represent the corporation, trust association, or other

entity; and a duly authorized officer or employee of any government unit, agency or authority may

represent that unit, agency or authority. Any person appearing in a representative capacity shall file a

written notice of appearance with the Board which shall contain evidence of his or her authority to

act in such capacity.

(2) By attorneys. A party may be represented by an attorney who is a member in good standing of the

bar of the highest court of any State, possession, territory, Commonwealth or the District of

Columbia, and who has not been suspended or debarred from practice before the FCA in accordance

with the provisions of part 623 of this chapter. Prior to appearing, an attorney representing a person

in a proceeding shall file a written notice of appearance with the Board, which shall contain a

declaration that he or she is currently qualified as provided by paragraph (a)(2) of this section and is

authorized to represent the party on whose behalf he or she acts.

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§ 622.4 Commencement of proceedings.

Proceedings under this subpart are commenced by the issuance of a notice by the Board. Such notice shall state

the time, place, and nature of the hearing, the name and address of the presiding officer if one has been designated,

and a statement of the matters of fact and law constituting the grounds for the hearing. The matters of fact and law

alleged in a notice may be amended by the Board at any stage of the proceeding and such amended notice may

require an answer from the party or parties served and may set a new hearing date. A copy of any notice served by

the FCA on any System association, director, officer or other person participating in the conduct of the affairs of the

association will also be sent to the supervisory bank.

§ 622.5 Answer.

(3) Representation of multiple interests. A person shall not represent more than one party without

informing each party of any actual or potential conflict of interest that may be involved in such

representation. Such person shall file a statement with the Board indicating that such disclosure has

been made. The presiding officer has authority to take protective measures at any stage of a

proceeding, including the authority to prohibit multiple representation when deemed appropriate.

(b) Summary suspension. Dilatory, obstructionist, egregious, contemptuous, contumacious, or other unethical

or improper conduct at any proceeding before the Board or a presiding officer shall be grounds for

exclusion therefrom and suspension for the duration of the proceeding, or other appropriate action by the

Board or presiding officer.

(a) Answer is required. Unless a different period is specified by the Board, a party who does not wish to

consent to a final order must file an answer within 20 days after being served with a notice that

commences the proceeding. Any subsequent notice which contains amended allegations and by its terms

requires an answer must similarly be answered within 20 days after service.

(b) Requirements of answer; effect of failure to deny. An answer filed under this section shall concisely state

any defenses and specifically admit or deny each allegation in the notice. A party who lacks information

or knowledge sufficient to form a belief as to the truth of any particular allegation shall so state and this

shall have the effect of a denial. Any allegation not denied shall be deemed to be admitted. A party who

intends in good faith to deny only a part of or to qualify an allegation shall specify so much of it as is true

and shall deny only the remainder.

(c) Admitted allegations. If a party filing an answer under this section elects not to contest any of the

allegations of fact set forth in the notice, the answer shall consist of a statement admitting all of the

allegations to be true. Such answer constitutes a waiver of hearing as to the facts alleged in the notice,

and together with the notice will provide a record basis on which the presiding officer shall file with the

Board a recommended decision in accordance with 5 U.S.C. 557. The recommended decision shall be

served on the party, who may file exceptions thereto within the time provided in § 622.13.

(d) Effect of failure to answer. Failure of a party to file an answer required by this section within the time

provided constitutes a waiver of the party's right to appear and contest the allegations in the notice and

authorizes the presiding officer, without further notice to the party, to find the facts to be as alleged in the

notice and to file with the Board a recommended decision containing such findings and appropriate

conclusions. The Board or the presiding officer may, for good cause shown, permit the filing of a delayed

answer after the time for filing and the answer has expired.

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§ 622.6 Opportunity for informal settlement.

Any interested party may at any time submit to the Board for consideration written offers or proposals for

settlement of a proceeding, without prejudice to the rights of the parties. No offer or proposal shall be admissible

into evidence over the objection of any party in any hearing in connection with such proceeding. The foregoing

provisions of this section shall not preclude settlement of any proceeding through the regular adjudicatory process

by the filing of an answer as provided in § 622.5(c), or by submission of the case to the presiding officer on a

stipulation of facts and an agreed order.

§ 622.7 Conduct of hearings.

(a) Authority of presiding officer. All hearings governed by this subpart shall be conducted in accordance with

the provisions of chapter 5 of title 5 of the United States Code. The presiding officer designated by the

Board to preside at any such hearing shall have complete charge of the hearing, shall have the duty to

conduct it in a fair and impartial manner and shall take all necessary action to avoid delay in the

disposition of the proceeding. Such officer shall have all powers necessary to that end, including the

following:

(1) To administer oaths and affirmations;

(2) To issue subpoenas and subpoenas duces tecum, as authorized by law, and to revoke, quash, or

modify any such subpoena;

(3) To receive relevant evidence and to rule upon the admission of evidence and offers of proof;

(4) To take or cause depositions to be taken;

(5) To regulate the course of the hearing and the conduct of the parties and their counsel;

(6) To hold conferences for the settlement or simplification of issues or for any proper purpose; and

(7) To consider and rule upon, as justice may require, all procedural and other motions appropriate in a

proceeding under this subpart, except that a presiding officer shall not have power to decide any

motion to dismiss the proceeding or other motion which results in a final determination of the merits

of the proceeding. This power rests only with the Board. Without limitation on the foregoing, the

presiding officer shall, subject to the provisions of this subpart, have all the authority set forth in 5

U.S.C. 556(c).

(b) Prehearing conference. The presiding officer may, on his or her own initiative or at the request of any party,

direct counsel for all parties to meet with him or her at a specified time and place prior to the hearing, or

to submit suggestions to him or her in writing, for the purpose of considering any or all of the following:

(1) Simplification and clarification of the issues;

(2) Stipulations, admissions of fact and of the contents and authenticity of documents;

(3) Matters of which official notice will be taken; and

(4) Such other matters as may aid in the orderly disposition of the proceeding.

At the conclusion of such conference(s) the presiding officer shall enter an order which recites the results

of the conference. Such order shall include the presiding officer's rulings upon matters considered at the

conference, together with appropriate directions, if any, to the parties. Such order shall control the

subsequent course of the proceeding, unless modified at the hearing for good cause shown.

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12 CFR 622.7(b)(4) (enhanced display) page 5 of 19
(c) Exchange of information. Thirty (30) days prior to the hearing, parties shall exchange a list of the names of

witnesses with a general description of their expected testimony, and a list and one copy of all documents

or other physical exhibits which will be introduced in evidence in the course of the proceeding.

(d) Attendance at hearings. All hearings shall be private and shall be attended only by the parties, their

counsel or authorized representatives, witnesses while testifying, and other persons having an official

interest in the proceeding. However, if the Board, in its discretion, after fully considering the views of the

party afforded the hearing, determines that a public hearing is necessary to protect the public interest, the

Board may in its sole discretion order that the hearing be public.

(e) Transcript of testimony. Hearings shall be recorded. A copy of the transcript of the testimony taken at any

hearing, duly certified by the reporter, together with all exhibits accepted into evidence shall be filed with

the presiding officer. The presiding officer shall promptly serve notice upon all parties of such filing. The

parties shall make their own arrangements with the person recording the testimony for copies of the

testimony and exhibits. The presiding officer shall have authority to correct the record sua sponte with

notice to all parties and to rule upon motions to correct the record. In the event the hearing is public,

transcripts will be furnished to interested persons upon payment of the cost thereof.

(f) Continuances and changes or extensions of time and changes of place of hearing. Except as otherwise

provided by law, the presiding officer may extend time limits prescribed by these rules or by any notice or

order issued in the proceedings, may change the time for beginning any hearing, continue or adjourn a

hearing from time to time, and/or change the location of the hearing. Prior to the appointment of a

presiding officer and after the filing of a recommended decision pursuant to § 622.12, the Board may

grant such extensions or changes. Subject to the approval of the presiding officer, the parties may by

stipulation change the time limits specified by these rules or any notice or order issued hereunder.

(g) Closing of hearing. The record of the hearing shall be closed by an announcement to that effect by the

presiding officer when the taking of evidence has been concluded. In the discretion of the presiding

officer, the record may be closed as of a future date in order to permit the admission into the record, under

circumstances determined by the presiding officer, of exhibits to be prepared.

(h) Call for further evidence, oral arguments, briefs, reopening of hearing. The presiding officer may call for the

production of further evidence upon any issue, may permit oral argument and submission of briefs at the

hearing and, upon appropriate notice, may reopen any hearing at any time prior to the filing of his or her

recommended decision. The Board may reopen the record at anytime permitted by law.

(i) Order of procedure. The FCA shall open and close.

(j) Ex parte communications.

(1) No person shall make or knowingly cause to be made an ex parte communication relevant to the

merits of the proceeding to the presiding officer or anyone who is or may reasonably be expected to

be involved in the decisional process.

(2) No person who is or may reasonably be expected to be involved in the decisional process shall make

or knowingly cause to be made an ex parte communication relevant to the merits of the proceeding

to any person.

(3) Except as authorized by law, the presiding officer shall not consult anyone on any fact in issue,

unless upon notice and opportunity for all parties to participate. The presiding officer shall not be

responsible to, or subject to the supervision or direction of, any officer, employee, or agent of the FCA

engaged in the performance of investigative or prosecuting functions. An officer, employee or agent

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§ 622.8 Rules of evidence.

§ 622.9 Subpoenas.

engaged in the performance of such functions in any case shall not, in that case or a factually

related case, participate or advise in the decision of the presiding officer, except as a witness or

counsel in the proceedings, or as otherwise authorized by law.

(4) If an ex parte communication is made or knowingly caused to be made, all such communications,

and any responses, shall be placed in the record.

(5) Upon receipt of a communication knowingly made or caused to be made in violation of paragraph (j)

of this section, the responsible party may be required to show cause why such party's claim or

interest should not be dismissed, denied, or otherwise adversely affected. To the extent consistent

with the interests of justice, a knowing violation of paragraph (j) of this section may be grounds for a

decision adverse to a party in violation.

(6) The prohibitions against ex parte communications apply from the time a proceeding is noticed for

hearing. However, when the person responsible for the communication has knowledge that the

proceeding will be noticed, the prohibitions apply from the time such knowledge is acquired.

(a) Evidence. Every party shall have the right to present a case or defense by oral and documentary evidence,

to submit rebuttal evidence, and to conduct such cross-examination as may be required for a full and true

disclosure of the facts. Irrelevant, immaterial or unduly repetitious evidence shall be excluded.

(b) Objections. Objections to the admission or exclusion of evidence shall be in short form, stating the

grounds of objection relied upon but no argument thereon shall be permitted, except as ordered, allowed,

or requested by the presiding officer. Rulings on such objections and all other matters shall be part of the

transcript. Failure to object timely to the admission or exclusion of evidence or to any ruling constitutes a

waiver of such objection.

(c) Stipulations. Independently of the orders or rulings issued as provided by § 622.7(b), the parties may

stipulate as to any relevant matters of fact or the authenticity of any relevant documents. Such

stipulations may be received in evidence at the hearing, and when so received shall be binding on the

parties with respect to the matters therein stipulated.

(d) Official notice. All matters officially noticed by the presiding officer shall appear on the record.

(a) Issuance. The presiding officer or, in the event he or she is unavailable, the Board may issue subpoenas

and subpoena duces tecum at the request of any party requiring the attendance of witnesses or the

production of documents at a designated place. The person seeking the subpoena may be required, as a

condition precedent to the issuance of the subpoena, to show the general relevance and reasonable

scope of the testimony or other evidence sought. Where it appears to the presiding officer that a

subpoena may be unreasonable, oppressive, excessive in scope, unduly burdensome, or delay the

proceeding, the presiding officer has discretion to refuse to issue a subpoena or to issue it only upon such

conditions as fairness requires.

(b) Motions to quash. Any person to whom a subpoena is directed may, prior to the time specified therein for

compliance but in no event more than 10 days after the date the subpoena was served, with notice to the

party requesting the subpoena, apply to the presiding officer, or in the event he or she is unavailable to the

Board, to quash or modify the subpoena, accompanying such application with a brief statement of the

reasons therefor. The presiding officer may deny the application or, upon notice to the party on whose

behalf the subpoena was issued and after affording that party an opportunity to reply, may quash or

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§ 622.10 Depositions.

modify the subpoena or impose reasonable conditions including, in the case of a subpoena duces tecum,

a requirement that the party on whose behalf the subpoena was issued pay in advance the reasonable

cost of copying and transporting the documentary evidence to the designated place.

(c) Service of subpoena. A subpoena may be served upon the person named therein by personal service or

certified mail with a return receipt to the last known address of the person. The fees for one day's

attendance and mileage as specified in paragraph (d) of this section must be tendered at the time of

service unless the subpoena is issued on behalf of the FCA. If personal service is made by a U.S. marshal,

a deputy U.S. marshal, or an employee of the FCA, such service shall be evidenced by the return thereon.

If personal service is made by any other person, such person shall sign an affidavit describing the manner

in which service is made, and return such affidavit with a copy of the subpoena. In case of failure to make

service, reasons for the failure shall be stated on the original subpoena. The original or a copy of the

subpoena, bearing or accompanied by the required return, affidavit, statement or return receipt, shall be

returned without delay to the presiding officer.

(d) Attendance of witnesses. The attendance of witnesses at a designated place may be required from any

place in any State or territory subject to the jurisdiction of the United States. Witnesses who are

subpoenaed shall be paid the same fees and mileage that are paid witnesses in the district courts of the

United States. Fees required by this paragraph shall be paid by the party upon whose application the

subpoena is issued.

(e) Production of documents. The production of documents at a designated place may be required from any

place in any State or territory subject to the jurisdiction of the United States. In lieu of an original

document, a certified or authenticated copy may be produced. However, any party has the right to inspect

the original document.

(a) Application to take deposition. Any party desiring to take the deposition of any person shall make written

application to the presiding officer setting forth the name and address of the witness, the subject matter

concerning which the witness is expected to testify, its relevance, the time and place of the deposition,

and the reasons why such deposition should be taken. The application may include a request that

specified documents be produced at the deposition. A copy of the application shall be served on the other

parties at the same time the application is filed with the presiding officer.

(b) Subpoena; notice to other parties. Upon a showing that the testimony or other evidence sought will be

material, and the taking of the deposition will not result in any undue burden to the witness or any party or

undue delay of the proceedings, the presiding officer may issue a subpoena or subpoena duces tecum.

Notice of the issuance of such subpoena shall be served upon all parties at least 10 days in advance of

the date set for deposition.

(c) Deposition by notice. The requirements of paragraphs (a) and (b) of this section may be waived by

agreement of the parties and the witness whose testimony or documentary evidence is sought. Such

agreement shall be embodied in a stipulation which becomes part of the record and may provide for the

taking of depositions upon notice without leave of the presiding officer.

(d) Procedure on deposition. Depositions may be taken before any person having the power to administer

oaths. Each witness whose testimony is taken by deposition shall be duly sworn before any question is

propounded. Examination and cross-examination of deponents may proceed as permitted at the hearing.

Objections to questions or documents shall be in short form, stating the grounds relief upon for the

objection. Failure to object to questions or evidence is deemed a waiver if the ground of the objection is

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12 CFR 622.9(c)

12 CFR 622.10(d) (enhanced display) page 8 of 19
§ 622.11 Motions.

one which might have been obviated or removed if presented at that time. The questions propounded and

the answers thereto, together with all objections made (but not including argument or debate) shall be

recorded by or under the direction of the person before whom the deposition is taken. The deposition

shall be signed by the witness, unless the parties by stipulation waive the signing or the witness is

physically unable to sign, cannot be found, or refuses to sign. The deposition shall also be certified as a

true and complete transcript by the person recording the testimony. If the deposition is not signed by the

witness, the person recording the testimony shall state this fact and the reason therefor on the record.

The person before whom the deposition is taken shall promptly file the transcript and all exhibits with the

presiding officer. Interested parties shall make their own arrangements with the person recording the

testimony for copies of the testimony and exhibits.

(e) Introduction as evidence. Subject to appropriate rulings by the presiding officer on such objections and

answers as were noted at the time the deposition was taken or as would be valid were the witness

personally present and testifying at the hearing, the deposition or any part thereof may be received in

evidence by the presiding officer in his or her discretion. Only such part of a deposition as is received in

evidence at a hearing shall constitute a part of the record upon which a decision may be based.

(f) Payment of fees. Deponents whose depositions are taken and the reporter taking the same shall be

entitled to the same fees as are paid for like services in the district courts of the United States, which fees

shall be paid by the party upon whose application the deposition is taken.

(a) How made. An application or request for an order or ruling not otherwise specifically provided for in this

subpart, unless made during a hearing, shall be made by written motion supported by a memorandum

which concisely states the grounds therefor.

(b) Opposition. Within 10 days after service of any written motion, or within such other period of time as may

be fixed by the presiding officer, any party may file a memorandum in opposition thereto. The moving

party has no right to reply except as permitted by the presiding officer. The presiding officer has discretion

to waive the requirements of this section as to motions for extension of time and may rule upon such

motions ex parte.

(c) Oral argument. No oral argument will be heard on motions except as otherwise directed by the presiding

officer or the Board.

(d) Rulings and orders. Except as otherwise provided in this subpart, the presiding officer shall rule on all

motions and may issue appropriate orders, except that motions may be referred to the Board if the

presiding officer is unavailable or determines that such motion should be referred to the Board. Prior to

the appointment of a presiding officer and after a recommended decision is filed pursuant to § 622.12,

the Board shall rule on motions filed by the parties.

(e) Appeal from rulings on motions. All answers, motions, objections and rulings shall become part of the

record. Rulings of a presiding officer on any motion may not be appealed to the Board prior to its

consideration of the presiding officer's recommended decision, except by special permission of the Board.

However, such rulings shall be considered by the Board in reviewing the record. Requests to the Board for

special permission to appeal from a ruling of the presiding officer shall be filed in writing within 5 days of

the ruling, and shall briefly state the grounds relied on. The moving party shall immediately serve a copy

thereof on every other party to the proceeding who may then respond to such request within 5 days after

service.

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12 CFR 622.10(e)

12 CFR 622.11(e) (enhanced display) page 9 of 19
§ 622.12 Proposed findings and conclusions; recommended decision.

§ 622.13 Exceptions.

§ 622.14 Briefs.

(f) Continuation of hearing. Unless otherwise ordered by the presiding officer or the Board, the hearing shall

continue pending the determination of any request or motion by the Board.

(a) Proposed findings and conclusions by parties. Within 30 days after the hearing transcript has been filed,

any party may file proposed findings of fact and conclusions of law. Such proposals shall be supported by

citation of such statutes, decisions, and other authorities, and by specific page references to such

portions of the record as may be relevant. All such proposals shall become a part of the record.

(b) Recommended decision by presiding officer. Within 30 days after the expiration of time allowed under

paragraph (a) of this section, or within such further time as the Board for good cause allows, the presiding

officer shall file the entire hearing record, including a recommended decision and findings and

conclusions, the transcript, exhibits (including on request of any of the parties any exhibits excluded from

evidence or tender of proof), exceptions, rulings and all briefs and memoranda filed in connection with the

hearing. Promptly upon such filing, the presiding officer shall serve a copy of the recommended decision,

findings and conclusions upon each party to the proceeding.

(c) Board as presiding officer. In proceedings in which the Board or one or more of its members has presided

at the reception of evidence, the presiding officer's recommended decision, findings of fact, and

conclusions of law will be omitted. In such proceedings the proposed findings and conclusions, briefs,

and other submissions permitted under paragraph (a) of this section shall be filed with the Board for

consideration.

(a) Filing. Within 15 days after service of the recommended decision of the presiding officer, any party may

file exceptions thereto or to any portion thereof, or to the failure of the presiding officer to make any

recommendation, finding, or conclusion, or to the admission or exclusion of evidence, or to any other

ruling of the presiding officer.

(b) Contents. Each exception shall be supported by a concise argument and by citation of such statutes,

decisions and other authorities, and by page references to such portions of the record as may be relevant.

If the exception relates to the admission or exclusion of evidence, the substance of the evidence admitted

or excluded shall be set forth in the brief with appropriate references to the transcript.

(c) Waiver. Failure of a party to file exceptions to those matters specified in paragraph (a) of this section

within the time prescribed shall be a waiver of objection thereto.

(a) Contents. Any brief filed in a proceeding shall be confined to the particular matters in issue, citing

statutes, decisions, and other authorities, and page references to such portions of the record or the

recommended decision of the presiding officer as may be relevant.

(b) Reply briefs. Reply briefs may be filed within 10 days after service of original briefs of opposing parties,

and shall be confined to matters in such briefs. Further briefs may be filed only with permission of the

presiding officer or the Board with respect to a matter before the Board.

(c) Delayed filing. Briefs not filed on or before the time fixed in this subpart or by the presiding officer will be

received only upon special permission of the Board.

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12 CFR 622.11(f)

12 CFR 622.14(c) (enhanced display) page 10 of 19
§ 622.15 Oral argument before the Board.

Upon its own initiative or upon written request by any party, the Board, in its discretion, may order the matter to be

set down for oral argument before the Board or one or more members thereof. Any request for oral argument by a

party filing exceptions shall be made within the time prescribed for filing such exceptions, or by any other party,

within the time prescribed for the filing of a reply brief. Oral argument before the Board shall be recorded unless

otherwise ordered by the Board.

§ 622.16 Notice of submission to the Board.

Upon the filing of the record with the Board, and upon the expiration of the time for the filing of exceptions and all

briefs, including reply briefs or any further briefs permitted by the presiding officer or the Board, and upon the

hearing of oral argument by the Board, if ordered by the Board, the Board shall notify the parties in writing that the

case has been submitted for final decision.

§ 622.17 Decision of the Board.

Any person who has not engaged in the performance of investigative or prosecuting functions in the case, or in a

factually related case, may advise and assist the Board in the consideration of the case. Copies of the decision and

order of the Board shall be served upon the parties. A copy of the order will also be sent to the supervisory bank if

the order relates to a System association, director, officer, or other person participating in the conduct of the affairs

of the association.

§ 622.18 Filing.

§ 622.19 Service.

(a) Filing. Papers required or permitted to be filed with the Board shall be filed with the Chairman of the Board,

FCA, 1501 Farm Credit Drive, McLean, VA 22102–5090 or with the person designated to receive papers

for the agency in a proceeding. Papers sent by mail must be postmarked or received within the prescribed

time limit for filing. Papers sent by any other means must be received within the prescribed time limit for

filing.

(b) Formal requirements. All filed papers shall be printed, typewritten, or otherwise reproduced, and copies

shall be clear and legible. The original of all papers filed by a party shall be signed and dated as of the

date of execution by the party filing the same, or a duly authorized agent or attorney. The signer's address

and telephone number must appear on the original. Counsel for the FCA shall sign the original of all

papers filed on behalf of the FCA. All papers filed must name in the heading or on a title page, the parties,

the docket number and the subject of the papers.

(c) Copies. Parties shall file an original and three copies of all documents and papers required or permitted to

be filed under this subpart (except the transcript of testimony and exhibits), unless otherwise specifically

provided by the Board.

(a) Service. Except as otherwise provided in these rules, each party who files papers is responsible for serving

a copy thereof upon the presiding officer and upon every other party or the attorney or representative of

record of that party. A copy of all papers filed by the presiding officer or the Board, except for the

transcript of testimony and exhibits, shall be served upon each of the parties. Service may be by personal

service, private delivery service, or by express, certified or regular first-class mail. If a party is not

represented, service shall be made at the last known address of the party or an officer thereof as shown

on the records of the FCA.

12 CFR Part 622 (up to date as of 3/07/2024)

Rules of Practice and Procedure

12 CFR 622.15

12 CFR 622.19(a) (enhanced display) page 11 of 19
§ 622.20 Documents in proceedings confidential.

Unless otherwise ordered by the Board or required by law, the entire record in any proceeding under this subpart,

including the notice of hearing, transcript, exhibits, proposed findings and conclusions, recommended decision of

the presiding officer, exceptions thereto, decision and order of the Board, and any other papers which are filed in

connection with the proceeding shall not be made public, and shall be for the confidential use only of the FCA and

its staff, the presiding officer, the parties, and other appropriate supervisory authorities.

§ 622.21 Computing time.

§ 622.22 Retained authority.

Nothing is this part is in derogation of powers of examination and investigation conferred on the FCA by any

provision of law.

§§ 622.23-622.50 [Reserved]

Subpart B—Rules and Procedures for Assessment and Collection of Civil Money Penalties

Source: 53 FR 27284, July 19, 1988, unless otherwise noted.

§ 622.51 Definitions.

Unless noted otherwise, the definitions set forth in § 622.2 of subpart A shall apply to this subpart.

§ 622.52 Purpose and scope.

The rules and procedures specified in this subpart and in subpart A are applicable to proceedings by the FCA to

assess and collect civil money penalties:

(b) Proof of service. Proof of service of papers filed by a party shall be filed before action is to be taken

thereon. The proof shall show the date and manner of service, and may be by written acknowledgment of

service, by declaration of the person making service, or by certificate of an attorney or other

representative of record. Failure to make proof of service shall not affect the validity of service. The

presiding officer may allow the proof to be amended or supplied, unless to do so would result in material

prejudice to a party.

(a) General rule. In computing any period of time prescribed or allowed by this subpart, the date of the act or

event from which the designated period of time begins to run is not to be included. The last day so

computed shall be included, unless it is a Saturday, Sunday or Federal holiday, in which event the period

shall run until the end of the next day which is not a Saturday, Sunday, or Federal holiday. When the period

of time prescribed or allowed is 10 days or less, intermediate Saturdays, Sundays, and Federal holidays

shall not be included in the computation.

(b) Service by mail. Whenever any party has the right or is required to do some act within the period of time

prescribed in this subpart after the service upon the party of any document or other paper of any kind, and

such service is made by mail, three days shall be added to the prescribed period from the date when the

matter served is deposited in the United States mail.

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Rules of Practice and Procedure

12 CFR 622.19(b)

12 CFR 622.52 (enhanced display) page 12 of 19
[51 FR 21139, June 11, 1986, as amended at 70 FR 12584, Mar. 15, 2005]

§§ 622.53-622.54 [Reserved]

§ 622.55 Notice of assessment of civil money penalty.

[51 FR 21139, June 11, 1986, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.56 Request for formal hearing on assessment.

An institution or person being assessed may request a formal hearing to challenge the assessment of a civil money

penalty. The request must be filed in writing, within 10 days of the issuance of the notice of assessment, with the

Chairman of the Board, FCA, 1501 Farm Credit Drive, McLean, VA 22102–5090.

§ 622.57 Waiver of hearing; consent.

[51 FR 21139, June 11, 1986, as amended at 70 FR 12585, Mar. 15, 2005]

(a) For violations of the terms of a final cease and desist order issued under section 5.25 or 5.26 of the Act;

(b) For violations of any provision of the Act or any regulation issued under the Act; or

(c) For violations of the National Flood Insurance Reform Act (Reform Act) as set forth in 42 U.S.C. 4012a(f)

or any regulation issued under the Reform Act.

(a) Notice of assessment. The notice of assessment for a civil money penalty will state:

(1) The legal authority for the assessment;

(2) The amount of the civil money penalty being assessed;

(3) The date by which the civil money penalty must be paid;

(4) The matter of fact or law constituting the grounds for assessment of the civil money penalty;

(5) The right of the institution or person being assessed to a formal hearing to challenge the

assessment;

(6) That failure to request a hearing constitutes a waiver of the opportunity for a hearing and the notice

of assessment will constitute a final and unappealable order; and

(7) The time limit to request such a formal hearing.

(b) Service. The notice of assessment may be served upon the institution or person being assessed by

personal service or by certified mail with a return receipt to the institution's or the person's last known

address. Such service constitutes issuance of the notice.

(a) Waiver. Failure to request a hearing pursuant to § 622.56 constitutes a waiver of the opportunity for a

hearing and the notice of assessment issued pursuant to § 622.55 will constitute a final and

unappealable order.

(b) Consent. Any party afforded a hearing who does not appear at the hearing personally or by a duly

authorized representative is deemed to have consented to the issuance of an assessment order.

12 CFR Part 622 (up to date as of 3/07/2024)

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12 CFR 622.52(a)

12 CFR 622.57(b) (enhanced display) page 13 of 19
§ 622.58 Hearing on assessment.

[51 FR 21139, June 11, 1986, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.59 Assessment order.

[51 FR 21139, June 11, 1986, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.60 Payment of civil money penalty.

[70 FR 12585, Mar. 15, 2005]

(a) Time and place. An institution or person requesting a hearing will be informed by order of the Board of the

time and place set for hearing.

(b) Answer; procedures. The hearing order may require the institution or person requesting the hearing to file

an answer as prescribed in § 622.5 of subpart A. The procedures of the Administrative Procedure Act (5

U.S.C. 554–557) and subpart A of these rules will apply to the hearing.

(a) Consent. In the event of consent of the parties concerned to an assessment, or if, upon the record made

at a hearing ordered under this subpart, the Board finds that the grounds for having assessed the penalty

have been established, the Board may issue an order of assessment of civil money penalty. In its

assessment order, the Board may reduce the amount of the penalty specified in the notice of assessment.

(b) Effective date and period. An assessment order is effective immediately upon issuance, or upon such

other date as may be specified therein, and will remain effective and enforceable unless it is stayed,

modified, terminated, or set aside by action of the board or a reviewing court.

(c) Service. An assessment order may be served by personal service or by certified mail with a return receipt

to the last known address of the institution or person being assessed. Such service constitutes issuance

of the order.

(a) Payment date. Generally, the date designated in the notice of assessment for payment of the civil money

penalty will be 60 days from the issuance of the notice. If, however, the Board finds, in a specific case, that

the purposes of the relevant statutes would be better served if the 60-day period were changed, the Board

may shorten or lengthen the period or make the civil money penalty payable immediately upon receipt of

the notice of assessment. If a timely request for a formal hearing to challenge an assessment of a civil

money penalty is filed, payment of the penalty will not be required unless and until the Board issues a final

order of assessment following the hearing. If an assessment order is issued, it will specify the date by

which the civil money penalty is to be paid or collected.

(b) Method of payment. Checks in payment of civil money penalties must be made payable to the “Farm

Credit Administration.” Upon collection, the FCA will forward payment for penalties described in §

622.52(a) and (b) to the United States Department of Treasury. The FCA will forward payment for

penalties described in § 622.52(c) to the National Flood Mitigation Fund as required by 42 U.S.C.

4012a(f)(8).

12 CFR Part 622 (up to date as of 3/07/2024)

Rules of Practice and Procedure

12 CFR 622.58

12 CFR 622.60(b) (enhanced display) page 14 of 19
§ 622.61 Adjustment of civil money penalties by the rate of inflation under the Federal Civil

Penalties Inflation Adjustment Act of 1990, as amended.

[89 FR 2118, Jan. 12, 2024]

§§ 622.62-622.75 [Reserved]

Subpart C—Rules and Procedures Applicable to Suspension or Removal of an Individual Where

Certain Crimes Are Charged or Proven

§ 622.76 Definitions.

Unless noted otherwise, the definitions set forth in § 622.2 of subpart A shall apply to this subpart.

§ 622.77 Purpose and scope.

The rules and procedures set forth in this subpart apply to informal hearings afforded to any officer, director, or

other person participating in the conduct of the affairs of a System institution who has been suspended or removed

from office or prohibited from further participation in any manner in the conduct of the institution's affairs by a

notice or order issued by the Board upon the grounds set forth in section 5.29 of the Act.

§ 622.78 Suspension, prohibition or removal.

(a) The maximum amount of each civil money penalty within FCA's jurisdiction is adjusted in accordance with

the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (28 U.S.C. 2461 note), as

follows:

(1) Amount of civil money penalty imposed under section 5.32 of the Act for violation of a final order

issued under section 5.25 or 5.26 of the Act: The maximum daily amount is $2,830 for violations that

occur on or after January 15, 2024.

(2) Amount of civil money penalty for violation of the Act or regulations: the maximum daily amount is

$1,280 for each violation that occurs on or after January 15, 2024.

(b) The maximum civil money penalty amount assessed under 42 U.S.C. 4012a(f) is $2,661 for each violation

that occurs on or after January 15, 2024, with no cap on the total amount of penalties that can be

assessed against any single institution during any calendar year.

(a) Content. The Board may serve a notice of suspension or prohibition or order of removal upon a director,

officer or other person participating in the conduct of the affairs of an institution. A copy of such notice or

order shall also be served upon the institution, whereupon the individual concerned shall immediately

cease service to the institution or participation in the affairs of the institution. Any notice or order shall

indicate the basis for the suspension, prohibition, or removal and shall inform the individual of the right to

request in writing, within 30 days of being served with such notice or order, an opportunity to show at an

informal hearing that continued service to or participation in the conduct of the affairs of the institution

does not, or is not likely to, pose a threat to the interests of the institution's shareholders or the investors

in Farm Credit System obligations or threaten to impair public confidence in the institution or the Farm

Credit System.

(b) Service. A notice or order of suspension, removal or prohibition may be served by personal service or by

certified mail with a return receipt to the last known address of the person being served.

12 CFR Part 622 (up to date as of 3/07/2024)

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12 CFR 622.61

12 CFR 622.78(b) (enhanced display) page 15 of 19
§ 622.79 Petition for informal hearing.

§ 622.80 Informal hearing.

(a) Filing. To obtain a hearing, the subject individual must file an original and three copies of a petition with

the Board within 30 days of being served with the notice or order.

(b) Content. The petition shall:

(1) State whether the petitioner is requesting termination or modification of the notice or order;

(2) State with particularity how the petitioner intends to show that his or her continued service to or

participation in the conduct of the affairs of the institution would not, or is not likely to, pose a threat

to the interests of the institution's shareholders or the investors in Farm Credit System obligations or

threaten to impair public confidence in the institution or the Farm Credit System;

(3) Include a request to present oral testimony or witnesses at the hearing, if the petitioner desires to do

so. The request should specify the names of the witnesses and a summary of their expected

testimony; and

(4) Indicate whether the petitioner desires oral argument or elects to have the matter determined solely

on the basis of written submissions.

(a) Time and place. Upon receipt of a timely petition for a hearing, the Board shall notify the petitioner of the

time and place fixed for the hearing and shall designate one or more Board members or FCA employees

to preside (“designated FCA representative”). The hearing shall be scheduled to be held no later than 30

days from the date a petition for hearing is received unless the time is extended at the request of the

petitioner. Notice of the hearing shall also be sent to the FCA's Office of General Counsel.

(b) Appearance. A petitioner may appear personally or through counsel to submit relevant written materials

and oral argument. An attorney is subject to all the requirements and limitations imposed on attorneys in

§ 622.3 of subpart A. A representative(s) of the FCA's Office of General Counsel may participate in the

hearing to the extent such representative deems appropriate.

(c) Written material. Any written material the petitioner wishes to have considered must be submitted to the

designated FCA representative and the FCA's Office of General Counsel at least 10 days prior to the date

of the hearing.

(d) Oral testimony. Oral testimony may be presented only if expressly permitted by the Board in the notice of

hearing. The designated FCA representative may ask questions of any witness.

(e) Transcripts. Oral testimony, if any, and oral argument shall be recorded. A copy of the transcript shall be

filed with the designated FCA representative, who shall have authority to correct the record sua sponte

upon notice, or upon the motion of the petitioner or the representative of the FCA's Office of General

Counsel. The designated FCA representative shall promptly serve notice upon the petitioner and the FCA's

Office of General Counsel of such filing. Such parties shall make arrangements with the person recording

the testimony or argument for copies of the transcript.

(f) Closing of record. Upon the request of the petitioner or representative of the FCA's Office of General

Counsel, the record shall remain open for a period of 5 business days following the hearing, during which

time additional submissions for the record may be made. Thereafter, the record shall be closed.

12 CFR Part 622 (up to date as of 3/07/2024)

Rules of Practice and Procedure

12 CFR 622.79

12 CFR 622.80(f) (enhanced display) page 16 of 19
§ 622.81 Default.

If the subject individual fails to file a petition for a hearing, or fails to appear at a hearing, either in person or by an

attorney, or fails to submit a written argument where oral argument has been waived, the notice shall remain in

effect until the information, indictment, or complaint is finally disposed of and the order shall remain in effect until

terminated by the Board.

§ 622.82 Decision of the Board.

§§ 622.83-622.100 [Reserved]

Subpart D—Rules and Procedures Applicable to Formal Investigations

§ 622.101 Definitions.

Unless noted otherwise, the definitions set forth in § 622.2 of subpart A shall apply to this subpart.

(g) Rules of evidence and procedure. Neither the formal rules of evidence nor the adjudicative procedures of

the Administrative Procedure Act (5 U.S.C. 554–557) or subpart A of these rules shall apply to the

informal hearing ordered under this subpart unless the Board orders that they apply in whole or in part.

(a) Recommended decision. Within 30 days of the hearing, the designated FCA representative shall make a

recommendation with findings and conclusions to the Board concerning the notice or order of

suspension, removal, or prohibition.

(b) Final decision. Within 60 days of the hearing, the Board shall notify the subject individual and the FCA's

Office of General Counsel whether the suspension or removal from office, or prohibition from participation

in any manner in the affairs of the institution, will be continued, terminated, or otherwise modified. The

Board's final decision, if adverse to the individual, shall contain a statement of the basis thereof. The

Board may satisfy this requirement where it adopts the recommended decision of the designated FCA

representative.

(c) Guilt not an issue. In deciding upon any suspension of prohibition by notice, the ultimate question of the

guilt or innocence of the individual with respect to the criminal charge that is outstanding will not be

considered. A finding of not guilty or other disposition of the charge shall not preclude the Board from

thereafter instituting removal proceedings pursuant to section 5.28 of the Act.

(d) Effective period. A removal or prohibition by order remains in effect until terminated by the Board. A

suspension or prohibition by notice remains in effect until the criminal charge is finally disposed of or until

terminated by the Board.

(e) Reconsideration. A suspended or removed individual may petition the Board to reconsider the decision

any time after the expiration of a 12-month period from the date of the decision, but no petition for

reconsideration may be made within 12 months of a previous petition. A petition shall state with

particularity the relief sought and the grounds therefor and may be accompanied by a supporting

memorandum and any other documentation the petitioner wishes to have considered. No hearing need be

granted on the petition for reconsideration.

12 CFR Part 622 (up to date as of 3/07/2024)

Rules of Practice and Procedure

12 CFR 622.80(g)

12 CFR 622.101 (enhanced display) page 17 of 19
§ 622.102 Scope.

The rules in this subpart apply to formal investigations initiated by order of the Board and pertain to the exercise of

powers specified in section 5.37 of the Act. These rules do not restrict or in any way affect the authority of the FCA,

including but not limited to the powers enumerated in section 5.37 of the Act, to conduct examinations of System

institutions.

§ 622.103 Formal investigations are confidential.

Information or documents obtained or testimony recorded in the course of a formal investigation shall be

confidential and shall be disclosed only in accordance with the provisions of 12 CFR part 602.

§ 622.104 Order to conduct formal investigation.

A formal investigation begins with the issuance of an order by the Board. The order shall designate the person or

persons who will conduct the investigation, issue, revoke, quash or modify subpoenas and subpoenas duces tecum,

take or cause to be taken depositions, administer oaths, and receive affirmations as to any matter under

investigation by the FCA. Upon application and for good cause shown, the Board may limit, modify, or withdraw the

order at any stage of the proceeding.

§ 622.105 Conduct of investigation.

(a) Review of order. Any person who is compelled or requested to furnish testimony, documentary evidence,

or other information with respect to any matter under formal investigation shall upon request be shown

the order initiating such investigation.

(b) Right to counsel. Any person who, in a formal investigation, is compelled to appear and testify or who

appears and testifies by request or permission of the Board may be accompanied, represented, and

advised by counsel. The right to be accompanied, represented, and advised by counsel shall mean the

right of a person testifying to have an attorney present at all times while testifying and to have this

attorney:

(1) Advise such person before, during and after the conclusion of testimony;

(2) Question such person briefly at the conclusion of testimony to clarify any of the answers given; and

(3) Make summary notes during the testimony solely for the use of such person.

(c) Appearance. The provisions of § 622.3 are applicable to this subpart.

(d) Exclusion.

(1) Any person who has given or will give testimony, and counsel representing such person, may be

excluded from the taking of testimony of any other witness in the discretion of the designated FCA

representative conducting the investigation.

(2) The designated FCA representative conducting the investigation shall report to the Board any

instances where any person has been guilty of dilatory, obstructionist, egregious, contemptuous,

contumacious or other unethical or improper conduct during the course of the proceeding or any

other instance involving a violation of these rules. The Board may thereupon take such action as the

circumstances may warrant, including exclusion of the offending individual or individual from

participation in the proceeding.

12 CFR Part 622 (up to date as of 3/07/2024)

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12 CFR 622.102

12 CFR 622.105(d)(2) (enhanced display) page 18 of 19
§ 622.106 Service of subpoena and payment of witness fees.

§ 622.107 Transcripts.

Transcripts, if any, of an investigative proceeding shall be recorded by any means authorized by the designated FCA

representative conducting the investigation. A person who has given testimony in an investigative proceeding (or

counsel for such person) upon proper identification shall have the right to inspect the transcript of the person's

testimony but may not obtain a copy if the FCA's representative conducting the investigation has cause to believe

that the contents should not be disclosed.

(a) Service. A subpoena may be served upon the person named therein by personal service or certified mail

with a return receipt to the last known address of the person. Witnesses who are subpoenaed shall be

paid the same fees and mileage that are paid witnesses in the district courts of the United States. The

fees and mileage need not be tendered at the time a subpoena is served.

(b) Motions to quash. Any person to whom a subpoena is directed may, prior to the time specified therein for

compliance, but in no event more than 5 days after the date of service of such subpoena, apply to the FCA

representative authorized in the order, or if unavailable to the Board, to quash or modify such subpoena,

accompanying such application with a brief statement of the reasons therefor. The FCA representative, or

the Board, may:

(1) Deny the application;

(2) Quash or revoke the subpoena;

(3) Modify the subpoena; or

(4) Condition the granting of the application on such terms as the FCA representative or the Board,

determines in his, her, or its discretion, to be just, reasonable, and proper.

12 CFR Part 622 (up to date as of 3/07/2024)

Rules of Practice and Procedure

12 CFR 622.106

12 CFR 622.107 (enhanced display) page 19 of 19
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 623 Practice Before the Farm Credit Administration

§ 623.1 Scope of part.

§ 623.2 Definitions.

§ 623.3 Who may practice.

§ 623.4 Suspension and debarment.

§ 623.5 Reinstatement.

§ 623.6 Duty to file information concerning adverse judicial or administrative action.

§ 623.7 Proceeding under this part.

PART 623—PRACTICE BEFORE THE FARM CREDIT

ADMINISTRATION

Authority: Secs. 5.9, 5.10, 5.17, 5.25–5.37 of the Farm Credit Act (12 U.S.C. 2243, 2244, 2252, 2261–2273).

Source: 51 FR 21147, June 11, 1986, unless otherwise noted.

§ 623.1 Scope of part.

This part prescribes rules with regard to persons who may practice before the Farm Credit Administration and the

circumstances under which attorneys, accountants, appraisers, or other persons may be suspended or debarred,

either temporarily or permanently, from practicing before the Farm Credit Administration. In connection with any

particular matter, reference also should be made to any special requirements of procedure and practice that may be

contained in the particular statute involved or the rules and forms adopted by the Farm Credit Administration

thereunder, which special requirements are controlling. In addition to any suspension hereunder, a person may be

excluded from further participation in a particular adjudicative proceeding in accordance with § 622.3 or in a formal

investigation in accordance with § 622.105.

§ 623.2 Definitions.

As used in this part:

This content is from the eCFR and is authoritative but unofficial.

(a) FCA means the Farm Credit Administration.

(b) Board means the Farm Credit Administration Board.

(c) Act means the Farm Credit Act of 1971, as amended. 12 U.S.C. 2001, et seq.

12 CFR Part 623 (up to date as of 3/07/2024)

Practice Before the Farm Credit Administration 12 CFR Part 623 (Mar. 7, 2024)

12 CFR 623.2(c) (enhanced display) page 1 of 5
[51 FR 21147, June 11, 1986, as amended at 53 FR 27285, July 19, 1988; 78 FR 31835, May 28, 2013]

§ 623.3 Who may practice.

(d) The terms institution in the System, System institution and institution mean all institutions enumerated in

section 1.2 of the Act, any institution chartered pursuant to or established by the Act, except for the Farm

Credit System Assistance Board and the Farm Credit System Insurance Corporation and any service

corporation chartered under the Act.

(e) The term presiding officer includes the Board, one or more members thereof, FCA employees, or an

administrative law judge. As used in this part, the term shall be construed to refer to whichever of the

above-identified individuals presides at a hearing or other proceeding, except as otherwise specified in the

text;

(f) The term attorney means any person who is a member in good standing of the bar of the highest court of

any State, possession, territory, Commonwealth or the District of Columbia;

(g) The term practice means transacting any business with the FCA, including but not limited to:

(1) The representation of another person at any adjudicatory, investigatory, removal or rulemaking

proceeding conducted before the FCA or a presiding officer;

(2) The preparation or certification of any statement, opinion, report of financial condition and

performance, financial statement, appraisal report, audit report, or other document or report by any

attorney, accountant, appraiser or other person which is filed with or submitted to the FCA, with such

person's consent or knowledge in connection with any filing with the FCA;

(3) A presentation to the FCA or a presiding officer at a conference or meeting relating to an institution's

or person's rights, privileges or liabilities under the laws administered by the FCA and rules and

regulations promulgated thereunder;

(4) Any business correspondence or communication with the FCA or a presiding officer; and

(5) The transaction of any other business with the FCA on behalf of another, in the capacity of an

attorney, accountant, appraiser, licensed expert or any other capacity.

(a) By nonattorneys.

(1) An individual may appear on his or her own behalf; a member of a partnership may represent the

partnership; a bona fide and duly authorized officer or other designated representative of a

corporation, trust, association or other entity not specifically listed herein may represent the

corporation, trust, association or other entity; and an authorized officer or other designated

representative of any government unit, agency or authority may represent that unit, agency or

authority.

(2) Any accountant, appraiser or licensed expert may practice before the FCA in a professional capacity.

(b) By attorneys. Any entity noted in paragraph (a) of this section may be represented in any proceeding or

other matter before the FCA by an attorney.

(c) Any person transacting business with the FCA in a representative capacity may be required to show

evidence of his or her authority to act in such capacity and certification of credentials.

12 CFR Part 623 (up to date as of 3/07/2024)

Practice Before the Farm Credit Administration 12 CFR 623.2(d)

12 CFR 623.3(c) (enhanced display) page 2 of 5
§ 623.4 Suspension and debarment.

(a) Grounds. The Board may censure any person practicing before the FCA or may deny, temporarily or

permanently, the privilege of any person to practice before the FCA if such person is found by the Board,

after notice of and opportunity for hearing in the matter:

(1) Not to possess the requisite qualifications to represent others;

(2) To be lacking in character or professional integrity;

(3) To have engaged in any dilatory, obstructionist, egregious, contemptuous, contumacious or other

unethical or improper conduct before FCA; or

(4) To have willfully violated, or willfully aided and abetted the violation of, any provision of the laws

administered by the FCA or the rules and regulations promulgated thereunder.

(b) Automatic suspension.

(1) Any person who, after being licensed as a professional or expert by any competent authority, has

been convicted by a Federal or State court of a felony, or of a misdemeanor involving moral

turpitude, personal dishonesty or breach of trust, shall be suspended automatically from practicing

before the FCA without a hearing.

(2) Any accountant, appraiser or licensed expert whose license to practice has been revoked in any

State, possession, territory, Commonwealth or the District of Columbia, or who has been suspended

or otherwise barred from practice before any Federal or State regulatory authority, shall be

suspended automatically from practicing before the FCA without a hearing.

(3) Any attorney who has been suspended or disbarred by a court of the United States or in any State,

possession, territory, Commonwealth or the District of Columbia, shall be suspended automatically

from practicing before the FCA without a hearing.

(4) A conviction (including a judgment or order on a plea of nolo contendere), revocation, suspension or

disbarment under paragraphs (b)(1), (2) and (3) of this section shall be deemed to have occurred

when the convicting, revoking, suspending or disbarring agency or tribunal enters its judgment or

order, regardless of whether an appeal is pending or could be taken.

(5) For purposes of this section, it shall be irrelevant that any attorney, accountant, appraiser or licensed

expert who has been suspended, disbarred or otherwise disqualified from practice before a court,

regulatory authority, or in a jurisdiction continues in professional good standing before other courts,

regulatory authorities, or in other jurisdictions.

(c) Temporary suspension.

(1) The Board, with due regard to the public interest and without preliminary hearing, by order, may

temporarily suspend any person from appearing or practicing before it who by name, has been:

(i) Permanently enjoined (whether by consent, default or summary judgment or after trial) by any

court of competent jurisdiction or by the Board in a final administrative order, by reason of his

or her misconduct in any action brought by the FCA based upon violations of, or aiding and

abetting the violation of any provision of any law that is administered by the FCA or of any rule

or regulation promulgated thereunder; or

12 CFR Part 623 (up to date as of 3/07/2024)

Practice Before the Farm Credit Administration 12 CFR 623.4

12 CFR 623.4(c)(1)(i) (enhanced display) page 3 of 5
§ 623.5 Reinstatement.

(ii) Found by any court of competent jurisdiction (whether by consent, default, upon summary

judgment or after hearing) or in any administrative proceeding in which the FCA is a

complainant and he or she is a party, to have willfully committed, caused, aided or abetted a

violation of any provision of any law that is administered by the FCA, or of any rule or regulation

promulgated thereunder.

(2) An order of temporary suspension shall become effective when served by certified mail with a return

receipt directed to the last known business or residential address of the person involved. No order of

temporary suspension shall be entered by the Board pursuant to paragraph (c)(1) of this section

more than 3 months after the final judgment or order entered in a judicial or administrative

proceeding described in paragraph (c)(1) (i) or (ii) of this section has become effective and all review

or appeal procedures have been completed or are no longer available.

(3) Any person temporarily suspended from appearing and practicing before the FCA in accordance with

paragraph (c)(1) of this section may, within 30 days after service of the order of temporary

suspension, petition the Board to lift such suspension. If no petition is received by the Board within

30 days, the suspension shall become permanent.

(4) Within 30 days after the filing of a petition in accordance with paragraph (c)(3) of this section, the

Board shall either lift the temporary suspension or set the matter down for hearing at a time and

place to be designated by the Board, or both. After opportunity for hearing, the Board may censure

the petitioner or may suspend the petitioner from appearing or practicing before the FCA temporarily

or permanently. In any case in which the temporary suspension has not been lifted, the hearing and

any other action taken pursuant to this paragraph shall be expedited by the Board in order to ensure

the petitioner's right to address the allegations.

(5) In any hearing held on a petition filed in accordance with paragraph (c)(3) of this section, a showing

that the petitioner has been enjoined or has been found to have committed, caused, aided or abetted

violations as described in paragraph (c)(1) of this section, without more, may be a basis for

suspension or debarment; that showing having been made, the burden shall then be on the petitioner

to show why the petitioner should not be censured or be temporarily or permanently suspended or

debarred. A petitioner will not be permitted to contest any findings against the petitioner or any

admissions made by the petitioner in the judicial or administrative proceedings upon which the

proposed censure, suspension or debarment is based. A petitioner who has consented to the entry

of a permanent injunction or order as described in paragraph (c)(1)(i) of this section, without

admitting the facts set forth in the complaint, shall nevertheless be presumed for all purposes under

this section to have been enjoined or ordered by reason of the misconduct alleged in the complaint.

(a) Any person who is suspended from practicing before the FCA under § 623.4 (a) or (c) of this part may file

an application for reinstatement at any time. Denial of the privilege of practicing before the FCA shall

continue unless and until the applicant has been reinstated by order of the Board for good cause shown.

(b) Any person suspended under § 623.4(b) shall be reinstated by the Board, upon appropriate application, if

all of the grounds for application of the provisions of that paragraph are removed subsequently by a

reversal of the conviction or termination of the suspension, disbarment of revocation. An application for

reinstatement on any other grounds by any person suspended under § 623.4(b) may be filed at any time.

Such application shall state with particularity the relief requested and the grounds therefor and shall

include supporting evidence, when available. The applicant shall be accorded an opportunity for an

informal hearing in the matter, unless the applicant has waived a hearing in the application and, instead,

12 CFR Part 623 (up to date as of 3/07/2024)

Practice Before the Farm Credit Administration 12 CFR 623.4(c)(1)(ii)

12 CFR 623.5(b) (enhanced display) page 4 of 5
§ 623.6 Duty to file information concerning adverse judicial or administrative action.

Any person appearing or practicing before the FCA who has been or is the subject of a conviction, suspension,

debarment, license revocation, injunction or other finding of the kind described in § 623.4 (b) or (c) of this part is an

action not instituted by the FCA shall promptly file a copy of the relevant order, judgment or decree with the Board

together with any related opinion or statement of the agency or tribunal involved. Any person who fails to file a copy

of such an order, judgment or decree within 30 days after the later of the entry of the order, judgment or decree, or

the date such person initiates practice before the FCA, for that reason alone may be disqualified from practicing

before the FCA until such time as the appropriate filing shall be made, but neither the filing of these documents nor

the failure of a person to file them shall in any way impair the operation of any other provision of this part.

§ 623.7 Proceeding under this part.

has elected to have the matter determined on the basis of written submissions. Such hearing shall utilize

the procedures established in part 622, subpart C. However, such suspension shall continue unless and

until the applicant has been reinstated by order of the Board for good cause shown.

(a) Rules. All hearings required or permitted to be held under paragraphs (a) and (c) of § 623.4 of this part

shall be held before a presiding officer utilizing the procedures established in the rules of practice and

procedure under part 622, subpart A.

(b) Closed hearings. All hearings held under this part shall be closed to the public unless the Board directs

otherwise on its own motion or upon the request of a party.

(c) Collateral proceedings. Any proceeding brought under any section of this part shall not preclude a

proceeding under any other section of this part or any other part of the FCA's regulations.

12 CFR Part 623 (up to date as of 3/07/2024)

Practice Before the Farm Credit Administration 12 CFR 623.6

12 CFR 623.7(c) (enhanced display) page 5 of 5
Appendix A to Part 624

Standardized Minimum Initial Margin Requirements for NonCleared Swaps and Non—Cleared Security-Based Swaps

Appendix B to Part 624

Margin Values for Eligible Noncash Margin Collateral

Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 624 Margin and Capital Requirements for Covered Swap Entities

§ 624.1 Authority, purpose, scope, exemptions and compliance dates.

§ 624.2 Definitions.

§ 624.3 Initial margin.

§ 624.4 Variation margin.

§ 624.5 Netting arrangements, minimum transfer amount and satisfaction of collecting and

posting requirements.

§ 624.6 Eligible collateral.

§ 624.7 Segregation of collateral.

§ 624.8 Initial margin models and standardized amounts.

§ 624.9 Cross-border application of margin requirements.

§ 624.10 Documentation of margin matters.

§ 624.11 Special rules for affiliates.

§ 624.12 Capital.

PART 624—MARGIN AND CAPITAL REQUIREMENTS FOR COVERED

SWAP ENTITIES

Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o–10(e), 12 U.S.C. 2154, 12 U.S.C. 2243, 12 U.S.C. 2252, and 12 U.S.C.

2279bb–1.

Source: 80 FR 74898, 74913, Nov. 30, 2015, unless otherwise noted.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR Part 624 (Mar. 7, 2024)

12 CFR 624 (enhanced display) page 1 of 32
§ 624.1 Authority, purpose, scope, exemptions and compliance dates.

(a) Authority. This part is issued by the Farm Credit Administration (FCA) under section 4s(e) of the

Commodity Exchange Act (7 U.S.C. 6s(e)), section 15F(e) of the Securities Exchange Act of 1934 (15

U.S.C. 78o–10(e)), and sections 4.3, 5.9, 5.17, and 8.32 of the Farm Credit Act (12 U.S.C. 2154, 12 U.S.C.

2243, 12 U.S.C. 2252, and 12 U.S.C. 2279bb–1).

(b) Purpose. Section 4s of the Commodity Exchange Act (7 U.S.C. 6s) and section 15F of the Securities

Exchange Act of 1934 (15 U.S.C. 78o–10) require the FCA to establish capital and margin requirements

for any System institution, including the Federal Agricultural Mortgage Corporation, chartered under the

Farm Credit Act of 1971, as amended (12 U.S.C. 2001 et seq.) that is registered as a swap dealer, major

swap participant, security-based swap dealer, or major security-based swap participant with respect to all

non-cleared swaps and non-cleared security-based swaps. This regulation implements section 4s of the

Commodity Exchange Act and section 15F of the Securities Exchange Act of 1934 by defining terms used

in the statute and related terms, establishing capital and margin requirements, and explaining the

statutes' requirements.

(c) Scope. This part establishes minimum capital and margin requirements for each covered swap entity

subject to this part with respect to all non-cleared swaps and non-cleared security-based swaps. This part

applies to any non-cleared swap or non-cleared security-based swap entered into by a covered swap

entity on or after the relevant compliance date set forth in paragraph (e) of this section. Nothing in this

part is intended to prevent a covered swap entity from collecting margin in amounts greater than are

required under this part.

(d) Exemptions —

(1) Swaps. The requirements of this part (except for § 624.12) shall not apply to a non-cleared swap if

the counterparty:

(i) Qualifies for an exception from clearing under section 2(h)(7)(A) of the Commodity Exchange

Act of 1936 (7 U.S.C. 2(h)(7)(A)) and implementing regulations;

(ii) Qualifies for an exemption from clearing under a rule, regulation, or order that the Commodity

Futures Trading Commission issued pursuant to its authority under section 4(c)(1) of the

Commodity Exchange Act of 1936 (7 U.S.C. 6(c)(1)) concerning cooperative entities that would

otherwise be subject to the requirements of section 2(h)(1)(A) of the Commodity Exchange Act

of 1936 (7 U.S.C. 2(h)(1)(A)); or

(iii) Satisfies the criteria in section 2(h)(7)(D) of the Commodity Exchange Act of 1936 (7 U.S.C.

2(h)(7)(D)) and implementing regulations.

(2) Security-based swaps. The requirements of this part (except for § 624.12) shall not apply to a noncleared security-based swap if the counterparty:

(i) Qualifies for an exception from clearing under section 3C(g)(1) of the Securities Exchange Act

of 1934 (15 U.S.C. 78c–3(g)(1)) and implementing regulations; or

(ii) Satisfies the criteria in section 3C(g)(4) of the Securities Exchange Act of 1934 (15 U.S.C.

78c–3(g)(4)) and implementing regulations.

(e) Compliance dates. Covered swap entities shall comply with the minimum margin requirements of this part

on or before the following dates for non-cleared swaps and non-cleared security-based swaps entered

into on or after the following dates:

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1

12 CFR 624.1(e) (enhanced display) page 2 of 32
(1) September 1, 2016 with respect to the requirements in § 624.3 for initial margin and § 624.4 for

variation margin for any non-cleared swaps and non-cleared security-based swaps, where both:

(i) The covered swap entity combined with all its affiliates; and

(ii) Its counterparty combined with all its affiliates, have an average daily aggregate notional

amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards

and foreign exchange swaps for March, April and May 2016 that exceeds $3 trillion, where such

amounts are calculated only for business days; and

(iii) In calculating the amounts in paragraphs (e)(1)(i) and (ii) of this section, an entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared securitybased swap, a foreign exchange forward or a foreign exchange swap between the entity and an

affiliate only one time, and shall not count a swap or security-based swap that is exempt

pursuant to paragraph (d) of this section.

(2) March 1, 2017 with respect to the requirements in § 624.4 for variation margin for any other covered

swap entity with respect to non-cleared swaps and non-cleared security-based swaps entered into

with any other counterparty.

(3) September 1, 2017 with respect to the requirements in § 624.3 for initial margin for any non-cleared

swaps and non-cleared security-based swaps, where both:

(i) The covered swap entity combined with all its affiliates; and

(ii) Its counterparty combined with all its affiliates, have an average daily aggregate notional

amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards

and foreign exchange swaps for March, April and May 2017 that exceeds $2.25 trillion, where

such amounts are calculated only for business days; and

(iii) In calculating the amounts in paragraphs (e)(3)(i) and (ii) of this section, an entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared securitybased swap, a foreign exchange forward or a foreign exchange swap between the entity and an

affiliate only one time, and shall not count a swap or security-based swap that is exempt

pursuant to paragraph (d) of this section.

(4) September 1, 2018 with respect to the requirements in § 624.3 for initial margin for any non-cleared

swaps and non-cleared security-based swaps, where both:

(i) The covered swap entity combined with all its affiliates; and

(ii) Its counterparty combined with all its affiliates, have an average daily aggregate notional

amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards

and foreign exchange swaps for March, April and May 2018 that exceeds $1.5 trillion, where

such amounts are calculated only for business days; and

(iii) In calculating the amounts in paragraphs (e)(4)(i) and (ii) of this section, an entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared securitybased swap, a foreign exchange forward or a foreign exchange swap between the entity and an

affiliate only one time, and shall not count a swap or security-based swap that is exempt

pursuant to paragraph (d) of this section.

(5) September 1, 2019 with respect to the requirements in § 624.3 for initial margin for any non-cleared

swaps and non-cleared security-based swaps, where both:

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1(e)(1)

12 CFR 624.1(e)(5) (enhanced display) page 3 of 32
(i) The covered swap entity combined with all its affiliates; and

(ii) Its counterparty combined with all its affiliates, have an average daily aggregate notional

amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards

and foreign exchange swaps for March, April and May 2019 that exceeds $0.75 trillion, where

such amounts are calculated only for business days; and

(iii) In calculating the amounts in paragraphs (e)(5)(i) and (ii) of this section, an entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared securitybased swap, a foreign exchange forward or a foreign exchange swap between the entity and an

affiliate only one time, and shall not count a swap or security-based swap that is exempt

pursuant to paragraph (d) of this section.

(6) September 1, 2021 with respect to requirements in § 624.3 for initial margin for any non-cleared

swaps and non-cleared security-based swaps, where both:

(i) The covered swap entity combined with all its affiliates; and

(ii) Its counterparty combined with all its affiliates, have an average daily aggregate notional

amount of non-cleared swaps, foreign exchange forwards and foreign exchange swaps for

March, April and May 2021 that exceeds $50 billion, where such amounts are calculated only

for business days; and

(iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii) of this section, an entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared securitybased swap, a foreign exchange forward or a foreign exchange swap between the entity and an

affiliate only one time, and shall not count a swap or security-based swap that is exempt

pursuant to paragraph (d) of this section.

(7) September 1, 2022 with respect to requirements in § 624.3 for initial margin for any other covered

swap entity with respect to non-cleared swaps and non-cleared security-based swaps entered into

with any other counterparty.

(f) Once a covered swap entity must comply with the margin requirements for non-cleared swaps and noncleared security-based swaps with respect to a particular counterparty based on the compliance dates in

paragraph (e) of this section, the covered swap entity shall remain subject to the requirements of this part

with respect to that counterparty.

(g)

(1) If a covered swap entity's counterparty changes its status such that a non-cleared swap or noncleared security-based swap with that counterparty becomes subject to stricter margin requirements

under this part (such as if the counterparty's status changes from a financial end user without

material swaps exposure to a financial end user with material swaps exposure), then the covered

swap entity shall comply with the stricter margin requirements for any non-cleared swap or noncleared security-based swap entered into with that counterparty after the counterparty changes its

status.

(2) If a covered swap entity's counterparty changes its status such that a non-cleared swap or noncleared security-based swap with that counterparty becomes subject to less strict margin

requirements under this part (such as if the counterparty's status changes from a financial end user

with material swaps exposure to a financial end user without material swaps exposure), then the

covered swap entity may comply with the less strict margin requirements for any non-cleared swap

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1(e)(5)(i)

12 CFR 624.1(g)(2) (enhanced display) page 4 of 32
or non-cleared security-based swap entered into with that counterparty after the counterparty

changes its status as well as for any outstanding non-cleared swap or non-cleared security-based

swap entered into after the applicable compliance date in paragraph (e) of this section and before

the counterparty changed its status.

(h) Legacy swaps. Covered swaps entities are required to comply with the requirements of this subpart for

non-cleared swaps and non-cleared security-based swaps entered into on or after the relevant compliance

dates for variation margin and for initial margin established in paragraph (e) of this section. Any noncleared swap or non-cleared security-based swap entered into before such relevant date shall remain

outside the scope of this subpart if amendments are made to the non-cleared swap or non-cleared

security-based swap by method of adherence to a protocol, other amendment of a contract or

confirmation, or execution of a new contract or confirmation in replacement of and immediately upon

termination of an existing contract or confirmation, as follows:

(1) Amendments to the non-cleared swap or non-cleared security-based swap solely to comply with the

requirements of 12 CFR part 47, 12 CFR part 252 subpart I, or 12 CFR part 382, as applicable;

(2) The non-cleared swap or non-cleared security-based swap was amended under the following

conditions:

(i) The swap was originally entered into before the relevant compliance date established in

paragraph (e) of this section and one party to the swap booked it at, or otherwise held it at, an

entity (including a branch or other authorized form of establishment) located in the United

Kingdom;

(ii) The entity in the United Kingdom subsequently arranged to amend the swap, solely for the

purpose of transferring it to an affiliate, or a branch or other authorized form of establishment,

located in any European Union member state or the United States, in connection with the

entity's planning for or response to the event described in paragraph (h)(2)(iii) of this section,

and the transferee is:

(A) A covered swap entity, or

(B) A covered swap entity's counterparty to the swap, and the counterparty represents to the

covered swap entity that the counterparty performed the transfer in compliance with the

requirements of paragraphs (h)(2)(i) and (ii) of this section;

(iii) The law of the European Union ceases to apply to the United Kingdom pursuant to Article 50(3)

of the Treaty on European Union, without conclusion of a Withdrawal Agreement between the

United Kingdom and the European Union pursuant to Article 50(2);

(iv) The amendments do not modify any of the following: The payment amount calculation

methods, the maturity date, or the notional amount of the swap;

(v) The amendments cause the transfer to take effect on or after the date of the event described in

paragraph (h)(2)(iii) of this section transpires; and

(vi) The amendments cause the transfer to take effect by the later of:

(A) The date that is one year after the date of the event described in paragraph (h)(2)(iii) of

this section; or

(B) Such other date permitted by transitional provisions under Article 35 of Commission

Delegated Regulation (E.U.) No. 2016/2251, as amended.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1(h)

12 CFR 624.1(h)(2)(vi)(B) (enhanced display) page 5 of 32
(3)

(i) Amendments to the non-cleared swap or non-cleared security-based swap that are made solely

to accommodate the replacement of:

(A) An interbank offered rate (IBOR) including, but not limited to, the London Interbank Offered

Rate (LIBOR), the Tokyo Interbank Offered Rate (TIBOR), the Bank Bill Swap Rate (BBSW),

the Singapore Interbank Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR),

Euro Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered Rate

(HIBOR);

(B) Any other interest rate that a covered swap entity reasonably expects to be replaced or

discontinued or reasonably determines has lost its relevance as a reliable benchmark due

to a significant impairment; or

(C) Any other interest rate that succeeds a rate referenced in paragraph (h)(3)(i)(A) or (B) of

this section. An amendment made under this paragraph (h)(3)(i)(C) could be one of

multiple amendments made under this paragraph (h)(3)(i)(C). For example, an amendment

could replace an IBOR with a temporary interest rate and later replace the temporary

interest rate with a permanent interest rate.

(ii) Amendments to accommodate replacement of an interest rate described in paragraph (h)(3)(i)

of this section may also incorporate spreads or other adjustments to the replacement interest

rate and make other necessary technical changes to operationalize the determination of

payments or other exchanges of economic value using the replacement interest rate, including

changes to determination dates, calculation agents, and payment dates. The changes may not

extend the maturity or increase the total effective notional amount of the non-cleared swap or

non-cleared security-based swap beyond what is necessary to accommodate the differences

between market conventions for an outgoing interest rate and its replacement.

(iii) Amendments to accommodate replacement of an interest rate described in paragraph (h)(3)(i)

of this section may also be effectuated through portfolio compression between or among

covered swap entities and their counterparties. Portfolio compression under this paragraph is

not subject to the limitations in paragraph (h)(4) of this section, but any non-cleared swap[s] or

non-cleared security-based swaps resulting from the portfolio compression may not extend the

maturity or increase the total effective notional amount more than what is necessary to

accommodate the differences between market conventions for an outgoing interest rate and its

replacement.

(4) Amendments solely to reduce risk or remain risk-neutral through portfolio compression between or

among covered swap entities and their counterparties, as long as any non-cleared swaps or noncleared security-based swaps resulting from the portfolio compression do not:

(i) Exceed the sum of the total effective notional amounts of all of the swaps that were submitted

to the compression exercise that had the same or longer remaining maturity as the resulting

swap; or

(ii) Exceed the longest remaining maturity of all the swaps submitted to the compression exercise.

(5) The non-cleared swap or non-cleared security-based swap was amended solely for one of the

following reasons:

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1(h)(3)

12 CFR 624.1(h)(5) (enhanced display) page 6 of 32
[80 FR 74898, 74913, Nov. 30, 2015, as amended at 80 FR 74913, 74924, Nov. 30, 2015; 83 FR 50813, Oct. 10, 2018; 84 FR 9949,

Mar. 19, 2019; 84 FR 68326, Dec. 16, 2019; 85 FR 39469, 39776, July 1, 2020]

§ 624.2 Definitions.

(i) To reflect technical changes, such as addresses, identities of parties for delivery of formal

notices, and other administrative or operational provisions as long as they do not alter the noncleared swap's or non-cleared security-based swap's underlying asset or reference, the

remaining maturity, or the total effective notional amount; or

(ii) To reduce the notional amount, so long as:

(A) All payment obligations attached to the total effective notional amount being eliminated

as a result of the amendment are fully terminated; or

(B) All payment obligations attached to the total effective notional amount being eliminated

as a result of the amendment are fully novated to a third party, who complies with

applicable margin rules for the novated portion upon the transfer.

Affiliate. A company is an affiliate of another company if:

(1) Either company consolidates the other on financial statements prepared in accordance with U.S.

Generally Accepted Accounting Principles, the International Financial Reporting Standards, or other

similar standards;

(2) Both companies are consolidated with a third company on a financial statement prepared in

accordance with such principles or standards;

(3) For a company that is not subject to such principles or standards, if consolidation as described in

paragraph (1) or (2) of this definition would have occurred if such principles or standards had

applied; or

(4) The FCA has determined that a company is an affiliate of another company, based on FCA's

conclusion that either company provides significant support to, or is materially subject to the risks or

losses of, the other company.

Bank holding company has the meaning specified in section 2 of the Bank Holding Company Act of 1956 (12

U.S.C. 1841).

Broker has the meaning specified in section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C.

78c(a)(4)).

Business day means any day other than a Saturday, Sunday, or legal holiday.

Clearing agency has the meaning specified in section 3(a)(23) of the Securities Exchange Act of 1934 (15 U.S.C.

78c(a)(23)).

Company means a corporation, partnership, limited liability company, business trust, special purpose entity,

association, or similar organization.

Counterparty means, with respect to any non-cleared swap or non-cleared security-based swap to which a

person is a party, each other party to such non-cleared swap or non-cleared security-based swap.

Covered swap entity means any institution chartered under the Farm Credit Act of 1971, as amended (12 U.S.C.

2001 et seq.) that is a swap entity, or any other entity that the FCA determines.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.1(h)(5)(i)

12 CFR 624.2 “Covered swap entity” (enhanced display) page 7 of 32
Cross-currency swap means a swap in which one party exchanges with another party principal and interest rate

payments in one currency for principal and interest rate payments in another currency, and the exchange

of principal occurs on the date the swap is entered into, with a reversal of the exchange of principal at a

later date that is agreed upon when the swap is entered into.

Currency of settlement means a currency in which a party has agreed to discharge payment obligations related

to a non-cleared swap, a non-cleared security-based swap, a group of non-cleared swaps, or a group of

non-cleared security-based swaps subject to a master agreement at the regularly occurring dates on

which such payments are due in the ordinary course.

Day of execution means the calendar day at the time the parties enter into a non-cleared swap or non-cleared

security-based swap, provided:

(1) If each party is in a different calendar day at the time the parties enter into the non-cleared swap or

non-cleared security-based swap, the day of execution is deemed the latter of the two dates; and

(2) If a non-cleared swap or non-cleared security-based swap is:

(i) Entered into after 4:00 p.m. in the location of a party; or

(ii) Entered into on a day that is not a business day in the location of a party, then the non-cleared

swap or non-cleared security-based swap is deemed to have been entered into on the

immediately succeeding day that is a business day for both parties, and both parties shall

determine the day of execution with reference to that business day.

Dealer has the meaning specified in section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C.

78c(a)(5)).

Depository institution has the meaning specified in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C.

1813(c)).

Derivatives clearing organization has the meaning specified in section 1a(15) of the Commodity Exchange Act of

1936 (7 U.S.C. 1a(15)).

Eligible collateral means collateral described in § 624.6.

Eligible master netting agreement means a written, legally enforceable agreement provided that:

(1) The agreement creates a single legal obligation for all individual transactions covered by the

agreement upon an event of default following any stay permitted by paragraph (2) of this definition,

including upon an event of receivership, conservatorship, insolvency, liquidation, or similar

proceeding, of the counterparty;

(2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on

a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon

an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation,

or similar proceeding, of the counterparty, provided that, in any such case,

(i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in

the relevant jurisdictions, other than:

(A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12

U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street Reform and Consumer

Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety

and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971,

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Cross-currency swap”

12 CFR 624.2 “Eligible master netting agreement” (2)(i)(A) (enhanced display) page 8 of 32
as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are

substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to

facilitate the orderly resolution of the defaulting counterparty; or

(B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced

in paragraph (2)(i)(A) of this definition; and

(ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all

transactions under the agreement and to liquidate or set-off collateral promptly upon an event

of default of the counterparty to the extent necessary for the counterparty to comply with the

requirements of part 47, subpart I of part 252 or part 382 of title 12, as applicable;

(3) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting

counterparty to make a lower payment than it otherwise would make under the agreement, or no

payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the

defaulter is a net creditor under the agreement); and

(4) A covered swap entity that relies on the agreement for purposes of calculating the margin required

by this part must:

(i) Conduct sufficient legal review to conclude with a well-founded basis (and maintain sufficient

written documentation of that legal review) that:

(A) The agreement meets the requirements of paragraph (2) of this definition; and

(B) In the event of a legal challenge (including one resulting from default or from receivership,

conservatorship, insolvency, liquidation, or similar proceeding), the relevant court and

administrative authorities would find the agreement to be legal, valid, binding, and

enforceable under the law of the relevant jurisdictions; and

(ii) Establish and maintain written procedures to monitor possible changes in relevant law and to

ensure that the agreement continues to satisfy the requirements of this definition.

Financial end user means:

(1) Any counterparty that is not a swap entity and that is:

(i) A bank holding company or an affiliate thereof; a savings and loan holding company; a U.S.

intermediate holding company established or designated for purposes of compliance with 12

CFR 252.153; or a nonbank financial institution supervised by the Board of Governors of the

Federal Reserve System under Title I of the Dodd-Frank Wall Street Reform and Consumer

Protection Act (12 U.S.C. 5323);

(ii) A depository institution; a foreign bank; a Federal credit union or State credit union as defined in

section 2 of the Federal Credit Union Act (12 U.S.C. 1752(1) & (6)); an institution that functions

solely in a trust or fiduciary capacity as described in section 2(c)(2)(D) of the Bank Holding

Company Act (12 U.S.C. 1841(c)(2)(D)); an industrial loan company, an industrial bank, or other

similar institution described in section 2(c)(2)(H) of the Bank Holding Company Act (12 U.S.C.

1841(c)(2)(H));

(iii) An entity that is state-licensed or registered as:

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Eligible master netting agreement” (2)(i)(B)

12 CFR 624.2 “Financial end user” (1)(iii) (enhanced display) page 9 of 32
(A) A credit or lending entity, including a finance company; money lender; installment lender;

consumer lender or lending company; mortgage lender, broker, or bank; motor vehicle title

pledge lender; payday or deferred deposit lender; premium finance company; commercial

finance or lending company; or commercial mortgage company; except entities registered

or licensed solely on account of financing the entity's direct sales of goods or services to

customers;

(B) A money services business, including a check casher; money transmitter; currency dealer

or exchange; or money order or traveler's check issuer;

(iv) A regulated entity as defined in section 1303(20) of the Federal Housing Enterprises Financial

Safety and Soundness Act of 1992, as amended (12 U.S.C. 4502(20)) or any entity for which the

Federal Housing Finance Agency or its successor is the primary federal regulator;

(v) Any institution chartered in accordance with the Farm Credit Act of 1971, as amended, 12

U.S.C. 2001 et seq., that is regulated by the Farm Credit Administration;

(vi) A securities holding company; a broker or dealer; an investment adviser as defined in section

202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)); an investment company

registered with the U.S. Securities and Exchange Commission under the Investment Company

Act of 1940 (15 U.S.C. 80a–1 et seq.); or a company that has elected to be regulated as a

business development company pursuant to section 54(a) of the Investment Company Act of

1940 (15 U.S.C. 80a–53(a));

(vii) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C.

80–b–2(a)); an entity that would be an investment company under section 3 of the Investment

Company Act of 1940 (15 U.S.C. 80a–3) but for section 3(c)(5)(C); or an entity that is deemed

not to be an investment company under section 3 of the Investment Company Act of 1940

pursuant to Investment Company Act Rule 3a–7 (17 CFR 270.3a–7) of the U.S. Securities and

Exchange Commission;

(viii) A commodity pool, a commodity pool operator, or a commodity trading advisor as defined,

respectively, in section 1a(10), 1a(11), and 1a(12) of the Commodity Exchange Act of 1936 (7

U.S.C. 1a(10), 1a(11), and 1a(12)); a floor broker, a floor trader, or introducing broker as defined,

respectively, in 1a(22), 1a(23) and 1a(31) of the Commodity Exchange Act of 1936 (7 U.S.C.

1a(22), 1a(23), and 1a(31)); or a futures commission merchant as defined in 1a(28) of the

Commodity Exchange Act of 1936 (7 U.S.C. 1a(28));

(ix) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee

Retirement Income and Security Act of 1974 (29 U.S.C. 1002);

(x) An entity that is organized as an insurance company, primarily engaged in writing insurance or

reinsuring risks underwritten by insurance companies, or is subject to supervision as such by a

State insurance regulator or foreign insurance regulator;

(xi) An entity, person or arrangement that is, or holds itself out as being, an entity, person, or

arrangement that raises money from investors, accepts money from clients, or uses its own

money primarily for the purpose of investing or trading or facilitating the investing or trading in

loans, securities, swaps, funds or other assets for resale or other disposition or otherwise

trading in loans, securities, swaps, funds or other assets; or

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Financial end user” (1)(iii)(A)

12 CFR 624.2 “Financial end user” (1)(xi) (enhanced display) page 10 of 32
(xii) An entity that would be a financial end user described in paragraph (1) of this definition or a

swap entity, if it were organized under the laws of the United States or any State thereof.

(2) The term “financial end user” does not include any counterparty that is:

(i) A sovereign entity;

(ii) A multilateral development bank;

(iii) The Bank for International Settlements;

(iv) An entity that is exempt from the definition of financial entity pursuant to section 2(h)(7)(C)(iii)

of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(C)(iii)) and implementing regulations;

or

(v) An affiliate that qualifies for the exemption from clearing pursuant to section 2(h)(7)(D) of the

Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(D)) or section 3C(g)(4) of the Securities

Exchange Act of 1934 (15 U.S.C. 78c–3(g)(4)) and implementing regulations.

Foreign bank means an organization that is organized under the laws of a foreign country and that engages

directly in the business of banking outside the United States.

Foreign exchange forward has the meaning specified in section 1a(24) of the Commodity Exchange Act of 1936

(7 U.S.C. 1a(24)).

Foreign exchange swap has the meaning specified in section 1a(25) of the Commodity Exchange Act of 1936 (7

U.S.C. 1a(25)).

Initial margin means the collateral as calculated in accordance with § 624.8 that is posted or collected in

connection with a non-cleared swap or non-cleared security-based swap.

Initial margin collection amount means:

(1) In the case of a covered swap entity that does not use an initial margin model, the amount of initial

margin with respect to a non-cleared swap or non-cleared security-based swap that is required under

appendix A of this part; and

(2) In the case of a covered swap entity that uses an initial margin model pursuant to § 624.8, the

amount of initial margin with respect to a non-cleared swap or non-cleared security-based swap that

is required under the initial margin model.

Initial margin model means an internal risk management model that:

(1) Has been developed and designed to identify an appropriate, risk-based amount of initial margin that

the covered swap entity must collect with respect to one or more non-cleared swaps or non-cleared

security-based swaps to which the covered swap entity is a party; and

(2) Has been approved by the FCA pursuant to § 624.8.

Initial margin threshold amount means an aggregate credit exposure of $50 million resulting from all non-cleared

swaps and non-cleared security-based swaps between a covered swap entity and its affiliates, and a

counterparty and its affiliates. For purposes of this calculation, an entity shall not count a swap or

security-based swap that is exempt pursuant to § 624.1(d).

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Financial end user” (1)(xii)

12 CFR 624.2 “Initial margin threshold amount” (enhanced display) page 11 of 32
Investment grade means the issuer of a security has an adequate capacity to meet financial commitments

under the security for the projected life of the asset or exposure. An issuer has an adequate capacity to

meet financial commitments if the risk of default by the obligor is low and the full and timely repayment of

principal and interest is expected.

Major currency means:

(1) United States Dollar (USD);

(2) Canadian Dollar (CAD);

(3) Euro (EUR);

(4) United Kingdom Pound (GBP);

(5) Japanese Yen (JPY);

(6) Swiss Franc (CHF);

(7) New Zealand Dollar (NZD);

(8) Australian Dollar (AUD);

(9) Swedish Kronor (SEK);

(10) Danish Kroner (DKK);

(11) Norwegian Krone (NOK); or

(12) Any other currency as determined by the FCA.

Margin means initial margin and variation margin.

Market intermediary means a securities holding company; a broker or dealer; a futures commission merchant as

defined in 1a(28) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(28)); a swap dealer as defined in

section 1a(49) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(49)); or a security-based swap dealer

as defined in section 3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71)).

Material swaps exposure for an entity means that an entity and its affiliates have an average daily aggregate

notional amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards,

and foreign exchange swaps with all counterparties for June, July, and August of the previous calendar

year that exceeds $8 billion, where such amount is calculated only for business days. An entity shall count

the average daily aggregate notional amount of a non-cleared swap, a non-cleared security-based swap, a

foreign exchange forward or a foreign exchange swap between the entity and an affiliate only one time.

For purposes of this calculation, an entity shall not count a swap or security-based swap that is exempt

pursuant to § 624.1(d).

Multilateral development bank means the International Bank for Reconstruction and Development, the

Multilateral Investment Guarantee Agency, the International Finance Corporation, the Inter-American

Development Bank, the Asian Development Bank, the African Development Bank, the European Bank for

Reconstruction and Development, the European Investment Bank, the European Investment Fund, the

Nordic Investment Bank, the Caribbean Development Bank, the Islamic Development Bank, the Council of

Europe Development Bank, and any other entity that provides financing for national or regional

development in which the U.S. government is a shareholder or contributing member or which the FCA

determines poses comparable credit risk.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Investment grade”

12 CFR 624.2 “Multilateral development bank” (enhanced display) page 12 of 32
Non-cleared security-based swap means a security-based swap that is not, directly or indirectly, submitted to

and cleared by a clearing agency registered with the U.S. Securities and Exchange Commission pursuant

to section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q–1) or by a clearing agency that the

U.S. Securities and Exchange Commission has exempted from registration by rule or order pursuant to

section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q–1).

Non-cleared swap means a swap that is not cleared by a derivatives clearing organization registered with the

Commodity Futures Trading Commission pursuant to section 5b(a) of the Commodity Exchange Act of

1936 (7 U.S.C. 7a–1(a)) or by a clearing organization that the Commodity Futures Trading Commission

has exempted from registration by rule or order pursuant to section 5b(h) of the Commodity Exchange Act

of 1936 (7 U.S.C. 7a–1(h)).

Prudential regulator has the meaning specified in section 1a(39) of the Commodity Exchange Act of 1936 (7

U.S.C. 1a(39)).

Savings and loan holding company has the meaning specified in section 10(n) of the Home Owners' Loan Act

(12 U.S.C. 1467a(n)).

Securities holding company has the meaning specified in section 618 of the Dodd-Frank Wall Street Reform and

Consumer Protection Act (12 U.S.C. 1850a).

Security-based swap has the meaning specified in section 3(a)(68) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(68)).

Sovereign entity means a central government (including the U.S. government) or an agency, department,

ministry, or central bank of a central government.

State means any State, commonwealth, territory, or possession of the United States, the District of Columbia,

the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American

Samoa, Guam, or the United States Virgin Islands.

Subsidiary. A company is a subsidiary of another company if:

(1) The company is consolidated by the other company on financial statements prepared in accordance

with U.S. Generally Accepted Accounting Principles, the International Financial Reporting Standards,

or other similar standards;

(2) For a company that is not subject to such principles or standards, if consolidation as described in

paragraph (1) of this definition would have occurred if such principles or standards had applied; or

(3) The FCA has determined that the company is a subsidiary of another company, based on FCA's

conclusion that either company provides significant support to, or is materially subject to the risks of

loss of, the other company.

Swap has the meaning specified in section 1a(47) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(47)).

Swap entity means a person that is registered with the Commodity Futures Trading Commission as a swap

dealer or major swap participant pursuant to the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.), or

a person that is registered with the U.S. Securities and Exchange Commission as a security-based swap

dealer or a major security-based swap participant pursuant to the Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.).

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “Non-cleared security-based swap”

12 CFR 624.2 “Swap entity” (enhanced display) page 13 of 32
[80 FR 74898, 74913, Nov. 30, 2015, as amended at 80 FR 74913, Nov. 30, 2015; 83 FR 50813, Oct. 10, 2018]

§ 624.3 Initial margin.

U.S. Government-sponsored enterprise means an entity established or chartered by the U.S. government to serve

public purposes specified by federal statute but whose debt obligations are not explicitly guaranteed by

the full faith and credit of the U.S. government.

Variation margin means collateral provided by one party to its counterparty to meet the performance of its

obligations under one or more non-cleared swaps or non-cleared security-based swaps between the

parties as a result of a change in value of such obligations since the last time such collateral was

provided.

Variation margin amount means the cumulative mark-to-market change in value to a covered swap entity of a

non-cleared swap or non-cleared security-based swap, as measured from the date it is entered into (or, in

the case of a non-cleared swap or non-cleared security-based swap that has a positive or negative value

to a covered swap entity on the date it is entered into, such positive or negative value plus any cumulative

mark-to-market change in value to the covered swap entity of a non-cleared swap or non-cleared securitybased swap after such date), less the value of all variation margin previously collected, plus the value of

all variation margin previously posted with respect to such non-cleared swap or non-cleared securitybased swap.

(a) Collection of margin. A covered swap entity shall collect initial margin with respect to any non-cleared

swap or non-cleared security-based swap from a counterparty that is a financial end user with material

swaps exposure or that is a swap entity in an amount that is no less than the greater of:

(1) Zero; or

(2) The initial margin collection amount for such non-cleared swap or non-cleared security-based swap

less the initial margin threshold amount (not including any portion of the initial margin threshold

amount already applied by the covered swap entity or its affiliates to other non-cleared swaps or

non-cleared security-based swaps with the counterparty or its affiliates), as applicable.

(b) Posting of margin. A covered swap entity shall post initial margin with respect to any non-cleared swap or

non-cleared security-based swap to a counterparty that is a financial end user with material swaps

exposure. Such initial margin shall be in an amount at least as large as the covered swap entity would be

required to collect under paragraph (a) of this section if it were in the place of the counterparty.

(c) Timing. A covered swap entity shall comply with the initial margin requirements described in paragraphs

(a) and (b) of this section on each business day, for a period beginning on or before the business day

following the day of execution and ending on the date the non-cleared swap or non-cleared security-based

swap terminates or expires.

(d) Other counterparties. A covered swap entity is not required to collect or post initial margin with respect to

any non-cleared swap or non-cleared security-based swap described in § 624.1(d). For any other noncleared swap or non-cleared security-based swap between a covered swap entity and a counterparty that

is neither a financial end user with a material swaps exposure nor a swap entity, the covered swap entity

shall collect initial margin at such times and in such forms and such amounts (if any), that the covered

swap entity determines appropriately addresses the credit risk posed by the counterparty and the risks of

such non-cleared swap or non-cleared security-based swap.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.2 “U.S. Government-sponsored enterprise”

12 CFR 624.3(d) (enhanced display) page 14 of 32
§ 624.4 Variation margin.

§ 624.5 Netting arrangements, minimum transfer amount and satisfaction of collecting and

posting requirements.

(a) General. After the date on which a covered swap entity enters into a non-cleared swap or non-cleared

security-based swap with a swap entity or financial end user, the covered swap entity shall collect

variation margin equal to the variation margin amount from the counterparty to such non-cleared swap or

non-cleared security-based swap when the amount is positive and post variation margin equal to the

variation margin amount to the counterparty to such non-cleared swap or non-cleared security-based

swap when the amount is negative.

(b) Timing. A covered swap entity shall comply with the variation margin requirements described in paragraph

(a) of this section on each business day, for a period beginning on or before the business day following

the day of execution and ending on the date the non-cleared swap or non-cleared security based swap

terminates or expires.

(c) Other counterparties. A covered swap entity is not required to collect or post variation margin with respect

to any non-cleared swap or non-cleared security-based swap described in § 624.1(d). For any other noncleared swap or non-cleared security-based swap between a covered swap entity and a counterparty that

is neither a financial end user nor a swap entity, the covered swap entity shall collect variation margin at

such times and in such forms and such amounts (if any), that the covered swap entity determines

appropriately addresses the credit risk posed by the counterparty and the risks of such non-cleared swap

or non-cleared security-based swap.

(a) Netting arrangements.

(1) For purposes of calculating and complying with the initial margin requirements of § 624.3 using an

initial margin model as described in § 624.8, or with the variation margin requirements of § 624.4, a

covered swap entity may net non-cleared swaps or non-cleared security-based swaps in accordance

with this subsection.

(2) To the extent that one or more non-cleared swaps or non-cleared security-based swaps are executed

pursuant to an eligible master netting agreement between a covered swap entity and its

counterparty that is a swap entity or financial end user, a covered swap entity may calculate and

comply with the applicable requirements of this part on an aggregate net basis with respect to all

non-cleared swaps and non-cleared security-based swaps governed by such agreement, subject to

paragraph (a)(3) of this section.

(3)

(i) Except as permitted in paragraph (a)(3)(ii) of this section, if an eligible master netting

agreement covers non-cleared swaps and non-cleared security-based swaps entered into on or

after the applicable compliance date set forth in § 624.1(e) or (g), all the non-cleared swaps

and non-cleared security-based swaps covered by that agreement are subject to the

requirements of this part and included in the aggregate netting portfolio for the purposes of

calculating and complying with the margin requirements of this part.

(ii) An eligible master netting agreement may identify one or more separate netting portfolios that

independently meet the requirements in paragraph (1) of the definition of “Eligible master

netting agreement” in § 624.2 and to which collection and posting of margin applies on an

aggregate net basis separate from and exclusive of any other non-cleared swaps or non-cleared

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.4

12 CFR 624.5(a)(3)(ii) (enhanced display) page 15 of 32
§ 624.6 Eligible collateral.

security-based swaps covered by the eligible master netting agreement. Any such netting

portfolio that contains any non-cleared swap or non-cleared security-based swap entered into

on or after the applicable compliance date set forth in § 624.1(e) or (g) is subject to the

requirements of this part. Any such netting portfolio that contains only non-cleared swaps or

non-cleared security-based swaps entered into before the applicable compliance date is not

subject to the requirements of this part.

(4) If a covered swap entity cannot conclude after sufficient legal review with a well-founded basis that

the netting agreement described in this section meets the definition of eligible master netting

agreement set forth in § 624.2, the covered swap entity must treat the non-cleared swaps and noncleared security based swaps covered by the agreement on a gross basis for the purposes of

calculating and complying with the requirements of this part to collect margin, but the covered swap

entity may net those non-cleared swaps and non-cleared security-based swaps in accordance with

paragraphs (a)(1) through (3) of this section for the purposes of calculating and complying with the

requirements of this part to post margin.

(b) Minimum transfer amount. Notwithstanding § 624.3 or § 624.4, a covered swap entity is not required to

collect or post margin pursuant to this part with respect to a particular counterparty unless and until the

combined amount of initial margin and variation margin that is required pursuant to this part to be

collected or posted and that has not yet been collected or posted with respect to the counterparty is

greater than $500,000.

(c) Satisfaction of collecting and posting requirements. A covered swap entity shall not be deemed to have

violated its obligation to collect or post margin from or to a counterparty under § 624.3, § 624.4, or §

624.6(e) if:

(1) The counterparty has refused or otherwise failed to provide or accept the required margin to or from

the covered swap entity; and

(2) The covered swap entity has:

(i) Made the necessary efforts to collect or post the required margin, including the timely initiation

and continued pursuit of formal dispute resolution mechanisms, or has otherwise

demonstrated upon request to the satisfaction of the FCA that it has made appropriate efforts

to collect or post the required margin; or

(ii) Commenced termination of the non-cleared swap or non-cleared security-based swap with the

counterparty promptly following the applicable cure period and notification requirements.

(a) Non-cleared swaps and non-cleared security-based swaps with a swap entity. For a non-cleared swap or

non-cleared security-based swap with a swap entity, a covered swap entity shall collect initial margin and

variation margin required pursuant to this part solely in the form of the following types of collateral:

(1) Immediately available cash funds that are denominated in:

(i) U.S. dollars or another major currency; or

(ii) The currency of settlement for the non-cleared swap or non-cleared security-based swap;

(2) With respect to initial margin only:

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12 CFR 624.6(a)(2) (enhanced display) page 16 of 32
(i) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal

and interest by, the U.S. Department of the Treasury;

(ii) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal

and interest by, a U.S. government agency (other than the U.S. Department of Treasury) whose

obligations are fully guaranteed by the full faith and credit of the United States government;

(iii) A security that is issued by, or fully guaranteed as to the payment of principal and interest by,

the European Central Bank or a sovereign entity that is assigned no higher than a 20 percent

risk weight under the capital rules applicable to the covered swap entity as set forth in §

624.12;

(iv) A publicly traded debt security issued by, or an asset-backed security fully guaranteed as to the

payment of principal and interest by, a U.S. Government-sponsored enterprise that is operating

with capital support or another form of direct financial assistance received from the U.S.

government that enables the repayments of the U.S. Government-sponsored enterprise's

eligible securities;

(v) A publicly traded debt security that meets the terms of investment grade as defined in § 624.2

and is issued by a U.S. Government-sponsored enterprise not operating with capital support or

another form of direct financial assistance from the U.S. government, and is not an assetbacked security;

(vi) A security that is issued by, or fully guaranteed as to the payment of principal and interest by,

the Bank for International Settlements, the International Monetary Fund, or a multilateral

development bank;

(vii) A security solely in the form of:

(A) Publicly traded debt not otherwise described in paragraph (a)(2) of this section that meets

the terms of investment grade as defined in § 624.2 and is not an asset-backed security;

(B) Publicly traded common equity that is included in:

(1) The Standard & Poor's Composite 1500 Index or any other similar index of liquid and

readily marketable equity securities as determined by the FCA; or

(2) An index that a covered swap entity's supervisor in a foreign jurisdiction recognizes

for purposes of including publicly traded common equity as initial margin under

applicable regulatory policy, if held in that foreign jurisdiction;

(viii) Securities in the form of redeemable securities in a pooled investment fund representing the

security-holder's proportional interest in the fund's net assets and that are issued and

redeemed only on the basis of the market value of the fund's net assets prepared each

business day after the security-holder makes its investment commitment or redemption

request to the fund, if:

(A) The fund's investments are limited to the following:

(1) Securities that are issued by, or unconditionally guaranteed as to the timely payment

of principal and interest by, the U.S. Department of the Treasury, and immediatelyavailable cash funds denominated in U.S. dollars; or

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12 CFR 624.6(a)(2)(viii)(A)(1) (enhanced display) page 17 of 32
(2) Securities denominated in a common currency and issued by, or fully guaranteed as

to the payment of principal and interest by, the European Central Bank or a sovereign

entity that is assigned no higher than a 20 percent risk weight under the capital rules

applicable to the covered swap entity as set forth in § 624.12, and immediatelyavailable cash funds denominated in the same currency; and

(B) Assets of the fund may not be transferred through securities lending, securities borrowing,

repurchase agreements, reverse repurchase agreements, or other means that involve the

fund having rights to acquire the same or similar assets from the transferee; or

(ix) Gold.

(b) Non-cleared swaps and non-cleared security-based swaps with a financial end user. For a non-cleared

swap or non-cleared security-based swap with a financial end user, a covered swap entity shall collect and

post initial margin and variation margin required pursuant to this part solely in the form of the following

types of collateral:

(1) Immediately available cash funds that are denominated in:

(i) U.S. dollars or another major currency; or

(ii) The currency of settlement for the non-cleared swap or non-cleared security-based swap;

(2) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and

interest by, the U.S. Department of the Treasury;

(3) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and

interest by, a U.S. government agency (other than the U.S. Department of Treasury) whose

obligations are fully guaranteed by the full faith and credit of the United States government;

(4) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the

European Central Bank or a sovereign entity that is assigned no higher than a 20 percent risk weight

under the capital rules applicable to the covered swap entity as set forth in § 624.12;

(5) A publicly traded debt security issued by, or an asset-backed security fully guaranteed as to the

payment of principal and interest by, a U.S. Government-sponsored enterprise that is operating with

capital support or another form of direct financial assistance received from the U.S. government that

enables the repayments of the U.S. Government-sponsored enterprise's eligible securities;

(6) A publicly traded debt security that meets the terms of investment grade as defined in § 624.2 and is

issued by a U.S. Government-sponsored enterprise not operating with capital support or another

form of direct financial assistance from the U.S. government, and is not an asset-backed security;

(7) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the

Bank for International Settlements, the International Monetary Fund, or a multilateral development

bank;

(8) A security solely in the form of:

(i) Publicly traded debt not otherwise described in this paragraph (b) that meets the terms of

investment grade as defined in § 624.2 and is not an asset-backed security;

(ii) Publicly traded common equity that is included in:

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12 CFR 624.6(b)(8)(ii) (enhanced display) page 18 of 32
(A) The Standard & Poor's Composite 1500 Index or any other similar index of liquid and

readily marketable equity securities as determined by the FCA; or

(B) An index that a covered swap entity's supervisor in a foreign jurisdiction recognizes for

purposes of including publicly traded common equity as initial margin under applicable

regulatory policy, if held in that foreign jurisdiction;

(9) Securities in the form of redeemable securities in a pooled investment fund representing the

security-holder's proportional interest in the fund's net assets and that are issued and redeemed only

on the basis of the market value of the fund's net assets prepared each business day after the

security-holder makes its investment commitment or redemption request to the fund, if:

(i) The fund's investments are limited to the following:

(A) Securities that are issued by, or unconditionally guaranteed as to the timely payment of

principal and interest by, the U.S. Department of the Treasury, and immediately-available

cash funds denominated in U.S. dollars; or

(B) Securities denominated in a common currency and issued by, or fully guaranteed as to the

payment of principal and interest by, the European Central Bank or a sovereign entity that

is assigned no higher than a 20 percent risk weight under the capital rules applicable to

the covered swap entity as set forth in § 624.12, and immediately-available cash funds

denominated in the same currency; and

(ii) Assets of the fund may not be transferred through securities lending, securities borrowing,

repurchase agreements, reverse repurchase agreements, or other means that involve the fund

having rights to acquire the same or similar assets from the transferee; or

(10) Gold.

(c)

(1) The value of any eligible collateral collected or posted to satisfy margin requirements pursuant to

this part is subject to the sum of the following discounts, as applicable:

(i) An 8 percent discount for variation margin collateral denominated in a currency that is not the

currency of settlement for the non-cleared swap or non-cleared security-based swap, except for

immediately available cash funds denominated in U.S. dollars or another major currency;

(ii) An 8 percent discount for initial margin collateral denominated in a currency that is not the

currency of settlement for the non-cleared swap or non-cleared security-based swap, except for

eligible types of collateral denominated in a single termination currency designated as payable

to the non-posting counterparty as part of the eligible master netting agreement; and

(iii) For variation and initial margin non-cash collateral, the discounts described in appendix B of

this part.

(2) The value of variation margin or initial margin collateral is computed as the product of the cash or

market value of the eligible collateral asset times one minus the applicable discounts pursuant to

paragraph (c)(1) of this section expressed in percentage terms. The total value of all variation

margin or initial margin collateral is calculated as the sum of those values for each eligible collateral

asset.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.6(b)(8)(ii)(A)

12 CFR 624.6(c)(2) (enhanced display) page 19 of 32
[80 FR 74898, 74913, Nov. 30, 2015, as amended at 80 FR 74913, Nov. 30, 2015]

§ 624.7 Segregation of collateral.

(d) Notwithstanding paragraphs (a) and (b) of this section, eligible collateral for initial margin and variation

margin required by this part does not include a security issued by:

(1) The party or an affiliate of the party pledging such collateral;

(2) A bank holding company, a savings and loan holding company, a U.S. intermediate holding company

established or designated for purposes of compliance with 12 CFR 252.153, a foreign bank, a

depository institution, a market intermediary, a company that would be any of the foregoing if it were

organized under the laws of the United States or any State, or an affiliate of any of the foregoing

institutions; or

(3) A nonbank financial institution supervised by the Board of Governors of the Federal Reserve System

under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323).

(e) A covered swap entity shall monitor the market value and eligibility of all collateral collected and posted to

satisfy the minimum initial margin and minimum variation margin requirements of this part. To the extent

that the market value of such collateral has declined, the covered swap entity shall promptly collect or

post such additional eligible collateral as is necessary to maintain compliance with the margin

requirements of this part. To the extent that the collateral is no longer eligible, the covered swap entity

shall promptly collect or post sufficient eligible replacement collateral to comply with the margin

requirements of this part.

(f) A covered swap entity may collect or post initial margin and variation margin that is required by § 624.3(d)

or § 624.4(c) or that is not required pursuant to this part in any form of collateral.

(a) A covered swap entity that posts any collateral other than for variation margin with respect to a noncleared swap or a non-cleared security-based swap shall require that all funds or other property other than

variation margin provided by the covered swap entity be held by one or more custodians that are not the

covered swap entity or counterparty and not affiliates of the covered swap entity or the counterparty.

(b) A covered swap entity that collects initial margin required by § 624.3(a) with respect to a non-cleared

swap or a non-cleared security-based swap shall require that such initial margin be held by one or more

custodians that are not the covered swap entity or counterparty and not affiliates of the covered swap

entity or the counterparty.

(c) For purposes of paragraphs (a) and (b) of this section, the custodian must act pursuant to a custody

agreement that:

(1) Prohibits the custodian from rehypothecating, repledging, reusing, or otherwise transferring (through

securities lending, securities borrowing, repurchase agreement, reverse repurchase agreement or

other means) the collateral held by the custodian, except that cash collateral may be held in a

general deposit account with the custodian if the funds in the account are used to purchase an asset

described in § 624.6(a)(2) or (b), such asset is held in compliance with this § 624.7, and such

purchase takes place within a time period reasonably necessary to consummate such purchase

after the cash collateral is posted as initial margin; and

(2) Is a legal, valid, binding, and enforceable agreement under the laws of all relevant jurisdictions,

including in the event of bankruptcy, insolvency, or a similar proceeding.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.6(d)

12 CFR 624.7(c)(2) (enhanced display) page 20 of 32
§ 624.8 Initial margin models and standardized amounts.

(d) Notwithstanding paragraph (c)(1) of this section, a custody agreement may permit the posting party to

substitute or direct any reinvestment of posted collateral held by the custodian, provided that, with

respect to collateral collected by a covered swap entity pursuant to § 624.3(a) or posted by a covered

swap entity pursuant to § 624.3(b), the agreement requires the posting party to:

(1) Substitute only funds or other property that would qualify as eligible collateral under § 624.6, and for

which the amount net of applicable discounts described in appendix B of this part would be

sufficient to meet the requirements of § 624.3; and

(2) Direct reinvestment of funds only in assets that would qualify as eligible collateral under § 624.6, and

for which the amount net of applicable discounts described in appendix B of this part would be

sufficient to meet the requirements of § 624.3.

(a) Standardized amounts. Unless a covered swap entity's initial margin model conforms to the requirements

of this section, the covered swap entity shall calculate the amount of initial margin required to be

collected or posted for one or more non-cleared swaps or non-cleared security-based swaps with a given

counterparty pursuant to § 624.3 on a daily basis pursuant to appendix A of this part.

(b) Use of initial margin models. A covered swap entity may calculate the amount of initial margin required to

be collected or posted for one or more non-cleared swaps or non-cleared security-based swaps with a

given counterparty pursuant to § 624.3 on a daily basis using an initial margin model only if the initial

margin model meets the requirements of this section.

(c) Requirements for initial margin model.

(1) A covered swap entity must obtain the prior written approval of the FCA before using any initial

margin model to calculate the initial margin required in this part.

(2) A covered swap entity must demonstrate that the initial margin model satisfies all of the

requirements of this section on an ongoing basis.

(3) A covered swap entity must notify the FCA in writing 60 days prior to:

(i) Extending the use of an initial margin model that the FCA has approved under this section to an

additional product type;

(ii) Making any change to any initial margin model approved by the FCA under this section that

would result in a material change in the covered swap entity's assessment of initial margin

requirements; or

(iii) Making any material change to modeling assumptions used by the initial margin model.

(4) The FCA may rescind its approval of the use of any initial margin model, in whole or in part, or may

impose additional conditions or requirements if the FCA determines, in its sole discretion, that the

initial margin model no longer complies with this section.

(d) Quantitative requirements.

(1) The covered swap entity's initial margin model must calculate an amount of initial margin that is

equal to the potential future exposure of the non-cleared swap, non-cleared security-based swap or

netting portfolio of non-cleared swaps or non-cleared security-based swaps covered by an eligible

master netting agreement. Potential future exposure is an estimate of the one-tailed 99 percent

confidence interval for an increase in the value of the non-cleared swap, non-cleared security-based

12 CFR Part 624 (up to date as of 3/07/2024)

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12 CFR 624.8(d)(1) (enhanced display) page 21 of 32
swap or netting portfolio of non-cleared swaps or non-cleared security-based swaps due to an

instantaneous price shock that is equivalent to a movement in all material underlying risk factors,

including prices, rates, and spreads, over a holding period equal to the shorter of ten business days

or the maturity of the non-cleared swap, non-cleared security-based swap or netting portfolio.

(2) All data used to calibrate the initial margin model must be based on an equally weighted historical

observation period of at least one year and not more than five years and must incorporate a period

of significant financial stress for each broad asset class that is appropriate to the non-cleared swaps

and non-cleared security-based swaps to which the initial margin model is applied.

(3) The covered swap entity's initial margin model must use risk factors sufficient to measure all

material price risks inherent in the transactions for which initial margin is being calculated. The risk

categories must include, but should not be limited to, foreign exchange or interest rate risk, credit

risk, equity risk, and commodity risk, as appropriate. For material exposures in significant currencies

and markets, modeling techniques must capture spread and basis risk and must incorporate a

sufficient number of segments of the yield curve to capture differences in volatility and imperfect

correlation of rates along the yield curve.

(4) In the case of a non-cleared cross-currency swap, the covered swap entity's initial margin model

need not recognize any risks or risk factors associated with the fixed, physically-settled foreign

exchange transaction associated with the exchange of principal embedded in the non-cleared crosscurrency swap. The initial margin model must recognize all material risks and risk factors associated

with all other payments and cash flows that occur during the life of the non-cleared cross-currency

swap.

(5) The initial margin model may calculate initial margin for a non-cleared swap or non-cleared securitybased swap or a netting portfolio of non-cleared swaps or non-cleared security-based swaps

covered by an eligible master netting agreement. It may reflect offsetting exposures, diversification,

and other hedging benefits for non-cleared swaps and non-cleared security-based swaps that are

governed by the same eligible master netting agreement by incorporating empirical correlations

within the following broad risk categories, provided the covered swap entity validates and

demonstrates the reasonableness of its process for modeling and measuring hedging benefits:

Commodity, credit, equity, and foreign exchange or interest rate. Empirical correlations under an

eligible master netting agreement may be recognized by the initial margin model within each broad

risk category, but not across broad risk categories.

(6) If the initial margin model does not explicitly reflect offsetting exposures, diversification, and hedging

benefits between subsets of non-cleared swaps or non-cleared security-based swaps within a broad

risk category, the covered swap entity must calculate an amount of initial margin separately for each

subset within which such relationships are explicitly recognized by the initial margin model. The sum

of the initial margin amounts calculated for each subset of non-cleared swaps and non-cleared

security-based swaps within a broad risk category will be used to determine the aggregate initial

margin due from the counterparty for the portfolio of non-cleared swaps and non-cleared securitybased swaps within the broad risk category.

(7) The sum of the initial margin amounts calculated for each broad risk category will be used to

determine the aggregate initial margin due from the counterparty.

(8) The initial margin model may not permit the calculation of any initial margin collection amount to be

offset by, or otherwise take into account, any initial margin that may be owed or otherwise payable

by the covered swap entity to the counterparty.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.8(d)(2)

12 CFR 624.8(d)(8) (enhanced display) page 22 of 32
(9) The initial margin model must include all material risks arising from the nonlinear price

characteristics of option positions or positions with embedded optionality and the sensitivity of the

market value of the positions to changes in the volatility of the underlying rates, prices, or other

material risk factors.

(10) The covered swap entity may not omit any risk factor from the calculation of its initial margin that

the covered swap entity uses in its initial margin model unless it has first demonstrated to the

satisfaction of the FCA that such omission is appropriate.

(11) The covered swap entity may not incorporate any proxy or approximation used to capture the risks of

the covered swap entity's non-cleared swaps or non-cleared security-based swaps unless it has first

demonstrated to the satisfaction of the FCA that such proxy or approximation is appropriate.

(12) The covered swap entity must have a rigorous and well-defined process for re-estimating, reevaluating, and updating its internal margin model to ensure continued applicability and relevance.

(13) The covered swap entity must review and, as necessary, revise the data used to calibrate the initial

margin model at least annually, and more frequently as market conditions warrant, to ensure that the

data incorporate a period of significant financial stress appropriate to the non-cleared swaps and

non-cleared security-based swaps to which the initial margin model is applied.

(14) The level of sophistication of the initial margin model must be commensurate with the complexity of

the non-cleared swaps and non-cleared security-based swaps to which it is applied. In calculating an

initial margin collection amount, the initial margin model may make use of any of the generally

accepted approaches for modeling the risk of a single instrument or portfolio of instruments.

(15) The FCA may in its sole discretion require a covered swap entity using an initial margin model to

collect a greater amount of initial margin than that determined by the covered swap entity's initial

margin model if the FCA determines that the additional collateral is appropriate due to the nature,

structure, or characteristics of the covered swap entity's transaction(s), or is commensurate with the

risks associated with the transaction(s).

(e) Periodic review. A covered swap entity must periodically, but no less frequently than annually, review its

initial margin model in light of developments in financial markets and modeling technologies, and

enhance the initial margin model as appropriate to ensure that the initial margin model continues to meet

the requirements for approval in this section.

(f) Control, oversight, and validation mechanisms.

(1) The covered swap entity must maintain a risk control unit that reports directly to senior management

and is independent from the business trading units.

(2) The covered swap entity's risk control unit must validate its initial margin model prior to

implementation and on an ongoing basis. The covered swap entity's validation process must be

independent of the development, implementation, and operation of the initial margin model, or the

validation process must be subject to an independent review of its adequacy and effectiveness. The

validation process must include:

(i) An evaluation of the conceptual soundness of (including developmental evidence supporting)

the initial margin model;

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.8(d)(9)

12 CFR 624.8(f)(2)(i) (enhanced display) page 23 of 32
§ 624.9 Cross-border application of margin requirements.

(ii) An ongoing monitoring process that includes verification of processes and benchmarking by

comparing the covered swap entity's initial margin model outputs (estimation of initial margin)

with relevant alternative internal and external data sources or estimation techniques. The

benchmark(s) must address the chosen model's limitations. When applicable, the covered

swap entity should consider benchmarks that allow for non-normal distributions such as

historical and Monte Carlo simulations. When applicable, validation shall include benchmarking

against observable margin standards to ensure that the initial margin required is not less than

what a derivatives clearing organization or a clearing agency would require for similar cleared

transactions; and

(iii) An outcomes analysis process that includes backtesting the initial margin model. This analysis

must recognize and compensate for the challenges inherent in back-testing over periods that

do not contain significant financial stress.

(3) If the validation process reveals any material problems with the initial margin model, the covered

swap entity must promptly notify the FCA of the problems, describe to the FCA any remedial actions

being taken, and adjust the initial margin model to ensure an appropriately conservative amount of

required initial margin is being calculated.

(4) The covered swap entity must have an internal audit function independent of business-line

management and the risk control unit that at least annually assesses the effectiveness of the

controls supporting the covered swap entity's initial margin model measurement systems, including

the activities of the business trading units and risk control unit, compliance with policies and

procedures, and calculation of the covered swap entity's initial margin requirements under this part.

At least annually, the internal audit function must report its findings to the covered swap entity's

board of directors or a committee thereof.

(g) Documentation. The covered swap entity must adequately document all material aspects of its initial

margin model, including the management and valuation of the non-cleared swaps and non-cleared

security-based swaps to which it applies, the control, oversight, and validation of the initial margin model,

any review processes and the results of such processes.

(h) Escalation procedures. The covered swap entity must adequately document internal authorization

procedures, including escalation procedures, that require review and approval of any change to the initial

margin calculation under the initial margin model, demonstrable analysis that any basis for any such

change is consistent with the requirements of this section, and independent review of such demonstrable

analysis and approval.

(a) Transactions to which this rule does not apply. The requirements of §§ 624.3 through 624.8 and §§ 624.10

through 624.12 shall not apply to any foreign non-cleared swap or foreign non-cleared security-based

swap of a foreign covered swap entity.

(b) For purposes of this section, a foreign non-cleared swap or foreign non-cleared security-based swap is any

non-cleared swap or non-cleared security-based swap with respect to which neither the counterparty to

the foreign covered swap entity nor any party that provides a guarantee of either party's obligations under

the non-cleared swap or non-cleared security-based swap is:

(1) An entity organized under the laws of the United States or any State (including a U.S. branch, agency,

or subsidiary of a foreign bank) or a natural person who is a resident of the United States;

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12 CFR 624.9(b)(1) (enhanced display) page 24 of 32
(2) A branch or office of an entity organized under the laws of the United States or any State; or

(3) A swap entity that is a subsidiary of an entity that is organized under the laws of the United States or

any State.

(c) For purposes of this section, a foreign covered swap entity is any covered swap entity that is not:

(1) An entity organized under the laws of the United States or any State, including a U.S. branch, agency,

or subsidiary of a foreign bank;

(2) A branch or office of an entity organized under the laws of the United States or any State; or

(3) An entity that is a subsidiary of an entity that is organized under the laws of the United States or any

State.

(d) Transactions for which substituted compliance determination may apply —

(1) Determinations and reliance. For non-cleared swaps and non-cleared security-based swaps entered

into by covered swap entities described in paragraph (d)(3) of this section, a covered swap entity

may satisfy the provisions of this part by complying with the foreign regulatory framework for noncleared swaps and non-cleared security-based swaps that the prudential regulators jointly,

conditionally or unconditionally, determine by public order satisfy the corresponding requirements of

§§ 624.3 through 624.8 and §§ 624.10 through 624.12.

(2) Standard. In determining whether to make a determination under paragraph (d)(1) of this section, the

prudential regulators will consider whether the requirements of such foreign regulatory framework

for non-cleared swaps and non-cleared security-based swaps applicable to such covered swap

entities are comparable to the otherwise applicable requirements of this part and appropriate for the

safe and sound operation of the covered swap entity, taking into account the risks associated with

non-cleared swaps and non-cleared security-based swaps.

(3) Covered swap entities eligible for substituted compliance. A covered swap entity may rely on a

determination under paragraph (d)(1) of this section only if:

(i) The covered swap entity's obligations under the non-cleared swap or non-cleared securitybased swap do not have a guarantee from:

(A) An entity organized under the laws of the United States or any State (other than a U.S.

branch or agency of a foreign bank) or a natural person who is a resident of the United

States; or

(B) A branch or office of an entity organized under the laws of the United States or any State;

and

(ii) The covered swap entity is:

(A) A foreign covered swap entity;

(B) A U.S. branch or agency of a foreign bank; or

(C) An entity that is not organized under the laws of the United States or any State and is a

subsidiary of a depository institution, Edge corporation, or agreement corporation.

(4) Compliance with foreign margin collection requirement. A covered swap entity satisfies its

requirement to post initial margin under § 624.3(b) by posting to its counterparty initial margin in the

form and amount, and at such times, that its counterparty is required to collect pursuant to a foreign

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.9(b)(2)

12 CFR 624.9(d)(4) (enhanced display) page 25 of 32
regulatory framework, provided that the counterparty is subject to the foreign regulatory framework

and the prudential regulators have made a determination under paragraph (d)(1) of this section,

unless otherwise stated in that determination, and the counterparty's obligations under the noncleared swap or non-cleared security-based swap do not have a guarantee from:

(i) An entity organized under the laws of the United States or any State (including a U.S. branch,

agency, or subsidiary of a foreign bank) or a natural person who is a resident of the United

States; or

(ii) A branch or office of an entity organized under the laws of the United States or any State.

(e) Requests for determinations.

(1) A covered swap entity described in paragraph (d)(3) of this section may request that the prudential

regulators make a determination pursuant to this section. A request for a determination must

include a description of:

(i) The scope and objectives of the foreign regulatory framework for non-cleared swaps and noncleared security-based swaps;

(ii) The specific provisions of the foreign regulatory framework for non-cleared swaps and noncleared security-based swaps that govern:

(A) The scope of transactions covered;

(B) The determination of the amount of initial margin and variation margin required and how

that amount is calculated;

(C) The timing of margin requirements;

(D) Any documentation requirements;

(E) The forms of eligible collateral;

(F) Any segregation and rehypothecation requirements; and

(G) The approval process and standards for models used in calculating initial margin and

variation margin;

(iii) The supervisory compliance program and enforcement authority exercised by a foreign

financial regulatory authority or authorities in such system to support its oversight of the

application of the non-cleared swap or non-cleared security-based swap regulatory framework

and how that framework applies to the non-cleared swaps or non-cleared security-based swaps

of the covered swap entity; and

(iv) Any other descriptions and documentation that the prudential regulators determine are

appropriate.

(2) A covered swap entity described in paragraph (d)(3) of this section may make a request under this

section only if the non-cleared swap or non-cleared security-based swap activities of the covered

swap entity are directly supervised by the authorities administering the foreign regulatory framework

for non-cleared swaps and non-cleared security-based swaps.

(f) Segregation unavailable. Sections 624.3(b) and 624.7 do not apply to a non-cleared swap or non-cleared

security-based swap entered into by:

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.9(d)(4)(i)

12 CFR 624.9(f) (enhanced display) page 26 of 32
(1) A foreign branch of a covered swap entity that is a depository institution; or

(2) A covered swap entity that is not organized under the laws of the United States or any State and is a

subsidiary of a depository institution, Edge corporation, or agreement corporation, if:

(i) Inherent limitations in the legal or operational infrastructure in the foreign jurisdiction make it

impracticable for the covered swap entity and the counterparty to post any form of eligible

initial margin collateral recognized pursuant to § 624.6(b) in compliance with the segregation

requirements of § 624.7;

(ii) The covered swap entity is subject to foreign regulatory restrictions that require the covered

swap entity to transact in the non-cleared swap or non-cleared security-based swap with the

counterparty through an establishment within the foreign jurisdiction and do not accommodate

the posting of collateral for the non-cleared swap or non-cleared security-based swap outside

the jurisdiction;

(iii) The counterparty to the non-cleared swap or non-cleared security-based swap is not, and the

counterparty's obligations under the non-cleared swap or non-cleared security-based swap do

not have a guarantee from:

(A) An entity organized under the laws of the United States or any State (including a U.S.

branch, agency, or subsidiary of a foreign bank) or a natural person who is a resident of

the United States; or

(B) A branch or office of an entity organized under the laws of the United States or any State;

(iv) The covered swap entity collects initial margin for the non-cleared swap or non-cleared securitybased swap in accordance with § 624.3(a) in the form of cash pursuant to § 624.6(b)(1), and

posts and collects variation margin in accordance with § 624.4(a) in the form of cash pursuant

to § 624.6(b)(1); and

(v) The FCA provides the covered swap entity with prior written approval for the covered swap

entity's reliance on this paragraph (f) for the foreign jurisdiction.

(g) Guarantee means an arrangement pursuant to which one party to a non-cleared swap or non-cleared

security-based swap has rights of recourse against a third-party guarantor, with respect to its

counterparty's obligations under the non-cleared swap or non-cleared security-based swap. For these

purposes, a party to a non-cleared swap or non-cleared security-based swap has rights of recourse

against a guarantor if the party has a conditional or unconditional legally enforceable right to receive or

otherwise collect, in whole or in part, payments from the guarantor with respect to its counterparty's

obligations under the non-cleared swap or non-cleared security-based swap. In addition, any arrangement

pursuant to which the guarantor has a conditional or unconditional legally enforceable right to receive or

otherwise collect, in whole or in part, payments from any other third party guarantor with respect to the

counterparty's obligations under the non-cleared swap or non-cleared security-based swap, such

arrangement will be deemed a guarantee of the counterparty's obligations under the non-cleared swap or

non-cleared security-based swap by the other guarantor.

(h)

(1) A covered swap entity described in paragraphs (d)(3)(i) and (ii) of this section is not subject to the

requirements of § 624.3(a) or § 624.11(a) for any non-cleared swap or non-cleared security-based

swap executed with an affiliate of the covered swap entity; and

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.9(f)(1)

12 CFR 624.9(h)(1) (enhanced display) page 27 of 32
[80 FR 74898, 74913, Nov. 30, 2015, as amended at 85 FR 39777, July 1, 2020]

§ 624.10 Documentation of margin matters.

A covered swap entity shall execute trading documentation with each counterparty that is either a swap entity or

financial end user regarding credit support arrangements that:

[80 FR 74898, 74913, Nov. 30, 2015, as amended at 85 FR 39777, July 1, 2020]

§ 624.11 Special rules for affiliates.

(2) For purposes of paragraph (h)(1) of this section, “affiliate” has the same meaning provided in §

624.11(d).

(a) Provides the covered swap entity and its counterparty with the contractual right to collect and post initial

margin and variation margin in such amounts, in such form, and under such circumstances as are

required by this subpart, and at such time as initial margin or variation margin is required to be collected

or posted under § 624.3 or § 624.4, as applicable; and

(b) Specifies:

(1) The methods, procedures, rules, and inputs for determining the value of each non-cleared swap or

non-cleared security-based swap for purposes of calculating variation margin requirements; and

(2) The procedures by which any disputes concerning the valuation of non-cleared swaps or non-cleared

security-based swaps, or the valuation of assets collected or posted as initial margin or variation

margin, may be resolved; and

(c) Describes the methods, procedures, rules, and inputs used to calculate initial margin for non-cleared

swaps and non-cleared security based swaps entered into between the covered swap entity and the

counterparty.

(a)

(1) A covered swap entity shall calculate on each business day an initial margin collection amount for

each counterparty that is a swap entity or financial end user with a material swaps exposure and an

affiliate of the covered swap entity.

(2) If the aggregate of all initial margin collection amounts calculated under paragraph (a)(1) of this

section does not exceed 15 percent of the covered swap entity's tier 1 capital, the requirements for a

covered swap entity to collect initial margin under § 624.3(a) do not apply with respect to any noncleared swap or non-cleared security-based swap with a counterparty that is an affiliate.

(3) On each business day that the aggregate of all initial margin collection amounts calculated under

paragraph (a)(1) of this section exceeds 15 percent of the covered swap entity's tier 1 capital:

(i) The covered swap entity shall collect initial margin under § 624.3(a) for each additional noncleared swap and non-cleared security-based swap executed that business day with a

counterparty that is a swap entity or financial end user with a material swaps exposure and an

affiliate of the covered swap entity, commencing on the day after execution and continuing on a

daily basis as required under § 624.3(c), until the earlier of;

(A) The termination date of such non-cleared swap or non-cleared security-based swap, or

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.9(h)(2)

12 CFR 624.11(a)(3)(i)(A) (enhanced display) page 28 of 32
(B) The business day on which the aggregate of all initial margin collection amounts

calculated under paragraph (a)(1) of this section falls below 15 percent of the covered

swap entity's tier 1 capital;

(ii) Notwithstanding § 624.7(b), to the extent the covered swap entity collects initial margin

pursuant to paragraph (a)(3)(i) of this section in the form of collateral other than cash

collateral, the custodian for such collateral may be the covered swap entity or an affiliate of the

covered swap entity; and

(4) For purposes of this paragraph (a), “tier 1 capital” means:

(i) For Farm Credit System banks and associations, the sum of common equity tier 1 capital as

defined in 12 CFR 628.20(b) and additional tier 1 capital as defined in 12 CFR 628.20(c), and as

reported in the institution's most recent Uniform Reports of Financial Condition and

Performance (Call Report); or

(ii) For the Federal Agricultural Mortgage Corporation, as defined and required in in 12 CFR 652.61,

and as reported in the institution's most recent Call Report.

(5) If any subsidiary of the covered swap entity (including a subsidiary described in § 624.9(h)) executes

any non-cleared swap or non-cleared security-based swap with any counterparty that is a swap

entity or financial end user with a material swaps exposure and an affiliate of the covered swap

entity:

(i) The covered swap entity shall treat such non-cleared swap or security-based swap as its own

for purposes of this paragraph (a); and

(ii) If the subsidiary is itself a covered swap entity, the compliance by its parent covered swap

entity with this paragraph (a)(5) shall be deemed to establish the subsidiary's compliance with

the requirements of § 624.11(a) and to exempt the subsidiary from the requirements for a

covered swap entity to collect initial margin under § 624.3(a) from an affiliate.

(b) The requirement for a covered swap entity to post initial margin under § 624.3(b) does not apply with

respect to any non-cleared swap or non-cleared security-based swap with a counterparty that is an

affiliate.

(c) Section 624.3(d) shall apply to a counterparty that is an affiliate in the same manner as it applies to any

counterparty that is neither a financial end user without a material swap exposure nor a swap entity.

(d) For purposes of this section:

(1) An affiliate means:

(i) An affiliate as defined in § 624.2; or

(ii) Any company that controls, is controlled by, or is under common control with the covered swap

entity through the direct or indirect exercise of controlling influence over the management or

policies of the controlled company.

(2) A subsidiary means:

(i) A subsidiary as defined in § 624.2; or

(ii) Any company that is controlled by the covered swap entity through the direct or indirect

exercise of controlling influence over the management or policies of the controlled company.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.11(a)(3)(i)(B)

12 CFR 624.11(d)(2)(ii) (enhanced display) page 29 of 32
[85 FR 39777, July 1, 2020]

§ 624.12 Capital.

A covered swap entity shall comply with:

[80 FR 74913, Nov. 30, 2015, as amended at 81 FR 49779, July 28, 2016]

Appendix A to Part 624—Standardized Minimum Initial Margin Requirements for Non-Cleared

Swaps and Non—Cleared Security-Based Swaps

Table A—Standardized Minimum Gross Initial Margin Requirements for Noncleared Swaps and Non-cleared Security-Based Swaps1

Asset Class Gross initial margin

(% of notional exposure)

Credit: 0–2 year duration 2

Credit: 2–5 year duration 5

Credit: 5+ year duration 10

Commodity 15

Equity 15

Foreign Exchange/Currency 6

Cross Currency Swaps: 0–2 year duration 1

Cross-Currency Swaps: 2–5 year duration 2

Cross-Currency Swaps: 5+ year duration 4

Interest Rate: 0–2 year duration 1

Interest Rate: 2–5 year duration 2

Interest Rate: 5+ year duration 4

Other 15

1 The initial margin amount applicable to multiple non-cleared swaps or non-cleared security-based

swaps subject to an eligible master netting agreement that is calculated according to Appendix A

will be computed as follows:

Initial Margin=0.4xGross Initial Margin +0.6x NGRxGross Initial Margin

where;

(a) In the case of the Federal Agricultural Mortgage Corporation, the capital adequacy regulations set forth in

part 652 of this chapter; and

(b) In the case of any Farm Credit System institution other than the Federal Agricultural Mortgage

Corporation, the capital regulations set forth in parts 615 and 628 of this chapter.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.12

12 CFR 624.12(b) (enhanced display) page 30 of 32
Gross Initial Margin = the sum of the product of each non-cleared swap's or non-cleared securitybased swap's effective notional amount and the gross initial margin requirement for all non-cleared

swaps and non-cleared security-based swaps subject to the eligible master netting agreement;

and

NGR = the net-to-gross ratio (that is, the ratio of the net current replacement cost to the gross

current replacement cost). In calculating NGR, the gross current replacement cost equals the sum

of the replacement cost for each non-cleared swap and non-cleared security-based swap subject to

the eligible master netting agreement for which the cost is positive. The net current replacement

cost equals the total replacement cost for all non-cleared swaps and non-cleared security-based

swaps subject to the eligible master netting agreement. In cases where the gross replacement cost

is zero, the NGR should be set to 1.0.

Appendix B to Part 624—Margin Values for Eligible Noncash Margin Collateral

Table B—Margin Values for Eligible Noncash Margin Collateral

Asset class Discount

(%)

Eligible government and related (e.g., central bank, multilateral development bank, GSE

securities identified in § 624.6(a)(2)(iv) or (b)(5) debt: residual maturity less than one-year

0.5

Eligible government and related (e.g., central bank, multilateral development bank, GSE

securities identified in § 624.6(a)(2)(iv) or (b)(5) debt: residual maturity between one and five

years

2.0

Eligible government and related (e.g., central bank, multilateral development bank, GSE

securities identified in § 624.6(a)(2)(iv) or (b)(5) debt: residual maturity greater than five years

4.0

Eligible GSE debt securities not identified in § 624.6(a)(2)(iv) or (b)(5): residual maturity less

than one-year

1.0

Eligible GSE debt securities not identified in § 624.6(a)(2)(iv) or (b)(5): residual maturity

between one and five years:

4.0

Eligible GSE debt securities not identified in § 624.6(a)(2)(iv) or (b)(5): residual maturity greater

than five years:

8.0

Other eligible publicly traded debt: residual maturity less than one-year 1.0

Other eligible publicly traded debt: residual maturity between one and five years 4.0

Other eligible publicly traded debt: residual maturity greater than five years 8.0

Equities included in S&P 500 or related index 15.0

Equities included in S&P 1500 Composite or related index but not S&P 500 or related index 25.0

Gold 15.0

1 The discount to be applied to an eligible investment fund is the weighted average discount on all

assets within the eligible investment fund at the end of the prior month. The weights to be applied

in the weighted average should be calculated as a fraction of the fund's total market value that is

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.12(b)

12 CFR 624.12(b) (enhanced display) page 31 of 32
invested in each asset with a given discount amount. As an example, an eligible investment fund

that is comprised solely of $100 of 91 day Treasury bills and $100 of 3 year US Treasury bonds

would receive a discount of (100/200)*0.5+(100/200)*2.0=(0.5)*0.5+(0.5)*2.0=1.25 percent.

12 CFR Part 624 (up to date as of 3/07/2024)

Margin and Capital Requirements for Covered Swap Entities 12 CFR 624.12(b)

12 CFR 624.12(b) (enhanced display) page 32 of 32
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 625 Application for Award of Fees and Other Expenses Under the Equal

Access to Justice Act

Subpart A General Provisions

§ 625.1 Purpose.

§ 625.2 Proceedings covered.

§ 625.3 Eligibility of applicants.

§ 625.4 Standards for awards.

§ 625.5 Allowable fees and expenses.

§ 625.6 Rulemaking on maximum rates for attorney fees.

§ 625.7 Awards against other agencies.

Subpart B Applicant Information Required

§ 625.10 Contents of application.

§ 625.11 Net worth exhibit.

§ 625.12 Documentation of fees and expenses.

§ 625.13 When an application may be filed.

Subpart C Procedures for Considering Applications

§ 625.20 Settlement.

§ 625.21 Filing and service of documents.

§ 625.22 Answer to application.

§ 625.23 Reply.

§ 625.24 Comments by other parties.

§ 625.25 Further proceedings.

§ 625.26 Recommended decision.

§ 625.27 Board decision.

§ 625.28 Judicial review.

§ 625.29 Payment of award.

PART 625—APPLICATION FOR AWARD OF FEES AND OTHER

EXPENSES UNDER THE EQUAL ACCESS TO JUSTICE ACT

Authority: 5 U.S.C. 504, 12 U.S.C. 2252.

Source: 57 FR 60109, Dec. 18, 1992, unless otherwise noted.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 625 (up to date as of 3/07/2024)

Application for Award of Fees and Other Expenses Under the Equal Access...

12 CFR Part 625 (Mar. 7, 2024)

12 CFR 625 (enhanced display) page 1 of 8
Subpart A—General Provisions

§ 625.1 Purpose.

These rules implement the Equal Access to Justice Act, 5 U.S.C. 504 (EAJA). The EAJA provides for the award of

attorney fees and other expenses to eligible individuals and entities who are parties to certain administrative

proceedings (designated by the EAJA as “adversary adjudications”) before Federal agencies. An eligible party may

receive an award when it prevails over an agency, unless the agency's position was substantially justified or special

circumstances make an award unjust. The rules in this part explain how the EAJA applies to Farm Credit

Administration (FCA) proceedings. The rules describe the parties eligible for awards, how such parties may apply

for awards, and the procedures and standards that govern FCA consideration of applications.

§ 625.2 Proceedings covered.

§ 625.3 Eligibility of applicants.

(a) The EAJA applies to adversary adjudications conducted by the FCA either on its own behalf or in

connection with any other agency of the United States that participates in or in any way is a part of the

adversary adjudication. Adversary adjudications are:

(1) Adjudications under 5 U.S.C. 554 in which the position of the FCA or other agency is presented by an

attorney or other representative who enters an appearance and participates in the proceeding; and

(2) Enforcement proceedings under 12 U.S.C. 2261–2273.

(b) The failure of the FCA to identify a type of proceeding as an adversary adjudication shall not preclude the

filing of an application by a party who believes that the proceeding is covered by the EAJA; whether the

proceeding is covered shall then be an issue for resolution in proceedings on the application.

(c) If a proceeding includes both matters covered and excluded from coverage by the EAJA, any award made

will include only fees and expenses related to covered issues.

(d) Proceedings under this part may be conducted by the FCA Board (Board) or by the presiding officer

(referred to as the “adjudicative officer” in the EAJA), as defined in § 622.2(f) of this chapter. If the Board

conducts proceedings, reference to the “presiding officer” in this part shall mean the Board, in applicable

context. Where the Board presides, the recommended decision under § 625.26 of this part will be omitted

and the Board will make a final decision on the application in accordance with § 625.27 of this part.

(e) If a court reviews the underlying decision of the adversary adjudication, an award for fees and other

expenses may be made only pursuant to 28 U.S.C. 2412(d)(3).

(a) To be eligible for an award under the EAJA, an applicant must be a prevailing party named or admitted to

the adversary adjudication for which an award is sought. The applicant must show that it meets all

conditions of eligibility set out in this subpart and in subpart B of this part.

(b) The types of eligible applicants are as follows:

(1) An individual with a net worth of $2 million or less;

(2) The sole owner of an unincorporated business who has both a net worth of $7 million or less

(including personal and business interests), and 500 or fewer employees;

(3) A charitable or other tax-exempt organization described in section 501(c)(3) of the Internal Revenue

Code (26 U.S.C. 501(c)(3)) with 500 or fewer employees;

12 CFR Part 625 (up to date as of 3/07/2024)

Application for Award of Fees and Other Expenses Under the Equal Access...

12 CFR 625.1

12 CFR 625.3(b)(3) (enhanced display) page 2 of 8
§ 625.4 Standards for awards.

(4) A cooperative association as defined in section 15(a) of the Agricultural Marketing Act (12 U.S.C.

1141j(a)) with 500 or fewer employees; and

(5) Any other partnership, corporation, association, unit of local government, or organization with a net

worth of $7 million or less and 500 or fewer employees.

(c) For eligibility purposes, the net worth and number of employees of an applicant shall be determined as of

the date the adversary adjudication was initiated.

(d) An applicant who owns an unincorporated business will be considered as an “individual” rather than a

“sole owner of an unincorporated business” if the issues on which the applicant prevails are related

primarily to personal interests rather than to business interests.

(e) The employees of an applicant include all persons who regularly perform services for remuneration for

that applicant, under the applicant's direction and control. Part-time employees shall be included on a

proportional basis.

(f) The net worth and number of employees of the applicant and all of its affiliates shall be aggregated to

determine eligibility unless the presiding officer determines that aggregation would be unjust and contrary

to the purposes of the EAJA in light of the actual relationship between the affiliated entities.

(1) For purposes of this part, an affiliate is:

(i) Any individual, corporation, or other entity that directly or indirectly controls or owns a majority

of the voting shares or other interests of the applicant; or

(ii) Any corporation or other entity of which the applicant directly or indirectly owns or controls a

majority of the voting shares or other interests.

(2) The presiding officer may determine that financial relationships of the applicant other than those

described in paragraph (f)(1) of this section constitute special circumstances that would make an

award unjust.

(g) An applicant that participates in an adversary adjudication primarily on behalf of one or more other

persons or entities that would be ineligible is not itself eligible for an award.

(a) If an eligible applicant prevails over the FCA in an adversary adjudication, or in a significant and discrete

substantive portion thereof, the applicant may receive an award for fees and expenses incurred in the

adjudication, or portion thereof, unless the position of the FCA over which the applicant prevailed was

substantially justified.

(b) The position of the FCA includes:

(1) The position taken by the FCA in the adversary adjudication; and

(2) The action or inaction of the FCA upon which the adversary adjudication is based.

(c) Except as provided in paragraph (d) of this section, the FCA must prove that its position was substantially

justified before an award may be denied to an otherwise eligible applicant.

(d) An award will be reduced or denied if the applicant has unduly or unreasonably protracted the adversary

adjudication or if special circumstances make the award sought unjust.

12 CFR Part 625 (up to date as of 3/07/2024)

Application for Award of Fees and Other Expenses Under the Equal Access...

12 CFR 625.3(b)(4)

12 CFR 625.4(d) (enhanced display) page 3 of 8
§ 625.5 Allowable fees and expenses.

§ 625.6 Rulemaking on maximum rates for attorney fees.

§ 625.7 Awards against other agencies.

If an applicant is entitled to an award because it prevails over another agency of the United States that participates

in or in any way is a part of an adversary adjudication before the FCA and that agency's position is not substantially

justified, the award or an appropriate portion of the award shall be made against that agency.

Subpart B—Applicant Information Required

(a) Awards will be based on rates customarily charged by persons engaged in the business of acting as

attorneys, agents, and expert witnesses, even if the services were made available without charge or at a

reduced rate to the applicant.

(b) No award for the fee of an attorney or agent under these rules may exceed $75 per hour. No award to

compensate an expert witness may exceed the highest rate at which the FCA pays expert witnesses.

However, an award also may include the reasonable expenses of the attorney, agent, or expert witness as

a separate item, if the attorney, agent, or expert witness ordinarily charges clients separately for such

expenses.

(c) In determining the reasonableness of the fee sought for an attorney, agent, or expert witness, the

presiding officer shall consider the following:

(1) If the attorney, agent, or expert witness is in private practice, his or her customary fees for similar

services, or, if an employee of the applicant, the fully allocated costs of the services;

(2) The prevailing rate for similar services in the community in which the attorney, agent, or expert

witness ordinarily performs services;

(3) The time actually spent in the representation of the applicant;

(4) The time reasonably spent in light of the difficulty or complexity of the issues in the adversary

adjudication; and

(5) Such other factors as may bear on the value of the services provided.

(d) The reasonable cost of any study, analysis, audit, engineering report, test, project, or similar matter

prepared on behalf of a party may be awarded, to the extent that the charge for the service does not

exceed the prevailing rate for similar services, and the study or other matter was necessary for the

preparation of the applicant's case.

(a) If warranted by an increase in the cost of living or by special circumstances (such as limited availability of

attorneys qualified to handle certain types of proceedings), the FCA may adopt regulations providing that

attorney fees may be awarded at a rate higher than $75 per hour in some or all of the types of

proceedings covered by this part. The FCA will conduct any rulemaking proceedings for this purpose

under the informal rulemaking procedures of the Administrative Procedure Act.

(b) Any person may file with the FCA a petition for rulemaking to increase the maximum rate for attorney fees.

The petition should identify the rate the petitioner believes the FCA should establish and the types of

proceedings in which the rate should be used. It should also explain fully the reasons why the higher rate

is warranted. The FCA will respond to the petition within 90 days after it is filed, by initiating a rulemaking

proceeding, denying the petition, or taking other appropriate action.

12 CFR Part 625 (up to date as of 3/07/2024)

Application for Award of Fees and Other Expenses Under the Equal Access...

12 CFR 625.5

12 CFR 625.7 (enhanced display) page 4 of 8
§ 625.10 Contents of application.

§ 625.11 Net worth exhibit.

(a) An application for an award of fees and other expenses under the EAJA shall identify the applicant and

the adversary adjudication for which an award is sought. The application shall show that the applicant

has prevailed in the adversary adjudication. If the application is made on the basis of significant and

discrete substantive issues on which the applicant prevailed, the issues must be specifically identified.

The application also shall identify each position of the FCA or other agencies that the applicant alleges

was not substantially justified. Unless the applicant is an individual, the application shall describe briefly

the type and purpose of its organization or business and state the number of persons employed.

(b) The application shall include a statement that the applicant's net worth does not exceed $2 million (if an

individual) or $7 million (for all other applicants, including their affiliates). However, an applicant may omit

this statement if:

(1) It states that it has 500 employees or fewer and attaches a copy of a ruling by the Internal Revenue

Service that it qualifies as an organization described in section 501(c)(3) of the Internal Revenue

Code (26 U.S.C. 501(c)(3)) or, in the case of a tax-exempt organization not required to obtain a ruling

from the Internal Revenue Service on its exempt status, a statement that describes the basis for the

applicant's belief that it qualifies under such section; or

(2) It states that it is a cooperative association as defined in section 15(a) of the Agricultural Marketing

Act (12 U.S.C. 1141j(a)) with 500 or fewer employees.

(c) The application shall state the total amount of fees and other expenses for which an award is sought.

(d) The application may include any other relevant matters that the applicant wishes the FCA to consider in

determining whether and in what amount an award should be made.

(e) The application shall be signed by the applicant or an authorized officer or attorney of the applicant. The

application must contain a written verification under oath or under penalty of perjury that the information

provided in the application and any supporting documents is accurate.

(a) Each applicant, except a qualified tax-exempt organization or cooperative association, must provide with

its application a detailed exhibit showing the net worth of the applicant and any affiliates (as defined in §

625.3(f)(1) of this part) as of the date when the adversary adjudication was initiated. The exhibit may be

in any convenient form that provides full disclosure of the assets and liabilities of the applicant and its

affiliates and is otherwise sufficient to demonstrate that the applicant qualifies under the standards in this

part. The presiding officer may require an applicant to file additional information supporting its eligibility

for an award.

(b) An applicant that objects to public disclosure of information in any portion of the net worth exhibit and

believes there are legal grounds for withholding it from disclosure may submit that portion of the exhibit

directly to the presiding officer in a sealed envelope labeled “Confidential Financial Information,”

accompanied by a motion under § 622.11 of this chapter to withhold the information from public

disclosure. The motion shall describe the information sought to be withheld and explain, in detail, why it

falls within one or more of the specific exemptions from mandatory disclosure under the Freedom of

Information Act, 5 U.S.C. 552(b) (1)–(9), why public disclosure of the information would adversely affect

the applicant, and why disclosure is not required in the public interest. The material in question shall be

served on counsel representing the FCA, but need not be served on any other party to the application

proceeding. If the presiding officer, or the FCA Board pursuant to § 622.11(e) of this chapter, finds that the

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12 CFR 625.11(b) (enhanced display) page 5 of 8
§ 625.12 Documentation of fees and expenses.

The application shall be accompanied by full documentation of the fees and expenses, including the cost of any

study, analysis, audit, engineering report, test, project, or similar matter, for which an award is sought. A separate

itemized statement shall be submitted for each professional firm or individual whose services are covered by the

application, showing the hours spent in connection with the proceeding by each individual, a description of the

specific services performed, the rates at which each fee has been computed, any expenses for which

reimbursement is sought, and the total amount paid or payable by the applicant or by any other person or entity for

the services provided. Under § 625.25 of this part, the presiding officer may require the applicant to provide

vouchers, receipts, logs, or other substantiation for any fees or expenses claimed.

§ 625.13 When an application may be filed.

Subpart C—Procedures for Considering Applications

§ 625.20 Settlement.

A prevailing party and the FCA through its counsel may agree on a proposed settlement of an award at any time,

either in connection with a settlement of the underlying adversary adjudication or after the underlying adversary

adjudication has been concluded. If a prevailing party and the FCA counsel agree on a proposed settlement of an

award, the proposed settlement must be submitted to the presiding officer for a recommended decision pursuant to

§ 625.26 of this part. If it has not been previously filed, the application must be submitted to the presiding officer

along with the proposed settlement.

§ 625.21 Filing and service of documents.

Any application for an award or other pleading or document related to an application shall be filed and served on all

parties to the adversary adjudication in the same manner as other pleadings in the adversary adjudication (see §§

622.18 and 622.19 of this chapter), except as provided in § 625.11(b) of this part for confidential financial

information.

information should not be withheld from disclosure, it shall be placed in the public record of the

application proceeding. Otherwise, any request to inspect or copy the exhibit shall be treated in

accordance with the FCA's procedures regarding release of information (12 CFR part 602).

(a) An application may be filed whenever the applicant has prevailed in the adversary adjudication, or in a

significant and discrete substantive portion thereof, but in no case later than 30 days after the FCA's final

disposition of the adversary adjudication.

(b) For purposes of this rule, final disposition means the date on which a decision or order disposing of the

merits of the adversary adjudication is issued or any other complete resolution of the adversary

adjudication, such as a settlement or voluntary dismissal, becomes final and is unreviewable by the FCA,

any other administrative body, or the courts.

(c) If review, reconsideration, or appeal is sought or taken of an adversary adjudication decision as to which

an applicant believes it has prevailed, application proceedings for any award of fees and other expenses

shall be stayed pending final disposition of the underlying controversy.

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12 CFR 625.12

12 CFR 625.21 (enhanced display) page 6 of 8
§ 625.22 Answer to application.

§ 625.23 Reply.

Within 15 days after service of an answer, the applicant may file a reply. If the reply is based on any alleged facts not

already in the record of the adversary adjudication, the applicant shall include with the reply either supporting

affidavits or a request for further proceedings under § 625.25 of this part.

§ 625.24 Comments by other parties.

Any party to a proceeding other than the applicant and FCA counsel may file comments on an application within 30

days after it is served or on an answer within 15 days after it is served. A commenting party may not participate

further in proceedings on the application unless the presiding officer determines that the public interest requires

such participation in order to permit full exploration of matters raised in the comments.

§ 625.25 Further proceedings.

(a) Within 30 days after service, counsel for the FCA may file an answer to the application. Unless the FCA

counsel requests an extension of time for filing or a statement of intent to negotiate under paragraph (c)

of this section is filed, the presiding officer, upon a satisfactory showing of entitlement by the applicant,

may make an award for the applicant's fees and other expenses under the EAJA.

(b) The answer shall set forth any objections to the requested award and identify the facts relied on in

support of the FCA's position. If the answer is based on any alleged facts not already in the record of the

adversary adjudication, the FCA counsel shall include with the answer either supporting affidavits or a

request for further proceedings under § 625.25 of this part.

(c) If the FCA counsel and the applicant believe that the issues in the fee application can be settled, they may

jointly file a statement of their intent to negotiate a settlement. The filing of this statement shall extend

the time for filing an answer for an additional 30 days, and further extensions may be granted by the

presiding officer upon request by the FCA counsel and the applicant.

(a) The determination of an award shall be made on the basis of the written record unless the presiding

officer finds that further proceedings are necessary for full and fair resolution of the issues arising from

the application. Such further proceedings may be at the request of either the applicant or the FCA

counsel, or on the presiding officer's own initiative, and shall be conducted as promptly as possible.

Further proceedings may include an informal conference, oral argument, additional written submissions,

or other actions required by the presiding officer, but may not include discovery or an evidentiary hearing

with respect to the issue of whether the agency's position was substantially justified.

(b) Whether or not the position of the agency was substantially justified shall be determined on the basis of

the administrative record, as a whole, which is made in the adversary adjudication for which fees and

other expenses are sought.

(c) A request that the presiding officer order further proceedings under this section shall specifically identify

the information sought or the disputed issues and shall explain why the additional proceedings are

necessary to resolve the issues.

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12 CFR 625.25(c) (enhanced display) page 7 of 8
§ 625.26 Recommended decision.

The presiding officer shall file a recommended decision within 30 days after completion of proceedings on the

application, and, promptly upon filing, shall serve a copy of the recommended decision upon each party to the

proceedings. The decision shall include written findings and conclusions on the applicant's eligibility, status as a

prevailing party, the recommended amount of the award, if any, and an explanation of the reasons for any difference

between the amount requested and the amount awarded. The decision shall also include, if at issue, findings on

whether the FCA's position was substantially justified, whether the applicant unduly protracted the adversary

adjudication, or whether special circumstances make an award unjust. If the applicant has sought an award against

more than one agency, the decision shall allocate responsibility for payment of any award made among the

agencies, and shall explain the reasons for the allocation made.

§ 625.27 Board decision.

Following filing of the recommended decision with the Board, the Board shall render a final decision on the

application. The Board maintains full discretion to uphold, reverse, remand, or alter the recommended decision. The

Board may order further proceedings (including those set forth in §§ 622.11 and 622.13 through 622.16 of this

chapter) upon request by any party to the application proceeding or on its own initiative, but such proceedings may

not include discovery or an evidentiary hearing with respect to the issue of whether the agency's position was

substantially justified.

§ 625.28 Judicial review.

Judicial review of final FCA decisions on awards may be sought as provided in 5 U.S.C. 504(c)(2).

§ 625.29 Payment of award.

(a) An applicant seeking payment of an award shall submit to the Secretary to the Board a copy of the final

decision granting the award, accompanied by a certification that the applicant will not seek judicial review

of the decision. The required submission and certification should be sent to: Secretary to the Board, Farm

Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102–5090.

(b) The FCA will pay the amount awarded to the applicant within 60 days of receipt of the applicant's

submission and certification.

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12 CFR 625.26

12 CFR 625.29(b) (enhanced display) page 8 of 8
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 626 Nondiscrimination in Lending

§ 626.6000 Definitions.

§ 626.6005 Nondiscrimination in lending and other services.

§ 626.6010 Nondiscrimination in applications.

§ 626.6015 Nondiscriminatory appraisal.

§ 626.6020 Nondiscriminatory advertising.

§ 626.6025 Equal housing lender poster.

§ 626.6030 Complaints.

PART 626—NONDISCRIMINATION IN LENDING

Authority: Secs. 1.5, 2.2, 2.12, 3.1, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2013, 2073, 2093, 2122, 2243, 2252);

42 U.S.C. 3601 et seq.; 15 U.S.C. 1691 et seq.; 12 CFR 202, 24 CFR 100, 109, 110.

Source: 37 FR 11421, June 7, 1972, and 57 FR 13637, Apr. 17, 1992, unless otherwise noted.. Redesignated at 62

FR 4441, Jan. 30, 1997.

§ 626.6000 Definitions.

For the purpose of this subpart, the following definitions shall apply:

This content is from the eCFR and is authoritative but unofficial.

(a) Applicant means any person who requests or who has received an extension of credit from a creditor and

includes any person who is or may become contractually liable regarding an extension of credit.

(b) Dwelling means any building, structure, or portion thereof which is occupied as, or designed or intended

for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or

lease for the construction or location thereon of any such building, structure, or portion thereof.

(c) Familial status means one or more individuals (who have not attained the age of 18 years) being

domiciled with:

(1) A parent or another person having legal custody of such individual or individuals; or

(2) The designee of such parent or other person having such custody, with the written permission of

such parent or other person.

The protections afforded against discrimination on the basis of familial status shall apply to any

person who is pregnant or is in the process of securing legal custody of any individual who has not

attained the age of 18 years.

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12 CFR 626.6000(c)(2) (enhanced display) page 1 of 6
[57 FR 13637, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6005 Nondiscrimination in lending and other services.

[57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

(d) Handicap means, with respect to a person:

(1) A physical or mental impairment which substantially limits one or more of such person's major life

activities,

(2) A record of having such an impairment, or

(3) Being regarded as having such an impairment,

but such term does not include current, illegal use of or addiction to a controlled substance (as defined in

section 102 of the Controlled Substances Act (21 U.S.C. 802)).

(e) Residential real estate-related transaction means any of the following:

(1) The making or purchasing of loans or providing other financial assistance:

(i) For purchasing, constructing, improving, repairing, or maintaining a dwelling; or

(ii) Secured by residential real estate.

(2) The selling, brokering, or appraising of residential real property.

(a) No Farm Credit institution may discriminate in making credit or other financial assistance available in a

residential real estate-related transaction, or in the terms or conditions of such a transaction, because of

race, color, religion, sex, handicap, familial status, or national origin.

(b) No Farm Credit institution may discriminate in any aspect of a credit transaction or a financial service

involving a credit transaction because of:

(1) Race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the

capacity to enter into a binding contract); or

(2) The fact that all or part of the applicant's income derives from any public assistance program; or

(3) The fact that the applicant has in good faith exercised any right under title VII (Equal Credit

Opportunity Act) of the Consumer Credit Protection Act.

(c) Prohibited practices under this section include, but are not limited to, discrimination in fixing the amount,

interest rate, duration, or other terms or conditions of any loan or a financial service involving a credit

transaction or in the purchase of loans and securities on the basis of race, color, religion, sex, handicap,

familial status (having one or more children under the age of 18), marital status, age (provided the

applicant has the capacity to enter into a binding contract), or national origin.

(d) Nothing in this subpart shall be deemed to change the eligibility requirements imposed by the Farm Credit

Act of 1971, as amended, or any Farm Credit Administration regulation adopted pursuant thereto.

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12 CFR 626.6005(d) (enhanced display) page 2 of 6
§ 626.6010 Nondiscrimination in applications.

[57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6015 Nondiscriminatory appraisal.

No Farm Credit institution shall discriminate against any person on the basis of race, color, religion, sex, handicap,

familial status, or national origin when conducting, using, or relying upon an appraisal of residential real property

that is subject to sale, rental, or other financing transaction.

[57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6020 Nondiscriminatory advertising.

(a) No Farm Credit institution may discourage or refuse to allow, receive, or consider any application, request,

or inquiry regarding an eligible loan or other eligible credit service or discriminate in imposing conditions

upon, or in processing, any such application, request, or inquiry on the basis of:

(1) Race, color, religion, sex, marital status, age (provided that the applicant has the capacity to enter

into a binding contract), or national origin, as prescribed under title VII (the Equal Credit Opportunity

Act) of the Consumer Credit Protection Act, as amended by the Equal Credit Opportunity Act

Amendments of 1976 (15 U.S.C. 1601 et seq.), and the Board of Governors of the Federal Reserve

System's implementing regulation (12 CFR part 202); and

(2) Race, color, religion, sex, national origin, handicap, or familial status, as prescribed under title VIII (the

Fair Housing Act) of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act

of 1988 (42 U.S.C. 3601 et seq.), and the Department of Housing and Urban Development's

implementing regulations (24 CFR part 100).

(b) The provisions of paragraph (a) of this section shall apply whenever:

(1) An application is made for any such loan or other credit service; or

(2) A request is made for forms or papers to be used to make application for any such loan or other

credit service; or

(3) An inquiry is made about the availability of such loan or other credit service.

(a) A Farm Credit institution that directly or through third parties engages in any form of advertising shall not

use words, phrases, symbols, directions, forms, or models in such advertising which express, imply or

suggest a policy of discrimination or exclusion in violation of the provisions of title VIII (the Fair Housing

Act) of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988 (42 U.S.C.

3601–3631); the Department of Housing and Urban Development's implementing regulations (24 CFR

parts 100 and 109), and title VII (the Equal Credit Opportunity Act) of the Consumer Credit Protection Act,

as amended by the Equal Credit Opportunity Act Amendments of 1976 (15 U.S.C. 1691–1691f); and the

Board of Governors of the Federal Reserve System's implementing regulation (12 CFR part 202), or this

subpart.

(b) Written advertisements relating to dwellings shall include a facsimile of the following logotype and

legend:

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12 CFR 626.6020(b) (enhanced display) page 3 of 6
[37 FR 16932, Aug. 23, 1972, as amended at 57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6025 Equal housing lender poster.

WE DO BUSINESS IN ACCORDANCE WITH FEDERAL FAIR LENDING

LAWS

(The Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988)

UNDER THE FEDERAL FAIR HOUSING ACT, IT IS ILLEGAL, ON THE BASIS OF RACE, COLOR, NATIONAL ORIGIN,

RELIGION, SEX, HANDICAP, OR FAMILIAL STATUS (HAVING CHILDREN UNDER THE AGE OF 18), TO:

• Deny a loan for the purpose of purchasing, constructing, improving, repairing, or maintaining a dwelling, or

deny any loan secured by a dwelling; or

(a) Each Farm Credit institution that makes loans for the purpose of purchasing, constructing, improving,

repairing, or maintaining a dwelling or any loan secured by a dwelling shall post and maintain an Equal

Housing Lender Poster in the lobby of each of its offices. The poster shall be in a prominent place readily

apparent to all persons seeking such loans.

(b) The Equal Housing Lender Poster shall be at least 11 inches by 14 inches in size, and shall bear the

logotype and legend set forth in § 626.6020(b) of this subpart and the following text:

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12 CFR 626.6025(b) (enhanced display) page 4 of 6
• Discriminate in fixing the amount, interest rate, duration, application procedures, or other terms or conditions

of such a loan, or in appraising property.

IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU

SHOULD SEND A COMPLAINT TO:

Assistant Secretary for Fair Housing and Equal Opportunity, Department of Housing and Urban Development,

Washington, DC 20410, 1–800–669–9777 (Toll Free), 1–800–927–9275 (TDD), for processing under the

Federal Fair Housing Act

AND TO:

Farm Credit Administration, Office of Congressional and Public Affairs, 1501 Farm Credit Drive, McLean, VA

22102–5090, 703–883–4056, 703–883–4444 (TDD), for processing under Farm Credit Administration

Regulations

UNDER THE EQUAL CREDIT OPPORTUNITY ACT

(The Consumer Credit Protection Act, as amended by the Equal Credit Opportunity Act Amendments of 1976)

IT IS ILLEGAL TO DISCRIMINATE IN ANY CREDIT TRANSACTION:

• On the basis of race, color, national origin, religion, sex, marital status, or age,

• Because income is from public assistance, or

• Because a right was exercised under the Consumer Credit Protection Act.

IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU

SHOULD SEND A COMPLAINT TO:

Farm Credit Administration, Office of Congressional and Public Affairs, 1501 Farm Credit Drive, McLean, VA

22102–5090, 703–883–4056, 703–883–4444 (TDD).

[57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997, as amended at 62 FR 4451, Jan. 30, 1997]

§ 626.6030 Complaints.

(a) Complaints regarding discrimination in lending by a Farm Credit institution under the Fair Housing Act

shall be referred to the Assistant Secretary for Fair Housing and Equal Opportunity, United States

Department of Housing and Urban Development, Washington, DC 20410, and to the Office of

Congressional and Public Affairs, Farm Credit Administration, McLean, Virginia 22102–5090.

(b) Complaints regarding discrimination in lending by a Farm Credit institution under the Equal Credit

Opportunity Act shall be referred to the Office of Congressional and Public Affairs, Farm Credit

Administration, McLean, Virginia 22102–5090.

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[57 FR 13639, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

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Nondiscrimination in Lending 12 CFR 626.6030(b)

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Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 627 Title IV Conservators, Receivers, Bridge System Banks, and Voluntary

Liquidations

Subpart A General Provisions

§ 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 D Voluntary Liquidation

§ 627.40 Voluntary liquidation.

§ 627.41 Preservation of equity.

PART 627—TITLE IV CONSERVATORS, RECEIVERS, BRIDGE SYSTEM

BANKS, AND VOLUNTARY LIQUIDATIONS

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.

Source: 57 FR 46482, Oct. 9, 1992, unless otherwise noted.

Subpart A—General Provisions

Source: 88 FR 82244, Nov. 24, 2023, unless otherwise noted.

§ 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.

§ 627.2 Definitions.

For the purposes of this part, the following definitions apply:

This content is from the eCFR and is authoritative but unofficial.

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12 CFR 627.2 (enhanced display) page 1 of 6
§ 627.3 Grounds for appointing FCSIC as conservator or receiver.

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 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.

(a) FCA may, in its discretion, appoint a conservator or receiver of a Farm Credit institution if FCA 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.

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12 CFR 627.2 “Act”

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§ 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 § 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

Source: 88 FR 82244, Nov. 24, 2023, unless otherwise noted.

§ 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

§ 627.3 to appoint FCSIC as the conservator of a Farm Credit institution upon finding that one or

more of the grounds identified in § 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 § 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 with the Farm Credit Administration financial reports, certified by FCSIC, as required

by § 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 § 620.3.

(c) Termination of the conservatorship.

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12 CFR 627.4

12 CFR 627.10(c) (enhanced display) page 3 of 6
Subpart C—Receiver and Receiverships

Source: 88 FR 82244, Nov. 24, 2023, unless otherwise noted.

§ 627.20 FCSIC as receiver.

(1) Whenever the Farm Credit Administration Board determines 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 the institution should be placed in

receivership, the Farm Credit Administration Board will appoint FCSIC as the receiver of such

institution.

(a) Appointment.

(1) The Farm Credit Administration Board may exercise its authority under section 4.12(b) of the Act and

§ 627.3 to appoint FCSIC as the receiver of a Farm Credit institution upon finding that one or more of

the grounds identified in § 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 § 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 § 614.4175 of this

subchapter, at the institution that:

(1) Such accounts ceased earning interest from the date the Farm Credit Administration Board placed

the institution into receivership; and

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12 CFR 627.10(c)(1)

12 CFR 627.20(d)(1) (enhanced display) page 4 of 6
Subpart D—Voluntary Liquidation

Source: 63 FR 5725, Feb. 4, 1998, unless otherwise noted.

§ 627.40 Voluntary liquidation.

[63 FR 5725, Feb. 4, 1998. Redesignated and amended at 88 FR 82246, Nov. 24, 2023]

§ 627.41 Preservation of equity.

(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.

(a) A Farm Credit institution may voluntarily liquidate by a resolution of its board of directors, but only with the

consent of, and in accordance with a plan of liquidation approved by, the Farm Credit Administration

Board. Upon adoption of such resolution to liquidate, the Farm Credit institution shall submit the proposed

voluntary liquidation plan to the Farm Credit Administration for preliminary approval. The Farm Credit

Administration Board, in its discretion, may appoint a receiver as part of an approved liquidation plan. If a

receiver is appointed for the Farm Credit institution as part of a voluntary liquidation, the receivership shall

be conducted pursuant to subpart C of this part, except to the extent that an approved plan of liquidation

provides otherwise.

(b) If the Farm Credit Administration Board gives preliminary approval to the liquidation plan, the board of

directors of the Farm Credit institution shall submit the resolution to liquidate and the liquidation plan to

the stockholders for approval.

(c) The resolution to liquidate and the liquidation plan shall be approved by the stockholders if agreed to by at

least a majority of the voting stockholders of the institution voting, in person or by written proxy, at a duly

authorized stockholders' meeting.

(d) The Farm Credit Administration Board will consider final approval of the liquidation plan after an

affirmative stockholder vote on the resolution to liquidate.

(e) Any subsequent amendments, modifications, revisions, or adjustments to the liquidation plan shall require

Farm Credit Administration Board approval.

(f) The Farm Credit Administration Board, in its discretion, reserves the right to terminate or modify the

liquidation plan at any time.

(a) Immediately upon the adoption of a resolution by its board of directors to voluntarily liquidate a Farm

Credit institution, the capital stock, participation certificates, equity reserves, and allocated equities of the

Farm Credit institution shall not be issued, allocated, retired, sold, distributed, transferred, assigned, or

applied against any indebtedness of the owners of such equities. Such activities could resume if the

stockholders of the Farm Credit institution disapprove the resolution to liquidate or the Farm Credit

Administration Board disapproves the liquidation plan. In the event the resolution to liquidate is approved

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12 CFR 627.20(d)(2)

12 CFR 627.41(a) (enhanced display) page 5 of 6
[63 FR 5725, Feb. 4, 1998. Redesignated and amended at 88 FR 82246, Nov. 24, 2023]

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.

(b) Notwithstanding paragraph (a) of this section, eligible borrower stock shall be retired in accordance with

section 4.9A of the Act.

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12 CFR 627.41(b)

12 CFR 627.41(b) (enhanced display) page 6 of 6
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 628 Capital Adequacy of System Institutions

Subpart A General Provisions

§ 628.1 Purpose, applicability, and reservations of authority.

§ 628.2 Definitions.

§ 628.3 Operational requirements for certain exposures.

§§ 628.4-628.9 [Reserved]

Subpart B Capital Ratio Requirements and Buffers

§ 628.10 Minimum capital requirements.

§ 628.11 Capital buffer amounts.

§§ 628.12-628.19 [Reserved]

Subpart C Definition of Capital

§ 628.20 Capital components and eligibility criteria for tier 1 and tier 2 capital instruments.

§ 628.21 Capital bylaw or board resolution to include equities in tier 1 and tier 2 capital.

§ 628.22 Regulatory capital adjustments and deductions.

§ 628.23 Limit on inclusion of third-party capital in total (tier 1 and tier 2) capital.

§§ 628.24-628.29 [Reserved]

Subpart D Risk-Weighted Assets—Standardized Approach

§ 628.30 Applicability.

Risk-Weighted Assets for General Credit Risk

§ 628.31 Mechanics for calculating risk-weighted assets for general credit risk.

§ 628.32 General risk weights.

§ 628.33 Off-balance sheet exposures.

§ 628.34 OTC derivative contracts.

§ 628.35 Cleared transactions.

§ 628.36 Guarantees and credit derivatives: Substitution treatment.

§ 628.37 Collateralized transactions.

Risk-Weighted Assets for Unsettled Transactions

§ 628.38 Unsettled transactions.

§§ 628.39-628.40 [Reserved]

Risk-Weighted Assets for Securitization Exposures

§ 628.41 Operational requirements for securitization exposures.

§ 628.42 Risk-weighted assets for securitization exposures.

§ 628.43 Simplified supervisory formula approach (SSFA) and the gross-up approach.

This content is from the eCFR and is authoritative but unofficial.

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12 CFR Part 628 (Mar. 7, 2024) (enhanced display) page 1 of 85
§ 628.44 Securitization exposures to which the SSFA and gross-up approach do not apply.

§ 628.45 Recognition of credit risk mitigants for securitization exposures.

§§ 628.46-628.50 [Reserved]

Risk-Weighted Assets for Equity Exposures

§ 628.51 Introduction and exposure measurement.

§ 628.52 Simple risk-weight approach (SRWA).

§ 628.53 Equity exposures to investment funds.

§§ 628.54-628.60 [Reserved]

Disclosures

§ 628.61 Purpose and scope.

§ 628.62 Disclosure requirements.

§ 628.63 Disclosures.

§§ 628.64-628.99 [Reserved]

Subparts E–F [Reserved]

Subpart G Transition Provisions

§ 628.300 Transitions.

§ 628.301 Initial compliance and reporting requirements.

PART 628—CAPITAL ADEQUACY OF SYSTEM INSTITUTIONS

Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9,

5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074,

2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2279aa, 2279aa–3,

2279aa–4, 2279aa–6, 2279aa–8, 2279aa–10, 2279aa–12); sec. 301(a), Pub. L. 100–233, 101 Stat. 1568, 1608, as

amended by sec. 301(a), Pub. L. 103–399, 102 Stat 989, 993 (12 U.S.C. 1254 note); sec. 939A, Pub. L. 111–203,

124 Stat. 1326, 1887 (15 U.S.C. 78o–7 note).

Source: 81 FR 49779, July 28, 2016, unless otherwise noted.

Subpart A—General Provisions

§ 628.1 Purpose, applicability, and reservations of authority.

(a) Purpose. This part establishes minimum capital requirements and overall capital adequacy standards for

System institutions. This part includes methodologies for calculating minimum capital requirements,

public disclosure requirements related to the capital requirements, and transition provisions for the

application of this part.

(b) Limitation of authority. Nothing in this part limits the authority of FCA to take action under other provisions

of law, including action to address unsafe or unsound practices or conditions, deficient capital levels, or

violations of law or regulation under part C of title V of the Farm Credit Act.

(c) Applicability. Subject to the requirements in paragraph (d) of this section:

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12 CFR 628.1(c) (enhanced display) page 2 of 85
(1) Minimum capital requirements and overall capital adequacy standards. Each System institution must

calculate its minimum capital requirements and meet the overall capital adequacy standards in

subpart B of this part.

(2) Regulatory capital. Each System institution must calculate its regulatory capital in accordance with

subpart C of this part.

(3) Risk-weighted assets.

(i) Each System institution must use the methodologies in subpart D of this part to calculate total

risk-weighted assets.

(ii) [Reserved]

(4) Disclosures.

(i) All System banks must make the public disclosures described in subpart D of this part.

(ii)–(iii) [Reserved]

(d) Reservation of authority —

(1) Additional capital in the aggregate. FCA may require a System institution to hold an amount of

regulatory capital greater than otherwise required under this part if FCA determines that the System

institution's capital requirements under this part are not commensurate with the System institution's

credit, market, operational, or other risks according to part 615, subparts L and M, of this chapter.

(2) Regulatory capital elements.

(i) If FCA determines that a particular common equity tier 1 (CET1), additional tier 1 (AT1), or tier 2

capital element has characteristics or terms that diminish its permanence or its ability to

absorb losses, or otherwise present safety and soundness concerns, FCA may require the

System institution to exclude all or a portion of such element from CET1 capital, AT1 capital, or

tier 2 capital, as appropriate.

(ii) Notwithstanding the criteria for regulatory capital instruments set forth in subpart C of this part,

FCA may find that a capital element may be included in a System institution's CET1 capital, AT1

capital, or tier 2 capital on a permanent or temporary basis consistent with the loss absorption

capacity of the element and in accordance with § 628.20(e).

(3) Risk-weighted asset amounts. If FCA determines that the risk-weighted asset amount calculated

under this part by the System institution for one or more exposures is not commensurate with the

risks associated with those exposures, FCA may require the System institution to assign a different

risk-weighted asset amount to the exposure(s) or to deduct the amount of the exposure(s) from its

regulatory capital.

(4) Total leverage. If FCA determines that the leverage exposure amount, or the amount reflected in the

System institution's reported average total consolidated assets, for a balance sheet exposure

calculated by a System institution under § 628.10 is inappropriate for the exposure(s) or the

circumstances of the System institution, FCA may require the System institution to adjust this

exposure amount in the numerator and the denominator for purposes of the leverage ratio

calculations.

(5) [Reserved]

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12 CFR 628.1(d)(5) (enhanced display) page 3 of 85
§ 628.2 Definitions.

As used in this part:

(6) Other reservation of authority. With respect to any deduction or limitation required under this part,

FCA may require a different deduction or limitation, provided that such alternative deduction or

limitation is commensurate with the System institution's risk and consistent with safety and

soundness.

(e) Notice and response procedures. In making a determination under this section, FCA will apply notice and

response procedures in the same manner as the notice and response procedures in § 615.5352 of this

chapter.

(f) [Reserved]

Additional tier 1 capital (AT1) is defined in § 628.20(c).

Adjusted allowances for credit losses (AACL) means valuation allowances that have been established through a

charge against earnings or retained earnings for expected credit losses on financial assets measured at

amortized cost and a lessor's net investment in leases that have been established to reduce the

amortized cost basis of the assets to amounts expected to be collected as determined in accordance

with GAAP. For purposes of this part, adjusted allowances for credit losses includes allowances for

expected credit losses on off-balance sheet credit exposures not accounted for as insurance as

determined in accordance with GAAP. Adjusted allowances for credit losses excludes allowances created

that reflect credit losses on purchased credit deteriorated assets and available-for-sale debt securities.

Allocated equities means stock or surplus representing a patronage payment to a member-borrower that a

System institution has retained for the benefit of its membership.[1] Allocated equities include qualified

allocated equities and nonqualified allocated equities. Allocated equities are redeemable at the System

institution board's discretion. Allocated equities contain no voting rights and are generally subordinated to

borrower stock in receivership, insolvency, liquidation, or similar proceeding.

Bank holding company means a bank holding company as defined in section 2 of the Bank Holding Company

Act.

Bank Holding Company Act means the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1841 et

seq.).

Bankruptcy remote means, with respect to an entity or asset, that the entity or asset would be excluded from an

insolvent entity's estate in receivership, insolvency, liquidation, or similar proceeding.

Borrower stock means the capital investment a borrower holds in a System institution in connection with a loan.

Call Report means reports of condition and performance, as described in subpart D of part 621 of this chapter.

Carrying value means, with respect to an asset, the value of the asset on the balance sheet of the System

institution, determined in accordance with GAAP. For all assets other than available-for-sale debt

securities or purchased credit deteriorated assets, the carrying value is not reduced by any associated

credit loss allowance that is determined in accordance with GAAP.

[1] System institutions as cooperatives are required to send borrowers a written notice of allocation specifying

the amount of patronage payments retained as equity pursuant to the Internal Revenue Code section 1388.

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12 CFR 628.2 “Carrying value” (enhanced display) page 4 of 85
Central counterparty (CCP) means a counterparty (for example, a clearinghouse) that facilitates trades between

counterparties in one or more financial markets by either guaranteeing trades or novating contracts.

CFTC means the U.S. Commodity Futures Trading Commission.

Clean-up call means a contractual provision that permits an originating System institution or servicer to call

securitization exposures before their stated maturity or call date.

Cleared transaction means an exposure associated with an outstanding derivative contract or repo-style

transaction that a System institution or clearing member has entered into with a central counterparty (that

is, a transaction that a central counterparty has accepted).

(1) The following transactions are cleared transactions:

(i)–(ii) [Reserved]

(iii) A transaction between a clearing member client System institution and a clearing member

where the clearing member acts as a financial intermediary on behalf of the clearing member

client and enters into an offsetting transaction with a CCP, provided that the requirements set

forth in § 628.3(a) are met; or

(iv) A transaction between a clearing member client System institution and a CCP where a clearing

member guarantees the performance of the clearing member client System institution to the

CCP and the transaction meets the requirements of § 628.3(a)(2) and (3).

(2) [Reserved]

Clearing member means a member of, or direct participant in, a CCP that is entitled to enter into transactions

with the CCP.

Clearing member client means a party to a cleared transaction associated with a CCP in which a clearing

member either acts as a financial intermediary with respect to the party or guarantees the performance of

the party to the CCP.

Collateral agreement means a legal contract that specifies the time when, and circumstances under which, a

counterparty is required to pledge collateral to a System institution for a single financial contract or for all

financial contracts in a netting set and confers upon the System institution a perfected, first-priority

security interest (notwithstanding the prior security interest of any custodial agent), or the legal equivalent

thereof, in the collateral posted by the counterparty under the agreement. This security interest must

provide the System institution with a right to close-out the financial positions and liquidate the collateral

upon an event of default of, or failure to perform by, the counterparty under the collateral agreement. A

contract would not satisfy this requirement if the System institution's exercise of rights under the

agreement may be stayed or avoided:

(1) Under applicable law in the relevant jurisdictions, other than:

(i) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act, Title II of

the Dodd-Frank Act, or under any similar insolvency law applicable to Government-sponsored

enterprises (GSEs), or laws of foreign jurisdictions that are substantially similar to the U.S. laws

referenced in this paragraph (1)(i) in order to facilitate the orderly resolution of the defaulting

counterparty;

(ii) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in

paragraph (1)(i) of this definition; or

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(2) Other than to the extent necessary for the counterparty to comply with the requirements of part 47,

subpart I of part 252, or part 382 of this title, as applicable.

Commitment means any legally binding arrangement that obligates a System institution to extend credit or to

purchase assets.

Commodity derivative contract means a commodity-linked swap, purchased commodity-linked option, forward

commodity-linked contract, or any other instrument linked to commodities that gives rise to similar

counterparty credit risks.

Commodity Exchange Act means the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.).

Common cooperative equity issuance date means the date in which the holding period for purchased stock

(excluding statutory minimum borrower stock and third-party stock) and allocated equities start:

(1) For allocated equities, the calendar quarter-ending in which:

(i) The System institution's Board of Directors has passed a resolution declaring a patronage

refund; and

(ii) The System institution has completed the applicable accounting treatment by segregating the

new allocated equities from its unallocated retained earnings.

(2) For purchased stock (excluding statutory minimum borrower stock and third-party stock), the

calendar quarter-ending in which the stock is acquired by the holder and recognized on the

institution's balance sheet.

Common cooperative equity or equities means common equities in the form of member-borrower stock,

participation certificates, and allocated equities issued or allocated by a System institution to its current

and former members.

Common equity tier 1 capital (CET1) is defined in § 628.20(b).

Company means a corporation, partnership, limited liability company, depository institution, business trust,

special purpose entity, System institution, association, or similar organization.

Corporate exposure means an exposure to a company that is not:

(1) An exposure to a sovereign, the Bank for International Settlements, the European Central Bank, the

European Commission, the International Monetary Fund, a multi-lateral development bank (MDB), a

depository institution, a foreign bank, a credit union, or a public sector entity (PSE);

(2) An exposure to a GSE;

(3) A residential mortgage exposure;

(4)–(6) [Reserved]

(7) A cleared transaction;

(8) [Reserved]

(9) A securitization exposure;

(10) An equity exposure; or

(11) An unsettled transaction.

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Country risk classification (CRC) with respect to a sovereign, means the most recent consensus CRC published

by the Organization for Economic Cooperation and Development (OECD) as of December 31st of the prior

calendar year that provides a view of the likelihood that the sovereign will service its external debt.

Credit derivative means a financial contract executed under standard industry credit derivative documentation

that allows one party (the protection purchaser) to transfer the credit risk of one or more exposures

(reference exposure(s)) to another party (the protection provider) for a certain period of time.

Credit-enhancing interest-only strip (CEIO) means an on-balance sheet asset that, in form or in substance:

(1) Represents a contractual right to receive some or all of the interest and no more than a minimal

amount of principal due on the underlying exposures of a securitization; and

(2) Exposes the holder of the CEIO to credit risk directly or indirectly associated with the underlying

exposures that exceeds a pro rata share of the holder's claim on the underlying exposures, whether

through subordination provisions or other credit-enhancement techniques.

Credit-enhancing representations and warranties means representations and warranties that are made or

assumed in connection with a transfer of underlying exposures (including loan servicing assets) and that

obligate a System institution to protect another party from losses arising from the credit risk of the

underlying exposures. Credit-enhancing representations and warranties include provisions to protect a

party from losses resulting from the default or nonperformance of the counterparties of the underlying

exposures or from an insufficiency in the value of the collateral backing the underlying exposures. Creditenhancing representations and warranties do not include:

(1) Early default clauses and similar warranties that permit the return of, or premium refund clauses

covering, 1–4 family residential first mortgage loans that qualify for a 50-percent risk weight for a

period not to exceed 120 days from the date of transfer. These warranties may cover only those

loans that were originated within 1 year of the date of transfer;

(2) Premium refund clauses that cover assets guaranteed, in whole or in part, by the U.S. Government, a

U.S. Government agency or a Government-sponsored enterprise (GSE), provided the premium refund

clauses are for a period not to exceed 120 days from the date of transfer; or

(3) Warranties that permit the return of underlying exposures in instances of misrepresentation, fraud, or

incomplete documentation.

Credit risk mitigant means collateral, a credit derivative, or a guarantee.

Credit union means an insured credit union as defined under the Federal Credit Union Act (12 U.S.C. 1752 et

seq.).

Current exposure means, with respect to a netting set, the larger of 0 or the fair value of a transaction or

portfolio of transactions within the netting set that would be lost upon default of the counterparty,

assuming no recovery on the value of the transactions. Current exposure is also called replacement cost.

Current exposure methodology means the method of calculating the exposure amount for over-the-counter

derivative contracts in § 628.34(a).

Custodian means a company that has legal custody of collateral provided to a CCP.

Depository institution means a depository institution as defined in section 3 of the Federal Deposit Insurance

Act.

Depository institution holding company means a bank holding company or savings and loan holding company.

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Derivative contract means a financial contract whose value is derived from the values of one or more underlying

assets, reference rates, or indices of asset values or reference rates. Derivative contracts include interest

rate derivative contracts, exchange rate derivative contracts, equity derivative contracts, commodity

derivative contracts, credit derivative contracts, and any other instrument that poses similar counterparty

credit risks. Derivative contracts also include unsettled securities, commodities, and foreign exchange

transactions with a contractual settlement or delivery lag that is longer than the lesser of the market

standard for the particular instrument or 5 business days.

Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub. L.

111–203, 124 Stat. 1376).

Early amortization provision means a provision in the documentation governing a securitization that, when

triggered, causes investors in the securitization exposures to be repaid before the original stated maturity

of the securitization exposures, unless the provision:

(1) Is triggered solely by events not directly related to the performance of the underlying exposures or

the originating System institution (such as material changes in tax laws or regulations); or

(2) Leaves investors fully exposed to future draws by borrowers on the underlying exposures even after

the provision is triggered.

Effective notional amount means, for an eligible guarantee or eligible credit derivative, the lesser of the

contractual notional amount of the credit risk mitigant and the exposure amount of the hedged exposure,

multiplied by the percentage coverage of the credit risk mitigant.

Eligible clean-up call means a clean-up call that:

(1) Is exercisable solely at the discretion of the originating System institution or servicer;

(2) Is not structured to avoid allocating losses to securitization exposures held by investors or otherwise

structured to provide credit enhancement to the securitization; and

(3)

(i) For a traditional securitization, is only exercisable when 10 percent or less of the principal

amount of the underlying exposures or securitization exposures (determined as of the

inception of the securitization) is outstanding; or

(ii) For a synthetic securitization, is only exercisable when 10 percent or less of the principal

amount of the reference portfolio of underlying exposures (determined as of the inception of

the securitization) is outstanding.

Eligible credit derivative means a credit derivative in the form of a credit default swap, nth-to-default swap, total

return swap, or any other form of credit derivative approved by the FCA, provided that:

(1) The contract meets the requirements of an eligible guarantee and has been confirmed by the

protection purchaser and the protection provider;

(2) Any assignment of the contract has been confirmed by all relevant parties;

(3) If the credit derivative is a credit default swap or nth-to-default swap, the contract includes the

following credit events:

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12 CFR 628.2 “Eligible credit derivative” (3) (enhanced display) page 8 of 85
(i) Failure to pay any amount due under the terms of the reference exposure, subject to any

applicable minimal payment threshold that is consistent with standard market practice and

with a grace period that is closely in line with the grace period of the reference exposure; and

(ii) Receivership, insolvency, liquidation, conservatorship or inability of the reference exposure

issuer to pay its debts, or its failure or admission in writing of its inability generally to pay its

debts as they become due, and similar events;

(4) The terms and conditions dictating the manner in which the contract is to be settled are incorporated

into the contract;

(5) If the contract allows for cash settlement, the contract incorporates a robust valuation process to

estimate loss reliably and specifies a reasonable period for obtaining post-credit event valuations of

the reference exposure;

(6) If the contract requires the protection purchaser to transfer an exposure to the protection provider at

settlement, the terms of at least one of the exposures that is permitted to be transferred under the

contract provide that any required consent to transfer may not be unreasonably withheld;

(7) If the credit derivative is a credit default swap or nth-to-default swap, the contract clearly identifies

the parties responsible for determining whether a credit event has occurred, specifies that this

determination is not the sole responsibility of the protection provider, and gives the protection

purchaser the right to notify the protection provider of the occurrence of a credit event; and

(8) If the credit derivative is a total return swap and the System institution records net payments

received on the swap as net income, the System institution records offsetting deterioration in the

value of the hedged exposure (either through reductions in fair value or by an addition to reserves).

Eligible guarantee means a guarantee from an eligible guarantor that:

(1) Is written;

(2) Is either:

(i) Unconditional; or

(ii) A contingent obligation of the U.S. Government or its agencies, the enforceability of which is

dependent upon some affirmative action on the part of the beneficiary of the guarantee or a

third party (for example, meeting servicing requirements);

(3) Covers all or a pro rata portion of all contractual payments of the obligated party on the reference

exposure;

(4) Gives the beneficiary a direct claim against the protection provider;

(5) Is not unilaterally cancelable by the protection provider for reasons other than the breach of the

contract by the beneficiary;

(6) Except for a guarantee by a sovereign, is legally enforceable against the protection provider in a

jurisdiction where the protection provider has sufficient assets against which a judgment may be

attached and enforced;

(7) Requires the protection provider to make payment to the beneficiary on the occurrence of a default

(as defined in the guarantee) of the obligated party on the reference exposure in a timely manner

without the beneficiary first having to take legal actions to pursue the obligor for payment; and

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “Eligible guarantee” (7) (enhanced display) page 9 of 85
(8) Does not increase the beneficiary's cost of credit protection on the guarantee in response to

deterioration in the credit quality of the reference exposure.

Eligible guarantor means:

(1) A sovereign, the Bank for International Settlements, the International Monetary Fund, the European

Central Bank, the European Commission, a Federal Home Loan Bank, Federal Agricultural Mortgage

Corporation (Farmer Mac), a multilateral development bank (MDB), a depository institution, a bank

holding company, a savings and loan holding company, a credit union, a foreign bank, or a qualifying

central counterparty; or

(2) An entity (other than a special purpose entity):

(i) That at the time the guarantee is issued or anytime thereafter, has issued and outstanding an

unsecured debt security without credit enhancement that is investment grade;

(ii) Whose creditworthiness is not positively correlated with the credit risk of the exposures for

which it has provided guarantees; and

(iii) That is not an insurance company engaged predominately in the business of providing credit

protection (such as a monoline bond insurer or re-insurer).

Eligible margin loan means:

(1) An extension of credit where:

(i) The extension of credit is collateralized exclusively by liquid and readily marketable debt or

equity securities, or gold;

(ii) The collateral is marked-to-fair value daily, and the transaction is subject to daily margin

maintenance requirements; and

(iii) The extension of credit is conducted under an agreement that provides the System institution

the right to accelerate and terminate the extension of credit and to liquidate or set-off collateral

promptly upon an event of default, including upon an event of receivership, insolvency,

liquidation, conservatorship, or similar proceeding, of the counterparty, provided that, in any

such case:

(A) Any exercise of rights under the agreement will not be stayed or avoided under applicable

law in the relevant jurisdictions, other than:

(1) In receivership, conservatorship, or resolution under the Federal Deposit Insurance

Act, Title II of the Dodd-Frank Act, or under any similar insolvency law applicable to

GSEs,[2] or laws of foreign jurisdictions that are substantially similar to the U.S. laws

referenced in this paragraph (1)(iii)(A)(1) in order to facilitate the orderly resolution of

the defaulting counterparty; or

[2] This requirement is met where all transactions under the agreement are (i) executed under U.S. law and (ii)

constitute “securities contracts” under section 555 of the Bankruptcy Code (11 U.S.C. 555), qualified financial

contracts under section 11(e)(8) of the Federal Deposit Insurance Act, or netting contracts between or among

financial institutions under sections 401–407 of the Federal Deposit Insurance Corporation Improvement Act

or the Federal Reserve Board's Regulation EE (12 CFR part 231).

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “Eligible margin loan” (1)(iii)(A)(1) (enhanced display) page 10 of 85
(2) Where the agreement is subject by its terms to, or incorporates, any of the laws

referenced in paragraph (1)(iii)(A)(1) of this definition; and

(B) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all

transactions under the agreement and to liquidate or set-off collateral promptly upon an

event of default of the counterparty to the extent necessary for the counterparty to comply

with the requirements of part 47, subpart I of part 252, or part 382 of this title, as

applicable.

(2) In order to recognize an exposure as an eligible margin loan for purposes of this subpart, a System

institution must comply with the requirements of § 628.3(b) with respect to that exposure.

Eligible servicer cash advance facility means a servicer cash advance facility in which:

(1) The servicer is entitled to full reimbursement of advances, except that a servicer may be obligated to

make non-reimbursable advances for a particular underlying exposure if any such advance is

contractually limited to an insignificant amount of the outstanding principal balance of that

exposure;

(2) The servicer's right to reimbursement is senior in right of payment to all other claims on the cash

flows from the underlying exposures of the securitization; and

(3) The servicer has no legal obligation to, and does not make advances to the securitization if the

servicer concludes the advances are unlikely to be repaid.

Equity derivative contract means an equity-linked swap, purchased equity-linked option, forward equity-linked

contract, or any other instrument linked to equities that gives rise to similar counterparty credit risks.

Equity exposure means:

(1) A security or instrument (whether voting or non-voting) that represents a direct or an indirect

ownership interest in, and is a residual claim on, the assets and income of a company, unless:

(i) The issuing company is consolidated with the System institution under GAAP;

(ii) The System institution is required to deduct the ownership interest from tier 1 or tier 2 capital

under this part;

(iii) The ownership interest incorporates a payment or other similar obligation on the part of the

issuing company (such as an obligation to make periodic payments); or

(iv) The ownership interest is a securitization exposure;

(2) A security or instrument that is mandatorily convertible into a security or instrument described in

paragraph (1) of this definition;

(3) An option or warrant that is exercisable for a security or instrument described in paragraph (1) of this

definition; or

(4) Any other security or instrument (other than a securitization exposure) to the extent the return on the

security or instrument is based on the performance of a security or instrument described in

paragraph (1) of this definition.

ERISA means the Employee Retirement Income and Security Act of 1974 (29 U.S.C. 1001 et seq.).

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “ERISA” (enhanced display) page 11 of 85
Exchange rate derivative contract means a cross-currency interest rate swap, forward foreign-exchange contract,

currency option purchased, or any other instrument linked to exchange rates that gives rise to similar

counterparty credit risks.

Exposure means an amount at risk.

Exposure amount means:

(1) For the on-balance sheet component of an exposure (other than an available-for-sale or held-tomaturity security; an OTC derivative contract; a repo-style transaction or an eligible margin loan for

which the System institution determines the exposure amount under § 628.37; a cleared transaction;

or a securitization exposure), the System institution's carrying value of the exposure.

(2) For a security (that is not a securitization exposure, equity exposure, or preferred stock classified as

an equity security under GAAP) classified as available-for-sale or held-to-maturity, the System

institution's carrying value (including net accrued but unpaid interest and fees) for the exposure less

any net unrealized gains on the exposure and plus any net unrealized losses on the exposure.

(3) For available-for-sale preferred stock classified as an equity security under GAAP, the System

institution's carrying value of the exposure less any net unrealized gains on the exposure that are

reflected in such carrying value but excluded from the System institution's regulatory capital

components.

(4) For the off-balance sheet component of an exposure (other than an OTC derivative contract; a repostyle transaction or an eligible margin loan for which the System institution calculates the exposure

amount under § 628.37; a cleared transaction; or a securitization exposure), the notional amount of

the off-balance sheet component multiplied by the appropriate credit conversion factor (CCF) in §

628.33.

(5) For an exposure that is an OTC derivative contract, the exposure amount determined under § 628.34.

(6) For an exposure that is a cleared transaction, the exposure amount determined under § 628.35.

(7) For an exposure that is an eligible margin loan or repo-style transaction for which the bank calculates

the exposure amount as provided in § 628.37, the exposure amount determined under § 628.37.

(8) For an exposure that is a securitization exposure, the exposure amount determined under § 628.42.

Farm Credit Act means the Farm Credit Act of 1971, as amended (12 U.S.C. 2001 et seq.).

Federal Deposit Insurance Act means the Federal Deposit Insurance Act (12 U.S.C. 1813).

Federal Deposit Insurance Corporation Improvement Act means the Federal Deposit Insurance Corporation

Improvement Act of 1991 (12 U.S.C. 4401).

Financial collateral means collateral:

(1) In the form of:

(i) Cash on deposit at a depository institution or Federal Reserve Bank (including cash held for the

System institution by a third-party custodian or trustee);

(ii) Gold bullion;

(iii) Long-term debt securities that are not resecuritization exposures and that are investment grade;

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12 CFR 628.2 “Financial collateral” (1)(iii) (enhanced display) page 12 of 85
(iv) Short-term debt instruments that are not resecuritization exposures and that are investment

grade;

(v) Equity securities that are publicly traded;

(vi) Convertible bonds that are publicly traded; or

(vii) Money market fund shares and other mutual fund shares if a price for the shares is publicly

quoted daily; and

(2) In which the System institution has a perfected, first-priority security interest or, outside of the United

States, the legal equivalent thereof (with the exception of cash on deposit at a depository institution

or Federal Reserve Bank and notwithstanding the prior security interest of any custodial agent).

First-lien residential mortgage exposure means a residential mortgage exposure secured by a first lien.

Foreign bank means a foreign bank as defined in § 211.2 of the Federal Reserve Board's Regulation K (12 CFR

211.2) (other than a depository institution).

Forward agreement means a legally binding contractual obligation to purchase assets with certain drawdown at

a specified future date, not including commitments to make residential mortgage loans or forward foreign

exchange contracts.

GAAP means generally accepted accounting principles as used in the United States.

Gain-on-sale means an increase in the equity capital of a System institution (as reported on the Call Report)

resulting from a traditional securitization (other than an increase in equity capital resulting from the

System institution's receipt of cash in connection with the securitization or reporting of a mortgage

servicing asset on the Call Report).

General obligation means a bond or similar obligation that is backed by the full faith and credit of a public sector

entity (PSE).

Government-sponsored enterprise (GSE) means an entity established or chartered by the U.S. Government to

serve public purposes specified by the U.S. Congress but whose debt obligations are not explicitly

guaranteed by the full faith and credit of the U.S. Government.

Guarantee means a financial guarantee, letter of credit, insurance, or other similar financial instrument (other

than a credit derivative) that allows one party (beneficiary) to transfer the credit risk of one or more

specific exposures (reference exposure) to another party (protection provider).

Home country means the country where an entity is incorporated, chartered, or similarly established.

Insurance company means an insurance company as defined in section 201 of the Dodd-Frank Act (12 U.S.C.

5381).

Insurance underwriting company means an insurance company as defined in section 201 of the Dodd-Frank Act

(12 U.S.C. 5381) that engages in insurance underwriting activities.

Insured depository institution means an insured depository institution as defined in section 3 of the Federal

Deposit Insurance Act.

Interest rate derivative contract means a single-currency interest rate swap, basis swap, forward rate agreement,

purchased interest rate option, when-issued securities, or any other instrument linked to interest rates that

gives rise to similar counterparty credit risks.

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “Interest rate derivative contract” (enhanced display) page 13 of 85
International Lending Supervision Act means the International Lending Supervision Act of 1983 (12 U.S.C. 3907).

Investment fund means a company:

(1) Where all or substantially all of the assets of the company are financial assets; and

(2) That has no material liabilities.

Investment grade means that the entity to which the System institution is exposed through a loan or security, or

the reference entity with respect to a credit derivative, has adequate capacity to meet financial

commitments for the projected life of the asset or exposure. Such an entity or reference entity has

adequate capacity to meet financial commitments if the risk of its default is low and the full and timely

repayment of principal and interest is expected.

Junior-lien residential mortgage exposure means a residential mortgage exposure that is not a first-lien

residential mortgage exposure.

Member means a borrower or former borrower from a System institution that holds voting or nonvoting

cooperative equities of the institution.

Money market fund means an investment fund that is subject to 17 CFR 270.2a–7 or any foreign equivalent

thereof.

Mortgage servicing assets (MSAs) means the contractual rights owned by a System institution to service for a

fee mortgage loans that are owned by others.

Multilateral development bank (MDB) means the International Bank for Reconstruction and Development, the

Multilateral Investment Guarantee Agency, the International Finance Corporation, the Inter-American

Development Bank, the Asian Development Bank, the African Development Bank, the European Bank for

Reconstruction and Development, the European Investment Bank, the European Investment Fund, the

Nordic Investment Bank, the Caribbean Development Bank, the Islamic Development Bank, the Council of

Europe Development Bank, and any other multilateral lending institution or regional development bank in

which the U.S. Government is a shareholder or contributing member or which the FCA determines poses

comparable credit risk.

National Bank Act means the National Bank Act (12 U.S.C. 24).

Netting set means a group of transactions with a single counterparty that are subject to a qualifying master

netting agreement or a qualifying cross-product master netting agreement. For purposes of calculating

risk-based capital requirements using the internal models methodology in subpart E of this part, this term

does not cover a transaction:

(1) That is not subject to such a master netting agreement; or

(2) Where the System institution has identified specific wrong-way risk.

Nonqualified allocated equities mean a patronage payment to a member-borrower in the form of stock or

surplus that a System institution retains as equity for the benefit of the membership. A System institution

does not deduct this patronage payment from its current taxable income according to the Internal

Revenue Code sections 1382(b) and 1383. Nonqualified allocated equities also include allocated surplus

in a tax-exempt institution or subsidiary. When a System institution revolves a nonqualified allocation, the

System institution deducts the allocation from its taxable income, if any, and the borrower generally

recognizes the tax liability, if any, as ordinary income. System institutions pay two types of nonqualified

allocated equities through written notices of allocation to the borrowers:

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12 CFR 628.2 “Nonqualified allocated equities” (enhanced display) page 14 of 85
(1) Those subject to revolvement; and

(2) Those not subject to revolvement. The second type for GAAP purposes is generally considered an

equivalent of unallocated surplus and consolidated with unallocated surplus on externally prepared

shareholder reports.

N

th

-to-default credit derivative means a credit derivative that provides credit protection only for the nthdefaulting reference exposure in a group of reference exposures.

Operating entity means a company established to conduct business with clients with the intention of earning a

profit in its own right and that generally produces goods or provides services beyond the business of

investing, reinvesting, holding, or trading in financial assets. All System banks, associations, and service

corporations, and all unincorporated business entities, are operating entities.

Original maturity with respect to an off-balance sheet commitment means the length of time between the date a

commitment is issued and:

(1) For a commitment that is not subject to extension or renewal, the stated expiration date of the

commitment; or

(2) For a commitment that is subject to extension or renewal, the earliest date on which the System

institution can, at its option, unconditionally cancel the commitment.

Originating System institution, with respect to a securitization, means a System institution that:

(1) Directly or indirectly originated the underlying exposures included in the securitization; or

(2) [Reserved]

Other financing institution (OFI) means any entity referred to in section 1.7(b)(1)(B) of the Farm Credit Act.

Over-the-counter (OTC) derivative contract means a derivative contract that is not a cleared transaction.

Participation certificate means borrower stock held by a borrower or customer of a System institution that does

not have voting rights.

Patronage payment means a cash declaration or equity allocation to member-borrowers that pursuant to

Internal Revenue Code section 1381(a) is based on a System institution's net income and allocated to

borrowers based on business conducted with the institution. Patronage payments may be paid as cash,

allocated equity (stock or surplus), or a combination of cash and allocated equity.

Performance standby letter of credit (or performance bond) means an irrevocable obligation of a System

institution to pay a third-party beneficiary when a customer (account party) fails to perform on any

contractual nonfinancial or commercial obligation. To the extent permitted by law or regulation,

performance standby letters of credit include arrangements backing, among other things; subcontractors'

and suppliers' performance, labor; and materials contracts, and construction bids.

Protection amount (P) means, with respect to an exposure hedged by an eligible guarantee or eligible credit

derivative, the effective notional amount of the guarantee or credit derivative, reduced to reflect any

currency mismatch, maturity mismatch, or lack of restructuring coverage (as provided in § 628.36).

Publicly traded means traded on:

(1) Any exchange registered with the Securities and Exchange Commission (SEC) as a national

securities exchange under section 6 of the Securities Exchange Act; or

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “Publicly traded” (1) (enhanced display) page 15 of 85
(2) Any non-U.S.-based securities exchange that:

(i) Is registered with, or approved by, a national securities regulatory authority; and

(ii) Provides a liquid, two-way market for the instrument in question.

Public sector entity (PSE) means a state, local authority, or other governmental subdivision below the sovereign

level.

Qualified allocated equities means patronage allocated to a member-borrower, in the form of stock or surplus,

that a System institution retains as equity for the benefit of the membership. A System institution can

deduct this patronage from its current taxable income provided that the borrower has agreed to include

the patronage in its taxable income. A System institution must pay at least 20 percent of a qualified

patronage payment in cash to borrowers. A System institution must provide the borrowers with a qualified

written notice of allocation when they allocate qualified patronage payments pursuant to Internal Revenue

Code section 1381(b) and 1388(c). A System institution revolves qualified allocated equities according to

a board-approved plan.

Qualifying central counterparty (QCCP) means a central counterparty that:

(1)

(i) Is a designated financial market utility (FMU), as defined in section 803 of the Dodd-Frank Act;

(ii) If not located in the United States, is regulated and supervised in a manner equivalent to a

designated FMU; or

(iii) Meets the following standards:

(A) The central counterparty requires all parties to contracts cleared by the counterparty to be

fully collateralized on a daily basis;

(B) The System institution demonstrates to the satisfaction of the FCA that the central

counterparty:

(1) Is in sound financial condition;

(2) Is subject to supervision by the Board, the CFTC, or the Securities Exchange

Commission (SEC), or, if the central counterparty is not located in the United States,

is subject to effective oversight by a national supervisory authority in its home

country; and

(3) Meets or exceeds the risk-management standards for central counterparties set forth

in regulations established by the Board, the CFTC, or the SEC under title VII or title VIII

of the Dodd-Frank Act; or if the central counterparty is not located in the United

States, meets or exceeds similar risk-management standards established under the

law of its home country that are consistent with international standards for central

counterparty risk management as established by the relevant standard setting body

of the Bank of International Settlements; and

(2)

(i) Provides the System institution with the central counterparty's hypothetical capital requirement

or the information necessary to calculate such hypothetical capital requirement, and other

information the System institution is required to obtain under § 628.35(d)(3);

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.2 “Publicly traded” (2)

12 CFR 628.2 “Qualifying central counterparty (QCCP)” (2)(i) (enhanced display) page 16 of 85
(ii) Makes available to the FCA and the CCP's regulator the information described in paragraph

(2)(i) of this definition; and

(iii) Has not otherwise been determined by the FCA to not be a QCCP due to its financial condition,

risk profile, failure to meet supervisory risk management standards, or other weaknesses or

supervisory concerns that are inconsistent with the risk weight assigned to qualifying central

counterparties under § 628.35.

(3) A QCCP that fails to meet the requirements of a QCCP in the future may still be treated as a QCCP

under the conditions specified in § 628.3(f).

Qualifying master netting agreement means a written, legally enforceable agreement provided that:

(1) The agreement creates a single legal obligation for all individual transactions covered by the

agreement upon an event of default following any stay permitted by paragraph (2) of this definition,

including upon an event of receivership, conservatorship, insolvency, liquidation, or similar

proceeding, of the counterparty;

(2) The agreement provides the System institution the right to accelerate, terminate, and close-out on a

net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an

event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or

similar proceeding, of the counterparty, provided that, in any such case:

(i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in

the relevant jurisdictions, other than:

(A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act,

Title II of the Dodd-Frank Act, or under any similar insolvency law applicable to GSEs, or

laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in

this paragraph (2)(i)(A) in order to facilitate the orderly resolution of the defaulting

counterparty; or

(B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced

in paragraph (2)(i)(A) of this definition; and

(ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all

transactions under the agreement and to liquidate or set-off collateral promptly upon an event

of default of the counterparty to the extent necessary for the counterparty to comply with the

requirements of part 47, subpart I of part 252, or part 382 of this title, as applicable;

(3) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting

counterparty to make a lower payment than it otherwise would make under the agreement, or no

payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the

defaulter is a net creditor under the agreement); and

(4) In order to recognize an agreement as a qualifying master netting agreement for purposes of this

subpart, a System institution must comply with the requirements of § 628.3(d) with respect to that

agreement.

Repo-style transaction means a repurchase or reverse repurchase transaction, or a securities borrowing or

securities lending transaction, including a transaction in which the System institution acts as agent for a

customer and indemnifies the customer against loss, provided that:

(1) The transaction is based solely on liquid and readily marketable securities, cash, or gold;

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.2 “Qualifying central counterparty (QCCP)” (2)(ii)

12 CFR 628.2 “Repo-style transaction” (1) (enhanced display) page 17 of 85
(2) The transaction is marked-to-fair value daily and subject to daily margin maintenance requirements;

(3)

(i) The transaction is a “securities contract” or “repurchase agreement” under section 555 or 559,

respectively, of the Bankruptcy Code (11 U.S.C. 555 or 559), a qualified financial contract under

section 11(e)(8) of the Federal Deposit Insurance Act, or a netting contract between or among

financial institutions under sections 401–407 of the Federal Deposit Insurance Corporation

Improvement Act or the Federal Reserve's Regulation EE (12 CFR part 231); or

(ii) If the transaction does not meet the criteria set forth in paragraph (3)(i) of this definition, then

either:

(A) The transaction is executed under an agreement that provides the System institution the

right to accelerate, terminate, and close-out the transaction on a net basis and to liquidate

or set-off collateral promptly upon an event of default, including upon an event of

receivership, insolvency, liquidation, or similar proceeding, of the counterparty, provided

that, in any such case:

(1) Any exercise of rights under the agreement will not be stayed or avoided under

applicable law in the relevant jurisdictions, other than:

(i) In receivership, conservatorship, or resolution under the Federal Deposit

Insurance Act, Title II of the Dodd-Frank Act, or under any similar insolvency law

applicable to GSEs, or laws of foreign jurisdictions that are substantially similar

to the U.S. laws referenced in this paragraph (3)(ii)(A)(1)(i) in order to facilitate

the orderly resolution of the defaulting counterparty;

(ii) Where the agreement is subject by its terms to, or incorporates, any of the laws

referenced in paragraph (3)(ii)(A)(1)(i) of this definition; and

(2) The agreement may limit the right to accelerate, terminate, and close-out on a net

basis all transactions under the agreement and to liquidate or set-off collateral

promptly upon an event of default of the counterparty to the extent necessary for the

counterparty to comply with the requirements of part 47, subpart I of part 252, or part

382 of this title, as applicable; or

(B) The transaction is:

(1) Either overnight or unconditionally cancelable at any time by the System institution;

and

(2) Executed under an agreement that provides the System institution the right to

accelerate, terminate, and close-out the transaction on a net basis and to liquidate or

set-off collateral promptly upon an event of counterparty default; and

(4) In order to recognize an exposure as a repo-style transaction for purposes of this subpart, a System

institution must comply with the requirements of § 628.3(e) with respect to that exposure.

Resecuritization means a securitization which has more than one underlying exposure and in which one or more

of the underlying exposures is a securitization exposure.

Resecuritization exposure means:

(1) An on- or off-balance sheet exposure to a resecuritization; or

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.2 “Resecuritization exposure” (1) (enhanced display) page 18 of 85
(2) An exposure that directly or indirectly references a resecuritization exposure.

Residential mortgage exposure means an exposure (other than a securitization exposure or equity exposure)

that is:

(1) An exposure that is primarily secured by a first or subsequent lien on one-to-four family residential

property, provided that the dwelling (including attached components such as garages, porches, and

decks) represents at least 50 percent of the total appraised value of the collateral secured by the

first or subsequent lien; or

(2) [Reserved]

Revenue obligation means a bond or similar obligation that is an obligation of a PSE, but which the PSE is

committed to repay with revenues from the specific project financed rather than general tax funds.

Savings and loan holding company means a savings and loan holding company as defined in section 10 of the

Home Owners' Loan Act (12 U.S.C. 1467a).

Securities and Exchange Commission (SEC) means the U.S. Securities and Exchange Commission.

Securities Exchange Act means the Securities Exchange Act of 1934 (15 U.S.C. 78).

Securitization exposure means:

(1) An on-balance sheet or off-balance sheet credit exposure (including credit-enhancing

representations and warranties) that arises from a traditional securitization or synthetic

securitization (including a resecuritization); or

(2) An exposure that directly or indirectly references a securitization exposure described in paragraph (1)

of this definition.

Securitization special purpose entity (securitization SPE) means a corporation, trust, or other entity organized for

the specific purpose of holding underlying exposures of a securitization, the activities of which are limited

to those appropriate to accomplish this purpose, and the structure of which is intended to isolate the

underlying exposures held by the entity from the credit risk of the seller of the underlying exposures to the

entity.

Servicer cash advance facility means a facility under which the servicer of the underlying exposures of a

securitization may advance cash to ensure an uninterrupted flow of payments to investors in the

securitization, including advances made to cover foreclosure costs or other expenses to facilitate the

timely collection of the underlying exposures.

Small Business Act means the Small Business Act (15 U.S.C. 632).

Small Business Investment Act means the Small Business Investment Act of 1958 (15 U.S.C. 682).

Sovereign means a central government (including the U.S. Government) or an agency, department, ministry, or

central bank of a central government.

Sovereign default means noncompliance by a sovereign with its external debt service obligations or the inability

or unwillingness of a sovereign government to service an existing loan according to its original terms, as

evidenced by failure to pay principal and interest timely and fully, arrearages, or restructuring.

Sovereign exposure means:

(1) A direct exposure to a sovereign; or

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.2 “Resecuritization exposure” (2)

12 CFR 628.2 “Sovereign exposure” (1) (enhanced display) page 19 of 85
(2) An exposure directly and unconditionally backed by the full faith and credit of a sovereign.

Standardized total risk-weighted assets means:

(1) The sum of:

(i) Total risk-weighted assets for general credit risk as calculated under § 628.31;

(ii) Total risk-weighted assets for cleared transactions as calculated under § 628.35;

(iii) Total risk-weighted assets for unsettled transactions as calculated under § 628.38;

(iv) Total risk-weighted assets for securitization exposures as calculated under § 628.42;

(v) Total risk-weighted assets for equity exposures as calculated under §§ 628.52 and 628.53;

minus

(vi) [Reserved]

(2) Any amount of the System institution's adjusted allowance for credit losses that is not included in

tier 2 capital.

Subsidiary means, with respect to a company, a company controlled by that company.

Synthetic exposure means an exposure whose value is linked to the value of an investment in the System

institution's own capital instrument.

Synthetic securitization means a transaction in which:

(1) All or a portion of the credit risk of one or more underlying exposures is retained or transferred to one

or more third parties through the use of one or more credit derivatives or guarantees (other than a

guarantee that transfers only the credit risk of an individual retail exposure);

(2) The credit risk associated with the underlying exposures has been separated into at least two

tranches reflecting different levels of seniority;

(3) Performance of the securitization exposures depends upon the performance of the underlying

exposures; and

(4) All or substantially all of the underlying exposures are financial exposures (such as loans,

commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed

securities, other debt securities, or equity securities).

System bank means a Farm Credit Bank, an agricultural credit bank, and a bank for cooperatives.

System institution means a System bank, an association of the Farm Credit System, and their successors, and

any other institution chartered by the Farm Credit Administration (FCA) that the FCA determines should be

considered a System institution for the purposes of this subpart.

Tier 1 capital means the sum of common equity tier 1 capital and additional tier 1 capital.

Tier 2 capital is defined in § 628.20(d).

Total capital means the sum of tier 1 capital and tier 2 capital.

Traditional securitization means a transaction in which:

(1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more

third parties other than through the use of credit derivatives or guarantees;

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.2 “Sovereign exposure” (2)

12 CFR 628.2 “Traditional securitization” (1) (enhanced display) page 20 of 85
(2) The credit risk associated with the underlying exposures has been separated into at least two

tranches reflecting different levels of seniority;

(3) Performance of the securitization exposures depends upon the performance of the underlying

exposures;

(4) All or substantially all of the underlying exposures are financial exposures (such as loans,

commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed

securities, other debt securities, or equity securities);

(5) The underlying exposures are not owned by an operating entity;

(6) The underlying exposures are not owned by a rural business investment company described in 7

U.S.C. 2009cc et seq.;

(7) [Reserved]

(8) The FCA may determine that a transaction in which the underlying exposures are owned by an

investment firm that exercises substantially unfettered control over the size and composition of its

assets, liabilities, and off-balance sheet exposures is not a traditional securitization based on the

transaction's leverage, risk profile, or economic substance;

(9) The FCA may deem a transaction that meets the definition of a traditional securitization,

notwithstanding paragraph (5), (6), or (7) of this definition, to be a traditional securitization based on

the transaction's leverage, risk profile, or economic substance; and

(10) The transaction is not:

(i) An investment fund;

(ii) A collective investment fund (as defined in [12 CFR 9.18 (national bank) and 12 CFR 151.40

(Federal saving association) (OCC); 12 CFR 208.34 (Board)];

(iii) An employee benefit plan (as defined in paragraphs (3) and (32) of section 3 of ERISA), a

“governmental plan” (as defined in 29 U.S.C. 1002(32)) that complies with the tax deferral

qualification requirements provided in the Internal Revenue Code, or any similar employee

benefit plan established under the laws of a foreign jurisdiction;

(iv) A synthetic exposure to the capital of a System institution to the extent deducted from capital

under § 628.22; or

(v) Registered with the SEC under the Investment Company Act of 1940 (15 U.S.C. 80a–1) or

foreign equivalents thereof.

Tranche means all securitization exposures associated with a securitization that have the same seniority level.

Two-way market means a market where there are independent bona fide offers to buy and sell so that a price

reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be

determined within 1 day and settled at that price within a relatively short timeframe conforming to trade

custom.

Unallocated retained earnings (URE) means accumulated net income that a System institution has not allocated

to a member-borrower.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.2 “Traditional securitization” (2)

12 CFR 628.2 “Unallocated retained earnings (URE)” (enhanced display) page 21 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54357, Oct. 1, 2021; 87 FR 27493, May 9, 2022]

§ 628.3 Operational requirements for certain exposures.

For purposes of calculating risk-weighted assets under subpart D of this part:

Unallocated retained earnings (URE) equivalents means nonqualified allocated equities, other than equities

allocated to other System institutions, and paid-in capital resulting from a merger of System institutions

or from a repurchase of third-party capital that a System institution:

(1) Designates as URE equivalents at the time of allocation (or on or before March 31, 2017, if allocated

prior to January 1, 2017) and undertakes in its capitalization bylaws or a currently effective board of

directors resolution not to change the designation without prior FCA approval; and

(2) Undertakes, in its capitalization bylaws or a currently effective board of directors resolution, not to

exercise its discretion to revolve except upon dissolution or liquidation and not to offset against a

loan in default except as required under final order of a court of competent jurisdiction or if required

under § 615.5290 of this chapter in connection with a restructuring under part 617 of this chapter.

Unconditionally cancelable means, with respect to a commitment that a System institution may, at any time, with

or without cause, refuse to extend credit under the commitment (to the extent permitted under applicable

law).

Underlying exposures means one or more exposures that have been securitized in a securitization transaction.

U.S. Government agency means an instrumentality of the U.S. Government whose obligations are fully

guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S.

Government.

(a) Cleared transaction. In order to recognize certain exposures as cleared transactions pursuant to

paragraph (1)(ii), (iii), or (iv) of the definition of “cleared transaction” in § 628.2, the exposures must meet

all of the requirements set forth in this paragraph (a).

(1) The offsetting transaction must be identified by the CCP as a transaction for the clearing member

client.

(2) The collateral supporting the transaction must be held in a manner that prevents the System

institution from facing any loss due to an event of default, including from a liquidation, receivership,

insolvency, or similar proceeding of either the clearing member or the clearing member's other

clients. Omnibus accounts established under 17 CFR parts 190 and 300 satisfy the requirements of

this paragraph (a).

(3) The System institution must conduct sufficient legal review to conclude with a well-founded basis

(and maintain sufficient written documentation of that legal review) that in the event of a legal

challenge (including one resulting from a default or receivership, insolvency, liquidation, or similar

proceeding) the relevant court and administrative authorities would find the arrangements of

paragraph (a)(2) of this section to be legal, valid, binding and enforceable under the law of the

relevant jurisdictions.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions

12 CFR 628.2 “Unallocated retained earnings (URE)

equivalents”

12 CFR 628.3(a)(3) (enhanced display) page 22 of 85
(4) The offsetting transaction with a clearing member must be transferable under the transaction

documents and applicable laws in the relevant jurisdiction(s) to another clearing member should the

clearing member default, become insolvent, or enter receivership, insolvency, liquidation, or similar

proceedings.

(b) Eligible margin loan. In order to recognize an exposure as an eligible margin loan as defined in § 628.2, a

System institution must conduct sufficient legal review to conclude with a well-founded basis (and

maintain sufficient written documentation of that legal review) that the agreement underlying the

exposure:

(1) Meets the requirements of paragraph (1)(iii) of the definition of “eligible margin loan” in § 628.2; and

(2) Is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions.

(c) [Reserved]

(d) Qualifying master netting agreement. In order to recognize an agreement as a qualifying master netting

agreement as defined in § 628.2, a System institution must:

(1) Conduct sufficient legal review to conclude with a well-founded basis (and maintain sufficient written

documentation of that legal review) that:

(i) The agreement meets the requirements of paragraph (2) of the definition of “qualifying master

netting agreement” in § 628.2; and

(ii) In the event of a legal challenge (including one resulting from default or from receivership,

insolvency, liquidation, or similar proceeding) the relevant court and administrative authorities

would find the agreement to be legal, valid, binding, and enforceable under the law of the

relevant jurisdictions; and

(2) Establish and maintain written procedures to monitor possible changes in relevant law and to ensure

that the agreement continues to satisfy the requirements of the definition of “qualifying master

netting agreement” in § 628.2.

(e) Repo-style transaction. In order to recognize an exposure as a repo-style transaction as defined in § 628.2,

a System institution must conduct sufficient legal review to conclude with a well-founded basis (and

maintain sufficient written documentation of that legal review) that the agreement underlying the

exposure:

(1) Meets the requirements of paragraph (3) of the definition of “repo-style transaction” in § 628.2, and

(2) Is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions.

(f) Failure of a QCCP to satisfy the rule's requirements. If a System institution determines that a CCP ceases

to be a QCCP due to the failure of the CCP to satisfy one or more of the requirements set forth in

paragraph (2)(i) through (iii) of the definition of a “QCCP” in § 628.2, the System institution may continue

to treat the CCP as a QCCP for up to 3 months following the determination. If the CCP fails to remedy the

relevant deficiency within 3 months after the initial determination, or the CCP fails to satisfy the

requirements set forth in paragraph (2)(i) through (iii) of the definition of a QCCP continuously for a

3-month period after remedying the relevant deficiency, a System institution may not treat the CCP as a

QCCP for the purposes of this part until after the System institution has determined that the CCP has

satisfied the requirements in paragraph (2)(i) through (iii) of the definition of a QCCP for 3 continuous

months.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.3(a)(4)

12 CFR 628.3(f) (enhanced display) page 23 of 85
§§ 628.4-628.9 [Reserved]

Subpart B—Capital Ratio Requirements and Buffers

§ 628.10 Minimum capital requirements.

(a) Computation of regulatory capital ratios. A System institution's regulatory capital ratios are determined on

the basis of the financial statements of the institution prepared in accordance with GAAP using average

daily balances for the most recent 3 months.

(b) Minimum capital requirements. A System institution must maintain the following minimum capital ratios:

(1) A common equity tier 1 (CET1) capital ratio of 4.5 percent.

(2) A tier 1 capital ratio of 6 percent.

(3) A total capital ratio of 8 percent.

(4) A tier 1 leverage ratio of 4 percent, of which at least 1.5 percent must be composed of URE and URE

equivalents.

(5) [Reserved]

(6) A permanent capital ratio of 7 percent.

(c) Capital ratio calculations. A System institution's regulatory capital ratios are as follows:

(1) CET1 capital ratio. A System institution's CET1 capital ratio is the ratio of the System institution's

CET1 capital to total risk-weighted assets;

(2) Tier 1 capital ratio. A System institution's tier 1 capital ratio is the ratio of the System institution's tier

1 capital to total risk-weighted assets;

(3) Total capital ratio. A System institution's total capital ratio is the ratio of the System institution's total

(tier 1 and tier 2) capital to total risk-weighted assets; and

(4) Tier 1 leverage ratio.

(i) A System institution's leverage ratio is the ratio of the institution's tier 1 capital to the

institution's average total consolidated assets as reported on the institution's Call Report net of

deductions and adjustments from tier 1 capital under §§ 628.22(a), (b), and (c) and 628.23.

(ii) To calculate the measure of URE and URE equivalents described in paragraph (b)(4) of this

section, a System institution must adjust URE and URE equivalents to reflect all the deductions

and adjustments required under § 628.22(a), (b), and (c), and must use the denominator of the

tier 1 leverage ratio.

(5) Permanent capital ratio. A System institution's permanent capital ratio is the ratio of the institution's

permanent capital to its total risk-adjusted asset base as reported on the institution's Call Report,

calculated in accordance with the regulations in part 615, subpart H, of this chapter.

(d) [Reserved]

(e) Capital adequacy.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.4-628.9

12 CFR 628.10(e) (enhanced display) page 24 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54358, Oct. 1, 2021]

§ 628.11 Capital buffer amounts.

(1) Notwithstanding the minimum requirements in this part, a System institution must maintain capital

commensurate with the level and nature of all risks to which the System institution is exposed. FCA

may evaluate a System institution's capital adequacy and require the institution to maintain higher

minimum regulatory capital ratios using the factors listed in § 615.5350 of this chapter.

(2) A System institution must have a process for assessing its overall capital adequacy in relation to its

risk profile and a comprehensive strategy for maintaining an appropriate level of capital under §

615.5200 of this chapter.

(a) Capital conservation buffer and leverage buffer —

(1) Composition of the capital conservation buffer and leverage buffer.

(i) The capital conservation buffer for the CET1 capital ratio, tier 1 capital ratio, and total capital

ratio is composed solely of CET1 capital.

(ii) The leverage buffer for the tier 1 leverage ratio is composed solely of tier 1 capital.

(2) Definitions. For purposes of this section, the following definitions apply:

(i) Eligible retained income. The eligible retained income of a System institution is the System

institution's net income for the 4 calendar quarters preceding the current calendar quarter,

based on the System institution's quarterly Call Reports, net of any capital distributions and

associated tax effects not already reflected in net income.

(ii) Maximum payout ratio. The maximum payout ratio is the percentage of eligible retained income

that a System institution can pay out in the form of capital distributions and discretionary

bonus payments during the current calendar quarter. The maximum payout ratio is based on

the System institution's capital conservation buffer, calculated as of the last day of the previous

calendar quarter, as set forth in Table 1 to § 628.11.

(iii) Maximum payout amount. A System institution's maximum payout amount for the current

calendar quarter is equal to the System institution's eligible retained income, multiplied by the

applicable maximum payout ratio, as set forth in Table 1 to § 628.11.

(iv) [Reserved]

(v) Maximum leverage payout ratio. The maximum leverage payout ratio is the percentage of

eligible retained income that a System institution can pay out in the form of capital distributions

and discretionary bonus payments during the current quarter. The maximum leverage payout

ratio is based on the System institution's leverage buffer, calculated as of the last day of the

previous quarter, as set forth in Table 2 to § 628.11.

(vi) Maximum leverage payout amount. A System institution's maximum leverage payout amount for

the current calendar quarter is equal to the System institution's eligible retained income,

multiplied by the applicable maximum leverage payout ratio, as set forth in Table 2 of § 628.11.

(vii) Capital distribution means:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.10(e)(1)

12 CFR 628.11(a)(2)(vii) (enhanced display) page 25 of 85
(A) A reduction of tier 1 capital through the repurchase, redemption, or revolvement of a tier 1

capital instrument or by other means, except when a System institution, within the same

quarter when the repurchase is announced, fully replaces a tier 1 capital instrument it has

repurchased, redeemed, or revolved by issuing a purchased capital instrument that meets

the eligibility criteria for:

(1) A CET1 capital instrument if the instrument being repurchased, redeemed, or revolved

was part of the System institution's CET1 capital; or

(2) A CET1 or AT1 capital instrument if the instrument being repurchased, redeemed, or

revolved was part of the System institution's tier 1 capital;

(B) A reduction of tier 2 capital through the repurchase, redemption prior to maturity, or

revolvement of a tier 2 capital instrument or by other means, except when a System

institution, within the same quarter when the repurchase, redemption, or revolvement is

announced, fully replaces a tier 2 capital instrument it has repurchased, redeemed, or

revolved by issuing a purchased capital instrument that meets the eligibility criteria for a

tier 1 or tier 2 capital instrument;

(C) A dividend declaration or payment on any tier 1 capital instrument;

(D) A dividend declaration or interest payment on any capital instrument other than a tier 1

capital instrument if the System institution has full discretion to permanently or

temporarily suspend such payments without triggering an event of default;

(E) A cash patronage declaration or payment;

(F) A patronage declaration in the form of allocated equities that did not qualify as tier 1 or

tier 2 capital; or

(G) Any similar transaction that the FCA determines to be in substance a distribution of

capital.

(viii) Discretionary bonus payment means a payment made to a senior officer of a System institution,

where:

(A) The System institution retains discretion as to whether to make, and the amount of, the

payment until the payment is awarded to the senior officer;

(B) The amount paid is determined by the System institution without prior promise to, or

agreement with, the senior officer; and

(C) The senior officer has no contractual right, whether express or implied, to the bonus

payment.

(ix) Senior officer means the Chief Executive Officer, the Chief Operations Officer, the Chief Financial

Officer, the Chief Credit Officer, and the General Counsel, or persons in similar positions; and

any other person responsible for a major policy-making function.

(3) Calculation of capital conservation buffer and leverage buffer.

(i) A System institution's capital conservation buffer is equal to the lowest of paragraphs

(a)(3)(i)(A), (B), and (C) of this section, and the leverage buffer is equal to paragraph (a)(3)(i)(D)

of this section, calculated as of the last day of the previous calendar quarter based on the

System institution's most recent Call Report:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.11(a)(2)(vii)(A)

12 CFR 628.11(a)(3)(i) (enhanced display) page 26 of 85
(A) The System institution's CET1 capital ratio minus the System institution's minimum CET1

capital ratio requirement under § 628.10;

(B) The System institution's tier 1 capital ratio minus the System institution's minimum tier 1

capital ratio requirement under § 628.10;

(C) The System institution's total capital ratio minus the System institution's minimum total

capital ratio requirement under § 628.10; and

(D) The System institution's tier 1 leverage ratio minus the System institution's minimum tier 1

leverage ratio requirement under § 628.10.

(ii) Notwithstanding paragraphs (a)(3)(i)(A) through (D) of this section, if the System institution's

CET1 capital ratio, tier 1 capital ratio, total capital ratio or tier 1 leverage ratio is less than or

equal to the System institution's minimum CET1 capital ratio, tier 1 capital ratio, total capital

ratio or tier 1 leverage ratio requirement under § 628.10, respectively, the System institution's

capital conservation buffer or leverage buffer is zero.

(4) Limits on capital distributions and discretionary bonus payments.

(i) A System institution must not make capital distributions or discretionary bonus payments or

create an obligation to make such capital distributions or payments during the current calendar

quarter that, in the aggregate, exceed the maximum payout amount or, as applicable, the

maximum leverage payout amount.

(ii) A System institution that has a capital conservation buffer that is greater than 2.5 percent and a

leverage buffer that is greater than 1.0 percent is not subject to a maximum payout amount or

maximum leverage payout amount under this section.

(iii) Negative eligible retained income. Except as provided in paragraph (a)(4)(iv) of this section, a

System institution may not make capital distributions or discretionary bonus payments during

the current calendar quarter if the System institution's:

(A) Eligible retained income is negative; and

(B) Capital conservation buffer was less than 2.5 percent, or the leverage buffer was less than

1.0 percent, as of the end of the previous calendar quarter.

(iv) Prior approval. Notwithstanding the limitations in paragraphs (a)(4)(i) through (iii) of this

section, FCA may permit a System institution to make a capital distribution or discretionary

bonus payment upon a request of the System institution, if FCA determines that the capital

distribution or discretionary bonus payment would not be contrary to the purposes of this

section, or to the safety and soundness of the System institution. In making such a

determination, FCA will consider the nature and extent of the request and the particular

circumstances giving rise to the request.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.11(a)(3)(i)(A)

12 CFR 628.11(a)(4)(iv) (enhanced display) page 27 of 85
Table 1 to § 628.11—Calculation of Maximum Payout Amount

Capital conservation buffer

Maximum

payout ratio

(as a

percentage

of eligible

retained

income)

>2.500 percent No limitation.

≤2.500 percent, and >1.875 percent 60 percent.

≤1.875 percent, and >1.250 percent 40 percent.

≤1.250 percent, and >0.625 percent 20 percent.

≤0.625 percent 0 percent.

Table 2 to § 628.11—Calculation of Maximum Leverage Payout Amount

Leverage buffer

Maximum

leverage

payout ratio

(as a

percentage

of eligible

retained

income)

>1.00 percent No limitation.

≤1.00 percent, and >0.75 percent 60 percent.

≤0.75 percent, and >0.50 percent 40 percent.

≤0.50 percent, and >0.25 percent 20 percent.

≤0.25 percent 0 percent.

§§ 628.12-628.19 [Reserved]

Subpart C—Definition of Capital

(v) Other limitations on capital distributions. Additional limitations on capital distributions may

apply to a System institution under subpart C of this part and under part 615, subparts L and M,

of this chapter.

(vi) A System institution is subject to the lower of the maximum payout amount as determined

under paragraph (a)(2)(iii) of this section and the maximum leverage payout amount as

determined under paragraph (a)(2)(vi) of this section.

(b) [Reserved]

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.11(a)(4)(v)

12 CFR 628.12-628.19 (enhanced display) page 28 of 85
§ 628.20 Capital components and eligibility criteria for tier 1 and tier 2 capital instruments.

(a) Regulatory capital components. A System institution's regulatory capital components are:

(1) CET1 capital;

(2) AT1 capital; and

(3) Tier 2 capital.

(b) CET1 capital. CET1 capital is the sum of the CET1 capital elements in paragraph (b) of this section, minus

regulatory adjustments and deductions in § 628.22. The CET1 capital elements are:

(1) Any common cooperative equity instrument issued by a System institution that meets all of the

following criteria:

(i) The instrument is paid-in, issued directly by the System institution, and represents the most

subordinated claim in a receivership, insolvency, liquidation, or similar proceeding of the

System institution;

(ii) The holder of the instrument is entitled to a claim on the residual assets of the System

institution after all senior claims have been satisfied in a receivership, insolvency, liquidation, or

similar proceeding;

(iii) The instrument has no maturity date, can be redeemed only at the discretion of the System

institution and with the prior approval of FCA, and does not contain any term or feature that

creates an incentive to redeem;

(iv) The System institution did not create, through any action or communication, an expectation that

it will buy back, cancel, redeem, or revolve the instrument, and the instrument does not include

any term or feature that might give rise to such an expectation, except that the establishment of

a revolvement period of 7 years or more, or the practice of redeeming or revolving the

instrument no less than 7 years after issuance or allocation, will not be considered to create

such an expectation;

(v) Any cash dividend payments on the instrument are paid out of the System institution's net

income or unallocated retained earnings, and are not subject to a limit imposed by the

contractual terms governing the instrument;

(vi) The System institution has full discretion at all times to refrain from paying any dividends

without triggering an event of default, a requirement to make a payment-in-kind, or an

imposition of any other restrictions on the System institution;

(vii) Dividend payments and other distributions related to the instrument may be paid only after all

legal and contractual obligations of the System institution have been satisfied, including

payments due on more senior claims;

(viii) The holders of the instrument bear losses as they occur before any losses are borne by holders

of preferred stock claims on the System institution and holders of any other claims with priority

over common cooperative equity instruments in a receivership, insolvency, liquidation, or

similar proceeding;

(ix) The instrument is classified as equity under GAAP;

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20

12 CFR 628.20(b)(1)(ix) (enhanced display) page 29 of 85
(x) The System institution, or an entity that the System institution controls, did not purchase or

directly or indirectly fund the purchase of the instrument, except that where there is an

obligation for a member of the institution to hold an instrument in order to receive a loan or

service from the System institution, an amount of that loan equal to no more than $1,000 of the

borrower stock requirement under section 4.3A of the Act will not be considered as a direct or

indirect funding where:

(A) The purpose of the loan is not the purchase of capital instruments of the System

institution providing the loan; and

(B) The purchase or acquisition of one or more member equities of the institution is necessary

in order for the beneficiary of the loan to become a member of the System institution;

(xi) The instrument is not secured, not covered by a guarantee of the System institution, and is not

subject to any other arrangement that legally or economically enhances the seniority of the

instrument;

(xii) The instrument is issued in accordance with applicable laws and regulations and with the

institution's capitalization bylaws;

(xiii) The instrument is reported on the System institution's regulatory financial statements

separately from other capital instruments; and

(xiv) The System institution's capitalization bylaws, or a resolution adopted by its board of directors

under § 628.21, provides that the institution:

(A) Establishes a minimum redemption or revolvement period of 7 years for equities included

in CET1; and

(B) Shall not redeem, revolve, cancel, or remove any equities included in CET1 without prior

approval of the FCA under paragraph (f) of this section, except that the statutory borrower

stock described in paragraph (b)(1)(x) of this section, not to exceed $1,000, may be

redeemed without a minimum period outstanding after issuance and without the prior

approval of the FCA, as long as after the redemption, the System institution continues to

comply with all minimum regulatory capital requirements.

(2) Unallocated retained earnings.

(3) Paid-in capital resulting from a merger of System institutions or repurchase of third-party capital.

(4)–(5) [Reserved]

(c) AT1 capital. AT1 capital is the sum of additional tier 1 capital elements and related surplus, minus the

regulatory adjustments and deductions in §§ 628.22 and 628.23. AT1 capital elements are:

(1) Instruments and related surplus, other than common cooperative equities, that meet the following

criteria:

(i) The instrument is issued and paid-in;

(ii) The instrument is subordinated to general creditors and subordinated debt holders of the

System institution in a receivership, insolvency, liquidation, or similar proceeding;

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(b)(1)(x)

12 CFR 628.20(c)(1)(ii) (enhanced display) page 30 of 85
(iii) The instrument is not secured, not covered by a guarantee of the System institution and not

subject to any other arrangement that legally or economically enhances the seniority of the

instrument;

(iv) The instrument has no maturity date and does not contain a dividend step-up or any other term

or feature that creates an incentive to redeem;

(v) If callable by its terms, the instrument may be called by the System institution only after a

minimum of 5 years following issuance, except that the terms of the instrument may allow it to

be called earlier than 5 years upon the occurrence of a regulatory event that precludes the

instrument from being included in AT1 capital, or a tax event. In addition:

(A) The System institution must receive prior approval from FCA to exercise a call option on

the instrument.

(B) The System institution does not create at issuance of the instrument, through any action

or communication, an expectation that the call option will be exercised.

(C) Prior to exercising the call option, or immediately thereafter, the System institution must

either replace the instrument to be called with an equal amount of instruments that meet

the criteria under paragraph (b) of this section or this paragraph (c),

[3] or demonstrate to

the satisfaction of FCA that following redemption, the System institution will continue to

hold capital commensurate with its risk;

(vi) Redemption or repurchase of the instrument requires prior approval from FCA;

(vii) The System institution has full discretion at all times to cancel dividends or other distributions

on the instrument without triggering an event of default, a requirement to make a payment-inkind, or an imposition of other restrictions on the System institution except in relation to any

distributions to holders of common cooperative equity instruments or other instruments that

are pari passu with the instrument;

(viii) Any distributions on the instrument are paid out of the System institution's net income,

unallocated retained earnings, or surplus related to other AT1 capital instruments;

(ix) The instrument does not have a credit-sensitive feature, such as a dividend rate that is reset

periodically based in whole or in part on the System institution's credit quality, but may have a

dividend rate that is adjusted periodically independent of the System institution's credit quality,

in relation to general market interest rates or similar adjustments;

(x) The paid-in amount is classified as equity under GAAP;

(xi) The System institution did not purchase or directly or indirectly fund the purchase of the

instrument;

(xii) The instrument does not have any features that would limit or discourage additional issuance of

capital by the System institution, such as provisions that require the System institution to

compensate holders of the instrument if a new instrument is issued at a lower price during a

specified timeframe; and

(xiii) [Reserved]

[3] Replacement can be concurrent with redemption of existing AT1 capital instruments.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(c)(1)(iii)

12 CFR 628.20(c)(1)(xiii) (enhanced display) page 31 of 85
(xiv) The System institution's capitalization bylaws, or a resolution adopted by its board of directors

under § 628.21, provides that the institution:

(A) Establishes a minimum redemption or no-call period of 5 years for equities included in

additional tier 1; and

(B) Shall not redeem, revolve, cancel, or remove any equities included in additional tier 1

capital without prior approval of the FCA under paragraph (f) of this section.

(2)–(3) [Reserved]

(4) Notwithstanding the criteria for AT1 capital instruments referenced in paragraph (c)(1) of this

section:

(i) [Reserved]

(ii) An instrument with terms that provide that the instrument may be called earlier than 5 years

upon the occurrence of a rating agency event does not violate the criterion in paragraph

(c)(1)(v) of this section provided that the instrument was issued and included in a System

institution's core surplus capital prior to January 1, 2017, and that such instrument satisfies all

other criteria under this § 628.20(c).

(d) Tier 2 Capital. Tier 2 capital is the sum of tier 2 capital elements and any related surplus minus regulatory

adjustments and deductions in §§ 628.22 and 628.23. Tier 2 capital elements are:

(1) Instruments (plus related surplus) that meet the following criteria:

(i) The instrument is issued and paid-in;

(ii) The instrument is subordinated to general creditors of the System institution;

(iii) The instrument is not secured, not covered by a guarantee of the System institution and not

subject to any other arrangement that legally or economically enhances the seniority of the

instrument in relation to more senior claims;

(iv) The instrument has a minimum original maturity of at least 5 years. At the beginning of each of

the last 5 years of the life of the instrument, the amount that is eligible to be included in tier 2

capital is reduced by 20 percent of the original amount of the instrument (net of redemptions)

and is excluded from regulatory capital when the remaining maturity is less than 1 year. In

addition, the instrument must not have any terms or features that require, or create significant

incentives for, the System institution to redeem the instrument prior to maturity;[4]

(v) The instrument, by its terms, may be called by the System institution only after a minimum of 5

years following issuance, except that the terms of the instrument may allow it to be called

sooner upon the occurrence of an event that would preclude the instrument from being

included in tier 2 capital, or a tax event. In addition:

(A) The System institution must receive the prior approval of FCA to exercise a call option on

the instrument.

[4] An instrument that by its terms automatically converts into a tier 1 capital instrument prior to five years after

issuance complies with the five-year maturity requirement of this criterion.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(c)(1)(xiv)

12 CFR 628.20(d)(1)(v)(A) (enhanced display) page 32 of 85
(B) The System institution does not create at issuance, through action or communication, an

expectation the call option will be exercised.

(C) Prior to exercising the call option, or immediately thereafter, the System institution must

either: replace any amount called with an equivalent amount of an instrument that meets

the criteria for regulatory capital under this section;[5] or demonstrate to the satisfaction of

FCA that following redemption, the System institution would continue to hold an amount

of capital that is commensurate with its risk;

(vi) The holder of the instrument must have no contractual right to accelerate payment of principal,

dividends, or interest on the instrument, except in the event of a receivership, insolvency,

liquidation, or similar proceeding of the System institution;

(vii) The instrument has no credit-sensitive feature, such as a dividend or interest rate that is reset

periodically based in whole or in part on the System institution's credit standing, but may have a

dividend rate that is adjusted periodically independent of the System institution's credit

standing, in relation to general market interest rates or similar adjustments;

(viii) The System institution has not purchased and has not directly or indirectly funded the purchase

of the instrument, except that where common cooperative equity instruments are held by a

member of the institution in connection with a loan, and the institution funds the acquisition of

such instruments, that loan shall not be considered as a direct or indirect funding where:

(A) The purpose of the loan is not the purchase of capital instruments of the System

institution providing the loan;

(B) The purchase or acquisition of one or more capital instruments of the institution is

necessary in order for the beneficiary of the loan to become a member of the System

institution; and

(C) The capital instruments are in excess of $1,000.

(ix) [Reserved]

(x) Redemption of the instrument prior to maturity or repurchase is at the discretion of the System

institution and requires the prior approval of the FCA;

(xi) The System institution's capitalization bylaws, or a resolution adopted by its board of directors

under § 628.21, provides that the institution:

(A) Establishes a minimum call, redemption or revolvement period of 5 years for equities

included in tier 2 capital; and

(B) Shall not call, redeem, revolve, cancel, or remove any equities included in tier 2 capital

without prior approval of the FCA under paragraph (f) of this section.

(2) [Reserved]

(3) AACL up to 1.25 percent of the System institution's total risk-weighted assets not including any

amount of the AACL.

[5] A System institution may replace tier 2 capital instruments concurrent with the redemption of existing tier 2

capital instruments.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(d)(1)(v)(B)

12 CFR 628.20(d)(3) (enhanced display) page 33 of 85
(4)–(6) [Reserved]

(e) FCA approval of a capital element.

(1) A System institution must receive FCA prior approval to include a capital element (as listed in this

section) in its CET1 capital, AT1 capital, or tier 2 capital unless the element is equivalent, in terms of

capital quality and ability to absorb losses with respect to all material terms, to a regulatory capital

element FCA determined may be included in regulatory capital pursuant to paragraph (e)(3) of this

section.

(i)–(ii) [Reserved]

(2) [Reserved]

(3) After determining that a regulatory capital element may be included in a System institution's CET1

capital, AT1 capital, or tier 2 capital, FCA will make its decision publicly available.

(f) FCA prior approval of capital redemptions and dividends included in tier 1 and tier 2 capital.

(1) Subject to the provisions of paragraphs (f)(5) and (6) of this section, a System institution must

obtain the prior approval of the FCA before paying cash dividend payments, cash patronage

payments, or redeeming equities included in tier 1 or tier 2 capital, other than term equities

redeemed on their maturity date.

(2) At least 30 days prior to the intended action, the System institution must submit a request for

approval to the FCA. The FCA's 30-day review period begins on the date on which the FCA receives

the request.

(3) The request is deemed to be granted if the FCA does not notify the System institution to the contrary

before the end of the 30-day review period.

(4)

(i) A System institution may request advance approval to cover several anticipated cash dividend

or patronage payments, or equity redemptions, provided that the institution projects sufficient

current net income during those periods to support the amount of the cash dividend or

patronage payments and equity redemptions. In determining whether to grant advance

approval, the FCA will consider:

(A) The reasonableness of the institution's request, including its historical and projected cash

dividend and patronage payments and equity redemptions;

(B) The institution's historical trends and current projections for capital growth through

earnings retention;

(C) The overall condition of the institution, with particular emphasis on current and projected

capital adequacy as described in § 628.10(e); and

(D) Any other information that the FCA deems pertinent to reviewing the institution's request.

(ii) After considering these standards, the FCA may grant advance prior approval of an institution's

request to pay cash dividends and patronage or to redeem or revolve equity. Notwithstanding

any such approval, an institution may not declare a dividend or patronage payment or redeem

or revolve equities if, after such declaration, redemption, or revolvement, the institution would

not meet its regulatory capital requirements set forth in this part and part 615 of this chapter.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(d)(4)

12 CFR 628.20(f)(4)(ii) (enhanced display) page 34 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54359, Oct. 1, 2021; 87 FR 27493, May 9, 2022]

§ 628.21 Capital bylaw or board resolution to include equities in tier 1 and tier 2 capital.

In order to include otherwise eligible purchased and allocated equities in tier 1 capital and tier 2 capital, the System

institution must adopt a capitalization bylaw, or its board of directors must adopt a binding resolution, which

resolution must be acknowledged by the board on an annual basis in the capital adequacy plan described in §

615.5200, in which the institution undertakes the following, as applicable:

(5) Subject to any capital distribution restrictions specified in § 628.11, a System institution is deemed

to have FCA prior approval for revolvements and redemptions of common cooperative equities, for

cash dividend payments on all equities, and for cash patronage payments on all cooperative equities,

provided that:

(i) For redemptions or revolvements of common cooperative equities included in CET1 capital or

tier 2 capital, other than as provided in paragraph (f)(6) of this section, the institution issued or

allocated such equities at least 7 years ago for CET1 capital and at least 5 years ago for tier 2

capital;

(ii) After such cash payments have been declared and defined by resolution of the board, the dollar

amount of the System institution's CET1 capital at quarter-end equals or exceeds the dollar

amount of CET1 capital on the same quarter-end in the previous calendar year; and

(iii) The System institution continues to comply with all regulatory capital requirements and

supervisory or enforcement actions.

(6) The following equities are eligible to be redeemed or revolved under paragraph (f)(5)(i) of this section

in less than the applicable minimum required holding period (7 years for CET1 inclusion and 5 years

for tier 2 inclusion), provided that the requirements of paragraphs (f)(5)(ii) and (iii) of this section are

met:

(i) Equities mandated to be redeemed or retired by a final order of a court of competent

jurisdiction;

(ii) Equities held by the estate of a deceased former borrower; and

(iii) Equities that the institution is required to cancel under § 615.5290 of this chapter in connection

with a restructuring under part 617 of this chapter.

(a) The institution shall obtain prior FCA approval under § 628.20(f) before:

(1) Redeeming or revolving the equities included in common equity tier 1 (CET1) capital;

(2) Redeeming or calling the equities included in additional tier 1 capital; and

(3) Redeeming, revolving, or calling instruments included in tier 2 capital other than limited life preferred

stock or subordinated debt on the maturity date.

(b) The equities shall have a minimum redemption or revolvement period as follows:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.20(f)(5)

12 CFR 628.21(b) (enhanced display) page 35 of 85
[86 FR 54359, Oct. 1, 2021]

§ 628.22 Regulatory capital adjustments and deductions.

(1) 7 years for equities included in CET1 capital, except that the statutory borrower stock described in §

628.20(b)(1)(x) may be redeemed without a minimum holding period and that equities designated as

unallocated retained earnings (URE) equivalents cannot be revolved without submitting a written

request to the FCA for prior approval;

(2) a minimum no-call, repurchase, or redemption period of 5 years for additional tier 1 capital; and

(3) a minimum no-call, repurchase, redemption, or revolvement period of 5 years for tier 2 capital.

(c) The institution shall submit to FCA a written request for prior approval before:

(1) Redesignating URE equivalents as equities that the institution may exercise its discretion to redeem

other than upon dissolution or liquidation;

(2) Removing equities or other instruments from CET1, additional tier 1, or tier 2 capital other than

through repurchase, cancellation, redemption or revolvement; and

(3) Redesignating equities included in one component of regulatory capital (CET1 capital, additional tier

1 capital, or tier 2 capital) for inclusion in another component of regulatory capital.

(d) The institution shall not exercise its discretion to revolve URE equivalents except upon dissolution or

liquidation and shall not offset URE equivalents against a loan in default except as required under final

order of a court of competent jurisdiction or if required under § 615.5290 in connection with a

restructuring under part 617 of this chapter.

(e) The minimum redemption and revolvement period (holding period) for purchased and allocated equities

starts on the common cooperative equity issuance date, as defined in § 628.2.

(a) Regulatory capital deductions from CET1 capital. A System institution must deduct from the sum of its

CET1 capital elements the items set forth in this paragraph (a):

(1) Goodwill, net of associated deferred tax liabilities (DTLs) in accordance with paragraph (e) of this

section;

(2) Intangible assets, other than mortgage servicing assets (MSAs), net of associated DTLs in

accordance with paragraph (e) of this section;

(3) Deferred tax assets (DTAs) that arise from net operating loss and tax credit carryforwards net of any

related valuation allowances and net of DTLs in accordance with paragraph (e) of this section;

(4) Any gain-on-sale in connection with a securitization exposure;

(5) Any defined benefit pension fund net asset, net of any associated DTL in accordance with paragraph

(e) of this section, except that, with FCA prior approval, this deduction is not required for any defined

benefit pension fund net asset to the extent the institution has unrestricted and unfettered access to

the assets in that fund;

(6) The System institution's allocated equity investment in another System institution or service

corporation; and

(7) [Reserved]

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.21(b)(1)

12 CFR 628.22(a)(7) (enhanced display) page 36 of 85
(8) If, without the required prior FCA approval, the System institution redeems or revolves purchased or

allocated equities included in its CET1 capital that have been outstanding for less than 7 years, the

FCA may take appropriate supervisory or enforcement actions against the institution, which may

include requiring the institution to deduct a portion of its purchased and allocated equities from

CET1 capital.

(b) Regulatory adjustments to CET1 capital.

(1) Any accrual of a patronage or dividend payable or receivable recognized in the financial statements

prior to a related board declaration or resolution must be reversed to or from unallocated retained

earnings for purposes of calculating CET1 capital.

(2) [Reserved]

(c) Deductions from regulatory capital.

[6]

(1) [Reserved]

(2) Corresponding deduction approach. For purposes of subpart C of this part, the corresponding

deduction approach is the methodology used for the deductions from regulatory capital related to

purchased equity investments in another System institution (as described in paragraph (c)(5) of this

section). Under the corresponding deduction approach, a System institution must make deductions

from the component of capital for which the underlying instrument would qualify if it were issued by

the System institution itself. If the System institution does not have a sufficient amount of a specific

component of capital to effect the required deduction, the shortfall must be deducted according to

paragraph (f) of this section.

(i)–(iii) [Reserved]

(3)–(4) [Reserved]

(5) Purchased equity investments in another System institution. System institutions must deduct all

purchased equity investments in another System institution, service corporation, or the Funding

Corporation by applying the corresponding deduction approach. The deductions described in this

section are net of associated DTLs in accordance with paragraph (e) of this section. With prior

written approval of FCA, for the period stipulated by FCA, a System institution is not required to

deduct an investment in the capital of another institution in distress if such investment is made to

provide financial support to the System institution as determined by FCA.

(d) [Reserved]

(e) Netting of DTLs against assets subject to deduction.

(1) The netting of DTLs against assets that are subject to deduction under this section is required, if the

following conditions are met:

(i) The DTL is associated with the asset; and

(ii) The DTL would be extinguished if the associated asset becomes impaired or is derecognized

under GAAP.

[6] The System institution must calculate amounts deducted under paragraphs (c) through (f) of this section

and § 628.23 after it calculates the amount of AACL includable in tier 2 capital under § 628.20(d)(3).

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.22(a)(8)

12 CFR 628.22(e)(1)(ii) (enhanced display) page 37 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54360, Oct. 1, 2021; 87 FR 27493, May 9, 2022]

§ 628.23 Limit on inclusion of third-party capital in total (tier 1 and tier 2) capital.

The combined amount of third-party capital instruments that a System institution may include in total (tier 1 and tier

2) capital is equal to the greater of the following:

§§ 628.24-628.29 [Reserved]

Subpart D—Risk-Weighted Assets—Standardized Approach

§ 628.30 Applicability.

RISK-WEIGHTED ASSETS FOR GENERAL CREDIT RISK

(2) A DTL may only be netted against a single asset.

(3)–(4) [Reserved]

(5) A System institution must net DTLs against assets subject to deduction under this section in a

consistent manner from reporting period to reporting period.

(f) Insufficient amounts of a specific regulatory capital component to effect deductions. Under the

corresponding deduction approach, if a System institution does not have a sufficient amount of a specific

component of capital to effect the required deduction after completing the deductions required under

paragraph (c) of this section, the System institution must deduct the shortfall from the next higher (that is,

more subordinated) component of regulatory capital.

(g) Treatment of assets that are deducted. A System institution must exclude from total risk-weighted assets

any item deducted from regulatory capital under paragraphs (a) and (c) of this section.

(h) [Reserved]

(a) The then existing limit, if any; or

(b) The lesser of:

(1) Forty percent of total capital, calculated by taking two thirds of the average of the previous 4

quarters of total capital reported on the institution's Call Report filed with the FCA, less any amounts

of third-party capital reported in total capital; or

(2) The average of the previous 4 quarters of CET1 capital reported on its Call Report filed with the FCA.

(c) Treatment of assets that are deducted. A System institution must exclude from total risk-weighted assets

any item deducted from regulatory capital under this section.

(a) This subpart sets forth methodologies for determining risk-weighted assets for purposes of the generally

applicable risk-based capital requirements for all System institutions.

(b) [Reserved]

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.22(e)(2)

12 CFR 628.30(b) (enhanced display) page 38 of 85
§ 628.31 Mechanics for calculating risk-weighted assets for general credit risk.

§ 628.32 General risk weights.

(a) General risk-weighting requirements. A System institution must apply risk weights to its exposures as

follows:

(1) A System institution must determine the exposure amount of each on-balance sheet exposure, each

OTC derivative contract, and each off-balance sheet commitment, trade and transaction-related

contingency, guarantee, repo-style transaction, financial standby letter of credit, forward agreement,

or other similar transaction that is not:

(i) An unsettled transaction subject to § 628.38;

(ii) A cleared transaction subject to § 628.35;

(iii) [Reserved]

(iv) A securitization exposure subject to §§ 628.41 through 628.45; or

(v) An equity exposure (other than an equity OTC derivative contract) subject to §§ 628.51 through

628.53.

(2) The System institution must multiply each exposure amount by the risk weight appropriate to the

exposure based on the exposure type or counterparty, eligible guarantor, or financial collateral to

determine the risk-weighted asset amount for each exposure.

(b) Total risk-weighted assets for general credit risk equals the sum of the risk-weighted asset amounts

calculated under this section.

(a) Sovereign exposures —

(1) Exposures to the U.S. Government.

(i) Notwithstanding any other requirement in this subpart, a System institution must assign a

0-percent risk weight to:

(A) An exposure to the U.S. Government, its central bank, or a U.S. Government agency; and

(B) The portion of an exposure that is directly and unconditionally guaranteed by the U.S.

Government, its central bank, or a U.S. Government agency. This includes a deposit or

other exposure, or the portion of a deposit or other exposure that is insured or otherwise

unconditionally guaranteed by the Federal Deposit Insurance Corporation or National

Credit Union Administration.

(ii) A System institution must assign a 20-percent risk weight to the portion of an exposure that is

conditionally guaranteed by the U.S. Government, its central bank, or a U.S. Government agency.

This includes an exposure, or the portion of an exposure, that is conditionally guaranteed by the

Federal Deposit Insurance Corporation or National Credit Union Administration.

(2) Other sovereign exposures. In accordance with Table 1 to § 628.32, a System institution must assign

a risk weight to a sovereign exposure based on the Country Risk Classification (CRC) applicable to

the sovereign or the sovereign's Organization for Economic Cooperation and Development (OECD)

membership status if there is no CRC applicable to the sovereign.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.31

12 CFR 628.32(a)(2) (enhanced display) page 39 of 85
Table 1 to § 628.32—Risk Weights for Sovereign Exposures

Risk weight

(in percent)

CRC:

0–1 0

2 20

3 50

4–6 100

7 150

OECD Member with no CRC 0

Non-OECD Member with no CRC 100

Sovereign Default 150

(3) Certain sovereign exposures. Notwithstanding paragraph (a)(2) of this section, a System institution

may assign to a sovereign exposure a risk weight that is lower than the applicable risk weight in

table 1 to § 628.32 if:

(i) The exposure is denominated in the sovereign's currency;

(ii) The System institution has at least an equivalent amount of liabilities in that currency; and

(iii) The risk weight is not lower than the risk weight that the sovereign allows banking

organizations under its jurisdiction to assign to the same exposures to the sovereign.

(4) Exposures to a non-OECD member sovereign with no CRC. Except as provided in paragraphs (a)(3),

(5), and (6) of this section, a System institution must assign a 100-percent risk weight to a sovereign

exposure if the sovereign does not have a CRC.

(5) Exposures to an OECD member sovereign with no CRC. Except as provided in paragraph (a)(6) of this

section, a System institution must assign a 0-percent risk weight to an exposure to a sovereign that

is a member of the OECD if the sovereign does not have a CRC.

(6) Sovereign default. A System institution must assign a 150-percent risk weight to a sovereign

exposure immediately upon determining that an event of sovereign default has occurred, or if an

event of sovereign default has occurred during the previous 5 years.

(b) Certain supranational entities and multilateral development banks (MDBs). A System institution must

assign a 0-percent risk weight to an exposure to the Bank for International Settlements, the European

Central Bank, the European Commission, the International Monetary Fund, or an MDB.

(c) Exposures to Government-sponsored enterprises (GSEs).

(1) A System institution must assign a 20-percent risk weight to an exposure to a GSE other than an

equity exposure or preferred stock.

(2) A System institution must assign a 100-percent risk weight to preferred stock issued by a nonSystem GSE.

(3) Purchased equity investments (including preferred stock investments) in other System institutions

do not receive a risk weight, because they are deducted from capital in accordance with § 628.22.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(a)(3)

12 CFR 628.32(c)(3) (enhanced display) page 40 of 85
Table 2 to § 628.32—Risk Weights for Exposures to Foreign Banks

Risk weight

(in percent)

CRC:

0–1 20

2 50

3 100

4–7 150

OECD Member with No CRC 20

Non-OECD with No CRC 100

Sovereign Default 150

(d) Exposures to depository institutions, foreign banks, and credit unions —

(1) Exposures to U.S. depository institutions and credit unions. A System institution must assign a

20-percent risk weight to an exposure to a depository institution or credit union that is organized

under the laws of the United States or any state thereof, except as otherwise provided in this

paragraph (d). This risk weight applies to an exposure a System bank has to another financing

institution (OFI) that is a depository institution or credit union organized under the laws of the United

States or any state thereof or is owned and controlled by such an entity that guarantees the

exposure. If the OFI exposure does not satisfy these requirements, it must be assigned a risk weight

as a corporate exposure pursuant to paragraph (f)(1)(ii) or (f)(2) of this section.

(2) Exposures to foreign banks.

(i) Except as otherwise provided under paragraph (d)(2)(iv) of this section, a System institution

must assign a risk weight to an exposure to a foreign bank, in accordance with table 2 to §

628.32, based on the CRC rating that corresponds to the foreign bank's home country or the

OECD membership status of the foreign bank's home country if there is no CRC applicable to

the foreign bank's home country.

(ii) A System institution must assign a 20-percent risk weight to an exposure to a foreign bank

whose home country is a member of the OECD and does not have a CRC.

(iii) A System institution must assign a 100-percent risk weight to an exposure to a foreign bank

whose home country is not a member of the OECD and does not have a CRC, with the exception

of self-liquidating, trade-related contingent items that arise from the movement of goods, and

that have a maturity of 3 months or less, which may be assigned a 20-percent risk weight.

(iv) A System institution must assign a 150-percent risk weight to an exposure to a foreign bank

immediately upon determining that an event of sovereign default has occurred in the bank's

home country, or if an event of sovereign default has occurred in the foreign bank's home

country during the previous 5 years.

(3) [Reserved]

(e) Exposures to public sector entities (PSEs) —

(1) Exposures to U.S. PSEs.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(d)

12 CFR 628.32(e)(1) (enhanced display) page 41 of 85
(i) A System institution must assign a 20-percent risk weight to a general obligation exposure to a

PSE that is organized under the laws of the United States or any state or political subdivision

thereof.

(ii) A System institution must assign a 50-percent risk weight to a revenue obligation exposure to a

PSE that is organized under the laws of the United States or any state or political subdivision

thereof.

(2) Exposures to foreign PSEs.

(i) Except as provided in paragraphs (e)(1) and (3) of this section, a System institution must assign

a risk weight to a general obligation exposure to a foreign PSE, in accordance with Table 3 to §

628.32, based on the CRC that corresponds to the PSE's home country or the OECD

membership status of the PSE's home country if there is no CRC applicable to the PSE's home

country.

(ii) Except as provided in paragraphs (e)(1) and (3) of this section, a System institution must assign

a risk weight to a revenue obligation exposure to a foreign PSE, in accordance with Table 4 to §

628.32, based on the CRC that corresponds to the PSE's home country; or the OECD

membership status of the PSE's home country if there is no CRC applicable to the PSE's home

country.

(3) A System institution may assign a lower risk weight than would otherwise apply under tables 3 and 4

to § 628.32 to an exposure to a foreign PSE if:

(i) The PSE's home country supervisor allows banks under its jurisdiction to assign a lower risk

weight to such exposures; and

(ii) The risk weight is not lower than the risk weight that corresponds to the PSE's home country in

accordance with table 1 to § 628.32.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(e)(1)(i)

12 CFR 628.32(e)(3)(ii) (enhanced display) page 42 of 85
Table 3 to § 628.32—Risk Weights for Non-U.S. PSE General Obligations

Risk weight

(in percent)

CRC:

0–1 20

2 50

3 100

4–7 150

OECD Member with No CRC 20

Non-OECD Member with No CRC 100

Sovereign Default 150

Table 4 to § 628.32—Risk Weights for Non-U.S. PSE Revenue Obligations

Risk weight

(in percent)

CRC:

0–1 50

2–3 100

4–7 150

OECD Member with No CRC 50

Non-OECD Member with No CRC 100

Sovereign Default 150

(4) Exposures to PSEs from an OECD member sovereign with no CRC.

(i) A System institution must assign a 20-percent risk weight to a general obligation exposure to a

PSE whose home country is a OECD member sovereign with no CRC.

(ii) A System institution must assign a 50-percent risk weight to a revenue obligation exposure to a

PSE whose country is an OECD member sovereign with no CRC.

(5) Exposures to PSEs whose home country is not an OECD member sovereign with no CRC. A System

institution must assign a 100-percent risk weight to an exposure to a PSE whose home country is not

a member of the OECD and does not have a CRC.

(6) A System institution must assign a 150-percent risk weight to a PSE exposure immediately upon

determining that an event of sovereign default has occurred in a PSE's home country or if an event of

sovereign default has occurred in the PSE's home country during the previous 5 years.

(f) Corporate exposures —

(1) 100-percent risk weight. Except as provided in paragraph (f)(2) of this section, a System institution

must assign a 100-percent risk weight to all its corporate exposures. Assets assigned a risk weight

under this provision include:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(e)(4)

12 CFR 628.32(f)(1) (enhanced display) page 43 of 85
(i) Borrower loans such as agricultural loans and consumer loans, regardless of the corporate

form of the borrower, unless those loans qualify for different risk weights under other

provisions of this subpart D;

(ii) System bank exposures to OFIs that do not satisfy the requirements for a 20-percent risk

weight pursuant to paragraph (d)(1) of this section or a 50-percent risk weight pursuant to

paragraph (f)(2) of this section; and

(iii) Premises, fixed assets, and other real estate owned.

(2) 50-percent risk weight. Unless the OFI satisfies the requirements for a 20-percent risk weight

pursuant to paragraph (d)(1) of this section, a System institution must assign a 50-percent risk

weight to an exposure to an OFI that satisfies at least one of the following requirements:

(i) The OFI is investment grade or is owned and controlled by an investment grade entity that

guarantees the exposure; or

(ii) The OFI meets capital, risk identification and control, and operational standards similar to the

OFIs identified in paragraph (d)(1) of this section.

(g) Residential mortgage exposures.

(1) A System institution must assign a 50-percent risk weight to a first-lien residential mortgage

exposure that:

(i) Is secured by a property that is either owner-occupied or rented;

(ii) Is made in accordance with prudent underwriting standards suitable for residential property,

including standards relating to the loan amount as a percent of the appraised value of the

property;

(iii) Is not 90 days or more past due or carried in nonaccrual status; and

(iv) Is not restructured or modified.

(2) A System institution must assign a 100-percent risk weight to a first-lien residential mortgage

exposure that does not meet the criteria in paragraph (g)(1) of this section, and to junior-lien

residential mortgage exposures.

(3) For the purpose of this paragraph (g), if a System institution holds the first-lien and junior-lien(s)

residential mortgage exposures, and no other party holds an intervening lien, the System institution

must combine the exposures and treat them as a single first-lien residential mortgage exposure.

(4) A loan modified or restructured solely pursuant to the U.S. Treasury's Home Affordable Mortgage

Program is not modified or restructured for purposes of this section.

(h)–(j) [Reserved]

(k) Past due and nonaccrual exposures. Except for a sovereign exposure or a residential mortgage exposure,

a System institution must determine a risk weight for an exposure that is 90 days or more past due or in

nonaccrual status according to the requirements set forth in this paragraph (k).

(1) A System institution must assign a 150-percent risk weight to the portion of the exposure that is not

guaranteed or that is not secured by financial collateral.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(f)(1)(i)

12 CFR 628.32(k)(1) (enhanced display) page 44 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54360, Oct. 1, 2021]

§ 628.33 Off-balance sheet exposures.

(2) A System institution may assign a risk weight to the guaranteed portion of a past due or nonaccrual

exposure based on the risk weight that applies under § 628.36 if the guarantee or credit derivative

meets the requirements of that section.

(3) A System institution may assign a risk weight to the portion of a past due or nonaccrual exposure

that is collateralized by financial collateral based on the risk weight that applies under § 628.37 if the

financial collateral meets the requirements of that section.

(l) Other assets.

(1) A System institution must assign a 0-percent risk weight to cash owned and held in all offices of the

System institution or in transit; to gold bullion held in the System institution's own vaults or held in a

depository institution's vaults on an allocated basis, to the extent the gold bullion assets are offset

by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions (such

as equities, fixed income, spot foreign exchange (FX), and spot commodities) with a central

counterparty where there is no assumption of ongoing counterparty credit risk by the central

counterparty after settlement of the trade.

(2) A System institution must assign a 20-percent risk weight to cash items in the process of collection.

(3) A System institution must assign a 100-percent risk weight to deferred tax assets (DTAs) arising

from temporary differences in relation to net operating loss carrybacks.

(4) A System institution must assign a 100-percent risk weight to all MSAs.

(5) A System institution must assign a 100-percent risk weight to all assets that are not specifically

assigned a different risk weight under this subpart and that are not deducted from tier 1 or tier 2

capital pursuant to § 628.22.

(6) [Reserved]

(a) General.

(1) A System institution must calculate the exposure amount of an off-balance sheet exposure using the

credit conversion factors (CCFs) in paragraph (b) of this section.

(2) Where a System institution commits to provide a commitment, the System institution may apply the

lower of the two applicable CCFs.

(3) Where a System institution provides a commitment structured as a syndication or participation, the

System institution is only required to calculate the exposure amount for its pro rata share of the

commitment.

(4) Where a System institution provides a commitment, enters into a repurchase agreement, or provides

a credit enhancing representation and warranty, and such commitment, repurchase agreement, or

credit-enhancing representation and warranty is not a securitization exposure, the exposure amount

shall be no greater than the maximum contractual amount of the commitment, repurchase

agreement, or credit-enhancing representation and warranty, as applicable.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.32(k)(2)

12 CFR 628.33(a)(4) (enhanced display) page 45 of 85
§ 628.34 OTC derivative contracts.

(5) The exposure amount of a System bank's commitment to an association or OFI is the difference

between the association's or OFI's maximum credit limit with the System bank (as established by the

general financing agreement or promissory note, as required by § 614.4125(d) of this chapter), and

the amount the association or OFI has borrowed from the System bank.

(b) Credit conversion factors —

(1) Zero-percent (0%) CCF. A System institution must apply a 0-percent CCF to a commitment that is

unconditionally cancelable by the System institution.

(2) Twenty-percent (20%) CCF. A System institution must apply a 20-percent CCF to the amount of:

(i) Commitments, other than a System bank's commitment to an association or OFI, with an

original maturity of 14 months or less that are not unconditionally cancelable by the System

institution.

(ii) Self-liquidating, trade-related contingent items that arise from the movement of goods, with an

original maturity of 14 months or less.

(iii) A System bank's commitment to an association or OFI that is not unconditionally cancelable by

the System bank, regardless of maturity.

(3) Fifty-percent (50%) CCF. A System institution must apply a 50-percent CCF to the amount of:

(i) Commitments, other than a System bank's commitment to an association or OFI, with an

original maturity of more than 14 months that are not unconditionally cancelable by the System

institution.

(ii) Transaction-related contingent items, including performance bonds, bid bonds, warranties, and

performance standby letters of credit.

(4) One hundred-percent (100%) CCF. A System institution must apply a 100-percent CCF to the following

off-balance sheet items and other similar transactions:

(i) Guarantees;

(ii) Repurchase agreements (the off-balance sheet component of which equals the sum of the

current fair values of all positions the System institution has sold subject to repurchase);

(iii) Credit-enhancing representations and warranties that are not securitization exposures;

(iv) Off-balance sheet securities lending transactions (the off-balance sheet component of which

equals the sum of the current fair values of all positions the System institution has lent under

the transaction);

(v) Off-balance sheet securities borrowing transactions (the off-balance sheet component of which

equals the sum of the current fair values of all non-cash positions the System institution has

posted as collateral under the transaction);

(vi) Financial standby letters of credit; and

(vii) Forward agreements.

(a) Exposure amount —

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.33(a)(5)

12 CFR 628.34(a) (enhanced display) page 46 of 85
(1) Single OTC derivative contract. Except as modified by paragraph (b) of this section, the exposure

amount for a single OTC derivative contract that is not subject to a qualifying master netting

agreement is equal to the sum of the System institution's current credit exposure and potential future

credit exposure (PFE) on the OTC derivative contract.

(i) Current credit exposure. The current credit exposure for a single OTC derivative contract is the

greater of the mark-to-fair value of the OTC derivative contract or 0.

(ii) PFE.

(A) The PFE for a single OTC derivative contract, including an OTC derivative contract with a

negative mark-to-fair value, is calculated by multiplying the notional principal amount of

the OTC derivative contract by the appropriate conversion factor in Table 1 to § 628.34.

(B) For purposes of calculating either the PFE under this paragraph or the gross PFE under

paragraph (a)(2) of this section for exchange rate contracts and other similar contracts in

which the notional principal amount is equivalent to the cash flows, notional principal

amount is the net receipts to each party falling due on each value date in each currency.

(C) For an OTC derivative contract that does not fall within one of the specified categories in

Table 1 to § 628.34, the PFE must be calculated using the appropriate “other” conversion

factor.

(D) A System institution must use an OTC derivative contract's effective notional principal

amount (that is, the apparent or stated notional principal amount multiplied by any

multiplier in the OTC derivative contract) rather than the apparent or stated notional

principal amount in calculating PFE.

(E) The PFE of the protection provider of a credit derivative is capped at the net present value

of the amount of unpaid premiums.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.34(a)(1)

12 CFR 628.34(a)(1)(ii)(E) (enhanced display) page 47 of 85
Table 1 to § 628.34—Conversion Factor Matrix for Derivative Contracts

1

Remaining maturity2

Interest

rate

Foreign

exchange

rate and

gold

Credit (investment grade reference

asset)3

Credit (non- investment- grade reference

asset) Equity

Precious

metals

(except

gold)

Other

One (1) year or less 0.00 0.01 0.05 0.10 0.06 0.07 0.10

Greater than one (1) year and less than or equal to five

(5) years

0.005 0.05 0.05 0.10 0.08 0.07 0.12

Greater than five (5) years 0.015 0.075 0.05 0.10 0.10 0.08 0.15

1 For a derivative contract with multiple exchanges of principal, the conversion factor is multiplied by the number of remaining payments in the derivative

contract.

2 For an OTC derivative contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the fair

value of the contract is 0, the remaining maturity equals the time until the next reset date. For an interest rate derivative contract with a remaining maturity of

greater than 1 year that meets these criteria, the minimum conversion factor is 0.005.

3 A System institution must use the column labeled “Credit (investment-grade reference asset)” for a credit derivative whose reference asset is an

outstanding unsecured long-term debt security without credit enhancement that is investment grade. A System institution must use the column labeled

“Credit (non-investment-grade reference asset)” for all other credit derivatives.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.34(a)(1)(ii)(E)

12 CFR 628.34(a)(1)(ii)(E) (enhanced display) page 48 of 85
Where:

Agross = the gross PFE (that is, the sum of the PFE amounts (as determined under paragraph (a)(1)(ii)

of this section for each individual derivative contract subject to the qualifying master netting

agreement); and

Net-to-gross Ratio (NGR) = the ratio of the net current credit exposure to the gross current credit

exposure. In calculating the NGR, the gross current credit exposure equals the sum of the positive

current credit exposures (as determined under paragraph (a)(1)(i) of this section) of all individual

derivative contracts subject to the qualifying master netting agreement.

(2) Multiple OTC derivative contracts subject to a qualifying master netting agreement. Except as

modified by paragraph (b) of this section, the exposure amount for multiple OTC derivative contracts

subject to a qualifying master netting agreement is equal to the sum of the net current credit

exposure and the adjusted sum of the PFE amounts for all OTC derivative contracts subject to the

qualifying master netting agreement.

(i) Net current credit exposure. The net current credit exposure is the greater of the net sum of all

positive and negative mark-to-fair values of the individual OTC derivative contracts subject to

the qualifying master netting agreement or 0.

(ii) Adjusted sum of the PFE amounts. The adjusted sum of the PFE amounts, Anet, is calculated

as:

Anet = (0.4×Agross) + (0.6×NGR×Agross)

(b) Recognition of credit risk mitigation of collateralized OTC derivative contracts.

(1) A System institution may recognize the credit risk mitigation benefits of financial collateral that

secures an OTC derivative contract or multiple OTC derivative contracts subject to a qualifying

master netting agreement (netting set) by using the simple approach in § 628.37(b).

(2) Alternatively, if the financial collateral securing a contract or netting set described in paragraph (b)(1)

of this section is marked-to-fair value on a daily basis and subject to a daily margin maintenance

requirement, a System institution may recognize the credit risk mitigation benefits of financial

collateral that secures the contract or netting set by using the collateral haircut approach in §

628.37(c).

(c) Counterparty credit risk for OTC credit derivatives —

(1) Protection purchasers. A System institution that purchases an OTC credit derivative that is

recognized under § 628.36 as a credit risk mitigant is not required to compute a separate

counterparty credit risk capital requirement under § 628.32 provided that the System institution does

so consistently for all such credit derivatives. The System institution must either include all or

exclude all such credit derivatives that are subject to a qualifying master netting agreement from any

measure used to determine counterparty credit risk exposure to all relevant counterparties for riskbased capital purposes.

(2) Protection providers.

(i) A System institution that is the protection provider under an OTC credit derivative must treat the

OTC credit derivative as an exposure to the underlying reference asset. The System institution

is not required to compute a counterparty credit risk capital requirement for the OTC credit

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.34(a)(2)

12 CFR 628.34(c)(2)(i) (enhanced display) page 49 of 85
§ 628.35 Cleared transactions.

derivative under § 628.32, provided that this treatment is applied consistently for all such OTC

credit derivatives. The System institution must either include all or exclude all such OTC credit

derivatives that are subject to a qualifying master netting agreement from any measure used to

determine counterparty credit risk exposure.

(ii) The provisions of paragraph (c)(2) of this section apply to all relevant counterparties for riskbased capital purposes.

(d) Counterparty credit risk for OTC equity derivatives.

(1) A System institution must treat an OTC equity derivative contract as an equity exposure and compute

a risk-weighted asset amount for the OTC equity derivative contract under §§ 628.51 through

628.53.

(2) [Reserved]

(3) If the System institution risk weights the contract under the Simple Risk-Weight Approach (SRWA) in

§ 628.52, the System institution may choose not to hold risk-based capital against the counterparty

credit risk of the OTC equity derivative contract, as long as it does so for all such contracts. Where

the OTC equity derivative contracts are subject to a qualifying master netting agreement, a System

institution using the SRWA must either include all or exclude all of the contracts from any measure

used to determine counterparty credit risk exposure.

(e) [Reserved]

(a) General requirements —

(1) Clearing member clients. A System institution that is a clearing member client must use the

methodologies described in paragraph (b) of this section to calculate risk-weighted assets for a

cleared transaction.

(2) [Reserved]

(b) Clearing member client System institutions —

(1) Risk-weighted assets for cleared transactions.

(i) To determine the risk-weighted asset amount for a cleared transaction, a System institution that

is a clearing member client must multiply the trade exposure amount for the cleared

transaction, calculated in accordance with paragraph (b)(2) of this section, by the risk weight

appropriate for the cleared transaction, determined in accordance with paragraph (b)(3) of this

section.

(ii) A clearing member client System institution's total risk-weighted assets for cleared transactions

is the sum of the risk-weighted asset amounts for all its cleared transactions.

(2) Trade exposure amount.

(i) For a cleared transaction that is either a derivative contract or netting set of derivative

contracts, the trade exposure amount equals:

(A) The exposure amount for the derivative contract or netting set of derivative contracts,

calculated using the current exposure method (CEM) for OTC derivative contracts under §

628.34; plus

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.34(c)(2)(ii)

12 CFR 628.35(b)(2)(i)(A) (enhanced display) page 50 of 85
§ 628.36 Guarantees and credit derivatives: Substitution treatment.

(B) The fair value of the collateral posted by the clearing member client System institution and

held by the central counterparty (CCP), clearing member, or custodian in a manner that is

not bankruptcy remote.

(ii) For a cleared transaction that is a repo-style transaction, the trade exposure amount equals:

(A) The exposure amount for the repo-style transaction calculated using the collateral haircut

methodology under § 628.37(c); plus

(B) The fair value of the collateral posted by the clearing member client System institution and

held by the CCP or a clearing member in a manner that is not bankruptcy remote.

(3) Cleared transaction risk weights.

(i) For a cleared transaction with a qualifying CCP (QCCP), a clearing member client System

institution must apply a risk weight of:

(A) Two (2) percent if the collateral posted by the System institution to the QCCP or clearing

member is subject to an arrangement that prevents any losses to the clearing member

client System institution due to the joint default or a concurrent insolvency, liquidation, or

receivership proceeding of the clearing member and any other clearing member clients of

the clearing member; and the clearing member client System institution has conducted

sufficient legal review to conclude with a well-founded basis (and maintains sufficient

written documentation of that legal review) that in the event of a legal challenge (including

one resulting from default or from liquidation, insolvency, or receivership proceeding) the

relevant court and administrative authorities would find the arrangements to be legal,

valid, binding and enforceable under the law of the relevant jurisdictions; or

(B) Four (4) percent if the requirements of paragraph (b)(3)(i)(A) of this section are not met.

(ii) For a cleared transaction with a CCP that is not a QCCP, a clearing member client System

institution must apply the risk weight appropriate for the CCP according to § 628.32.

(4) Collateral.

(i) Notwithstanding any other requirements in this section, collateral posted by a clearing member

client System institution that is held by a custodian (in its capacity as custodian) in a manner

that is bankruptcy remote from the CCP, the custodian, clearing member and other clearing

member clients of the clearing member, is not subject to a capital requirement under this

section.

(ii) A clearing member client System institution must calculate a risk-weighted asset amount for

any collateral provided to a CCP, clearing member, or custodian in connection with a cleared

transaction in accordance with the requirements under § 628.32.

(c)–(d) [Reserved]

(a) Scope —

(1) General. A System institution may recognize the credit risk mitigation benefits of an eligible

guarantee or eligible credit derivative by substituting the risk weight associated with the protection

provider for the risk weight assigned to an exposure, as provided under this section.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.35(b)(2)(i)(B)

12 CFR 628.36(a)(1) (enhanced display) page 51 of 85
(2) This section applies to exposures for which:

(i) Credit risk is fully covered by an eligible guarantee or eligible credit derivative; or

(ii) Credit risk is covered on a pro rata basis (that is, on a basis in which the System institution and

the protection provider share losses proportionately) by an eligible guarantee or eligible credit

derivative.

(3) Exposures on which there is a tranching of credit risk (reflecting at least two different levels of

seniority) generally are securitization exposures subject to §§ 628.41 through 628.45.

(4) If multiple eligible guarantees or eligible credit derivatives cover a single exposure described in this

section, a System institution may treat the hedged exposure as multiple separate exposures each

covered by a single eligible guarantee or eligible credit derivative and may calculate a separate riskweighted asset amount for each separate exposure as described in paragraph (c) of this section.

(5) If a single eligible guarantee or eligible credit derivative covers multiple hedged exposures described

in paragraph (a)(2) of this section, a System institution must treat each hedged exposure as covered

by a separate eligible guarantee or eligible credit derivative and must calculate a separate riskweighted asset amount for each exposure as described in paragraph (c) of this section.

(b) Rules of recognition.

(1) A System institution may only recognize the credit risk mitigation benefits of eligible guarantees and

eligible credit derivatives.

(2) A System institution may only recognize the credit risk mitigation benefits of an eligible credit

derivative to hedge an exposure that is different from the credit derivative's reference exposure used

for determining the derivative's cash settlement value, deliverable obligation, or occurrence of a

credit event if:

(i) The reference exposure ranks pari passu with, or is subordinated to, the hedged exposure; and

(ii) The reference exposure and the hedged exposure are to the same legal entity, and legally

enforceable cross-default or cross-acceleration clauses are in place to ensure payments under

the credit derivative are triggered when the obligated party of the hedged exposure fails to pay

under the terms of the hedged exposure.

(c) Substitution approach —

(1) Full coverage. If an eligible guarantee or eligible credit derivative meets the conditions in paragraphs

(a) and (b) of this section and the protection amount (P) of the guarantee or credit derivative is

greater than or equal to the exposure amount of the hedged exposure, a System institution may

recognize the guarantee or credit derivative in determining the risk-weighted asset amount for the

hedged exposure by substituting the risk weight applicable to the guarantor or credit derivative

protection provider under § 628.32 for the risk weight assigned to the exposure.

(2) Partial coverage. If an eligible guarantee or eligible credit derivative meets the conditions in §§

628.36(a) and 628.37(b) and the protection amount (P) of the guarantee or credit derivative is less

than the exposure amount of the hedged exposure, the System institution must treat the hedged

exposure as two separate exposures (protected and unprotected) in order to recognize the credit risk

mitigation benefit of the guarantee or credit derivative.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.36(a)(2)

12 CFR 628.36(c)(2) (enhanced display) page 52 of 85
Where:

Pm = effective notional amount of the credit risk mitigant, adjusted for maturity mismatch;

E = effective notional amount of the credit risk mitigant;

t = the lesser of T or the residual maturity of the credit risk mitigant, expressed in years; and

T = the lesser of 5 or the residual maturity of the hedged exposure, expressed in years.

(i) The System institution may calculate the risk-weighted asset amount for the protected

exposure under § 628.32, where the applicable risk weight is the risk weight applicable to the

guarantor or credit derivative protection provider.

(ii) The System institution must calculate the risk-weighted asset amount for the unprotected

exposure under § 628.32, where the applicable risk weight is that of the unprotected portion of

the hedged exposure.

(iii) The treatment provided in this section is applicable when the credit risk of an exposure is

covered on a partial pro rata basis and may be applicable when an adjustment is made to the

effective notional amount of the guarantee or credit derivative under paragraph (d), (e), or (f) of

this section.

(d) Maturity mismatch adjustment.

(1) A System institution that recognizes an eligible guarantee or eligible credit derivative in determining

the risk-weighted asset amount for a hedged exposure must adjust the effective notional amount of

the credit risk mitigant to reflect any maturity mismatch between the hedged exposure and the credit

risk mitigant.

(2) A maturity mismatch occurs when the residual maturity of a credit risk mitigant is less than that of

the hedged exposure(s).

(3) The residual maturity of a hedged exposure is the longest possible remaining time before the

obligated party of the hedged exposure is scheduled to fulfill its obligation on the hedged exposure.

If a credit risk mitigant has embedded options that may reduce its term, the System institution

(protection purchaser) must use the shortest possible residual maturity for the credit risk mitigant. If

a call is at the discretion of the protection provider, the residual maturity of the credit risk mitigant is

at the first call date. If the call is at the discretion of the System institution (protection purchaser),

but the terms of the arrangement at origination of the credit risk mitigant contain a positive incentive

for the System institution to call the transaction before contractual maturity, the remaining time to

the first call date is the residual maturity of the credit risk mitigant.

(4) A credit risk mitigant with a maturity mismatch may be recognized only if its original maturity is

greater than or equal to 1 year and its residual maturity is greater than 3 months.

(5) When a maturity mismatch exists, the System institution must apply the following adjustment to

reduce the effective notional amount of the credit risk mitigant:

Pm = E x [(t−0.25)/(T−0.25)]

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.36(c)(2)(i)

12 CFR 628.36(d)(5) (enhanced display) page 53 of 85
Where:

Pr = effective notional amount of the credit risk mitigant, adjusted for lack of restructuring event (and maturity

mismatch, if applicable); and

Pm = effective notional amount of the credit risk mitigant (adjusted for maturity mismatch, if applicable).

Where:

Pc = effective notional amount of the credit risk mitigant, adjusted for currency mismatch (and maturity

mismatch and lack of restructuring event, if applicable);

Pr = effective notional amount of the credit risk mitigant (adjusted for maturity mismatch and lack of

restructuring event, if applicable); and

Hfx = haircut appropriate for the currency mismatch between the credit risk mitigant and the hedged

exposure.

Where TM equals the greater of 10 or the number of days between revaluation.

(e) Adjustment for credit derivatives without restructuring as a credit event. If a System institution recognizes

an eligible credit derivative that does not include as a credit event a restructuring of the hedged exposure

involving forgiveness or postponement of principal, interest, or fees that results in a credit loss event (that

is, a charge-off, specific provision, or other similar debit to the profit and loss account), the System

institution must apply the following adjustment to reduce the effective notional amount of the credit

derivative:

Pr = Pm x 0.60

(f) Currency mismatch adjustment.

(1) If a System institution recognizes an eligible guarantee or eligible credit derivative that is

denominated in a currency different from that in which the hedged exposure is denominated, the

System institution must apply the following formula to the effective notional amount of the

guarantee or credit derivative:

Pc = Pr x (1–Hfx)

(2) A System institution must set Hfx equal to 8 percent.

(3) A System institution must adjust Hfx calculated in paragraph (f)(2) of this section upward if the

System institution revalues the guarantee or credit derivative less frequently than once every 10

business days using the following square root of time formula:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.36(e)

12 CFR 628.36(f)(3) (enhanced display) page 54 of 85
§ 628.37 Collateralized transactions.

(a) General.

(1) To recognize the risk-mitigating effects of financial collateral, a System institution may use:

(i) The simple approach in paragraph (b) of this section for any exposure.

(ii) The collateral haircut approach in paragraph (c) of this section for repo-style transactions,

eligible margin loans, collateralized derivative contracts, and single-product netting sets of such

transactions.

(2) A System institution may use any approach described in this section that is valid for a particular type

of exposure or transaction; however, it must use the same approach for similar exposures or

transactions.

(b) The simple approach —

(1) General requirements.

(i) A System institution may recognize the credit risk mitigation benefits of financial collateral that

secures any exposure.

(ii) To qualify for the simple approach, the financial collateral must meet the following

requirements:

(A) The collateral must be subject to a collateral agreement for at least the life of the

exposure;

(B) The collateral must be revalued at least every 6 months; and

(C) The collateral (other than gold) and the exposure must be denominated in the same

currency.

(2) Risk-weight substitution.

(i) A System institution may apply a risk weight to the portion of an exposure that is secured by the

fair value of financial collateral (that meets the requirements of paragraph (b)(1) of this section)

based on the risk weight assigned to the collateral under § 628.32. For repurchase agreements,

reverse repurchase agreements, and securities lending and borrowing transactions, the

collateral is the instruments, gold, and cash the System institution has borrowed, purchased

subject to resale, or taken as collateral from the counterparty under the transaction. Except as

provided in paragraph (b)(3) of this section, the risk weight assigned to the collateralized

portion of the exposure may not be less than 20 percent.

(ii) A System institution must apply a risk weight to the unsecured portion of the exposure based

on the risk weight assigned to the exposure under this subpart.

(3) Exceptions to the 20-percent risk-weight floor and other requirements. Notwithstanding paragraph

(b)(2)(i) of this section:

(i) A System institution may assign a 0-percent risk weight to an exposure to an OTC derivative

contract that is marked-to-fair on a daily basis and subject to a daily margin maintenance

requirement, to the extent the contract is collateralized by cash on deposit.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.37

12 CFR 628.37(b)(3)(i) (enhanced display) page 55 of 85
Where:

∑E = for eligible margin loans and repo-style transactions and netting sets thereof, the value of the

exposure (the sum of the current fair values of all instruments, gold, and cash the System institution has

lent, sold subject to repurchase, or posted as collateral to the counterparty under the transaction (or

netting set)); and

∑E = for collateralized derivative contracts and netting sets thereof, the exposure amount of the OTC

derivative contract (or netting set) calculated under § 628.34(c) or (d).

∑C = the value of the collateral (the sum of the current fair values of all instruments, gold and cash the

System institution has borrowed, purchased subject to resale, or taken as collateral from the counterparty

under the transaction (or netting set));

Es = the absolute value of the net position in a given instrument or in gold (where the net position in the

instrument or gold equals the sum of the current fair values of the instrument or gold the System

institution has lent, sold subject to repurchase, or posted as collateral to the counterparty minus the sum

of the current fair values of that same instrument or gold the System institution has borrowed, purchased

subject to resale, or taken as collateral from the counterparty);

Hs = the fair value price volatility haircut appropriate to the instrument or gold referenced in Es;

(ii) A System institution may assign a 10-percent risk weight to an exposure to an OTC derivative

contract that is marked-to-fair value daily and subject to a daily margin maintenance

requirement, to the extent that the contract is collateralized by an exposure to a sovereign that

qualifies for a 0-percent risk weight under § 628.32.

(iii) A System institution may assign a 0-percent risk weight to the collateralized portion of an

exposure where:

(A) The financial collateral is cash on deposit; or

(B) The financial collateral is an exposure to a sovereign that qualifies for a 0-percent risk

weight under § 628.32, and the System institution has discounted the fair value of the

collateral by 20 percent.

(c) Collateral haircut approach —

(1) General. A System institution may recognize the credit risk mitigation benefits of financial collateral

that secures an eligible margin loan, repo-style transaction, collateralized derivative contract, or

single-product netting set of such transactions by using the standard supervisory haircuts in

paragraph (c)(3) of this section.

(2) Exposure amount equation. A System institution must determine the exposure amount for an eligible

margin loan, repo-style transaction, collateralized derivative contract, or a single-product netting set

of such transactions by setting the exposure amount equal to max:

{0, [(∑E—∑C) + ∑(Es x Hs) + ∑(Efx x Hfx)]}

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.37(b)(3)(ii)

12 CFR 628.37(c)(2) (enhanced display) page 56 of 85
Efx = the absolute value of the net position of instruments and cash in a currency that is different from the

settlement currency (where the net position in a given currency equals the sum of the current fair values

of any instruments or cash in the currency the System institution has lent, sold subject to repurchase, or

posted as collateral to the counterparty minus the sum of the current fair values of any instruments or

cash in the currency the System institution has borrowed, purchased subject to resale, or taken as

collateral from the counterparty); and

Hfx = the haircut appropriate to the mismatch between the currency referenced in Efx and the settlement

currency.

Table 1 to § 628.37—Standard Supervisory Market Price Volatility Haircut1

Residual maturity

Haircut (in percent) assigned based on

Investment grade

securitization

exposures

(in percent)

Sovereign issuers risk

weight under § 628.322

Non-sovereign issuers

risk weight under §

628.32

Zero

20% or

−50% 100% 20% 50% 100%

Less than or equal to 1

year

0.5 1.0 15.0 1.0 2.0 25.0 4.0%

Great than 1 years and

less than and equal to 5

years

2.0 3.0 15.0 4.0 6.0 25.0 12.0%

Greater than 5 years 4.0 6.0 15.0 8.0 12.0 25.0 24.0%

Main index equities (including convertible bonds)

and gold

15.0%

Other publically traded equities (including

convertible bonds)

25.0%

Mutual funds Highest haircut applicable to any security in

which the fund can invest

Cash collateral 0%

1 The market price volatility haircut in Table 1 to § 628.37 are based on 10-day holding period.

2

Includes a foreign PSE that receives a 0-percent risk weight.

(3) Standard supervisory haircuts.

(i) A System institution must use the haircuts for fair value price volatility (Hs) provided in Table 1

to § 628.37, as adjusted in certain circumstances in accordance with the requirements of

paragraphs (c)(3)(iii) and (iv) of this section:

(ii) For currency mismatches, a System institution must use a haircut for foreign exchange rate

volatility (Hfx) of 8 percent, as adjusted in certain circumstances under paragraphs (c)(3)(iii)

and (iv) of this section.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.37(c)(3)

12 CFR 628.37(c)(3)(ii) (enhanced display) page 57 of 85
Where:

TM = a holding period of longer than 10 business days for eligible margin loans and derivative contracts or

longer than 5 business days for repo-style transactions;

HS = the standard supervisory haircut; and

TS = 10 business days for eligible margin loans and derivative contracts or 5 business days for repo-style

transactions.

RISK-WEIGHTED ASSETS FOR UNSETTLED TRANSACTIONS

§ 628.38 Unsettled transactions.

(iii) For repo-style transactions, a System institution may multiply the standard supervisory haircuts

provided in paragraphs (c)(3)(i) and (ii) of this section by the square root of 1⁄2 (which equals

0.707107).

(iv) If the number of trades in a netting set exceeds 5,000 at any time during a quarter, a System

institution must adjust the supervisory haircuts provided in paragraphs (c)(3)(i) and (ii) of this

section upward on the basis of a holding period of 20 business days for the following quarter

except in the calculation of the exposure amount for purposes of § 628.35. If a netting set

contains one or more trades involving illiquid collateral or an OTC derivative that cannot be

easily replaced, a System institution must adjust the supervisory haircuts upward on the basis

of a holding period of 20 business days. If over the 2 previous quarters more than two margin

disputes on a netting set have occurred that lasted more than the holding period, then the

System institution must adjust the supervisory haircuts upward for that netting set on the basis

of a holding period that is at least two times the minimum holding period for that netting set. A

System institution must adjust the standard supervisory haircuts upward using the following

formula:

(v) If the instrument a System institution has lent, sold subject to repurchase, or posted as

collateral does not meet the definition of financial collateral in § 628.2, the System institution

must use a 25-percent haircut for fair value price volatility (HS).

(4) [Reserved]

(a) Definitions. For purposes of this section:

(1) Delivery-versus-payment (DvP) transaction means a securities or commodities transaction in which

the buyer is obligated to make payment only if the seller has made delivery of the securities or

commodities and the seller is obligated to deliver the securities or commodities only if the buyer has

made payment.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.37(c)(3)(iii)

12 CFR 628.38(a)(1) (enhanced display) page 58 of 85
Table 1 to § 628.38—Risk Weights for Unsettled DVP and PVP Transactions

Number of business days after contractual settlement

date

Risk weight to be applied to positive current

exposure

(in percent)

From 5 to 15 100.0

From 16 to 30 625.0

From 31 to 45 937.5

46 or more 1,250.0

(2) Payment-versus-payment (PvP) transaction means a foreign exchange transaction in which each

counterparty is obligated to make a final transfer of one or more currencies only if the other

counterparty has made a final transfer of one or more currencies.

(3) A transaction has a normal settlement period if the contractual settlement period for the transaction

is equal to or less than the fair value standard for the instrument underlying the transaction and

equal to or less than 5 business days.

(4) Positive current exposure of a System institution for a transaction is the difference between the

transaction value at the agreed settlement price and the current fair value price of the transaction, if

the difference results in a credit exposure of the System institution to the counterparty.

(b) Scope. This section applies to all transactions involving securities, foreign exchange instruments, and

commodities that have a risk of delayed settlement or delivery. This section does not apply to:

(1) Cleared transactions that are marked-to-fair value daily and subject to daily receipt and payment of

variation margin;

(2) Repo-style transactions, including unsettled repo-style transactions;

(3) One-way cash payments on OTC derivative contracts; or

(4) Transactions with a contractual settlement period that is longer than the normal settlement period

(which are treated as OTC derivative contracts as provided in § 628.34).

(c) System-wide failures. In the case of a system-wide failure of a settlement, clearing system or central

counterparty, the FCA may waive risk-based capital requirements for unsettled and failed transactions

until the situation is rectified.

(d) Delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions. A System institution

must hold risk-based capital against any DvP or PvP transaction with a normal settlement period if the

System institution's counterparty has not made delivery or payment within 5 business days after the

settlement date. The System institution must determine its risk-weighted asset amount for such a

transaction by multiplying the positive current exposure of the transaction for the System institution by

the appropriate risk weight in Table 1 to § 628.38.

(e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-payment) transactions.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.38(a)(2)

12 CFR 628.38(e) (enhanced display) page 59 of 85
§§ 628.39-628.40 [Reserved]

RISK-WEIGHTED ASSETS FOR SECURITIZATION EXPOSURES

§ 628.41 Operational requirements for securitization exposures.

(1) A System institution must hold risk-based capital against any non-DvP/non-PvP transaction with a

normal settlement period if the System institution has delivered cash, securities, commodities, or

currencies to its counterparty but has not received its corresponding deliverables by the end of the

same business day. The System institution must continue to hold risk-based capital against the

transaction until the System institution has received its corresponding deliverables.

(2) From the business day after the System institution has made its delivery until 5 business days after

the counterparty delivery is due, the System institution must calculate the risk-weighted asset

amount for the transaction by treating the current fair value of the deliverables owed to the System

institution as an exposure to the counterparty and using the applicable counterparty risk weight

under § 628.32.

(3) If the System institution has not received its deliverables by the 5th business day after counterparty

delivery was due, the System institution must assign a 1,250-percent risk weight to the current fair

value of the deliverables owed to the System institution.

(f) Total risk-weighted assets for unsettled transactions. Total risk-weighted assets for unsettled transactions

is the sum of the risk-weighted asset amounts of all DvP, PvP, and non-DvP/non-PvP transactions.

(a) Operational criteria for traditional securitizations. A System institution that transfers exposures it has

originated or purchased to a third party in connection with a traditional securitization may exclude the

exposures from the calculation of its risk-weighted assets only if each condition in this section is

satisfied. A System institution that meets these conditions must hold risk-based capital against any credit

risk it retains in connection with the securitization. A System institution that fails to meet these conditions

must hold risk-based capital against the transferred exposures as if they had not been securitized and

must deduct from CET1 capital, pursuant to § 628.22, any after-tax gain-on-sale resulting from the

transaction. The conditions are:

(1) The exposures are not reported on the System institution's consolidated balance sheet under GAAP;

(2) The System institution has transferred to one or more third parties credit risk associated with the

underlying exposures;

(3) Any clean-up calls relating to the securitization are eligible clean-up calls; and

(4) The securitization does not:

(i) Include one or more underlying exposures in which the borrower is permitted to vary the drawn

amount within an agreed limit under a line of credit; and

(ii) Contain an early amortization provision.

(b) Operational criteria for synthetic securitizations. For synthetic securitizations, a System institution may

recognize for risk-based capital purposes the use of a credit risk mitigant to hedge underlying exposures

only if each condition in this paragraph is satisfied. A System institution that meets these conditions must

hold risk-based capital against any credit risk of the exposures it retains in connection with the synthetic

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.38(e)(1)

12 CFR 628.41(b) (enhanced display) page 60 of 85
securitization. A System institution that fails to meet these conditions or chooses not to recognize the

credit risk mitigant for purposes of this section must instead hold risk-based capital against the

underlying exposures as if they had not been synthetically securitized. The conditions are:

(1) The credit risk mitigant is:

(i) Financial collateral;

(ii) A guarantee that meets all criteria set forth in the definition of “eligible guarantee” in § 628.2,

except for the criteria in paragraph (3) of that definition; or

(iii) A credit derivative that meets all criteria as set forth in the definition of “eligible credit

derivative” in § 628.2, except for the criteria in paragraph (3) of the definition of “eligible

guarantee” in § 628.2.

(2) The System institution transfers credit risk associated with the underlying exposures to one or more

third parties, and the terms and conditions in the credit risk mitigants employed do not include

provisions that:

(i) Allow for the termination of the credit protection due to deterioration in the credit quality of the

underlying exposures;

(ii) Require the System institution to alter or replace the underlying exposures to improve the credit

quality of the pool of underlying exposures;

(iii) Increase the System institution's cost of credit protection in response to deterioration in the

credit quality of the underlying exposures;

(iv) Increase the yield payable to parties other than the System institution in response to a

deterioration in the credit quality of the underlying exposures; or

(v) Provide for increases in a retained first loss position or credit enhancement provided by the

System institution after the inception of the securitization;

(3) The System institution obtains a well-reasoned opinion from legal counsel that confirms the

enforceability of the credit risk mitigant in all relevant jurisdictions; and

(4) Any clean-up calls relating to the securitization are eligible clean-up calls.

(c) Due diligence requirements.

(1) Except for exposures that are deducted from CET1 capital (pursuant to § 628.22) and exposures

subject to § 628.42(h), if a System institution is unable to demonstrate to the satisfaction of the FCA

a comprehensive understanding of the features of a securitization exposure that would materially

affect the performance of the exposure, the System institution must assign the securitization

exposure a risk weight of 1,250 percent. The System institution's analysis must be commensurate

with the complexity of the securitization exposure and the materiality of the exposure in relation to

its capital.

(2) A System institution must demonstrate its comprehensive understanding of a securitization

exposure under paragraph (c)(1) of this section for each securitization exposure by:

(i) Conducting an analysis of the risk characteristics of a securitization exposure prior to acquiring

the exposure, and documenting such analysis within 3 business days after acquiring the

exposure, considering:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.41(b)(1)

12 CFR 628.41(c)(2)(i) (enhanced display) page 61 of 85
§ 628.42 Risk-weighted assets for securitization exposures.

(A) Structural features of the securitization that would materially impact the performance of

the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers,

credit enhancements, liquidity enhancements, fair value triggers, the performance of

organizations that service the exposure, and deal-specific definitions of default;

(B) Relevant information regarding the performance of the underlying credit exposure(s), for

example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment

rates; loans in foreclosure; property types; occupancy; average credit score or other

measures of creditworthiness; average loan-to-value (LTV) ratio; and industry and

geographic diversification data on the underlying exposure(s);

(C) Relevant market data of the securitization, for example, bid-ask spread, most recent sales

price and historic price volatility, trading volume, implied market rating, and size, depth and

concentration level of the market for the securitization; and

(D) For resecuritization exposures, performance information on the underlying securitization

exposures, for example, the issuer name and credit quality, and the characteristics and

performance of the exposures; and

(ii) On an on-going basis (no less frequently than quarterly), evaluating, reviewing, and updating as

appropriate the analysis required under paragraph (c)(1) of this section for each securitization

exposure.

(a) Securitization risk weight approaches. Except as provided in this section or in § 628.41:

(1) A System institution must deduct from CET1 capital any after-tax gain-on-sale resulting from a

securitization (as provided in § 628.22) and must apply a 1,250-percent risk weight to the portion of

a credit-enhancing interest-only strip (CEIO) that does not constitute after-tax gain-on-sale.

(2) If a securitization exposure does not require deduction under paragraph (a)(1) of this section, a

System institution may assign a risk weight to the securitization exposure using the simplified

supervisory formula approach (SSFA) in accordance with § 628.43(a) through (d) and subject to the

limitation under paragraph (e) of this section. Alternatively, a System institution may assign a risk

weight to the purchased securitization exposure using the gross-up approach in accordance with §

628.43(e), provided however, that such System institution must apply either the SSFA or the gross-up

approach consistently across all of its securitization exposures, except as provided in paragraphs

(a)(1), (3), and (4) of this section.

(3) If a securitization exposure does not require deduction under paragraph (a)(1) of this section and the

System institution cannot or chooses not to apply the SSFA or the gross-up approach to the

exposure, the System institution must assign a risk weight to the exposure as described in § 628.44.

(4) If a securitization exposure is a derivative contract (other than protection provided by a System

institution in the form of a credit derivative) that has a first priority claim on the cash flows from the

underlying exposures (notwithstanding amounts due under interest rate or currency derivative

contracts, fees due, or other similar payments), a System institution may choose to set the riskweighted asset amount of the exposure equal to the amount of the exposure as determined in

paragraph (c) of this section.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.41(c)(2)(i)(A)

12 CFR 628.42(a)(4) (enhanced display) page 62 of 85
(b) Total risk-weighted assets for securitization exposures. A System institution's total risk-weighted assets

for securitization exposures equals the sum of the risk-weighted asset amount for securitization

exposures that the System institution risk weights under paragraph (a)(1) of this section, §§ 628.41(c),

and 628.43, 628.44, or § 628.45, except as provided in paragraphs (e) through (j) of this section, as

applicable.

(c) Exposure amount of a securitization exposure.

(1) [Reserved]

(2) On-balance sheet securitization exposures (available-for-sale or held-to-maturity securities). The

exposure amount of an on-balance sheet securitization exposure that is an available-for-sale or heldto-maturity security is the System institution's carrying value (including net accrued but unpaid

interest and fees), less any net unrealized gains on the exposure and plus any net unrealized losses

on the exposure.

(3) Off-balance sheet securitization exposures.

(i) Except as provided in paragraph (j) of this section, the exposure amount of an off-balance sheet

securitization that is not a repo-style transaction, an eligible margin loan, a cleared transaction

(other than a credit derivative), or an OTC derivative contract (other than a credit derivative) is

the notional amount of the exposure.

(ii)–(iii) [Reserved]

(4) Repo-style transactions, eligible margin loans, and derivative contracts. The exposure amount of a

securitization exposure that is a repo-style transaction, an eligible margin loan, or a derivative

contract (other than a credit derivative) is the exposure amount of the transaction as calculated

under § 628.34 or § 628.37 as applicable.

(d) Overlapping exposures. If a System institution has multiple securitization exposures that provide

duplicative coverage to the underlying exposures of a securitization, the System institution is not required

to hold duplicative risk-based capital against the overlapping position. Instead, the System institution may

apply to the overlapping position the applicable risk-based capital treatment that results in the highest

risk-based capital requirement.

(e) Implicit support. If a System institution provides support to a securitization in excess of the System

institution's contractual obligation to provide credit support to the securitization (implicit support):

(1) The System institution must include in risk-weighted assets all of the underlying exposures

associated with the securitization as if the exposures had not been securitized and must deduct

from CET1 capital (pursuant to § 628.22) any after-tax gain-on-sale resulting from the securitization;

and

(2) The System institution must disclose publicly:

(i) That it has provided implicit support to the securitization; and

(ii) The risk-based capital impact to the System institution of providing such implicit support.

(f) Undrawn portion of an eligible servicer cash advance facility.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.42(b)

12 CFR 628.42(f) (enhanced display) page 63 of 85
(1) Notwithstanding any other provision of this subpart, a System institution that is a servicer under an

eligible servicer cash advance facility is not required to hold risk-based capital against potential

future cash advance payments that it may be required to provide under the contract governing the

facility.

(2) For a System institution that acts as a servicer, the exposure amount for a servicer cash advance

facility that is not an eligible cash advance facility is equal to the amount of all potential future cash

payments that the System institution may be contractually required to provide during the subsequent

12-month period under the governing facility.

(g) Interest-only mortgage-backed securities. Regardless of any other provisions of this subpart, the risk

weight for a non-credit-enhancing interest-only mortgage-backed security may not be less than 100

percent.

(h) Small-business loans and leases on personal property transferred with retained contractual exposure.

(1) Regardless of any other provisions of this subpart, a System institution that has transferred smallbusiness loans and leases on personal property (small-business obligations) must include in riskweighted assets only its contractual exposure to the small-business obligations if all the following

conditions are met:

(i) The transaction must be treated as a sale under GAAP.

(ii) The System institution establishes and maintains, pursuant to GAAP, a non-capital reserve

sufficient to meet the System institution's reasonably estimated liability under the contractual

obligation.

(iii) The small business obligations are to businesses that meet the criteria for a small-business

concern established by the Small Business Administration under section 3(a) of the Small

Business Act.

(iv) [Reserved]

(2) The total outstanding amount of contractual exposure retained by a System institution on transfers

of small-business obligations receiving the capital treatment specified in paragraph (h)(1) of this

section cannot exceed 15 percent of the System institution's total capital.

(3) If a System institution exceeds the 15-percent capital limitation provided in paragraph (h)(2) of this

section, the capital treatment under paragraph (h)(1) of this section will continue to apply to any

transfers of small-business obligations with retained contractual exposure that occurred during the

time that the System institution did not exceed the capital limit.

(4) [Reserved]

(i)–(ii) [Reserved]

(i) N

th-to-default credit derivatives —

(1) Protection provider. A System institution must assign a risk weight to an nth-to-default credit

derivative in accordance with FCA guidance.

(2)–(3) [Reserved]

(4) Protection purchaser —

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.42(f)(1)

12 CFR 628.42(i)(4) (enhanced display) page 64 of 85
(i) First-to-default credit derivatives. A System institution that obtains credit protection on a group

of underlying exposures through a first-to-default credit derivative that meets the rules of

recognition of § 628.36(b) must determine its risk-based capital requirement for the underlying

exposures as if the System institution synthetically securitized the underlying exposure with the

smallest risk-weighted asset amount and had obtained no credit risk mitigant on the other

underlying exposures. A System institution must calculate a risk-based capital requirement for

counterparty credit risk according to § 628.34 for a first-to-default credit derivative that does

not meet the rules of recognition of § 628.36(b).

(ii) Second-or-subsequent-to-default credit derivatives.

(A) A System institution that obtains credit protection on a group of underlying exposures

through a nth-to-default credit derivative that meets the rules of recognition of § 628.36(b)

(other than a first-to-default credit derivative) may recognize the credit risk mitigation

benefits of the derivative only if:

(1) The System institution also has obtained credit protection on the same underlying

exposures in the form of first-through-(n-1)-to-default credit derivatives; or

(2) If n-1 of the underlying exposures have already defaulted.

(B) If a System institution satisfies the requirements of paragraph (i)(4)(ii)(A) of this section,

the System institution must determine its risk-based capital requirement for the underlying

exposures as if the System institution had only synthetically securitized the underlying

exposure with the nth smallest risk-weighted asset amount and had obtained no credit

risk mitigant on the underlying exposures.

(C) A System institution must calculate a risk-based capital requirement for counterparty

credit risk according to § 628.34 for a nth-to-default credit derivative that does not meet

the rules of recognition of § 628.36(b).

(j) Guarantees and credit derivatives other than nth-to-default credit derivatives —

(1) Protection provider. For a guarantee or credit derivative (other than an nth-to-default credit derivative)

provided by a System institution that covers the full amount or a pro rata share of a securitization

exposure's principal and interest, the System institution must risk weight the guarantee or credit

derivative in accordance with FCA guidance.

(2) Protection purchaser.

(i) A System institution that purchases a guarantee or OTC credit derivative (other than an nth-todefault credit derivative) that is recognized under § 628.45 as a credit risk mitigant (including

via collateral recognized under § 628.37) is not required to compute a separate credit risk

capital requirement under § 628.31, in accordance with § 628.34(c).

(ii) If a System institution cannot, or chooses not to, recognize a purchased credit derivative as a

credit risk mitigant under § 628.45, the System institution must determine the exposure amount

of the credit derivative under § 628.34.

(A) If the System institution purchases credit protection from a counterparty that is not a

securitization special purpose entity (SPE), the System institution must determine the risk

weight for the exposure according to general risk weights under § 628.32.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.42(i)(4)(i)

12 CFR 628.42(j)(2)(ii)(A) (enhanced display) page 65 of 85
§ 628.43 Simplified supervisory formula approach (SSFA) and the gross-up approach.

(B) If the System institution purchases the credit protection from a counterparty that is a

securitization SPE, the System institution must determine the risk weight for the exposure

according to this section, including paragraph (a)(4) of this section for a credit derivative

that has a first priority claim on the cash flows from the underlying exposures of the

securitization SPE (notwithstanding amounts due under interest rate or currency derivative

contracts, fees due, or other similar payments).

(a) General requirements for the SSFA. To use the SSFA to determine the risk weight for a securitization

exposure, a System institution must have data that enables it to assign accurately the parameters

described in paragraph (b) of this section. Data used to assign the parameters described in paragraph (b)

of this section must be the most currently available data; if the contract governing the underlying

exposures of the securitization require payment on a monthly or quarterly basis, the data used to assign

the parameters described in paragraph (b) of this section must be no more than 91 calendar days old. A

System institution that does not have the appropriate data to assign the parameters described in

paragraph (b) of this section must assign a risk weight of 1,250 percent to the exposure.

(b) SSFA parameters. To calculate the risk weight for a securitization exposure using the SSFA, a System

institution must have accurate information on the following five inputs to the SSFA calculation:

(1) KG is the weighted-average (with unpaid principal used as the weight for each exposure) total capital

requirement of the underlying exposures calculated using this subpart. KG is expressed as a decimal

value between 0 and 1 (that is, an average risk weight of 100 percent represents a value of KG equal

to .08).

(2) Parameter W is expressed as a decimal value between 0 and 1. Parameter W is the ratio of the sum

of the dollar amounts of any underlying exposures within the securitized pool that meet any of the

criteria as set forth in paragraphs (b)(2)(i) through (vi) of this section to the balance, measured in

dollars, of underlying exposures:

(i) Ninety (90) days or more past due;

(ii) Subject to a bankruptcy or insolvency proceeding;

(iii) In the process of foreclosure;

(iv) Held as real estate owned;

(v) Has contractually deferred interest payments for 90 days or more, other than principal or

interest payments deferred on:

(A) Federally guaranteed student loans, in accordance with the terms of those guarantee

programs; or

(B) Consumer loans, including non-federally guaranteed student loans, provided that such

payments are deferred pursuant to provisions included in the contract at the time funds

are disbursed that provide for periods(s) of deferral that are not initiated based on

changes in the creditworthiness of the borrower; or

(vi) Is in default.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.42(j)(2)(ii)(B)

12 CFR 628.43(b)(2)(vi) (enhanced display) page 66 of 85
(3) Parameter A is the attachment point for the exposure, which represents the threshold at which credit

losses will first be allocated to the exposure. Except as provided in § 628.42(i) for nth-to-default

credit derivatives, parameter A equals the ratio of the current dollar amount of underlying exposures

that are subordinated to the exposure of the System institution to the current dollar amount of

underlying exposures. Any reserve account funded by the accumulated cash flows from the

underlying exposures that is subordinated to the System institution's securitization exposure may be

included in the calculation of parameter A to the extent that cash is present in the account.

Parameter A is expressed as a decimal value between 0 and 1.

(4) Parameter D is the detachment point for the exposure, which represents the threshold at which credit

losses of principal allocated to the exposure would result in a total loss of principal. Except as

provided in § 628.42(i) for nth-to-default credit derivatives, parameter D equals parameter A plus the

ratio of the current dollar amount of the securitization exposures that are pari passu with the

exposure (that is, have equal seniority with respect to credit risk) to the current dollar amount of the

underlying exposures. Parameter D is expressed as a decimal value between 0 and 1.

(5) A supervisory calibration parameter, p, is equal to 0.5 for securitization exposures that are not

resecuritization exposures and equal to 1.5 for resecuritization exposures.

(c) Mechanics of the SSFA. KG and W are used to calculate KA, the augmented value of KG, which reflects the

observed credit quality of the underlying pool of exposures. KA is defined in paragraph (d) of this section.

The values of parameters A and D, relative to KA determine the risk weight assigned to a securitization

exposure as described in paragraph (d) of this section. The risk weight assigned to a securitization

exposure, or portion of a securitization exposure, as appropriate, is the larger of the risk weight

determined in accordance with this paragraph (d) of this section and a risk weight of 20 percent.

(1) When the detachment point, parameter D, for a securitization exposure is less than or equal to KA, the

exposure must be assigned a risk weight of 1,250 percent.

(2) When the attachment point, parameter A, for a securitization exposure is greater than or equal to KA,

the System institution must calculate the risk weight in accordance with paragraph (d) of this

section.

(3) When A is less than KA and D is greater than KA, the risk weight is a weighted average of 1,250

percent and 1,250 percent times KSSFA calculated in accordance with paragraph (d) of this section.

For the purpose of this weighted-average calculation:

(i) The weight assigned to 1,250 percent equals:

(ii) The weight assigned to 1,250 percent times KSSFA equals:

(iii) The risk weight will be set equal to:

(d) SSFA equation.

(1) The System institution must define the following parameters:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.43(b)(3)

12 CFR 628.43(d)(1) (enhanced display) page 67 of 85
Where:

KA = (1−W) × KG + (0.5 × W)

(2) Then the System institution must calculate KSSFA according to the following equation:

(3) The risk weight for the exposure (expressed as a percent) is equal to KSSFA × 1,250.

(e) Gross-up approach —

(1) Applicability. A System institution may apply the gross-up approach set forth in this section instead

of the SSFA to determine the risk weight of its securitization exposures, provided that it applies the

gross-up approach to all of its securitization exposures, except as otherwise provided for certain

securitization exposures in §§ 628.44 and 628.45.

(2) To use the gross-up approach, a System institution must calculate the following four inputs:

(i) Pro rata share A, which is the par value of the System institution's securitization exposure X as a

percent of the par value of the tranche in which the securitization exposure resides Y:

(ii) Enhanced amount B, which is the value of tranches that are more senior to the tranche in which

the System institution's securitization resides;

(iii) Exposure amount (carrying value) C of the System institution's securitization exposure

calculated under § 628.42(c); and

(iv) Risk weight (RW), which is the weighted-average risk weight of underlying exposures in the

securitization pool as calculated under this subpart. For example, RW for an asset-backed

security with underlying car loans would be 100 percent.

(3) Credit equivalent amount (CEA). The CEA of a securitization exposure under this section equals the

sum of:

(i) The exposure amount C of the System institution's securitization exposure; plus

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.43(d)(2)

12 CFR 628.43(e)(3)(i) (enhanced display) page 68 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54360, Oct. 1, 2021]

§ 628.44 Securitization exposures to which the SSFA and gross-up approach do not apply.

§ 628.45 Recognition of credit risk mitigants for securitization exposures.

§§ 628.46-628.50 [Reserved]

RISK-WEIGHTED ASSETS FOR EQUITY EXPOSURES

§ 628.51 Introduction and exposure measurement.

(ii) The pro rata share A multiplied by the enhanced amount B, each calculated in accordance with

paragraph (e)(2) of this section:

CEA = C + (A × B)

(4) Risk-weighted assets (RWA). To calculate RWA for a securitization exposure under the gross-up

approach, a System institution must apply the RW calculated under paragraph (e)(2) of this section

to the CEA calculated in paragraph (e)(3) of this section:

RWA = RW × CEA

(f) Limitations. Notwithstanding any other provision of this section, a System institution must assign a risk

weight of not less than 20 percent to a securitization exposure.

(a) General requirement. A System institution must assign a 1,250-percent risk weight to all securitization

exposures to which the System institution does not apply the SSFA or the gross up approach under §

628.43.

(b) [Reserved]

(a) General.

(1) An originating System institution that has obtained a credit risk mitigant to hedge its exposure to a

synthetic or traditional securitization that satisfies the operational criteria provided in § 628.41 may

recognize the credit risk mitigant under § 628.36 or § 628.37, but only as provided in this section.

(2) An investing System institution that has obtained a credit risk mitigant to hedge a securitization

exposure may recognize the credit risk mitigant under § 628.36 or § 628.37, but only as provided in

this section.

(b) Mismatches. A System institution must make any applicable adjustment to the protection amount of an

eligible guarantee or credit derivative as required in § 628.36(d), (e), and (f) for any hedged securitization

exposure. In the context of a synthetic securitization, when an eligible guarantee or eligible credit

derivative covers multiple hedged exposures that have different residual maturities, the System institution

must use the longest residual maturity of any of the hedged exposures as the residual maturity of all

hedged exposures.

(a) General.

(1) To calculate its risk-weighted asset amounts for equity exposures that are not equity exposures to an

investment fund, a System institution must use the Simple Risk-Weight Approach (SRWA) provided in

§ 628.52. A System institution must use the look-through approaches provided in § 628.53 to

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.43(e)(3)(ii)

12 CFR 628.51(a)(1) (enhanced display) page 69 of 85
§ 628.52 Simple risk-weight approach (SRWA).

calculate its risk-weighted asset amounts for equity exposures to investment funds. Equity

investments (including preferred stock investments) in other System institutions, service

corporations, and the Funding Corporation do not receive a risk weight, because they are deducted

from capital in accordance with § 628.22.

(2)–(3) [Reserved]

(b) Adjusted carrying value. For purposes of §§ 628.51 through 628.53, the adjusted carrying value of an

equity exposure is:

(1) For the on-balance sheet component of an equity exposure (other than an equity exposure that is

classified as available-for-sale), the System institution's carrying value of the exposure;

(2) For the on-balance sheet component of an equity exposure that is classified as available-for-sale, the

System institution's carrying value of the exposure less any net unrealized gains on the exposure that

are reflected in such carrying value but excluded from the System institution's regulatory capital

components;

(3) For the off-balance sheet component of an equity exposure that is not an equity commitment, the

effective notional principal amount of the exposure, the size of which is equivalent to a hypothetical

on-balance sheet position in the underlying equity instrument that would evidence the same change

in fair value (measured in dollars) given a small change in the price of the underlying equity

instrument, minus the adjusted carrying value of the on-balance sheet component of the exposure

as calculated in paragraph (b)(1) of this section; and

(4) For a commitment to acquire an equity exposure (an equity commitment), the effective notional

principal amount of the exposure is multiplied by the following conversion factors (CFs):

(i) Conditional equity commitments with an original maturity of 14 months or less receive a CF of

20 percent.

(ii) Conditional equity commitments with an original maturity of over 14 months receive a CF of 50

percent.

(iii) Unconditional equity commitments receive a CF of 100 percent.

(a) General. Under the SRWA, a System institution's total risk-weighted assets for equity exposures equals the

sum of the risk-weighted asset amounts for each of the System institution's individual equity exposures

(other than equity exposures to an investment fund) as determined under this section and the riskweighted asset amounts for each of the System institution's individual equity exposures to an investment

fund as determined under § 628.53.

(b) SRWA computation for individual equity exposures. A System institution must determine the risk-weighted

asset amount for an individual equity exposure (other than an equity exposure to an investment fund) by

multiplying the adjusted carrying value of the equity exposure or the effective portion and ineffective

portion of a hedge pair (as defined in paragraph (c) of this section) by the lowest applicable risk weight in

this paragraph.

(1) Zero-percent (0%) risk weight equity exposures. An equity exposure to a sovereign, the Bank for

International Settlements, the European Central Bank, the European Commission, the International

Monetary Fund, an MDB, and any other entity whose credit exposures receive a 0-percent risk weight

under § 628.32 may be assigned a 0-percent risk weight.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.51(a)(2)

12 CFR 628.52(b)(1) (enhanced display) page 70 of 85
(2) Twenty-percent (20%) risk weight equity exposures. An equity exposure to a PSE or the Federal

Agricultural Mortgage Corporation (Farmer Mac) must be assigned a 20-percent risk weight.

(3) One hundred-percent (100%) risk weight equity exposures. The equity exposures set forth in this

paragraph (b)(3) must be assigned a 100-percent risk weight:

(i) [Reserved]

(ii) Effective portion of hedge pairs. The effective portion of a hedge pair.

(iii) Non-significant equity exposures. Equity exposures, excluding exposures to an investment firm

that would meet the definition of a traditional securitization in § 628.2 were it not for the

application of paragraph (8) of that definition and has greater than immaterial leverage, to the

extent that aggregate adjusted carrying value of the exposures does not exceed 10 percent of

the System institution's total capital.

(A) Equity exposures subject to paragraph (b)(3)(iii) of this section include:

(1) Equity exposures to unconsolidated unincorporated business entities and equity

exposures held through consolidated unincorporated business entities, as authorized

by subpart J of part 611 of this chapter; and

(2) [Reserved]

(3) Equity exposures to an unconsolidated rural business investment company and

equity exposures held through a consolidated rural business investment company

described in 7 U.S.C. 2009cc et seq.

(B) To compute the aggregate adjusted carrying value of a System institution's equity

exposures for purposes of this section, the System institution may exclude equity

exposures described in paragraphs (b)(1) and (2) and (b)(3)(ii) of this section, the equity

exposure in a hedge pair with the smaller adjusted carrying value, and a proportion of each

equity exposure to an investment fund equal to the proportion of the assets of the

investment fund that are not equity exposures or that meet the criterion of paragraph

(b)(3)(i) of this section. If a System institution does not know the actual holdings of the

investment fund, the System institution may calculate the proportion of the assets of the

fund that are not equity exposures based on the terms of the prospectus, partnership

agreement, or similar contract that defines the fund's permissible investments. If the sum

of the investment limits for all exposure classes within the fund exceeds 100 percent, the

System institution must assume for purposes of this section that the investment fund

invests to the maximum extent possible in equity exposures.

(C) When determining which of a System institution's equity exposures qualify for a

100-percent risk weight under this paragraph, a System institution first must include equity

exposures to unconsolidated rural business investment companies or held through

consolidated rural business investment companies described in 7 U.S.C. 2009cc et seq.;

then must include equity exposures to unconsolidated unincorporated business entities

and equity exposures held through consolidated unincorporated business entities, as

authorized by subpart J of part 611 of this chapter; then must include publicly traded

equity exposures (including those held indirectly through investment funds); and then

must include non-publicly traded equity exposures (including those held indirectly through

investment funds).

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.52(b)(2)

12 CFR 628.52(b)(3)(iii)(C) (enhanced display) page 71 of 85
Where:

Xt = At−Bt;

At = the value at time t of one exposure in a hedge pair; and

Bt = the value at time t of the other exposure in a hedge pair.

(4) Other equity exposures. The risk weight for any equity exposure that does not qualify for a risk weight

under paragraph (b)(1), (2), (3), or (7) of this section will be determined by the FCA.

(5)–(6) [Reserved]

(7) Six hundred-percent (600%) risk weight equity exposures. An equity exposure to an investment firm

must be assigned a 600-percent risk weight, provided that the investment firm:

(i) Would meet the definition of a traditional securitization in § 628.2 were it not for the application

of paragraph (8) of that definition; and

(ii) Has greater than immaterial leverage.

(c) Hedge transactions —

(1) Hedge pair. A hedge pair is two equity exposures that form an effective hedge so long as each equity

exposure is publicly traded or has a return that is primarily based on a publicly traded equity

exposure.

(2) Effective hedge. Two equity exposures form an effective hedge if the exposures either have the same

remaining maturity or each has a remaining maturity of at least 3 months; the hedge relationship is

formally documented in a prospective manner (that is, before the System institution acquires at least

one of the equity exposures); the documentation specifies the measure of effectiveness (E) the

System institution will use for the hedge relationship throughout the life of the transaction; and the

hedge relationship has an E greater than or equal to 0.8. A System institution must measure E at

least quarterly and must use one of three alternative measures of E as set forth in this paragraph (c):

(i) Under the dollar-offset method of measuring effectiveness, the System institution must

determine the ratio of value change (RVC). The RVC is the ratio of the cumulative sum of the

changes in value of one equity exposure to the cumulative sum of the changes in the value of

the other equity exposure. If RVC is positive, the hedge is not effective and E equals 0. If RVC is

negative and greater than or equal to −1 (that is, less than 0 and greater than or equal to −1),

then E equals the absolute value of RVC. If RVC is negative and less than −1, then E equals 2

plus RVC.

(ii) Under the variability-reduction method of measuring effectiveness:

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.52(b)(4)

12 CFR 628.52(c)(2)(ii) (enhanced display) page 72 of 85
[81 FR 49779, July 28, 2016, as amended at 86 FR 54360, Oct. 1, 2021]

§ 628.53 Equity exposures to investment funds.

(iii) Under the regression method of measuring effectiveness, E equals the coefficient of

determination of a regression in which the change in value of one exposure in a hedge pair is

the dependent variable and the change in value of the other exposure in a hedge pair is the

independent variable. However, if the estimated regression coefficient is positive, then E equals

0.

(3) The effective portion of a hedge pair is E multiplied by the greater of the adjusted carrying values of

the equity exposures forming a hedge pair.

(4) The ineffective portion of a hedge pair is (1–E) multiplied by the greater of the adjusted carrying

values of the equity exposures forming a hedge pair.

(a) Available approaches.

(1) A System institution must determine the risk-weighted asset amount of an equity exposure to an

investment fund under the full look-through approach described in paragraph (b) of this section, the

simple modified look-through approach described in paragraph (c) of this section, or the alterative

modified look-through approach described paragraph (d) of this section, provided, however, that the

minimum risk weight that may be assigned to an equity exposure under this section is 20 percent.

(2) [Reserved]

(3) If an equity exposure to an investment fund is part of a hedge pair and the System institution does

not use the full look-through approach, the System institution must use the ineffective portion of the

hedge pair as determined under § 628.52(c) as the adjusted carrying value for the equity exposure to

the investment fund. The risk-weighted asset amount of the effective portion of the hedge pair is

equal to its adjusted carrying value.

(b) Full look-through approach. A System institution that is able to calculate a risk-weighted asset amount for

its proportional ownership share of each exposure held by the investment fund (as calculated under this

subpart as if the proportional ownership share of the adjusted carrying value of each exposure were held

directly by the System institution) may set the risk-weighted asset amount of the System institution's

exposure to the fund equal to the product of:

(1) The aggregate risk-weighted asset amounts of the exposures held by the fund as if they were held

directly by the System institution; and

(2) The System institution's proportional ownership share of the fund.

(c) Simple modified look-through approach. Under the simple modified look-through approach, the riskweighted asset amount for a System institution's equity exposure to an investment fund equals the

adjusted carrying value of the equity exposure multiplied by the highest risk weight that applies to any

exposure the fund is permitted to hold under the prospectus, partnership agreement, or similar agreement

that defines the fund's permissible investments (excluding derivative contracts that are used for hedging

rather than speculative purposes and that do not constitute a material portion of the fund's exposures).

(d) Alternative modified look-through approach. Under the alternative modified look-through approach, a

System institution may assign the adjusted carrying value of an equity exposure to an investment fund on

a pro rata basis to different risk weight categories under this subpart based on the investment limits in

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.52(c)(2)(iii)

12 CFR 628.53(d) (enhanced display) page 73 of 85
§§ 628.54-628.60 [Reserved]

DISCLOSURES

§ 628.61 Purpose and scope.

Sections 628.62 and 628.63 establish public disclosure requirements for each System bank related to the capital

requirements contained in this part.

§ 628.62 Disclosure requirements.

the fund's prospectus, partnership agreement, or similar contract that defines the fund's permissible

investments. The risk-weighted asset amount for the System institution's equity exposure to the

investment fund equals the sum of each portion of the adjusted carrying value assigned to an exposure

type multiplied by the applicable risk weight under this subpart. If the sum of the investment limits for all

exposure types within the fund exceeds 100 percent, the System institution must assume that the fund

invests to the maximum extent permitted under its investment limits in the exposure type with the highest

applicable risk weight under this subpart and continues to make investments in order of the exposure

type with the next highest applicable risk weight under this subpart until the maximum total investment

level is reached. If more than one exposure type applies to an exposure, the System institution must use

the highest applicable risk weight. A System institution may exclude derivative contracts held by the fund

that are used for hedging rather than for speculative purposes and do not constitute a material portion of

the fund's exposures.

(a) A System bank must provide timely public disclosures each calendar quarter of the information in the

applicable tables in § 628.63. The System bank must make these disclosures in its quarterly and annual

reports to shareholders required in part 620 of this chapter. The System bank need not make these

disclosures in the format set out in the applicable tables or all in the same location in a report, as long as

a summary table specifically indicating the location(s) of all such disclosures is provided. If a significant

change occurs, such that the most recent reported amounts are no longer reflective of the System bank's

capital adequacy and risk profile, then a brief discussion of this change and its likely impact must be

disclosed as soon as practicable thereafter. This disclosure requirement may be satisfied by providing a

notice under § 620.15 of this chapter. Qualitative disclosures that typically do not change each quarter

(for example, a general summary of the System bank's risk management objectives and policies, reporting

system, and definitions) may be disclosed annually after the end of the 4th calendar quarter, provided that

any significant changes are disclosed in the interim.

(b) A System bank must have a formal disclosure policy approved by the board of directors that addresses its

approach for determining the disclosures it makes. The policy must address the associated internal

controls and disclosure controls and procedures. The board of directors and senior management are

responsible for establishing and maintaining an effective internal control structure over financial

reporting, including the disclosures required by this subpart, and must ensure that appropriate review of

the disclosures takes place. The chief executive officer, the chief financial officer, and a designated board

member must attest that the disclosures meet the requirements of this subpart.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.54-628.60

12 CFR 628.62(b) (enhanced display) page 74 of 85
§ 628.63 Disclosures.

Table 1 to § 628.63—Scope of Application

Qualitative

Disclosures

(a) The name of the top corporate entity in the group to which this subpart applies.1

(b) A brief description of the differences in the basis for consolidating entities2for

accounting and regulatory purposes, with a description of those entities:

(1) That are fully consolidated;

(2) That are deconsolidated and deducted from total capital;

(3) For which the total capital requirement is deducted; and

(4) That are neither consolidated nor deducted (for example, where the investment in the

entity is assigned a risk weight in accordance with this subpart).

(c) Any restrictions, or other major impediments, on transfer of funds or total capital within

the group.

Quantitative

Disclosures

(d) [Reserved]

(e) The aggregate amount by which actual total capital is less than the minimum total

capital requirement in all subsidiaries, with total capital requirements and the name(s) of the

subsidiaries with such deficiencies.

1 The System bank is the top corporate entity.

(c) If a System bank concludes that disclosure of specific proprietary or confidential commercial or financial

information that it would otherwise be required to disclose under this section would compromise its

position, then the System bank is not required to disclose that specific information pursuant to this

section, but must disclose more general information about the subject matter of the requirement, together

with the fact that, and the reason why, the specific items of information have not been disclosed.

(a) Except as provided in § 628.62, a System bank must make the disclosures described in Tables 1 through

10 of this section. The System bank must make these disclosures publicly available for each of the last 3

years (that is, 12 quarters) or such shorter period beginning on January 1, 2017.

(b) A System bank must publicly disclose each quarter the following:

(1) CET1 capital, tier 1 capital, and total capital ratios, including all the regulatory capital elements and

all the regulatory adjustments and deductions needed to calculate the numerator of such ratios;

(2) Total risk-weighted assets, including the different regulatory adjustments and deductions needed to

calculate total risk-weighted assets;

(3) [Reserved]

(4) A reconciliation of regulatory capital elements using month-end balances as they relate to its

balance sheet in any applicable audited consolidated financial statements. The reconciliation must

include a statement that compliance with the regulatory capital requirements outlined in subpart B

of this part is determined using average daily balances for the most recent 3 months.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.62(c)

12 CFR 628.63(b)(4) (enhanced display) page 75 of 85
2 Entities include any subsidiaries authorized by the FCA, including operating subsidiaries, service

corporations, and unincorporated business entities.

Table 2 to § 628.63—Capital Structure

Qualitative

Disclosures

(a) Summary information on the terms and conditions of the main features of all

regulatory capital instruments.

Quantitative

Disclosures

(b) The amount of common equity tier 1 capital, with separate disclosure of:

(1) Common cooperative equities

a. Statutory minimum purchased borrower stock;

b. Other required member purchased stock;

c. Allocated equities (stock or surplus):

1. Qualified allocated equities subject to retirement;

2. Nonqualified allocated equities subject to retirement;

3. Nonqualified allocated equities not subject to retirement;

(2) Unallocated retained earnings (URE);

(3) Paid-in capital; and

(4) Regulatory adjustments and deductions made to common equity tier 1 capital.

(c) The amount of tier 1 capital, with separate disclosure of:

(1) Additional tier 1 capital elements; and

(2) Regulatory adjustments and deductions made to tier 1 capital.

(d) The amount of total capital, with separate disclosure of:

(1) Common cooperative equities not included in common equity tier 1 capital;

(2) Tier 2 capital elements, including tier 2 capital instruments; and

(3) Regulatory adjustments and deductions made to total capital, including deductions

of third-party capital under § 628.23.

Table 3 to § 628.63—Capital Adequacy

Qualitative

disclosures

(a) A summary discussion of the System bank's approach to assessing the adequacy of its

capital to support current and future activities.

Quantitative

disclosures

(b) Risk-weighted assets for:

(1) Exposures to sovereign entities;

(2) Exposures to certain supranational entities and MDBs;

(3) Exposures to GSEs;

(4) Exposures to depository institutions, foreign banks, and credit unions, including OFI

exposures that are risk weighted as exposures to U.S. depository institutions and credit

unions;

(5) Exposures to PSEs;

(6) Corporate exposures, including borrower loans (including agricultural and consumer

loans) and OFI exposures that are not risk weighted as exposures to U.S. depository

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12 CFR 628.63(b)(4) (enhanced display) page 76 of 85
institutions and credit unions;

(7) Residential mortgage exposures;

(8) [Reserved]

(9) Past due and nonaccrual exposures;

(10) Exposures to other assets;

(11) Cleared transactions;

(12) Unsettled transactions;

(13) Securitization exposures; and

(14) Equity exposures.

(c) [Reserved]

(d) Common equity tier 1, tier 1 and total risk-based capital ratios for the System bank.

(e) Total standardized risk-weighted assets.

Table 4 to § 628.63—Capital Buffers

Quantitative

Disclosures

(a) At least quarterly, the System bank must calculate and publicly disclose the capital

conservation buffer and leverage buffer as described under § 628.11.

(b) At least quarterly, the System bank must calculate and publicly disclose the eligible

retained income of the System bank, as described under § 628.11.

(c) At least quarterly, the System bank must calculate and publicly disclose any limitations it

has on distributions and discretionary bonus payments resulting from the buffer framework

described under § 628.11, including the maximum payout amount and/or maximum leverage

payout amount for the quarter.

Table 5 to § 628.631—Credit Risk: General Disclosures

Qualitative

Disclosures

(a) The general qualitative disclosure requirement with respect to credit risk (excluding

counterparty credit risk disclosed in accordance with Table 6 of this section), including the:

(1) Policy for determining past due or delinquency status;

(2) Policy for placing loans in nonaccrual status;

(3) Policy for returning loans to accrual status;

(4) Definition of and policy for identifying impaired loans (for financial accounting purposes);

(5) Description of the methodology that the System bank uses to estimate its adjusted

allowance for credit losses, including statistical methods used where applicable;

(6) Policy for charging-off uncollectible amounts; and

(7) Discussion of the System bank's credit risk management policy.

Quantitative (b) Total credit risk exposures and average credit risk exposures, after accounting offsets in

(c) General qualitative disclosure requirement. For each separate risk area described in tables 5 through 10 of

this section, the System bank must describe its risk management objectives and policies, including:

Strategies and processes; the structure and organization of the relevant risk management function; the

scope and nature of risk reporting and/or measurement systems; policies for hedging and/or mitigating

risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants.

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12 CFR 628.63(c) (enhanced display) page 77 of 85
Disclosures accordance with GAAP, without taking into account the effects of credit risk mitigation

techniques (for example, collateral and netting not permitted under GAAP), over the period

categorized by major types of credit exposure. For example, System banks could use

categories similar to that used for financial statement purposes. Such categories might

include, for instance:

(1) Loans, off-balance sheet commitments, and other non-derivative off-balance sheet

exposures;

(2) Debt securities; and

(3) OTC derivatives.2

(c) Geographic distribution of exposures, categorized in significant areas by major types of

credit exposure.3

(d) Industry or counterparty type distribution of exposures, categorized by major types of

credit exposure.

(e) By major industry or counterparty type:

(1) Amount of impaired loans for which there was a related allowance under GAAP;

(2) Amount of impaired loans for which there was no related allowance under GAAP;

(3) Amount of loans past due 90 days and in nonaccrual status;

(4) Amount of loans past due 90 days and still accruing;4

(5) The balance in the adjusted allowance for credit losses at the end of each period

according to GAAP; and

(6) Charge-offs during the period.

(f) Amount of impaired loans and, if available, the amount of past due loans categorized by

significant geographic areas including, if practical, the amounts of allowances related to

each geographical area,5further categorized as required by GAAP.

(g) Reconciliation of changes in adjusted allowance for credit losses.6

(h) Remaining contractual maturity delineation (for example, one year or less) of the whole

portfolio, categorized by credit exposure.

1 This Table 5 does not cover equity exposures, which should be reported in Table 9 of this section.

2 See, for example, ASC Topic 815–10 and 210, as they may be amended from time to time.

3 A System bank can satisfy this requirement by describing the geographic distribution of its loan

portfolio by State or other significant geographic division, if any.

4 A System bank is encouraged also to provide an analysis of the aging of past-due loans.

5 The portion of the general allowance that is not allocated to a geographical area should be

disclosed separately.

6 The reconciliation should include the following: A description of the allowance; the opening

balance of the allowance; charge-offs taken against the allowance during the period; amounts

provided (or reversed) for estimated credit losses during the period; any other adjustments (for

example, exchange rate differences, business combinations, acquisitions and disposals of

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12 CFR 628.63(c) (enhanced display) page 78 of 85
subsidiaries), including transfers between allowances; and the closing balance of the allowance.

Charge-offs and recoveries that have been recorded directly to the income statement should be

disclosed separately.

Table 6 to § 628.63—General Disclosure for Counterparty Credit Risk-Related

Exposures

Qualitative

Disclosures

(a) The general qualitative disclosure requirement with respect to OTC derivatives, eligible

margin loans, and repo-style transactions, including a discussion of:

(1) The methodology used to assign credit limits for counterparty credit exposures;

Policies for securing collateral, valuing and managing collateral, and establishing credit

reserves;

(3) The primary types of collateral taken; and

(4) The impact of the amount of collateral the System bank would have to provide given

deterioration in the System bank's own creditworthiness.

Quantitative

Disclosures

(b) Gross positive fair value of contracts, collateral held (including type, for example, cash,

government securities), and net unsecured credit exposure.1 A System bank also must

disclose the notional value of credit derivative hedges purchased for counterparty credit risk

protection and the distribution of current credit exposure by exposure type.2

(c) Notional amount of purchased credit derivatives used for the System bank's own credit

portfolio.

1 Net unsecured credit exposure is the credit exposure after considering both the benefits from

legally enforceable netting agreements and collateral arrangements without taking into account

haircuts for price volatility, liquidity, etc.

2 This may include interest rate derivative contracts, foreign exchange derivative contracts, equity

derivative contracts, credit derivatives, commodity or other derivative contracts, repo-style

transactions, and eligible margin loans.

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.63(c) (enhanced display) page 79 of 85
Table 7 to § 628.63—Credit Risk Mitigation1 2

Qualitative

Disclosures

(a) The general qualitative disclosure requirement with respect to credit risk mitigation,

including:

(1) Policies and processes for collateral valuation and management;

(2) A description of the main types of collateral taken by the System bank;

(3) The main types of guarantors/credit derivative counterparties and their creditworthiness;

and

(4) Information about (market or credit) risk concentrations with respect to credit risk

mitigation.

Quantitative

Disclosures

(b) For each separately disclosed credit risk portfolio, the total exposure that is covered by

eligible financial collateral, and after the application of haircuts.

(c) For each separately disclosed portfolio, the total exposure that is covered by guarantees/

credit derivatives and the risk-weighted asset amount associated with that exposure.

1 At a minimum, a System bank must provide the disclosures in this Table 7 in relation to credit risk

mitigation that has been recognized for the purposes of reducing capital requirements under this

subpart. Where relevant, System banks are encouraged to give further information about mitigants

that have not been recognized for that purpose.

2 Credit derivatives that are treated, for the purposes of this subpart, as synthetic securitization

exposures should be excluded from the credit risk mitigation disclosures and included within those

relating to securitization (Table 8 of this section).

Table 8 to § 628.63—Securitization1

Qualitative

Disclosures

(a) The general qualitative disclosure requirement with respect to a securitization (including

synthetic securitizations), including a discussion of:

(1) The System bank's objectives for securitizing assets, including the extent to which these

activities transfer credit risk of the underlying exposures away from the System bank to

other entities and including the type of risks assumed and retained with resecuritization

activity;2

(2) The nature of the risks (e.g. liquidity risk) inherent in the securitized assets;

(3) The roles played by the System bank in the securitization process3 and an indication of

the extent of the System bank's involvement in each of them;

(4) The processes in place to monitor changes in the credit and market risk of securitization

exposures including how those processes differ for resecuritization exposures;

(5) The System bank's policy for mitigating the credit risk retained through securitization and

resecuritization exposures; and

(6) The risk-based capital approaches that the System bank follows for its securitization

exposures including the type of securitization exposure to which each approach applies.

(b) [Reserved]

(c) Summary of the System bank's accounting policies for securitization activities, including:

(1) Whether the transactions are treated as sales or financings;

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12 CFR 628.63(c) (enhanced display) page 80 of 85
(2) Recognition of gain-on-sale;

(3) Methods and key assumptions applied in valuing retained or purchased interests;

(4) Changes in methods and key assumptions from the previous period for valuing retained

interests and impact of the changes;

(5) Treatment of synthetic securitizations;

(6) How exposures intended to be securitized are valued and whether they are recorded

under subpart D of this part; and

(7) Policies for recognizing liabilities on the balance sheet for arrangements that could

require the System bank to provide financial support for securitized assets.

(d) An explanation of significant changes to any quantitative information since the last

reporting period.

Quantitative

Disclosures

(e) The total outstanding exposures securitized by the System bank in securitizations that

meet the operational criteria provided in § 628.41 (categorized into traditional and synthetic

securitizations), by exposure type.4

(f) For exposures securitized by the System bank in securitizations that meet the operational

criteria in § 628.41:

(1) Amount of securitized assets that are impaired/past due categorized by exposure type;5

and

(2) Losses recognized by the System bank during the current period categorized by exposure

type.6

(g) The total amount of outstanding exposures intended to be securitized categorized by

exposure type.

(h) Aggregate amount of:

(1) On-balance sheet securitization exposures retained or purchased categorized by

exposure type; and

(2) Off-balance sheet securitization exposures categorized by exposure type.

(i) (1) Aggregate amount of securitization exposures retained or purchased and the

associated capital requirements for these exposures, categorized between securitization

and resecuritization exposures, further categorized into a meaningful number of risk weight

bands and by risk-based capital approach (e.g., SSFA); and

(2) Exposures that have been deducted entirely from tier 1 capital, CEIOs deducted from

total capital (as described in § 628.42(a)(1)), and other exposures deducted from total

capital should be disclosed separately by exposure type.

(j) Summary of current year's securitization activity, including the amount of exposures

securitized (by exposure type), and recognized gain or loss on sale by exposure type.

(k) Aggregate amount of resecuritization exposures retained or purchased categorized

according to:

(1) Exposures to which credit risk mitigation is applied and those not applied; and

(2) Exposures to guarantors categorized according to guarantor creditworthiness categories

or guarantor name.

1 A System bank is not authorized to perform every role in a securitization, and nothing in these

capital rules authorizes a System bank to engage in activities relating to securitizations that are not

otherwise authorized.

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12 CFR 628.63(c) (enhanced display) page 81 of 85
2 The System bank should describe the structure of resecuritizations in which it participates; this

description should be provided for the main categories of resecuritization products in which the

System bank is active.

3 Roles in securitizations generally could include originator, investor, servicer, provider of credit

enhancement, sponsor, liquidity provider, or swap provider. As noted in footnote 1 of this table,

however, a System bank is not authorized to perform all of these roles.

4

“Exposures securitized” include underlying exposures originated by the System bank, whether

generated by them or purchased, and recognized in the balance sheet, from third parties, and thirdparty exposures included in sponsored transactions. Securitization transactions (including

underlying exposures originally on the System bank's balance sheet and underlying exposures

acquired by the System bank from third-party entities) in which the originating System bank (as an

originating System institution) does not retain any securitization exposure should be shown

separately but need only be reported for the year of inception. System banks are required to

disclose exposures regardless of whether there is a capital charge under this part.

5

Include credit-related other than temporary impairment (OTTI).

6 For example, charge-offs/allowances (if the assets remain on the System bank's balance sheet)

or credit-related OTTI of interest-only strips and other retained residual interests, as well as

recognition of liabilities for probable future financial support required of the System bank with

respect to securitized assets.

Table 9 to § 628.63—Equities

Qualitative

Disclosures

(a) The general qualitative disclosure requirement with respect to equity risk:

(1) Differentiation between holdings on which capital gains are expected and those taken

under other objectives including for relationship and strategic reasons; and

(2) Discussion of important policies covering the valuation of and accounting for equity. This

includes the accounting techniques and valuation methodologies used, including key

assumptions and practices affecting valuation as well as significant changes in these

practices.

Quantitative

Disclosures

(b) Value disclosed on the balance sheet of investments, as well as the fair value of those

investments; for securities that are publicly traded, a comparison to publicly quoted share

values where the share price is materially different from fair value.

(c) The types and nature of investments, including the amount that is:

(1) Publicly traded; and

(2) Non-publicly traded.

(d) The cumulative realized gains (losses) arising from sales and liquidations in the reporting

period.

(e) (1) Total unrealized gains (losses).1

(2) Total latent revaluation gains (losses).2

(3) Any amounts of the above included in tier 1 or tier 2 capital.

12 CFR Part 628 (up to date as of 3/07/2024)

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12 CFR 628.63(c) (enhanced display) page 82 of 85
(f) [Reserved]

1 Unrealized gains (losses) recognized on the balance sheet but not through earnings.

2 Unrealized gains (losses) not recognized either on the balance sheet or through earnings.

Table 10 to § 628.63—Interest Rate Risk for Non-Trading Activities

Qualitative

disclosures

(a) The general qualitative disclosure requirement, including the nature of interest rate risk

for non-trading activities and key assumptions, including assumptions regarding loan

prepayments and behavior of non-maturity deposits, and frequency of measurement of

interest rate risk for non-trading activities.

Quantitative

disclosures

(b) The increase (decline) in earnings or economic value (or market value of equity or other

relevant measure used by management) for upward and downward rate shocks according to

management's method for measuring interest rate risk for non-trading activities, categorized

by currency (as appropriate).

[81 FR 49779, July 28, 2016, as amended at 86 FR 54360, Oct. 1, 2021; 87 FR 27493, May 9, 2022]

§§ 628.64-628.99 [Reserved]

Subparts E–F [Reserved]

Subpart G—Transition Provisions

§ 628.300 Transitions.

Table 1 to § 628.300

Transition Period Capital conservation buffer

Maximum

payout ratio

(as a percentage of eligible retained

income)

Calendar year 2017 >0.625 percent No limitation.

≤0.625 percent, and >0.469 percent 60 percent.

≤0.469 percent, and >0.313 percent 40 percent.

≤0.313 percent, and >0.156 percent 20 percent.

≤0.156 percent 0 percent.

Calendar year 2018 >1.25 percent No limitation.

(a) Capital conservation buffer.

(1) [Reserved]

(2) Beginning January 1, 2017 through December 31, 2019 a System institution's maximum capital

conservation buffer payout ratio must be determined as set forth in Table 1 to § 628.300.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.64-628.99

12 CFR 628.300(a)(2) (enhanced display) page 83 of 85
Transition Period Capital conservation buffer

Maximum

payout ratio

(as a percentage of eligible retained

income)

≤1.25 percent, and >0.938 percent 60 percent.

≤0.938 percent, and >0.625 percent 40 percent.

≤0.625 percent, and >0.313 percent 20 percent.

≤0.313 percent 0 percent.

Calendar year 2019 >1.875 percent No limitation.

≤1.875 percent, and >1.406 percent 60 percent.

≤1.406 percent, and >0.938 percent 40 percent.

≤0.938 percent, and >0.469 percent 20 percent.

≤0.469 percent 0 percent.

§ 628.301 Initial compliance and reporting requirements.

(b)–(e) [Reserved]

(a) A System institution that fails to satisfy one or more of its minimum applicable CET1, tier 1, or total riskbased capital ratios or its tier 1 leverage ratio at the end of the quarter in which these regulations become

effective shall report its initial noncompliance to the FCA within 20 days following such quarterend and

shall also submit a capital restoration plan for achieving and maintaining the standards, demonstrating

appropriate annual progress toward meeting the goal, to the FCA within 60 days following such

quarterend. If the capital restoration plan is not approved by the FCA, the FCA will inform the institution of

the reasons for disapproval, and the institution shall submit a revised capital restoration plan within the

time specified by the FCA.

(b) Approval of compliance plans. In determining whether to approve a capital restoration plan submitted

under this section, the FCA shall consider the following factors, as applicable:

(1) The conditions or circumstances leading to the institution's falling below minimum levels, the

exigency of those circumstances, and whether or not they were caused by actions of the institution

or were beyond the institution's control;

(2) The overall condition, management strength, and future prospects of the institution and, if applicable,

affiliated System institutions;

(3) The institution's capital, adverse assets (including nonaccrual and nonperforming loans), ALL, and

other ratios compared to the ratios of its peers or industry norms;

(4) How far an institution's ratios are below the minimum requirements;

(5) The estimated rate at which the institution can reasonably be expected to generate additional

earnings;

(6) The effect of the business changes required to increase capital;

(7) The institution's previous compliance practices, as appropriate;

(8) The views of the institution's directors and senior management regarding the plan; and

(9) Any other facts or circumstances that the FCA deems relevant.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.300(b)

12 CFR 628.301(b)(9) (enhanced display) page 84 of 85
(c) An institution shall be deemed to be in compliance with the regulatory capital requirements of this subpart

if it is in compliance with a capital restoration plan that is approved by the FCA within 180 days following

the end of the quarter in which these regulations become effective.

12 CFR Part 628 (up to date as of 3/07/2024)

Capital Adequacy of System Institutions 12 CFR 628.301(c)

12 CFR 628.301(c) (enhanced display) page 85 of 85
Appendix A to Part 630

Supplemental Information Disclosure Guidelines

Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 630 Disclosure to Investors in Systemwide and Consolidated Bank Debt

Obligations of the Farm Credit System

Subpart A General

§ 630.1 Purpose.

§ 630.2 Definitions.

§ 630.3 Publishing and filing the report to investors.

§ 630.4 Responsibilities for preparing the report to investors.

§ 630.5 Accuracy of reports and assessment of internal control over financial reporting.

§ 630.6 Funding Corporation committees.

Subpart B Annual Report to Investors

§ 630.20 Contents of the annual report to investors.

Subpart C Quarterly Reports to Investors

§ 630.40 Contents of the quarterly report to investors.

PART 630—DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND

CONSOLIDATED BANK DEBT OBLIGATIONS OF THE FARM CREDIT

SYSTEM

Authority: Secs. 4.2, 4.9, 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2153, 2160, 2243, 2252, 2254); sec. 424,

Pub. L. 100–233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note); sec. 514, Pub. L. 102–552, 106 Stat. 4102, 4134.

Source: 59 FR 46742, Sept. 12, 1994, unless otherwise noted.

Subpart A—General

§ 630.1 Purpose.

This part sets forth the requirements for preparation and publication by the Farm Credit System (FCS or System) of

annual and quarterly reports to investors and potential investors in Systemwide and consolidated bank debt

obligations of the System and to other users of the reports in the general public.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 630 (up to date as of 3/07/2024)

Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR Part 630 (Mar. 7, 2024)

12 CFR 630.1 (enhanced display) page 1 of 21
§ 630.2 Definitions.

For purposes of this part, the following definitions shall apply:

[59 FR 46742, Sept. 12, 1994, as amended at 71 FR 76121, Dec. 20, 2006]

§ 630.3 Publishing and filing the report to investors.

(a) Bank means any bank chartered under the Farm Credit Act of 1971, as amended (Act).

(b) Combined financial statements means financial statements prepared on a combined basis by a group of

affiliated entities that share the same financial interest, regardless of whether any of the entities has the

ability to exercise control over another. For purposes of this part, unless otherwise specified, combined

financial data of a bank and its related associations includes financial data of the bank's consolidated

subsidiaries.

(c) Disclosure entity means any Farm Credit bank and the Federal Farm Credit Banks Funding Corporation

(Funding Corporation).

(d) Engagement letter means the proposal, contract, letter, and other documents reflecting the

understandings between the audit committee or board of directors of a bank or an association and its

independent public accountant regarding the scope, terms, and nature of the audit services to be

performed.

(e) Farm Credit System means, collectively, the banks, associations, and such other institutions that are or

may be made a part of the System under the Act, all of which are chartered by and subject to regulation by

the Farm Credit Administration (FCA). For purposes of this part, the System does not include the Federal

Agricultural Mortgage Corporation (Farmer Mac).

(f) FCS debt obligation means, collectively, notes, bonds, debentures, and other debt securities issued by

banks pursuant to section 4.2(c) (consolidated bank debt securities) and section 4.2(d) (Systemwide debt

securities) of the Act.

(g) Report to investors or report means a report that presents the Systemwide combined financial statements,

supplemental financial statement information, and related financial and nonfinancial information

pertaining to the System required by this part.

(h) Systemwide combined financial statements means the combined financial statements required by this

part.

(a) The disclosure entities shall jointly publish the following reports in order to provide meaningful

information pertaining to the financial condition and results of operations of the System to investors and

potential investors in FCS debt obligations and other users of the report:

(1) An annual report to investors within 75 calendar days after the end of each fiscal year;

(2) A quarterly report to investors within 45 calendar days after the end of each quarter, except for the

quarter that coincides with the end of the fiscal year.

(3) Interim reports, as required by the Funding Corporation's written policies and procedures, disclosing

significant events or material changes in information occurring since the most recently published

report to investors.

12 CFR Part 630 (up to date as of 3/07/2024)

Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.2

12 CFR 630.3(a)(3) (enhanced display) page 2 of 21
[59 FR 46724, Sept. 12, 1994, as amended at 62 FR 15094, Mar. 31, 1997; 71 FR 76121, Dec. 20, 2006]

§ 630.4 Responsibilities for preparing the report to investors.

(b) Each report to investors shall present Systemwide combined financial statements and related footnotes

deemed appropriate for the purpose of the report to provide investors with the most meaningful

presentation pertaining to the financial condition and results of operations of the System.

(c) All items of essentially the same character as items required to be reported in the reports of condition and

performance pursuant to part 621 of this chapter shall be prepared in accordance with the rules set forth

in part 621 of this chapter.

(d) Each report to investors shall contain the information required by subparts B and C of this part, as

applicable, and such other information as is necessary to make the required statements, in light of the

circumstances under which they are made, not misleading.

(e) Information in any part of the report may be referenced or incorporated in answer or partial answer to any

other item of the report. Information required by this part may be presented in any order deemed suitable

by the Funding Corporation.

(f) Information in documents prepared for investors in connection with the offering of debt securities issued

through the Funding Corporation may be incorporated by reference in the annual and quarterly reports in

answer or partial answer to any item required in the reports under this part. A complete description of any

offering documents incorporated by reference must be clearly identified in the report (e.g., Federal Farm

Credit Banks Consolidated System-wide Bonds and Discount Notes—Offering Circular issued on [insert

date]). Offering documents incorporated by reference in either an annual or quarterly report prepared

under this part must be filed with the Farm Credit Administration according to our instructions either prior

to or at the time of submission of the report under paragraph (h) of this section. Any offering document

incorporated by reference is subject to the delivery and availability requirements set forth in § 630.4(a)(5)

and (a)(6).

(g) The report shall include a statement in a prominent location that Systemwide debt securities and

consolidated bank debt obligations are joint and several liabilities of individual banks and that copies of

each bank's recent periodic reports to shareholders are available upon request. The report shall also

include addresses and telephone numbers where copies of the report to investors and the periodic

reports of individual banks can be obtained. Copies of the report to investors shall be available for public

inspection at the Funding Corporation.

(h) Complete copies of the report must be filed with the Farm Credit Administration according to our

instructions. All copies must comply with the requirements of § 630.5 of this part.

(a) Responsibilities of the Funding Corporation. The Funding Corporation shall:

(1) Prepare the reports to investors required by § 630.3(a), including the Systemwide combined financial

statements and notes thereto, and such other disclosures, supplemental information, and related

analysis as are required by this part to make the reports meaningful and not misleading.

(2) Establish a system of internal controls sufficient to reasonably ensure that any information it

releases to investors and the general public concerning any matter required to be disclosed by this

part is true and that there are no omissions of material information. The system of internal controls,

at a minimum, shall require that the Funding Corporation:

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Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.3(b)

12 CFR 630.4(a)(2) (enhanced display) page 3 of 21
(i) Maintain written policies and procedures, approved by the System Audit Committee, to be

carried out by the disclosure entities for preparation of the report to investors;

(ii) Provide instructions to the disclosure entities regarding the information needed for preparation

of the Systemwide combined financial statements and disclosures required to be presented in

the report to investors;

(iii) Review the information submitted to it for preparation of the report to investors, and make

reasonable inquiries to ascertain whether the information is reliable, accurate, and complete;

and

(iv) Specify procedures for monitoring interim disclosures of System institutions and disclose, in a

timely manner, any material changes in information contained in the most recently published

report to investors.

(3) Collect from each disclosure entity financial data and related analyses and other information needed

for preparation of the report to investors, including any information that is material to the disclosure

entity.

(4) File the reports with the FCA in accordance with § 630.3(f) and (h) and § 630.5.

(5) Ensure prompt delivery of sufficient copies of each report to selling group dealers for distribution to

investors and potential investors in FCS debt obligations.

(6) Make the report available to the general public upon request.

(7) Notify the FCA if it is unable to prepare and publish the report to investors in compliance with the

requirements of this part because one or more banks have failed to comply with the requirements of

paragraph (c) of this section. A notification, signed by the officer(s) designated by the board of

directors of the Funding Corporation to certify the report to investors and by the chief executive

officer, shall be made to the FCA as soon as the Funding Corporation becomes aware of its inability

to comply. The Funding Corporation shall explain the reasons for the notification and may request

that the FCA extend the due date for the report to investors.

(8) Include in the report a statement that briefly explains the respective responsibilities of the disclosure

entities and states that the Funding Corporation has policies and procedures in place to ensure, to

the best of the knowledge and belief of management and the board of the Funding Corporation, that

the information contained in the report is true, accurate, and complete. The statement shall be

signed by the chief executive officer and the chairperson of the board of the Funding Corporation.

(9) Request the FCA to provide information regarding the content of the latest Reports of Examination of

any banks and related associations, if such information is necessary for preparation of a report that

is meaningful and not misleading and is not forthcoming from a bank in accordance with paragraph

(c) of this section. The request shall be made to the Chief Examiner, Farm Credit Administration,

McLean, Virginia 22102–5090.

(b) Responsibilities of banks. Each bank shall:

(1) Provide to the Funding Corporation annual, quarterly, and interim financial and other information in

accordance with instructions of the Funding Corporation for preparation of the report to investors,

including:

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12 CFR 630.4(b)(1) (enhanced display) page 4 of 21
[59 FR 46724, Sept. 12, 1994, as amended at 71 FR 76121, Dec. 20, 2006]

§ 630.5 Accuracy of reports and assessment of internal control over financial reporting.

(i) Financial data of the bank or, if the bank is required under generally accepted accounting

principles (GAAP) to prepare its financial statements on a consolidated basis with its

subsidiaries, consolidated financial data of the bank and its consolidated subsidiaries; and

(ii) Combined financial data of the bank (including any consolidated subsidiaries of the bank) and

related associations of the bank.

(2) Respond to Funding Corporation inquiries and provide any followup information requested by the

Funding Corporation in connection with the preparation of the report to investors in accordance with

instructions of the Funding Corporation.

(3) Notify the Funding Corporation promptly of any events occurring subsequent to publication of the

report that may be material either to the financial condition and results of operations of the bank or

to the combined financial condition and results of operations of the bank and its related

associations. Furnish the Funding Corporation with any information necessary to provide interim

Systemwide disclosure to investors to make the most recently published report to investors not

misleading.

(4) Respond to inquiries from the Funding Corporation relating to preparation of the report.

(5) Certify to the Funding Corporation that all information needed for preparation of the report to

investors has been submitted in accordance with the instructions of the Funding Corporation and the

information submitted complies with the signature and certification provisions of § 620.3(b) and (c),

respectively.

(c) Responsibilities of associations. Each association must:

(1) Provide its related bank with the information necessary to allow the bank to provide accurate and

complete information regarding the bank and its related associations to the Funding Corporation for

preparation of the report. The financial information provided by the association to its related bank

must be signed and certified in the same manner as provided in § 620.3(b) and (c), respectively.

(2) Respond to inquiries of the related bank pertaining to preparation of the combined financial data of

the association and its related bank.

(a) Prohibition against incomplete, inaccurate, or misleading disclosure. Neither the Funding Corporation, nor

any institution supplying information to the Funding Corporation under this part, nor any employee, officer,

director, or nominee for director of the Funding Corporation or of such institutions, shall make or cause to

be made any disclosure to investors and the general public required by this part that is incomplete,

inaccurate, or misleading. When any such institution or person makes or causes to be made disclosure

under this part that, in the judgment of the FCA, is incomplete, inaccurate, or misleading, whether or not

such disclosure is made in published statements required by this part, such institution or person shall

promptly furnish to the Funding Corporation, and the Funding Corporation shall promptly publish, such

additional or corrective disclosure as is necessary to provide full and fair disclosure to investors and the

general public. Nothing in this section shall prevent the FCA from taking additional actions to enforce this

section pursuant to its authority under title V, part C of the Act.

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12 CFR 630.5(a) (enhanced display) page 5 of 21
[71 FR 76121, Dec. 20, 2006, as amended at 72 FR 64130, Nov. 15, 2007]

§ 630.6 Funding Corporation committees.

(b) Signatures. The name and position title of each person signing the report must be printed beneath his or

her signature. If any person required to sign the report has not signed the report, the name and position

title of the individual and the reasons such individual is unable to, or refuses to, sign must be disclosed in

the report. All reports must be dated and signed on behalf of the Funding Corporation by:

(1) The chief executive officer (CEO);

(2) The officer in charge of preparing financial statements; and

(3) A board member formally designated by action of the board to certify reports of condition and

performance on behalf of individual board members.

(c) Certification of financial accuracy. The report must be certified as financially accurate by the signatories to

the report. If any signatory is unable to, or refuses to, certify the report, the institution must disclose the

individual's name and position title and the reason(s) such individual is unable or refuses to certify the

report. At a minimum, the certification must include a statement that:

(1) The signatories have reviewed the report,

(2) The report has been prepared in accordance with all applicable statutory or regulatory requirements,

and

(3) The information is true, accurate, and complete to the best of signatories' knowledge and belief.

(d) Management assessment of internal control over financial reporting.

(1) Annual reports must include a report by the Funding Corporation's management assessing the

effectiveness of the internal control over financial reporting for the System-wide report to investors.

The assessment must be conducted during the reporting period and be reported to the Funding

Corporation's board of directors. Quarterly and annual reports must disclose any material change(s)

in the internal control over financial reporting occurring during the reporting period.

(2) The Funding Corporation must require its external auditor to issue an attestation report, which must

express an opinion on the effectiveness of internal control over financial reporting. The resulting

attestation report must accompany management's assessment and be included in the annual report.

(a) System Audit Committee. The Funding Corporation must establish and maintain a System Audit

Committee (SAC) by adopting a written charter describing the committee's composition, authorities, and

responsibilities in accordance with this section. The SAC must maintain records of meetings, including

attendance, for at least 3 fiscal years.

(1) Composition. All SAC members should be knowledgeable in at least one of the following: Public and

corporate finance, financial reporting and disclosure, or accounting procedures.

(i) At least one-third of the SAC members must be representatives from the Farm Credit System.

(ii) The SAC may not consist of less than three members and at least one member must be a

financial expert. A financial expert is one who either has experience with internal controls and

procedures for financial reporting or experience in preparing or auditing financial statements.

(iii) The chair of the SAC must be a financial expert.

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12 CFR 630.6(a)(1)(iii) (enhanced display) page 6 of 21
(2) Independence. Every audit committee member must be free from any relationship that, in the opinion

of the Funding Corporation board, would interfere with the exercise of independent judgment as a

committee member.

(3) Resources. The Funding Corporation must provide the SAC monetary and nonmonetary resources

the SAC determines necessary to enable it to perform the duties listed in paragraph (a)(4) of this

section. The Funding Corporation must permit the SAC to contract, for reasons directly related to the

duties listed in paragraph (a)(4) of this section, the services of external auditors, independent legal

counsel, and outside advisors. The SAC must only use the resources of the Funding Corporation in a

manner that complies with laws and regulations and for the purpose of preserving and promoting

the safety and soundness of the System. The SAC must provide the Funding Corporation board of

directors a quarterly accounting of expenditures made pursuant to this section.

(4) Duties. The SAC reports only to the Funding Corporation board of directors. In its capacity as a

committee of the board, the SAC is responsible for the following:

(i) Financial reports. The SAC must oversee the Funding Corporation's preparation of the report to

stockholders and investors; review the impact of any significant accounting and auditing

developments; review accounting policy changes relating to preparation of the System-wide

combined financial statements; and review annual and quarterly reports prior to release. After

the SAC reviews a financial policy, procedure, or report, it must record in its minutes its

agreement or disagreement with the item(s) under review.

(ii) External auditors. The external auditor must report directly to the SAC. The SAC must:

(A) Determine, with the agreement of the Funding Corporation board of directors, the

appointment, compensation, and retention of the external auditors issuing System-wide

audit reports;

(B) Review the external auditor's work;

(C) Give prior approval for any non-audit services performed by the external auditor, except the

audit committee may not approve those non-audit services specifically prohibited by FCA

regulation; and

(D) Comply with the auditor independence provisions of part 621 of this chapter.

(iii) Internal controls. The SAC must oversee the Funding Corporation's system of internal controls

relating to preparation of financial reports, including controls relating to the Farm Credit

System's compliance with applicable laws and regulations.

(b) Compensation committee. The Funding Corporation must establish and maintain a compensation

committee by adopting a written charter describing the committee's composition, authorities, and

responsibilities in accordance with this section. The compensation committee must report only to the

board of directors. The compensation committee is required to maintain records of meetings, including

attendance, for at least 3 fiscal years.

(1) Composition. The committee must consist of at least three members and all members must be

members of the Funding Corporation's board of directors. Every compensation committee member

must be free from any relationship that, in the opinion of the board, would interfere with the exercise

of independent judgment as a committee member.

12 CFR Part 630 (up to date as of 3/07/2024)

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12 CFR 630.6(b)(1) (enhanced display) page 7 of 21
[71 FR 5767, Feb. 2, 2006, as amended at 71 FR 76122, Dec. 20, 2006; 77 FR 59052, Sept. 26, 2012; 77 FR 60602, Oct. 3, 2012]

Subpart B—Annual Report to Investors

§ 630.20 Contents of the annual report to investors.

The annual report must contain the following:

(2) Responsibilities. It is the responsibility of the compensation committee to review the compensation

policies and plans for senior officers and employees and to approve the overall compensation

program for senior officers. In fulfilling its responsibilities, the compensation committee must

document that it determined the:

(i) Funding Corporation's projected long-term compensation and retirement benefit obligations are

appropriate to the services performed and not excessive;

(ii) Incentive-based compensation programs and payments are reasonable and proportionate to

the services performed and structured so the payout schedule considers the potential for future

losses or undue risks to the Funding Corporation; and

(iii) Senior officer compensation, incentive, and benefit programs support the Funding Corporation's

long-term business strategy and mission, as well as promote safe and sound business

practices.

(3) Resources. The Funding Corporation must provide monetary and nonmonetary resources to enable

its compensation committee to perform its duties.

(a) Description of business.

(1) The description shall include a brief discussion of the following:

(i) The System's overall organizational structure, its lending institutions by type and their

respective authorities, the relationships between different types of institutions, and the overall

geographic area and eligible borrowers served by those institutions;

(ii) The types of lending activities engaged in and financial services offered by System institutions;

(iii) Any significant developments within the last 5 years that have had or could have a material

impact on the System's organizational structure and the manner in which System institutions

conduct business, including, but not limited to, statutory or regulatory changes, mergers or

liquidations of System institutions, terminations of System institution status, and financial

assistance provided by or to System institutions through loss-sharing or capital preservation

agreements or from any other source;

(iv) Any acquisition or disposition of material assets during the last fiscal year that took place

outside the ordinary course of business;

(v) Any concentrations of more than 10 percent of total assets in particular types of agricultural

activities or businesses, and any dependence of an institution or a group of institutions of the

System upon a specific activity or business, a single customer, or a few customers, including

other financing institutions (OFIs), the loss of any one of which would have a material effect on

the System; and

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12 CFR 630.20(a)(1)(v) (enhanced display) page 8 of 21
(vi) The authority of System institutions to purchase and sell interests in loans in secondary

markets and the risk involved in such activities.

(2) List the address of the headquarters of each disclosure entity and service corporation of the System.

(b) Federal regulation and insurance —

(1) Farm Credit Administration. Describe the regulatory and enforcement authority of the FCA over

System institutions under the Act.

(2) Farm Credit System Insurance Corporation.

(i) Describe the role and authorities of the Farm Credit System Insurance Corporation (FCSIC)

under part E of title V of the Act. Describe specifically the role of the FCSIC in insuring the

timely payment of principal and interest on FCS debt obligations and in providing assistance to

System institutions.

(ii) Describe the FCSIC's status as a Government corporation and state that System institutions

have no control over the management of the FCSIC or the discretionary expenditures from the

Farm Credit Insurance Fund (Insurance Fund), which are the sole prerogative of the FCSIC.

(c) Description of legal proceedings and enforcement actions.

(1) Describe any material pending legal proceedings in which one or more System institutions are a

party, or that involve claims that a System institution(s) may be required by contract or operation of

law to satisfy, and the potential impact of such proceedings, to the extent known, on the System.

(2) Provide a summary of the types of enforcement actions in effect during the year, and any material

impact of such proceedings on the System.

(d) Description of liabilities.

(1) Describe how the System funds its lending operations, including:

(i) System banks' authority to borrow, and issue notes, bonds, debentures, and other obligations,

and limitations thereof under section 4.2 of the Act;

(ii) A description of the types of debt obligations authorized to be issued under the Act, the types of

debt obligations currently issued, the manner and form in which they are issued, rights of

securities holders, risk factors, use of proceeds, tax effects of holding securities, market

information, and other pertinent information;

(iii) For each of the types of obligations that may be issued, whether it is insured, and the extent of

any joint and several liability for the obligations; and

(iv) Any applicable statutory and regulatory requirements affecting a bank's ability to incur debt.

(2) Describe agreements among System banks and the Funding Corporation affecting a bank's ability to

incur debt.

(3) Describe agreements among System institutions regarding capital preservation, loss sharing, or any

other forms of financial assistance.

(e) Description of capital.

(1) Describe the capitalization of the System, including capital structure, types of stock and participation

certificates, and voting rights of holders of stock and participation certificates.

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12 CFR 630.20(e)(1) (enhanced display) page 9 of 21
(2) Describe the statutory requirement that a borrower purchase stock as a condition of obtaining a loan;

how such stock is purchased, transferred, and retired; and how earnings are distributed.

(3) Describe any statutory or other authority of a System institution to require additional capital

contributions from stockholders.

(4) Describe regulatory minimum permanent capital standards and capital adequacy requirements for

banks and associations. State the number of institutions, if any, categorized by banks and

associations, that are not currently in compliance with such standards and include a brief discussion

of the reasons for the noncompliance.

(5) Describe any statutory and regulatory restrictions on retirement of stock and distribution of earnings

by System institutions. State the number of System institutions, if any, categorized by banks and

associations, that are currently affected by such restrictions and provide a summary of the causes of

such prohibitions.

(f) Selected financial data. At a minimum, furnish the following combined financial data of the System in

comparative columnar form for each of the last 5 fiscal years, if material.

(1) Balance sheet.

(i) Loans.

(ii) Allowance for credit losses.

(iii) Net loans.

(iv) Cash and investments.

(v) Other property owned.

(vi) Total assets.

(vii) FCS debt obligations and other bonds, notes, debentures, and obligations, presented by type,

with a descriptive title.

(viii) Total liabilities.

(ix) Capital stock and surplus.

(2) Statement of income.

(i) Net interest income.

(ii) Net other expenses.

(iii) Provision for credit losses.

(iv) Extraordinary items.

(v) Provision for income taxes.

(vi) Net income (loss).

(3) Key financial ratios.

(i) Return on average assets.

(ii) Return on average capital stock and surplus.

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12 CFR 630.20(f)(3)(ii) (enhanced display) page 10 of 21
(iii) Net interest income as a percentage of average earning assets.

(iv) Net loan chargeoffs as a percentage of average loans.

(v) Allowance for credit losses as a percentage of gross loans outstanding at yearend.

(vi) Capital stock and surplus as a percentage of total assets at yearend.

(vii) Debt to capital stock and surplus at yearend.

(g) Discussion and analysis. Fully discuss any material aspects of financial condition, changes in financial

condition, and results of operations of System institutions, on a combined basis, for the comparative

years required by paragraph (g)(6)(ii) of this section or such other time periods specified in the following

paragraphs of this section. Identify favorable and unfavorable trends, and significant events or

uncertainties necessary to understand the financial condition and results of operations of the System. At

a minimum, the discussion shall include the following:

(1) Loan portfolio —

(i) Categorization. Describe the loan portfolio of the System by major loan purpose category,

indicating the amount and approximate percentage of the total dollar portfolio represented by

each major category.

(ii) Risk exposure.

(A) Describe and analyze all high-risk assets, including an analysis of the nature and extent of

significant current and potential credit risks within the loan portfolio and of other

information that could adversely affect the loan portfolio and other property owned.

(B) An analysis of the allowance for credit losses to loans and net chargeoffs to average loans

and a discussion of the adequacy of the allowance for credit losses given reasonable and

supportable forecasts.

(iii) Secondary market activities.

(A) If material, quantify System institutions' secondary market activities and the risk involved

in such activities.

(B) If material, provide an analysis of historical loss experience and the amount provided for

risk of loss associated with secondary market activities.

(2) Results of operations.

(i) Describe, on a comparative basis, changes in the major components of net interest income.

Include a discussion of significant factors that contributed to the changes and quantify the

amount of change(s) due to an increase or decrease in volume and the amount due to changes

in interest rates earned and paid, based on averages for each period.

(ii) Describe any unusual or infrequent events or transactions, or any significant economic changes

that materially affected reported income and, in each case, indicate the extent to which income

was so affected.

(iii) Discuss the factors underlying any material changes in the return on average assets and return

on average capital stock and surplus.

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12 CFR 630.20(g)(2)(iii) (enhanced display) page 11 of 21
(iv) Describe, on a comparative basis, the major components of operating expense and any other

significant components of income or expense, indicating the reasons for any significant

increases or decreases.

(v) Describe any known trends or uncertainties that have had, or that are reasonably expected to

have, a material impact on net interest income or net income. Disclose any known events that

will cause a material change in the relationship between costs and revenues.

(vi) Explain the changes that have taken place, by major components on a comparative basis, in

Insurance Fund assets and related restricted capital and how such changes affected reported

income.

(3) Funding sources and liquidity —

(i) Funding sources.

(A) Provide, in tabular form, the component amounts and the total amount of FCS debt

obligations, debt obligations issued by banks individually, and Financial Assistance

Corporation debt obligations outstanding at yearend for each of the past 2 fiscal years.

List debt obligations issued by System institutions separately by type, also separating

insured obligations from uninsured obligations. For each type of debt obligation listed,

provide the following, at a minimum, for each fiscal year listed:

(1) The beginning balance, the total amount of debt issued, the total amount of debt

retired, and the yearend balance; and

(2) The average maturities and average interest rates on debt outstanding at yearend,

and the average maturities and average interest rates of new debt issued during the

year.

(B) Summarize any other sources of funds, including lines of credit with commercial lenders,

and their terms.

(ii) Liquidity.

(A) Include a brief overview of any FCA regulations or System policies with regard to liquidity

and liquidity reserves.

(B) Identify any known trends, demands, commitments, events, or uncertainties that will result

in, or that are reasonably likely to result in, System liquidity increasing or decreasing in any

material way. If a material liquidity deficiency is identified, indicate the course of action

that has been taken or is proposed to be taken by management of affected System

institutions to remedy the deficiency.

(iii) Investment. Provide a brief overview of the System's investment policies and objectives, any

regulatory limitations thereon, and the contents of the System's existing investment portfolio.

(iv) Interest rate sensitivity.

(A) Provide a brief overview of the System's asset and liability management practices,

including interest rate risk measurement systems, and methods used to control interest

rate risk, such as the use of investments, derivatives, and other off-balance-sheet

transactions.

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12 CFR 630.20(g)(3)(iv)(A) (enhanced display) page 12 of 21
(B) Provide an analysis of the System's exposure to interest rate risk and its ability to control

such risk.

(4) Capital resources.

(i) Describe any material commitments to purchase capital assets and the anticipated sources of

funding.

(ii) Describe any material trends, favorable or unfavorable, in the System's capital resources,

including any material changes in the mix of capital and debt, the relative cost of capital

resources, and any off-balance- sheet financing arrangements.

(iii) Provide a general discussion of any trends, commitments, contingencies, or events that are

reasonably likely to have a material adverse effect on System institutions' ability to comply with

regulatory capital standards.

(5) Insurance Fund.

(i) Describe the purposes for which expenditures from the Insurance Fund may be made and the

statutory requirements for making such expenditures.

(ii) Provide a schedule itemizing the amount of Insurance Fund assets that have been specifically

identified by the FCSIC for payment of estimated obligations of the FCSIC and the amount of

Insurance Fund assets for which no specific use has been identified or designated by the

FCSIC. Information provided shall be as of the end of the most recent fiscal year.

(iii) Explain how FCSIC expenditures or designations of Insurance Fund assets for payment of

future obligations affect the combined assets and capital of the System, and quantify the

effect, if any.

(6) Instructions for discussion and analysis.

(i) The purpose of the discussion and analysis (D&A) shall be to provide to investors and other

users information relevant to an assessment of the combined financial condition and results of

operations of System institutions as determined by evaluating the amounts and certainty of

cashflows from operations and from outside sources. The information provided pursuant to

this section need only include that which is available to System institutions and which does not

clearly appear in the combined financial statements.

(ii) The D&A of the financial statements and other statistical data shall be presented in a manner

designed to enhance a reader's understanding of the combined financial condition, results of

operations, cashflows, and changes in capital of System institutions. Unless otherwise

specified in § 630.20(g), the discussion shall cover the period covered by the financial

statements and shall use year-to-year comparisons or any other understandable format. Where

trend information is relevant, reference to the 5-year selected financial data required by

paragraph (f) of this section may be necessary.

(iii) The D&A shall focus specifically on material events and uncertainties known at the time of

reporting that would cause reported financial information not to be necessarily indicative of

future operating results or of future financial condition. This should include descriptions and

amounts of:

(A) Matters that would have an impact on future operations but that have not had an impact in

the past; and

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12 CFR 630.20(g)(6)(iii)(A) (enhanced display) page 13 of 21
(B) Matters that have had an impact on reported operations but are not expected to have an

impact on future operations.

(h) Directors and management —

(1) Board of directors. Briefly describe the composition of boards of directors of the disclosure entities.

List the name of each director of such entities, including the director's term of office and principal

occupation during the past 5 years, or state that such information is available upon request.

(2) Senior officers. List the names of all senior officers employed by the disclosure entities, including

position title and length of service at current position.

(i) Compensation of directors and senior officers. State that information on the compensation of directors

and senior officers of Farm Credit banks is contained in each bank's annual report to shareholders and

that the annual report of each bank is available to investors upon request pursuant to § 630.3(g).

(j) Related party transactions.

(1) Briefly describe how System institutions, in the ordinary course of business and subject to regulation

by the FCA, may enter into loan transactions with related parties, including their directors, officers,

and employees, the immediate family members (as defined in § 620.1(e) of this chapter) of such

persons, and any organizations with which such persons and their immediate family members are

affiliated.

(2) On a comparative basis for each of the fiscal years covered by the balance sheet, state the aggregate

amount of the following:

(i) Loans made to related parties;

(ii) Loans outstanding at yearend to related parties;

(iii) Loans outstanding at yearend to related parties that are made on more favorable terms than

those prevailing at the time for comparable transactions with unrelated borrowers; and

(iv) Loans outstanding at yearend to related parties that involve more than a normal risk of

collectibility (as defined in § 620.1(i) of this chapter).

(k) Relationship with qualified public accountant.

(1) If a change in the qualified public accountant who has previously examined and expressed an

opinion on the System-wide combined financial statements has taken place since the last annual

report to investors or if a disagreement with a qualified public accountant has occurred that the

Funding Corporation would be required to report to the FCA under part 621 of this chapter, disclose

the information required by § 621.4(c) and (d).

(2) Disclose the total fees paid during the reporting period to the qualified public accountant by the

category of services provided. At a minimum, identify fees paid for audit services, tax services, and

non-audit services. The types of non-audit services must be identified and indicate audit committee

approval of the services.

(l) Financial statements. Furnish System-wide combined financial statements and related footnotes prepared

in accordance with GAAP, and accompanied by supplemental information prepared in accordance with

the requirements of § 630.20(m). The System-wide combined financial statements shall provide investors

and potential investors in FCS debt obligations with the most meaningful presentation pertaining to the

financial condition and results of operations of the System. The System-wide combined financial

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12 CFR 630.20(l) (enhanced display) page 14 of 21
statement and accompanying supplemental information shall be audited in accordance with generally

accepted auditing standards by a qualified public accountant. The System-wide combined financial

statements shall include the following:

(1) A balance sheet as of the end of each of the 2 most recent fiscal years; and

(2) Statements of income, statements of changes in capital stock and surplus (or, if applicable,

statements of changes in protected borrower capital and capital stock and surplus), and statements

of cash flows for each of the 3 most recent fiscal years.

(m) Supplemental information. Furnish supplemental information regarding the components of the

Systemwide combined financial statements that has been prepared in accordance with the requirements

of this paragraph and any additional guidance or instructions provided by the FCA.

(1) At a minimum, the supplemental information shall include the following:

(i) Supplemental balance sheet information as of the end of the most recent fiscal year; and

(ii) Supplemental income statement information for the most recently completed fiscal year.

(2) At a minimum, the report shall present supplemental information showing combined financial data

for the following components on a stand-alone basis:

(i) Banks;

(ii) Associations;

(iii) Combined financial data of the System without the Insurance Fund;

(iv) The Insurance Fund and related combination entries; and

(v) Combined financial data of the System with the Insurance Fund.

(3) The supplemental information shall be presented in a columnar format and include, at a minimum,

the selected financial data listed in the schedules in appendix A of this part. The prescribed

components shall be designated as column headings and they may be abbreviated in the schedules.

The financial data required by § 630.20(m)(2)(i) shall include the financial data required to be

submitted by each bank pursuant to the requirement of § 630.4(c)(1)(i).

(4) The supplemental information may be presented separately or in accompanying notes to the

Systemwide combined financial statements and shall contain additional disclosures sufficient to

explain the basis of the presentation of the supplemental information, the components, and any

adjustments contained therein to enable readers to understand the effect of each component on the

Systemwide combined financial statements.

(n) System Audit Committee. The Funding Corporation must include in the System-wide Report to Investors a

description of the System Audit Committee and its activities during the reporting period. At a minimum,

the description must:

(1) List the names of the System Audit Committee members, including each member's term of office

and principal occupation during the past 5 years. For each member, state the total cash and noncash

compensation paid for services on the System Audit Committee during the reporting period.

(2) Disclose by category the monetary and nonmonetary resources used by the System Audit Committee

during the reporting period. Discuss only those categories where the resources used within a

category equaled or exceeded a total aggregate value of $5,000 during the reporting period. Fees

12 CFR Part 630 (up to date as of 3/07/2024)

Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.20(l)(1)

12 CFR 630.20(n)(2) (enhanced display) page 15 of 21
[59 FR 46742, Sept. 12, 1994, as amended at 63 FR 36549, July 7, 1998; 69 FR 16471, Mar. 30, 2004; 71 FR 5767, Feb. 2, 2006; 71

FR 76122, Dec. 20, 2006; 77 FR 59052, Sept. 26, 2012; 78 FR 31835, May 28, 2013; 79 FR 17856, Mar. 31, 2014; 87 FR 27493, May

9, 2022]

Subpart C—Quarterly Reports to Investors

§ 630.40 Contents of the quarterly report to investors.

paid for the audit of the System-wide financial statements, which are disclosed under paragraph

(k)(2) of this section, are not included in any category under this paragraph. At a minimum, there

must be separate categories for:

(i) Administrative expenses,

(ii) Contracted legal services,

(iii) Contracted consultants and advisors, and

(iv) Other contracted services, identifying the services.

(o) Include a detailed index setting forth the major disclosure captions of this subpart and the page or pages

on which the required information appears in the report.

(p) Credit and services to young, beginning, and small farmers and ranchers and producers or harvesters of

aquatic products. The Farm Credit banks must include a report on consolidated YBS lending data of their

affiliated associations. The report must include the definitions of “young,” “beginning,” and “small” farmers

and ranchers. A narrative report may be necessary for an ample understanding of the YBS mission

results.

(a) General. The quarterly report to investors shall contain the information specified in this section along with

any other material information necessary to make the required disclosures, in light of the circumstances

under which they are made, not misleading. The quarterly report must be presented in a format that is

easily understandable and not misleading.

(b) Rules for condensation. For purposes of this subpart, major captions to be provided in interim financial

statements are the same as those provided in the financial statements contained in the annual report to

investors, except that the financial statements included in the quarterly report may be condensed into

major captions in accordance with the rules prescribed under this paragraph.

(1) Interim balance sheets. When any major balance sheet caption is less than 10 percent of total assets

and the amount in the caption has not increased or decreased by more than 25 percent since the

end of the preceding fiscal year, the caption may be combined with others.

(2) Interim statements of income. When any major income statement caption is less than 15 percent of

average net income for the 3 most recent fiscal years and the amount in the caption has not

increased or decreased by more than 20 percent since the corresponding interim period of the

preceding fiscal year, the caption may be combined with others. In calculating average net income,

loss years should be excluded. If losses were incurred in each of the 3 most recent fiscal years, the

average loss shall be used for purposes of this test.

(3) The interim financial information shall include disclosure either on the face of the financial

statements or in accompanying footnotes sufficient to make the interim information presented not

misleading. It may be presumed that users of the interim financial information have read or have

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12 CFR 630.40(b)(3) (enhanced display) page 16 of 21
access to the audited financial statements for the preceding fiscal year, and the adequacy of

additional disclosure needed for a fair presentation may be determined in that context. Accordingly,

footnote disclosure that would substantially duplicate the disclosure contained in the most recent

audited financial statements (such as a statement of significant accounting policies and practices)

and details of accounts that have not changed significantly in amount or composition since the end

of the most recently completed fiscal year may be omitted.

(4) Interim reports shall disclose events that have occurred subsequent to the end of the most recently

completed fiscal year that have a material impact on the System. Disclosures should encompass, for

example, significant changes since the end of the most recently completed fiscal year in such items

as accounting principles and practices, estimates used in the preparation of financial statements,

status of long-term contracts, capitalization, significant new indebtedness or modification of existing

financing agreements, financial assistance received, significant business combinations and

liquidations of System institutions, and terminations of System institution status. Notwithstanding

the provisions of this paragraph, where material contingencies exist, disclosure of such matters shall

be provided even though a significant change since yearend may not have occurred.

(5) In addition to meeting the reporting requirements specified by existing accounting pronouncements

for accounting changes, state the date of any material accounting change and the reasons for

making it.

(6) Any material prior period adjustment made during any period covered by the interim financial

statements shall be disclosed, together with its effect upon net income and upon the balance of

surplus for any prior period included. If results of operations for any period presented have been

adjusted retroactively by such an item subsequent to the initial reporting of such period, similar

disclosure of the effect of the change shall be made.

(7) Interim financial statements furnished shall reflect all adjustments that are necessary to a fair

statement of the results for the interim periods presented. A statement to that effect shall be

included. Furnish any material information necessary to make the information called for not

misleading, such as a statement that the results for interim periods are not necessarily indicative of

results to be expected for the year.

(8) If any amount that would otherwise be required to be shown by this section with respect to any item

is not material, it need not be separately shown. The combination of insignificant items is permitted.

(c) Discussion and analysis of interim financial condition and results of operations. Discuss any material

changes to the information disclosed to investors pursuant to § 630.20(g) that have occurred during the

periods specified in paragraphs (d)(1) and (d)(2) of this section. Provide any additional information

needed to enable the reader to assess material changes in financial condition and results of operations

between the periods specified in paragraphs (d)(1) and (d)(2) of this section.

(1) Material changes in financial condition. Discuss any material changes in financial condition from the

end of the preceding fiscal year to the date of the most recent interim balance sheet provided.

(2) Material changes in results of operations. Discuss any material changes in the combined results of

operations of the System with respect to the most recent fiscal year-to-date period for which an

income statement is provided and the corresponding year-to-date period of the preceding fiscal year.

Such discussion shall also cover material changes with respect to the most recent fiscal quarter and

the corresponding fiscal quarter in the preceding fiscal year.

12 CFR Part 630 (up to date as of 3/07/2024)

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12 CFR 630.40(c)(2) (enhanced display) page 17 of 21
[59 FR 46742, Sept. 12, 1994, as amended at 71 FR 5768, Feb. 2, 2006]

Appendix A to Part 630—Supplemental Information Disclosure Guidelines

Supplemental information required by §§ 630.20(m) and 630.40(e) shall contain, at a minimum, the current year

financial data for the components listed in the following tables and be presented in the columnar format illustrated

in the following tables:

(d) Financial statements. Interim combined financial statements must be provided in the quarterly report to

investors as set forth in paragraphs (d)(1) through (4). Indicate that the financial statements were

prepared under the oversight of the System Audit Committee.

(1) An interim balance sheet as of the end of the most recent fiscal quarter and a balance sheet as of

the end of the preceding fiscal year.

(2) Interim statements of income for the most recent fiscal quarter, for the period between the end of

the preceding fiscal year and the end of the most recent fiscal quarter, and for the comparable

periods for the previous fiscal year.

(3) Interim statements of changes in capital stock and surplus (or, if applicable, interim statements of

changes in protected borrower capital and capital stock and surplus) for the period between the end

of the preceding fiscal year and the end of the most recent fiscal quarter, and for the comparable

period for the preceding fiscal year.

(4) Interim statements of cash flows for the period between the end of the preceding fiscal year and the

end of the most recent fiscal quarter, and for the comparable period for the preceding fiscal year.

(e) Supplemental information. The interim report shall present supplemental information in accordance with

the requirements of § 630.20 (m)(2), (m)(3), and (m)(4), as well as other requirements and instructions of

the FCA, and shall include, at a minimum, the following:

(1) Supplemental balance sheet information as of the end of the most recent quarter; and

(2) Supplemental income statement information for the period between the end of the preceding fiscal

year and the end of the most recent fiscal quarter.

(f) Review by independent public accountant. Unless otherwise ordered by the FCA as a result of a

supervisory action, the interim financial statements and supplemental information need not be audited or

reviewed by an independent public accountant prior to filing. If, however, a review of the report is made in

accordance with the established professional standards and procedures for such a review, a statement

that the independent accountant has performed such a review may be included. If such a statement is

made, the report of the independent accountant on such review shall accompany the interim financial

information.

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Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.40(d)

12 CFR 630.40(f) (enhanced display) page 18 of 21
Table A—Supplemental Balance Sheet Information

Banks1 Associations2

Financial

assistance

corporation

Eliminations

Combined

without

insurance

fund3

Insurance fund and related combination

entries

Combined

with

insurance

fund

Cash and investments

Net loans

Restricted assets

Other Assets

Total assets

Total liabilities

Protected borrower capital4

Restricted capital

Capital stock and surplus

Total liabilities, protected borrower capital, and capital stock

and surplus

1 Provided combined financial data of all FCS banks, including any consolidated subsidiaries of the banks.

2 Provide association-only combined financial data of all FCS associations.

3 Provide the combined financial data of all columns on the left.

4 Any item that is no longer applicable, e.g., protected borrower stock, may be omitted.

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Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.40(f)

12 CFR 630.40(f) (enhanced display) page 19 of 21
Table B—Supplemental Income Statement Information

Banks1 Associations2

Financial

assistance

corporation

Eliminations

Combined without

insurance

fund3

Insurance fund and related combination entries Combined with insurance fund

Net interest income

Provision for credit losses

Other income

Other expenses

Net Income

1 Provide combined financial data of all FCS banks, including any consolidated subsidiaries of the banks.

2 Provide association-only combined financial data of all FCS associations.

3 Provide the combined financial data of all columns on the left.

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Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.40(f)

12 CFR 630.40(f) (enhanced display) page 20 of 21
[87 FR 27493, May 9, 2022]

12 CFR Part 630 (up to date as of 3/07/2024)

Disclosure to Investors in Systemwide and Consolidated Bank Debt... 12 CFR 630.40(f)

12 CFR 630.40(f) (enhanced display) page 21 of 21
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 650 Federal Agricultural Mortgage Corporation General Provisions

Subpart A Regulation, Examination and Enforcement

§ 650.1 Definitions.

§ 650.2 Regulatory authority.

§ 650.3 Supervision and enforcement.

§ 650.4 Access to Corporation records and personnel.

§ 650.5 Reports of examination.

§ 650.6 Criminal referrals.

Subpart B Conservators, Receivers, and Liquidations

§ 650.10 Voluntary liquidation.

§ 650.13 Grounds for appointment of a receiver or conservator.

§ 650.14 Action for removal of receiver or conservator.

§ 650.15 Appointment of a receiver.

§ 650.20 Powers and duties of the receiver.

§ 650.25 Report to Congress.

§ 650.30 Preservation of equity.

§ 650.35 Notice to stockholders.

§ 650.40 Creditor claims.

§ 650.45 Priority of claims.

§ 650.50 Payment of claims.

§ 650.55 Inventory, audit, and reports.

§ 650.60 Final discharge and release of the receiver.

§ 650.65 Appointment of a conservator.

§ 650.70 Powers and duties of the conservator.

§ 650.75 Inventory, examination, and reports to stockholders.

§ 650.80 Final discharge and release of the conservator.

PART 650—FEDERAL AGRICULTURAL MORTGAGE CORPORATION

GENERAL PROVISIONS

Authority: Secs. 4.12, 5.9, 5.17, 5.25, 8.11, 8.12, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92–181, 85

Stat. 583 (12 U.S.C. 2183, 2243, 2252, 2261, 2279aa–11, 2279aa–12, 2279bb, 2279bb–1, 2279bb–2, 2279bb–3,

2279bb–4, 2279bb–5, 2279bb–6, 2279cc); sec. 514 of Pub. L. 102–552, 106 Stat. 4102; sec. 118 of Pub. L.

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR Part 650 (Mar. 7, 2024)

12 CFR 650 (enhanced display) page 1 of 10
104–105, 110 Stat. 168.

Source: 62 FR 43636, Aug. 15, 1997. Redesignated at 70 FR 40650, July 14, 2005, unless otherwise noted.

Subpart A—Regulation, Examination and Enforcement

Source: 81 FR 49151, July 27, 2016, unless otherwise noted.

§ 650.1 Definitions.

The following definitions apply to this part:

§ 650.2 Regulatory authority.

Act or Authorizing statut e means the Farm Credit Act of 1971, as amended.

Business day means a day the Corporation is open for business, excluding the legal public holidays identified in

5 U.S.C. 6103(a).

Corporation or Farmer Mac means the Federal Agricultural Mortgage Corporation and its affiliates.

FCA means the Farm Credit Administration, an independent Federal agency of the executive branch.

NYSE means the New York Stock Exchange, a listing exchange.

OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of

the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws

and regulations.

Our or we means the FCA or OSMO, as appropriate to the context of the provision employing the term.

SEC means the Securities and Exchange Commission.

Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et seq.) or the Exchange Act of 1934 (15 U.S.C.

78a et seq.), or both, as appropriate to the context of the provision employing the term.

Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means

marked in a manner that authenticates each signer's identity.

(a) General. The Corporation is a for-profit Government-sponsored enterprise developed to provide a

secondary market for qualified agricultural, USDA-guaranteed, and rural utility loans, with public policy

objectives included in its statutory charter. The Corporation is regulated by the FCA, operating through

OSMO. The Corporation also lists securities on the NYSE, making it subject to certain SEC listing and

disclosure requirements.

(b) Primary regulator. The FCA, operating through OSMO, holds primary regulatory, examination, and

enforcement authority over the Corporation. The FCA, operating through OSMO, is responsible for the

general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and

compliance with applicable laws and regulations.

(c) Other regulatory authorities. The Corporation registers its common stock and certain offerings of Farmer

Mac Guaranteed Securities under the Securities Act and related regulations so must comply with certain

SEC reporting requirements.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.1

12 CFR 650.2(c) (enhanced display) page 2 of 10
§ 650.3 Supervision and enforcement.

The Act provides FCA, acting through OSMO, with enforcement authority to protect the financial safety and

soundness of the Corporation and to ensure that the Corporation's powers, functions, and duties are exercised in a

safe and sound manner.

§ 650.4 Access to Corporation records and personnel.

§ 650.5 Reports of examination.

The Corporation is subject to the provisions in 12 CFR part 602 regarding FCA Reports of Examination.

§ 650.6 Criminal referrals.

The rules at 12 CFR part 612, subpart B, regarding “Referral of Known or Suspected Criminal Violations” are

applicable to the Corporation.

Subpart B—Conservators, Receivers, and Liquidations

§ 650.10 Voluntary liquidation.

(a) General supervision. When we determine the Corporation has violated a law, rule, or regulation or is

engaging in an unsafe or unsound condition or practice, we have enforcement authority that includes, but

is not limited to, the following:

(1) Issue an order to cease and desist;

(2) Issue a temporary order to cease and desist;

(3) Assess civil monetary penalties against the Corporation and its directors, officers, employees, and

agents; and

(4) Issue an order to suspend, remove, or prohibit directors and officers.

(b) Financial safety and soundness of the Corporation. When we determine the Corporation is taking

excessive risks that adversely impact the adequacy of Regulatory Capital, we have authority to address

that risk. This includes, but is not limited to, requiring capital restoration plans, restricting dividend

distributions, requiring changes in the Corporation's obligations and assets, requiring the acquisition of

new capital and restricting those Corporation activities determined to create excessive risk to the

Corporation's Regulatory Capital.

(a) The Corporation must make its records available promptly upon request by OSMO, at a location and in a

form and manner acceptable to OSMO.

(b) The Corporation must make directors, officers, employees and other individuals or entities engaged by the

Corporation to participate in the conduct of the Corporation's business available to OSMO during the

course of an examination or supervisory action when OSMO determines it necessary to facilitate an

examination or supervisory action.

(a) The Corporation may voluntarily liquidate by a resolution of its board of directors, but only with the

consent of, and in accordance with a plan of liquidation approved by, the Farm Credit Administration

Board. Upon adoption of such resolution, the Corporation shall submit the resolution and proposed

voluntary liquidation plan to the Farm Credit Administration Board for preliminary approval. The Farm

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.3

12 CFR 650.10(a) (enhanced display) page 3 of 10
§ 650.13 Grounds for appointment of a receiver or conservator.

[62 FR 43636, Aug. 15, 1997. Redesignated at 70 FR 40650, July 14, 2005. Further redesignated at 81 FR 49151, July 27, 2016]

Credit Administration Board, in its discretion, may appoint a receiver as part of an approved liquidation

plan. If a receiver is appointed for the Corporation as part of a voluntary liquidation, the receivership shall

be conducted pursuant to the regulations of this part, except to the extent that an approved plan of

liquidation provides otherwise.

(b) If the Farm Credit Administration Board gives preliminary approval to the liquidation plan, the board of

directors of the Corporation shall submit the resolution to liquidate to the stockholders for a vote in

accordance with the bylaws of the Corporation.

(c) The Farm Credit Administration Board will consider final approval of the resolution to voluntarily liquidate

and the liquidation plan after an affirmative stockholder vote on the resolution.

(a) The grounds for the appointment of a receiver or conservator for the Corporation are:

(1) The Corporation is insolvent. For purposes of this paragraph, insolvent means:

(i) The assets of the Corporation are less than its obligations to its creditors and others; or

(ii) The Corporation is unable to pay its debts as they fall due in the ordinary course of business;

(2) There has been a substantial dissipation of the assets or earnings of the Corporation due to the

violation of any law, rule, or regulation, or the conduct of an unsafe or unsound practice;

(3) The Corporation is in an unsafe or unsound condition to transact business;

(4) The Corporation has committed a willful violation of a final cease-and-desist order issued by the

Farm Credit Administration Board;

(5) The Corporation 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 Corporation for inspection to

any examiner or any lawful agent of the Farm Credit Administration Board.

(b) In addition to the grounds set forth in paragraph (a) of this section, a receiver can be appointed for the

Corporation if the Farm Credit Administration Board determines that the appointment of a conservator

would not be appropriate when one of the following conditions exists:

(1) The authority of the Corporation to purchase qualified loans or issue or guarantee loan-backed

securities is suspended; or

(2) The Corporation is classified under section 8.35 of the Act as within enforcement level III or IV and

the alternative actions available under subtitle B of title VIII of the Act are not satisfactory.

(c) In addition to the grounds set forth in paragraph (a) of this section, a conservator can be appointed for the

Corporation if:

(1) The Corporation is classified under section 8.35 of the Act as within enforcement level III or IV; or

(2) The authority of the Corporation to purchase qualified loans or issue or guarantee loan-backed

securities is suspended.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.10(b)

12 CFR 650.13(c)(2) (enhanced display) page 4 of 10
§ 650.14 Action for removal of receiver or conservator.

Upon the appointment of a receiver or conservator for the Corporation by the Farm Credit Administration Board

pursuant to § 650.50 of this subpart, the Corporation may, within 30 days of such appointment, 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 receiver or conservator and, if the charter has been canceled, to rescind the cancellation of the

charter. Notwithstanding any other provision of this part, the Corporation's board of directors is empowered to meet

subsequent to such appointment and authorize the filing of an action for removal. An action for removal may be

authorized only by the Corporation's board of directors.

[62 FR 43636, Aug. 15, 1997. Redesignated at 70 FR 40650, July 14, 2005. Further redesignated at 81 FR 49151, July 27, 2016]

§ 650.15 Appointment of a receiver.

§ 650.20 Powers and duties of the receiver.

(a) The Farm Credit Administration Board may in its discretion appoint, ex parte and without prior notice, a

receiver for the Corporation provided that one or more of the grounds for appointment as set forth in §

650.50 of this subpart exist.

(b) Upon the appointment of the receiver, the Chairman of the Farm Credit Administration Board shall

immediately notify the Corporation and shall publish a notice of the appointment in the FEDERAL REGISTER.

(c) Upon the issuance of the order placing the Corporation into liquidation and appointing the receiver, all

rights, privileges, and powers of the board of directors, officers, and employees of the Corporation shall be

vested exclusively in the receiver. The Farm Credit Administration Board may cancel the charter of the

Corporation on such date as the Farm Credit Administration Board determines is appropriate, but not later

than the conclusion of the receivership and discharge of the receiver.

(a) General.

(1) Upon appointment as receiver, the receiver shall take possession of the Corporation in order to wind

up the business operations of the Corporation, collect the debts owed to the Corporation, liquidate

its property and assets, pay its creditors, and distribute the remaining proceeds to stockholders. The

receiver is authorized to exercise all powers necessary to the efficient termination of the

Corporation's operation as provided for in this part.

(2) Upon its appointment as receiver, the receiver automatically succeeds to:

(i) All rights, titles, powers, and privileges of the Corporation and of any stockholder, officer, or

director of the Corporation with respect to the Corporation and the assets of the Corporation;

and

(ii) Title to the books, records, and assets of the Corporation in the possession of any other legal

custodian of the Corporation.

(3) The receiver of the Corporation serves as the trustee of the receivership estate and conducts its

operations for the benefit of the creditors and stockholders of the Corporation.

(b) Specific powers. The receiver may:

(1) Exercise all powers as are conferred upon the officers and directors of the Corporation under law and

the charter, articles, and bylaws of the Corporation.

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Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.14

12 CFR 650.20(b)(1) (enhanced display) page 5 of 10
(2) Take any action the receiver considers appropriate or expedient to carry on the business of the

Corporation during the process of liquidating its assets and winding up its affairs.

(3) Borrow funds in accordance with section 8.41(f) of the Act to meet the ongoing administrative

expenses or other liquidity needs of the receivership.

(4) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect the

Corporation's assets or property or rehabilitate or improve such property and assets.

(5) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect any asset

or property on which the Corporation has a lien or in which the Corporation has a financial or

property interest, and pay off and discharge any liens, claims, or charges of any nature against such

property.

(6) Investigate any matter related to the conduct of the business of the Corporation, including, but not

limited to, any claim of the Corporation against any individual or entity, and institute appropriate legal

or other proceedings to prosecute such claims.

(7) Institute, prosecute, maintain, defend, intervene, and otherwise participate in any legal proceeding by

or against the Corporation or in which the Corporation or its creditors or stockholders have any

interest, and represent in every way the Corporation, its stockholders and creditors.

(8) Employ attorneys, accountants, appraisers, and other professionals to give advice and assistance to

the receivership generally or on particular matters, and pay their retainers, compensation, and

expenses, including litigation costs.

(9) Hire any agents or employees necessary for proper administration of the receivership.

(10) Execute, acknowledge, and deliver, in person or through a general or specific delegation, any

instrument necessary for any authorized purpose, and any instrument executed under this paragraph

shall be valid and effective as if it had been executed by the Corporation's officers by authority of its

board of directors.

(11) Sell for cash or otherwise any mortgage, deed of trust, chose in action, note, contract, judgment or

decree, stock, or debt owed to the Corporation, or any property (real or personal, tangible or

intangible).

(12) Purchase or lease office space, automobiles, furniture, equipment, and supplies, and purchase

insurance, professional, and technical services necessary for the conduct of the receivership.

(13) Release any assets or property of any nature, regardless of whether the subject of pending litigation,

and repudiate, with cause, any lease or executory contract the receiver considers burdensome.

(14) Settle, release, or obtain release of, for cash or other consideration, claims and demands against or

in favor of the Corporation or receiver.

(15) Pay, out of the assets of the Corporation, all expenses of the receivership (including compensation to

personnel employed to represent or assist the receiver) and all costs of carrying out or exercising the

rights, powers, privileges, and duties as receiver.

(16) Pay, out of the assets of the Corporation, all approved claims of indebtedness in accordance with the

priorities established in this part.

(17) Take all actions and have such rights, powers, and privileges as are necessary and incident to the

exercise of any specific power.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.20(b)(2)

12 CFR 650.20(b)(17) (enhanced display) page 6 of 10
§ 650.25 Report to Congress.

On a determination by the receiver 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 and Congress a report on the

financial condition of the receivership.

§ 650.30 Preservation of equity.

§ 650.35 Notice to stockholders.

As soon as practicable after a receiver takes possession of the Corporation, the receiver shall notify, by first class

mail, each holder of stock of the following matters:

§ 650.40 Creditor claims.

(18) Take such actions, and have such additional rights, powers, privileges, immunities, and duties as the

Farm Credit Administration Board authorizes by order or by amendment of any order or by

regulation.

(a) Except as provided for upon final distribution of the assets of the Corporation pursuant to § 650.62 of this

subpart, no capital stock, equity reserves, or other allocated equities of the Corporation in receivership

shall be issued, allocated, retired, sold, distributed, transferred, or assigned.

(b) Immediately upon the adoption of a resolution by its board of directors to voluntarily liquidate the

Corporation, the capital stock, equity reserves, and allocated equities of the Corporation shall not be

issued, allocated, retired, sold, distributed, transferred, or assigned. Such activities could resume if the

stockholders of the Corporation or the Farm Credit Administration Board disapprove the resolution. In the

event the resolution is approved by the stockholders of the Corporation and the Farm Credit

Administration Board, the liquidation plan shall govern disposition of the equities of the Corporation as

provided in § 650.52 of this subpart.

(a) The number of shares such holder owns;

(b) That the stock and other equities of the Corporation may not be retired or transferred until the liquidation

is completed, whereupon the receiver will distribute a liquidating dividend, if any, to the stockholders; and

(c) Such other matters as the receiver or the Farm Credit Administration Board deems necessary.

(a) Upon appointment, the receiver shall promptly publish a notice to creditors to present their claims against

the Corporation, with proof thereof, to the receiver by a date specified in the notice, which shall be not less

than 90 calendar days after the first publication. The notice shall be republished approximately 30 days

and 60 days after the first publication. The receiver shall promptly send, by first class mail, a similar notice

to any creditor shown on the Corporation's books at the creditor's last address appearing thereon. Claims

filed after the specified date shall be disallowed except as the receiver may approve them for full or partial

payment from the Corporation's assets remaining undistributed at the time of approval.

(b) The receiver shall allow any claim that is timely received and proved to the receiver's satisfaction. The

receiver may disallow in whole or in part any creditor's claim or claim of security, preference, or priority

that is not proved to the receiver's satisfaction or is not timely received and shall notify the claimant of the

disallowance and reason therefor. Sending the notice of disallowance by first class mail to the claimant's

address appearing on the proof of claim shall be sufficient notice. The disallowance shall be final unless,

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.20(b)(18)

12 CFR 650.40(b) (enhanced display) page 7 of 10
§ 650.45 Priority of claims.

The following priority of claims shall apply to the distribution of the assets of the Corporation in liquidation:

§ 650.50 Payment of claims.

within 30 days after the notice of disallowance is mailed, the claimant files a written request for payment

regardless of the disallowance. The receiver shall reconsider any claim upon the timely request of the

claimant and may approve or disapprove such claim in whole or in part.

(c) Creditors' claims that are allowed shall be paid by the receiver from time to time, to the extent funds are

available therefor and in accordance with the priorities established in this part and in such manner and

amounts as the receiver deems appropriate. In the event the Corporation has a claim against a creditor of

the Corporation, the receiver shall offset the amount of such claim against the claim asserted by such

creditor.

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the

receivership, all Farm Credit Administration assessments for the costs of supervising and examining the

Corporation, and any amounts borrowed pursuant to § 650.56(b)(3).

(b) Administrative expenses of the Corporation, provided that such expenses were incurred within 60 days

prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses

incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management

companies, or reasonable expenses incurred by employees that were authorized and reimbursable under

a preexisting expense reimbursement policy and that, in the opinion of the receiver, are of benefit to the

receivership, and shall not include wages or salaries of employees of the Corporation.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the

appointment of the receiver by an employee of the Corporation whom the receiver determines it is in the

best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the

appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted

for inflation, by an employee of the Corporation not engaged or retained by the receiver. The adjustment

for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department

of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price

Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets of the Corporation, with priority of conflicting

claims of creditors within this same class to be determined in accordance with priorities of applicable

Federal or State law.

(g) All claims of general creditors.

(a) All claims of each class described in § 650.61 of this subpart shall be paid in full or provisions shall be

made for such payment prior to the payment of any claim of a lesser priority. If there are insufficient funds

to pay all claims in a class in full, distribution to that class will be on a pro rata basis.

(b) Following the payment of all claims, the receiver shall distribute the remainder of the assets of the

Corporation, if any, to the owners of stock and other equities in accordance with the priorities for

impairment set forth in section 8.4(e)(3) of the Act and the bylaws of the Corporation.

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Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.40(c)

12 CFR 650.50(b) (enhanced display) page 8 of 10
§ 650.55 Inventory, audit, and reports.

§ 650.60 Final discharge and release of the receiver.

After the receiver has made a final distribution of the assets of the receivership, the receivership shall be

terminated, the charter shall be canceled by the Farm Credit Administration Board if such cancellation has not

previously occurred, and the receiver shall be finally discharged and released.

§ 650.65 Appointment of a conservator.

§ 650.70 Powers and duties of the conservator.

(a) As soon as practicable after taking possession of the Corporation, the receiver shall take an inventory of

the assets and liabilities as of the date possession was taken.

(b) The receivership shall be audited on an annual basis by a certified public accountant selected by the

receiver.

(c) The receiver shall make an annual accounting or report, as appropriate, available for review upon request

to any stockholder of the Corporation or any member of the public, with a copy provided to the Farm

Credit Administration.

(d) As soon as practicable after final distribution, the receiver shall send to each stockholder of record a

report summarizing the disposition of the assets of the receivership and claims against the receivership.

(a) The Farm Credit Administration Board may in its discretion appoint, ex parte and without prior notice, a

conservator for the Corporation provided that one or more of the grounds for appointment as set forth in

§ 650.50 of this subpart exist;

(b) Upon the appointment of a conservator, the Chairman of the Farm Credit Administration shall immediately

notify the Corporation and shall publish a notice of the appointment in the FEDERAL REGISTER.

(c) As soon as practicable after the conservator takes possession of the Corporation, the conservator shall

notify, by first class mail, each holder of stock in the Corporation of the establishment of the

conservatorship and shall describe the effect of the conservatorship on the Corporation's operations and

equity holdings.

(d) Upon the issuance of the order placing the Corporation in conservatorship, all rights, privileges, and

powers of the board of directors, officers, and employees of the Corporation are vested exclusively in the

conservator.

(e) The Farm Credit Administration Board may, at any time, terminate the conservatorship and direct the

conservator to turn over the Corporation's operations to such management as the Farm Credit

Administration Board may designate, in which event the provisions of this subpart shall no longer apply.

(a) The conservator shall direct the Corporation's further operation until the Farm Credit Administration Board

decides that the Corporation can operate without the conservatorship or places the Corporation into

receivership. Upon correction or resolution of the problem or condition that provided the basis for the

appointment, the Farm Credit Administration Board may turn the Corporation over to such management

as the Farm Credit Administration Board may direct.

(b) The conservator shall exercise all powers necessary to continue the ongoing operations of the

Corporation, to conserve and preserve the Corporation's assets and property, and otherwise protect the

interests of the Corporation, its stockholders, and creditors as provided in this subpart.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.55

12 CFR 650.70(b) (enhanced display) page 9 of 10
§ 650.75 Inventory, examination, and reports to stockholders.

[62 FR 43636, Aug. 15, 1997. Redesignated and amended at 70 FR 40650, 40651, July 14, 2005]

§ 650.80 Final discharge and release of the conservator.

At such time as the conservator shall be relieved of its conservatorship duties, the conservator shall file a report on

the conservator's activities with the Farm Credit Administration. The conservator shall thereupon be completely and

finally released.

(c) The conservator serves as the trustee of the Corporation and conducts its operations for the benefit of the

creditors and stockholders of the Corporation.

(d) The conservator may exercise the powers that a receiver of the Corporation may exercise under any of the

provisions of § 650.56(b) of this subpart, except paragraphs (b)(2) and (b)(16). In interpreting the

applicable paragraphs for purposes of this section, the terms “conservator” and “conservatorship” shall be

read for “receiver” and “receivership”.

(e) The conservator may also take any other action the conservator considers appropriate or expedient to the

continuing operation of the Corporation.

(a) As soon as practicable after taking possession of the Corporation, the conservator shall take an inventory

of the assets and liabilities of the Corporation as of the date possession was taken. One copy of the

inventory shall be filed with the Farm Credit Administration.

(b) The conservatorship shall be examined by the Farm Credit Administration in accordance with section 8.11

of the Act.

(c) The conservatorship shall prepare and file financial reports and other documents in accordance with the

requirements of § 655.1 and part 621 of this chapter. The conservator of the Corporation shall provide the

certification required in § 621.14 of this chapter.

12 CFR Part 650 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation General Provisions 12 CFR 650.70(c)

12 CFR 650.80 (enhanced display) page 10 of 10
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 651 Federal Agricultural Mortgage Corporation Governance

Subpart A General

§ 651.1 Definitions.

§ 651.2 [Reserved]

Subpart B Standards of Conduct

§ 651.21 [Reserved]

§ 651.22 Conflict-of-interest policy.

§ 651.23 Implementation of policy.

§ 651.24 Director, officer, employee, and agent responsibilities.

Subpart C Board Governance

§ 651.30 [Reserved]

§ 651.35 [Reserved]

§ 651.40 [Reserved]

§ 651.50 Committees of the Corporation's board of directors.

PART 651—FEDERAL AGRICULTURAL MORTGAGE CORPORATION

GOVERNANCE

Authority: Secs. 4.12, 5.9, 5.17, 8.3, 8.11, 8.14, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92–181, 85

Stat. 583 (12 U.S.C. 2183, 2243, 2252, 2279aa–3, 2279aa–11, 2279aa–14, 2279bb, 2279bb–1, 2279bb–2,

2279bb–3, 2279bb–4, 2279bb–5, 2279bb–6, 2279cc); sec. 514 of Pub. L. 102–552, 106 Stat. 4102; sec. 118 of

Pub. L. 104–105, 110 Stat. 168.

Source: 81 FR 49152, July 27, 2016, unless otherwise noted.

Subpart A—General

§ 651.1 Definitions.

The following definitions apply to this part:

This content is from the eCFR and is authoritative but unofficial.

Act or Authorizing statute means the Farm Credit Act of 1971, as amended.

Affiliate means any entity established under authority granted to the Corporation under section 8.3(c)(14) of the

Act.

12 CFR Part 651 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Governance

12 CFR Part 651 (Mar. 7, 2024)

12 CFR 651.1 “Affiliate” (enhanced display) page 1 of 5
Agent means any person (other than a director, officer, or employee of the Corporation) who represents the

Corporation in contacts with third parties or who provides professional services such as legal, accounting,

or appraisal services to the Corporation.

Appointed director means a member of the Corporation's board of directors who was appointed to the

Corporation board by the President of the United States of America.

Business day means a day the Corporation is open for business, excluding the legal public holidays identified in

5 U.S.C. 6103(a).

Class A stockholders means holders of common stock in the Corporation that are insurance companies, banks,

or other financial institutions or entities.

Class B stockholders means holders of common stock in the Corporation that are Farm Credit System

institutions.

Conflict-of-interest means a director, officer, or employee of the Corporation has an interest in a transaction,

relationship, or activity that might adversely affect, or appear to adversely affect, the ability of the director,

officer, or employee to perform his or her official duties on behalf of the Corporation in an objective and

impartial manner in furtherance of the interest of the Corporation and its statutory purposes.

Corporation means the Federal Agricultural Mortgage Corporation and its affiliates.

Director elections mean the process of searching for director candidates, conducting director nominations, and

voting for directors.

Elected director means a member of the Corporation's board of directors who was elected by either Class A or

Class B stockholders.

Employee means any salaried individual working part-time, full-time, or temporarily for the Corporation.

Entity means a corporation, company, association, firm, joint venture, partnership (general or limited), society,

joint stock company, trust (business or otherwise), fund, or other organization or institution.

FCA means the Farm Credit Administration, an independent Federal agency of the executive branch.

Material means conflicting interests of sufficient magnitude or significance that a reasonable person with

knowledge of the relevant facts would question the ability of the person having such interest to discharge

official duties in an objective and impartial manner in furtherance of the interests and statutory purposes

of the Corporation.

Officer means the salaried president, vice presidents, secretary, treasurer, and general counsel, or other person,

however designated, who holds a position of similar authority in the Corporation.

OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of

the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws

and regulations.

Our or we means the FCA or OSMO, as appropriate to the context of the provision employing the term.

Person means individual or entity.

Reasonable person means a person under similar circumstances exercising the average level of care, skill, and

judgment in his or her conduct.

12 CFR Part 651 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Governance

12 CFR 651.1 “Agent”

12 CFR 651.1 “Reasonable person” (enhanced display) page 2 of 5
§ 651.2 [Reserved]

Subpart B—Standards of Conduct

§ 651.21 [Reserved]

§ 651.22 Conflict-of-interest policy.

The Corporation shall establish and administer a conflict-of-interest policy that will provide reasonable assurance

that the directors, officers, employees, and agents of the Corporation discharge their official responsibilities in an

objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. The policy

shall, at a minimum:

Resolved means an actual or potential material conflict-of-interest that has been altered so that a reasonable

person with knowledge of the relevant facts would conclude that the conflicting interest would not

adversely affect the person's performance of official duties in an objective and impartial manner and in

furtherance of the interests and statutory purposes of the Corporation.

Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means

marked in a manner that authenticates each signer's identity.

(a) Define the types of transactions, relationships, or activities that could reasonably be expected to give rise

to potential conflicts of interest. For the purpose of determining whether a potential conflict of interest

exists, the following interests shall be imputed to a person subject to this regulation as if they were that

person's own interests:

(1) Interests of any individual residing in that person's household;

(2) Interests of any individual identified as a legal dependent of that person;

(3) Interests of that person's general business partner;

(4) Interests of an organization or entity that the person serves as officer, director, trustee, general

partner or employee; and

(5) Interests of a person, organization, or entity with which that person is negotiating for or has an

arrangement concerning current or prospective employment.

(b) Require each director, officer, and employee to report in writing, annually, and at such other times as

conflicts may arise, sufficient information about financial interests, transactions, relationships, and

activities to inform the Corporation of potential conflicts of interest;

(c) Require each director, officer, and employee who had no transaction, relationship, or activity required to be

reported under paragraph (b) of this section at any time during the year to file a signed statement to that

effect;

(d) Establish guidelines for determining when a potential conflict is material in accordance with this subpart;

(e) Establish procedures for resolving or disclosing material conflicts of interest.

(f) Provide internal controls to ensure that reports are filed as required and that conflicts are resolved or

disclosed in accordance with this subpart.

(g) Notify directors, officers, and employees of the conflict-of-interest policy and any subsequent changes

thereto and allow them a reasonable period of time to conform to the policy.

12 CFR Part 651 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Governance

12 CFR 651.1 “Resolved”

12 CFR 651.22(g) (enhanced display) page 3 of 5
§ 651.23 Implementation of policy.

§ 651.24 Director, officer, employee, and agent responsibilities.

Subpart C—Board Governance

§ 651.30 [Reserved]

§ 651.35 [Reserved]

§ 651.40 [Reserved]

§ 651.50 Committees of the Corporation's board of directors.

(a) The Corporation shall disclose any unresolved material conflicts of interest involving its directors, officers,

and employees to:

(1) Shareholders through annual reports and proxy statements; and

(2) Investors and potential investors through disclosure documents supplied to them.

(b) The Corporation shall make available to any shareholder, investor, or potential investor, upon request, a

copy of its policy on conflicts of interest. The Corporation may charge a nominal fee to cover the costs of

reproduction and handling.

(c) The Corporation shall maintain all reports of all potential conflicts of interest and documentation of

materiality determinations and resolutions of conflicts of interest for a period of 6 years.

(a) Each director, officer, employee, and agent of the Corporation shall:

(1) Conduct the business of the Corporation following high standards of honesty, integrity, impartiality,

loyalty, and care, consistent with applicable law and regulation in furtherance of the Corporation's

public purpose;

(2) Adhere to the requirements of the conflict-of-interest policy established by the Corporation and

provide any information the Corporation deems necessary to discharge its responsibilities under this

subpart.

(b) Directors, officers, employees, and agents of the Corporation shall be subject to the penalties of part C of

title V of the Farm Credit Act of 1971, as amended, for violations of this regulation, including failure to

adhere to the conflict-of-interest policy established by the Corporation.

(a) General. No committee of the board of directors may be delegated the authority of the board of directors

to amend Corporation bylaws. No committee of the board of directors shall relieve the board of directors

or any board member of a responsibility imposed by law or regulation.

(b) Required committees. The board of directors of the Corporation must have committees, however styled,

that address risk management, audit, compensation, and corporate governance. Neither the risk

management committee nor the audit committee may be combined with any other committees. This

provision does not prevent the board of directors from establishing any other committees that it deems

necessary or useful to carrying out its responsibilities.

12 CFR Part 651 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Governance

12 CFR 651.23

12 CFR 651.50(b) (enhanced display) page 4 of 5
(c) Charter. Each committee required by this section must develop a formal written charter that specifies the

scope of the committee's powers and responsibilities, as well as the committee's structure, processes,

and membership requirements. To be effective, the charter must be approved by action of the full board

of directors. No director may serve as chairman of more than one of the board committees required by

this section.

(d) Frequency of meetings and records. Each committee of the board of directors required by this section

must meet with sufficient frequency to carry out its obligations and duties under applicable laws,

regulations, and its operating charter. Each of these committees must maintain minutes of its meetings.

The minutes must record attendance, the agenda (or equivalent list of issues under discussion), a

summary of the relevant discussions held by the committee during the meeting, and any resulting

recommendations to the board. Such minutes must be retained for a minimum of 3 years and must be

available to the entire board of directors and to OSMO.

12 CFR Part 651 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Governance

12 CFR 651.50(c)

12 CFR 651.50(d) (enhanced display) page 5 of 5
Appendix A to Subpart B of Part 652

Risk-Based Capital Stress Test

Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 652 Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

Subpart A Investment Management

§ 652.1 Purpose.

§ 652.5 Definitions.

§ 652.10 Investment management.

§ 652.15 Non-program investment purposes and limitation.

§ 652.20 Eligible non-program investments.

§ 652.23 Other non-program investments.

§ 652.25 Ineligible investments.

§ 652.27 Reservation of authority for investment activities.

§ 652.30 Interest rate risk management.

§ 652.35 Liquidity management.

§ 652.40 Liquidity reserve requirement and supplemental liquidity.

§ 652.45 Temporary regulatory waivers or modifications for extraordinary situations.

Subpart B Risk-Based Capital Requirements

§ 652.50 Definitions.

§ 652.55 General.

§ 652.60 Corporate business planning.

§ 652.61 Capital planning.

§ 652.62 Notice to OSMO of capital distributions.

§ 652.65 Risk-based capital stress test.

§ 652.70 Risk-based capital level.

§ 652.75 Your responsibility for determining the risk-based capital level.

§ 652.80 When you must determine the risk-based capital level.

§ 652.85 When to report the risk-based capital level.

§ 652.90 How to report your risk-based capital determination.

§ 652.95 Failure to meet capital requirements.

§ 652.100 Audit of the risk-based capital stress test.

PART 652—FEDERAL AGRICULTURAL MORTGAGE CORPORATION

This content is from the eCFR and is authoritative but unofficial.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR Part 652 (Mar. 7, 2024)

12 CFR 652 (enhanced display) page 1 of 46
FUNDING AND FISCAL AFFAIRS

Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of the Farm Credit Act (12 U.S.C.

2183, 2243, 2252, 2279aa–11, 2279bb, 2279bb–1, 2279bb–2, 2279bb–3, 2279bb–4, 2279bb–5, 2279bb–6,

2279cc); sec. 514 of Pub. L. 102–552, 106 Stat. 4102; sec. 118 of Pub. L. 104–105, 110 Stat. 168; sec. 939A of

Pub. L. 111–203, 124 Stat. 1326, 1887 (15 U.S.C. 78o–7 note) (July 21, 2010).

Source: 70 FR 40644, July 14, 2005, unless otherwise noted.

Subpart A—Investment Management

Source: 77 FR 66382, Nov. 5, 2012, unless otherwise noted.

§ 652.1 Purpose.

The purpose of this subpart is to ensure safety and soundness, continuity of funding, and appropriate use of nonprogram investments considering the Federal Agricultural Mortgage Corporation's (Farmer Mac or Corporation)

special status as a Government-sponsored enterprise (GSE). The subpart contains requirements for Farmer Mac's

board of directors to adopt policies covering such areas as investment management, interest rate risk, and liquidity

reserves. The subpart also requires Farmer Mac to comply with various reporting requirements.

§ 652.5 Definitions.

For purposes of this subpart, the following definitions will apply:

Affiliate means any entity established under authority granted to the Corporation under section 8.3(c)(14) of the

Farm Credit Act of 1971, as amended.

Asset-backed securities (ABS) mean investment securities that provide for ownership of a fractional undivided

interest or collateral interests in specific assets of a trust that are sold and traded in the capital markets.

For the purpose of this subpart, ABS exclude mortgage-backed securities that are defined below.

Cash means cash balances held at Federal Reserve Banks, proceeds from traded-but-not-yet-settled debt, and

deposit accounts at Federal Deposit Insurance Corporation-insured banks.

Diversified investment fund (DIF) means an investment company registered under section 8 of the Investment

Company Act of 1940.

Farmer Mac, Corporation, you, and your means the Federal Agricultural Mortgage Corporation and its affiliates.

FCA, our, us, or we means the Farm Credit Administration.

Government-sponsored enterprise (GSE) means an entity established or chartered by the United States

Government to serve public purposes specified by the United States Congress but whose debt obligations

are not explicitly guaranteed by the full faith and credit of the United States Government.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.1

12 CFR 652.5 “Government-sponsored enterprise (GSE)” (enhanced display) page 2 of 46
[79 FR 53127, Sept. 8, 2014, as amended at 83 FR 55097, Nov. 2, 2018]

§ 652.10 Investment management.

Long-Term Standby Purchase Commitment (LTSPC) is a commitment by Farmer Mac to purchase specified

eligible loans on one or more undetermined future dates. In consideration for Farmer Mac's assumption

of the credit risk on the specified loans underlying an LTSPC, Farmer Mac receives an annual commitment

fee on the outstanding balance of those loans in monthly installments based on the outstanding balance

of those loans.

Market risk means the risk to your financial condition because the value of your holdings may decline if interest

rates or market prices change. Exposure to market risk is measured by assessing the effect of changing

rates and prices on either the earnings or economic value of an individual instrument, a portfolio, or the

entire Corporation.

Maturing obligations means maturing debt and other obligations that may be expected, such as buyouts of longterm standby purchase commitments or repurchases of agricultural mortgage securities.

Mortgage-backed securities (MBS) means securities that are either:

(1) Pass-through securities or participation certificates that represent ownership of a fractional

undivided interest in a specified pool of residential (excluding home equity loans), multifamily or

commercial mortgages, or

(2) A multiclass security (including collateralized mortgage obligations and real estate mortgage

investment conduits) that is backed by a pool of residential, multifamily or commercial real estate

mortgages, pass through MBS, or other multiclass MBS.

(3) This definition does not include agricultural mortgage-backed securities guaranteed by Farmer Mac

itself.

Non-program investments means investments other than those in:

(1) “Qualified loans” as defined in section 8.0(9) of the Farm Credit Act of 1971, as amended; or

(2) Securities collateralized by “qualified loans.”

OSMO means FCA's Office of Secondary Market Oversight.

Program assets means on-balance sheet “qualified loans” as defined in section 8.0(9) of the Farm Credit Act of

1971, as amended.

Program obligations means off-balance sheet “qualified loans” as defined in section 8.0(9) of the Farm Credit

Act of 1971, as amended.

Regulatory capital means your core capital plus an allowance for losses and guarantee claims, as determined in

accordance with generally accepted accounting principles.

U.S. Government agency means an instrumentality of the U.S. Government whose obligations are fully

guaranteed as to the payment of principal and interest by the full faith and credit of the U.S. Government.

(a) Responsibilities of the board of directors. Your board of directors must adopt written policies for

managing your non-program investment activities. Your board must also ensure that management

complies with these policies and that appropriate internal controls are in place to prevent loss. At least

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.5 “Long-Term Standby Purchase Commitment

(LTSPC)”

12 CFR 652.10(a) (enhanced display) page 3 of 46
annually, your board, or a designated committee of the board, must review the sufficiency of these

investment policies. Any changes to the policies must be adopted by the board. You must report any

changes to these policies to the OSMO within 10 business days of adoption.

(b) Investment policies—general requirements. Your investment policies must address the purposes and

objectives of investments, risk tolerance, delegations of authority, internal controls, due diligence, and

reporting requirements. Moreover, your investment policies must fully address the extent of pre-purchase

analysis that management must perform for various types, classes, and structure of investments.

Furthermore, the policies must include reporting requirements and approvals needed for exceptions to the

board's policies. Investment policies must be sufficiently detailed, consistent with, and appropriate for the

amounts, types, and risk characteristics of your investments. You must document in the Corporation's

records any analyses used in formulating your policies or amendments to the policies.

(c) Investment policies—risk tolerance. Your investment policies must establish risk limits for the various

types, classes, and sectors of eligible investments. These policies must include concentration limits to

ensure prudent diversification of credit, market, and liquidity risks in the investment portfolio. Risk limits

must be based on all relevant factors, including the Corporation's objectives, capital position, earnings,

and quality and reliability of risk management systems. Your policies must identify the types and quantity

of investments that you will hold to achieve your objectives and control credit, market, liquidity, and

operational risks. Your policies must establish risk limits for the following types of risk:

(1) Credit risk. Your investment policies must establish:

(i) Credit quality standards, limits on counterparty risk, and risk diversification standards that limit

concentrations in a single or related counterparty(ies), industry sectors, and asset classes or

obligations with similar characteristics.

(ii) Criteria for selecting brokers, dealers, and investment bankers (collectively, securities firms).

You must buy and sell eligible investments with more than one securities firm. As part of your

review of your investment policies required under paragraph (a) of this section, your board of

directors, or a designated committee of the board, must review the criteria for selecting

securities firms. Any changes to the criteria must be approved by the board.

(iii) Collateral margin requirements on repurchase agreements. You must regularly mark the

collateral to market and ensure appropriate controls are maintained over collateral held.

(2) Market risk. Your investment policies must set market risk limits for specific types of investments

and for the investment portfolio.

(3) Liquidity risk. Your investment policies must describe the liquidity characteristics of eligible

investments that you will hold to meet your liquidity needs and the Corporation's other objectives.

(4) Operational risk. Investment policies must address operational risks, including delegations of

authority and internal controls in accordance with paragraphs (d) and (e) of this section.

(5) Concentration risk. Your investment policies must set risk diversification standards. Diversification

parameters must be based on the carrying value of investments. You may not invest more than 10

percent of your Regulatory Capital in allowable investments issued by any single entity, issuer, or

obligor. Only investments in obligations backed by U.S. Government agencies or GSEs may exceed

the 10-percent limit.

(d) Delegation of authority. All delegations of authority to specified personnel or committees must state the

extent of management's authority and responsibilities for investments.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.10(b)

12 CFR 652.10(d) (enhanced display) page 4 of 46
(e) Internal controls. You must:

(1) Establish appropriate internal controls to detect and prevent loss, fraud, embezzlement, conflicts of

interest, and unauthorized investments.

(2) Establish and maintain a separation of duties between personnel who supervise or execute

investment transactions and personnel who supervise or engage in all other investment-related

functions.

(3) Maintain records and management information systems that are appropriate for the level and

complexity of your investment activities.

(4) Implement an effective internal audit program to review, at least annually, your investment

management functions, controls, processes, and compliance with FCA regulations. The scope of the

annual review must be appropriate for the size, risk, and complexity of the investment portfolio.

(f) Due diligence —

(1) Pre-purchase analysis —

(i) Objective, eligibility, and compliance with investment policies. Before you purchase an

investment, you must conduct sufficient due diligence to determine whether the investment is

eligible under § 652.20, is for an authorized purpose under § 652.15(a), and complies with your

board-approved investment policies. You must document its eligibility, purpose, and investment

policy compliance and your investment objective. Your investment policies must fully address

the extent of pre-purchase analysis that management must perform for various types, classes,

and structure of investments. Your board must approve your decision to hold an investment

that does not comply with your written investment policy requirements.

(ii) Valuation. Prior to purchase, you must verify the value of the investment (unless it is a new

issue) with a source that is independent of the broker, dealer, counterparty or other intermediary

to the transaction.

(iii) Risk assessment. Your risk assessment must be documented and, at a minimum, include an

evaluation of credit risk, market risk, and liquidity risk and the underlying collateral of the

investment. You must conduct stress testing before you purchase any investment that is

structured or that has uncertain cash flows, including all mortgage-backed securities or assetbacked securities. The stress testing must be commensurate with the risk and complexity of

the investments and must comply with the requirements of paragraph (f)(4) of this section.

(2) Monthly fair value determination. At least monthly, you must determine the fair market value of each

investment in your portfolio and the fair market value of your whole investment portfolio.

(3) Ongoing analysis of credit risk. You must establish and maintain processes to monitor and evaluate

changes in the credit quality of each security and the whole investment portfolio on an ongoing

basis.

(4) Quarterly stress testing.

(i) You must stress test your entire investment portfolio, including stress tests of all investments

individually and stress tests of the portfolio as a whole, at the end of each quarter. The stress

tests must enable you to determine that your investment securities, both individually and on a

portfolio-wide basis, do not expose your capital, earnings, or liquidity to risks that exceed the

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.10(e)

12 CFR 652.10(f)(4)(i) (enhanced display) page 5 of 46
[77 FR 66382, Nov. 5, 2012, as amended at 83 FR 55097, Nov. 2, 2018]

§ 652.15 Non-program investment purposes and limitation.

risk tolerance specified in your investment policies. If your portfolio risk exceeds your

investment policy limits, you must develop a plan to reduce risk and comply with your

investment policy limits.

(ii) Your stress tests must be comprehensive and appropriate for the risk profile of your investment

portfolio and the Corporation. At a minimum, the stress tests must be able to measure the price

sensitivity of investments over a range of possible interest rate/yield curve scenarios. The

methodology that you use to analyze investment securities must be appropriate for the

complexity, structure, and cash flows of the investments in your portfolio. You must rely to the

maximum extent practicable on verifiable information to support all your assumptions,

including prepayment and interest rate volatility assumptions, when you apply your stress tests.

Your assumptions must be prudent and based on sound judgment, and you must document the

basis for all assumptions that you use to evaluate the security and its underlying collateral. You

must also document all subsequent changes in your assumptions.

(5) Presale value verification. Before you sell an investment, you must verify its value with a source that

is independent of the broker, dealer, counterparty, or other intermediary to the transaction.

(g) Reports to the board of directors. At least quarterly, executive management must report on the following

to the board of directors or a designated committee of the board:

(1) Plans and strategies for achieving the board's objectives for the investment portfolio;

(2) Whether the investment portfolio effectively achieves the board's objectives;

(3) The current composition, quality, and liquidity profile of the investment portfolio;

(4) The performance of each class of investments and the entire investment portfolio, including all gains

and losses that you incurred during the quarter on individual securities that you sold before maturity

and why they were liquidated;

(5) Potential risk exposure to changes in market interest rates as identified through quarterly stress

testing and any other factors that may affect the value of your investment holdings;

(6) How investments affect your capital, earnings, and overall financial condition;

(7) Any deviations from the board's policies. These deviations must be formally approved by the board

of directors.

(a) Farmer Mac is authorized to hold eligible non-program investments listed under § 652.20 for the purposes

of enterprise risk management, including complying with its interest rate risk requirements in § 652.30;

complying with its liquidity requirements in § 652.40; managing surplus short-term funds; and

complementing program business activities.

(b) Non-program investments cannot exceed 35 percent of program assets and program obligations,

excluding 75 percent of the program assets that are guaranteed by the United States Department of

Agriculture as described in section 8.0(9)(B) of the Farm Credit Act of 1971, as amended. When

calculating the total amount of non-program investments under this section, exclude investments pledged

to meet margin requirements on derivative transactions.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.10(f)(4)(ii)

12 CFR 652.15(b) (enhanced display) page 6 of 46
§ 652.20 Eligible non-program investments.

[83 FR 55097, Nov. 2, 2018]

§ 652.23 Other non-program investments.

(a) Eligible investments consist of:

(1) A non-convertible senior debt security.

(2) A money market instrument with a maturity of 1 year or less.

(3) A portion of an ABS or MBS that is fully guaranteed by a U.S. Government agency.

(4) A portion of an ABS or MBS that is fully and explicitly guaranteed as to the timely payment of

principal and interest by a GSE.

(5) The senior-most position of an ABS or MBS that is not fully guaranteed by a U.S. Government agency

or fully and explicitly guaranteed as to the timely payment of principal and interest by a GSE,

provided that the MBS satisfies the definition of “mortgage related security” in 15 U.S.C. 78c(a)(41).

(6) An obligation of an international or multilateral development bank in which the U.S. is a voting

member.

(7) Shares of a diversified investment fund, if its portfolio consists solely of securities that satisfy

investments listed in paragraphs (b)(1) through (b)(3) of this section.

(b) Farmer Mac may only purchase those eligible investments satisfying all of the following:

(1) At a minimum, at least one obligor of the investment has a very strong capacity to meet financial

commitments for the life of the investment, even under severely adverse or stressful conditions, and

generally presents a very low risk of default. Investments whose obligors are located outside the

U.S., and whose obligor capacity to meet financial commitments is being relied upon to satisfy this

requirement, must also be fully guaranteed by a U.S. Government agency.

(2) The investment must exhibit low credit risk and other risk characteristics consistent with the purpose

or purposes for which it is held.

(3) The investment must be denominated in U.S. dollars.

(a) Farmer Mac may make a written request for our approval to purchase and hold other non-program

investments that do not satisfy the requirements of § 652.20. Your request for our approval to purchase

and hold other non-program investments at a minimum must:

(1) Describe the investment structure;

(2) Explain the purpose and objectives for making the investment; and

(3) Discuss the risk characteristics of the investment, including an analysis of the investment's impact to

capital.

(b) We may impose written conditions in conjunction with our approval of your request to invest in other nonprogram investments.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.20

12 CFR 652.23(b) (enhanced display) page 7 of 46
[83 FR 55098, Nov. 2, 2018]

§ 652.25 Ineligible investments.

[83 FR 55098, Nov. 2, 2018]

§ 652.27 Reservation of authority for investment activities.

FCA retains the authority to require you to divest of any investment at any time for failure to comply with applicable

regulations, for safety and soundness reasons, or failure to comply with written conditions of approval. The

timeframe set by FCA for such required divestiture will consider the expected loss on the transaction (or

transactions) and the effect on your financial condition and performance. FCA may also, on a case-by-case basis,

determine that a particular non-program investment poses inappropriate risk, notwithstanding that it satisfies

investment eligibility criteria or received prior approval from us. If so, we will notify you as to the proper treatment of

the investment.

[83 FR 55098, Nov. 2, 2018]

§ 652.30 Interest rate risk management.

(c) For purposes of applying the provisions of this subpart, except § 652.20, investments approved under this

section are treated the same as eligible non-program investments unless our conditions of approval state

otherwise.

(a) Investments ineligible when purchased. Non-program investments that do not satisfy the eligibility criteria

set forth in § 652.20(a) or have not been approved by the FCA pursuant to § 652.23 at the time of

purchase are ineligible. You must not purchase ineligible investments. If you determine that you have

purchased an ineligible investment, you must notify us within 15 calendar days after such determination.

You must divest of the investment no later than 60 calendar days after you determine that the investment

is ineligible unless we approve, in writing, a plan that authorizes you to divest the investment over a longer

period of time. Until you divest of the investment, it may not be used to satisfy your liquidity

requirement(s) under § 652.40, but must continue to be included in the § 652.15(b) investment portfolio

limit calculation.

(b) Investments that no longer satisfy eligibility criteria. If you determine that a non-program investment no

longer satisfies the criteria set forth in § 652.20 or no longer satisfies the conditions of approval issued

under § 652.23, you must notify us within 15 calendar days after such determination. If approved by the

FCA in writing, you may continue to hold the investment, subject to the following and any other conditions

we impose:

(1) You may not use the investment to satisfy your § 652.40 liquidity requirement(s);

(2) The investment must continue to be included in your § 652.15 investment portfolio limit calculation;

and

(3) You must develop a plan to reduce the investment's risk to you.

(a) The board of directors of Farmer Mac must provide effective oversight (direction, controls, and

supervision) of interest rate risk management and must be knowledgeable of the nature and level of

interest rate risk taken by Farmer Mac.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.23(c)

12 CFR 652.30(a) (enhanced display) page 8 of 46
§ 652.35 Liquidity management.

(b) The board of directors of Farmer Mac must adopt an interest rate risk management policy that

establishes appropriate interest rate risk exposure limits based on the Corporation's risk-bearing capacity

and reporting requirements in accordance with paragraphs (c) and (d) of this section. At least annually,

the board of directors, or a designated committee of the board, must review the policy. Any changes to

the policy must be approved by the board of directors. You must report any changes to the policy to the

OSMO within 10 business days of adoption.

(c) The interest rate risk management policy must, at a minimum:

(1) Address the purpose and objectives of interest rate risk management;

(2) Identify the causes of interest rate risk and set appropriate quantitative limits consistent with a

clearly articulated board risk tolerance;

(3) Require management to establish and implement comprehensive procedures to measure the

potential effect of these risks on the Corporation's projected earnings and market values by

conducting interest rate stress tests and simulations of multiple economic scenarios at least

quarterly. Your stress tests must gauge how interest rate fluctuations affect the Corporation's

capital, earnings, and liquidity position. The methodology that you use must be appropriate for the

complexity of the structure and cash flows of your on- and off-balance sheet positions, including the

nature and purpose of derivative contracts, and establish counterparty risk thresholds and limits for

derivatives. It must also ensure an appropriate level of consistency with the stress-test scenarios

considered under § 652.10(f)(4). Assumptions applied in stress tests must, to the maximum extent

practicable, rely on verifiable information. You must document the basis for all assumptions that you

use.

(4) Describe and authorize management to implement actions needed to achieve Farmer Mac's desired

risk management objectives;

(5) Ensure procedures are established to evaluate and document, at least quarterly, whether actions

taken have actually met the Corporation's desired risk management objectives;

(6) Identify exception parameters and approvals needed for any exceptions to the policy's requirements;

(7) Describe delegations of authority; and,

(8) Describe reporting requirements, including exceptions to policy limits.

(d) At least quarterly, management must report to the Corporation's board of directors, or a designated

committee of the board, describing the nature and level of interest rate risk exposure. Any deviations from

the board's policy on interest rate risk must be specifically identified in the report and approved by the

board, or a designated committee of the board.

(a) Liquidity policy—board responsibilities. Farmer Mac's board of directors must adopt a liquidity policy,

which may be integrated into a comprehensive asset-liability management or enterprise-wide risk

management policy. The risk tolerance embodied in the liquidity policy must be consistent with the

investment management policies required by § 652.10 of this subpart. The board must ensure that

management uses adequate internal controls to ensure compliance with its liquidity policy. At least

annually, the board of directors or a designated committee of the board must review the sufficiency of the

liquidity policy. The board of directors must approve any changes to the policy. You must provide a copy

of the revised liquidity policy to the OSMO within 10 business days of adoption.

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12 CFR 652.30(b)

12 CFR 652.35(a) (enhanced display) page 9 of 46
(b) Policy content. Your liquidity policy must contain at a minimum the following:

(1) The purpose and objectives of liquidity reserves;

(2) Diversification requirements for your liquidity reserve portfolio;

(3) The minimum and target (or optimum) amounts of liquidity that the board has established for Farmer

Mac, expressed in days of maturing obligations;

(4) The maximum amount of non-program investments that can be held for meeting Farmer Mac's

liquidity needs, expressed as a percentage of program assets and program obligations;

(5) Exception parameters and approvals needed with respect to the liquidity reserve;

(6) Delegations of authority pertaining to the liquidity reserve;

(7) Reporting requirements which must comply with the requirements under paragraph (c) of this

section;

(c) Reporting requirements —

(1) Board reporting —

(i) Periodic. At least quarterly, Farmer Mac's management must report to Farmer Mac's board of

directors or a designated committee of the board describing, at a minimum, the status of

Farmer Mac's compliance with board policy and the performance of the liquidity reserve

portfolio.

(ii) Special. Management must report any deviation from Farmer Mac's liquidity policy, or failure to

meet the board's liquidity targets to the board before the end of the quarter if such deviation or

failure has the potential to cause material loss.

(2) OSMO reporting. Farmer Mac must report, in writing, to the OSMO no later than the next business day

following the discovery of any breach of the minimum liquidity reserve requirement in § 652.40 of

this subpart.

(d) Liability maturity management plan. Farmer Mac must have a liability maturity management plan (LMMP)

that its board of directors reviews and approves at least once each year. The LMMP must establish a

funding strategy that provides for effective diversification of the sources and tenors of funding, and

considers Farmer Mac's risk profile and current market conditions. The LMMP must include targets of

acceptable ranges of the proportion of debt maturing within specific time periods.

(e) Contingency funding plan.

(1) General. Farmer Mac must have a CFP to ensure sources of liquidity are sufficient to fund normal

operations under a variety of stress events. Such stress events include, but are not limited to market

disruptions, rapid increase in contractually required loan purchases, unexpected requirements to

fund commitments or revolving lines of credit or to fulfill guarantee obligations, difficulties in

renewing or replacing funding with desired terms and structures, requirements to pledge collateral

with counterparties, and reduced market access.

(2) CFP requirements. Farmer Mac must maintain an adequate level of unencumbered and marketable

assets (as defined in § 652.40(a) and (b) of this subpart) in its liquidity reserve that can be converted

into cash to meet its net liquidity needs for 30 days based on estimated cash inflows and outflows

12 CFR Part 652 (up to date as of 3/07/2024)

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12 CFR 652.35(b)

12 CFR 652.35(e)(2) (enhanced display) page 10 of 46
[78 FR 65553, Nov. 1, 2013; 79 FR 29074, May 21, 2014]

§ 652.40 Liquidity reserve requirement and supplemental liquidity.

under an acute stress scenario. The board of directors must review and approve the CFP at least

once each year and must make adjustments to reflect changes in the results of stress tests, Farmer

Mac's risk profile, and market conditions.

(3) The CFP must:

(i) Be customized to the financial condition and liquidity risk profile of Farmer Mac, the board's

liquidity risk tolerance, and Farmer Mac's business model;

(ii) Identify funding alternatives that can be implemented as access to funding is impeded;

(iii) Establish a process for managing events that imperil Farmer Mac's liquidity. The process must

assign appropriate personnel and executable action plans to implement the CFP;

(iv) Require periodic stress testing that analyzes the possible impacts on Farmer Mac's cash flows,

liquidity position, profitability, and solvency for a wide variety of stress scenarios.

(a) Unencumbered. All investments that Farmer Mac holds in its liquidity reserve and as supplemental

liquidity in accordance with this section must be unencumbered. For the purposes of this section, an

investment is unencumbered if it is free of lien, and it is not explicitly or implicitly pledged to secure,

collateralize, or enhance the credit of any transaction. Additionally, an unencumbered investment held in

the liquidity reserve cannot be used as a hedge against interest rate risk if liquidation of that particular

investment would expose Farmer Mac to a material risk of loss.

(b) Marketable. All investments that Farmer Mac holds in its liquidity reserve in accordance with this section

must be readily marketable. For purposes of this section, an investment is readily marketable if it:

(1) Can be easily and quickly converted into cash with little or no loss in value;

(2) Exhibits low credit and market risk;

(3) Has ease and certainty of valuation; and,

(4) Except for money market instruments, can be easily sold or converted to cash through repurchase

agreements in active and sizable markets without significantly affecting prices.

(c) Liquidity reserve requirement, supplemental liquidity, and discounts. Farmer Mac must maintain at all

times a liquidity reserve sufficient to fund at least 90 days of the principal portion of maturing obligations

and other borrowings. Farmer Mac must also hold supplemental liquid assets sufficient to fund

obligations and other borrowings maturing after 90 calendar days to meet board liquidity policy in

accordance with § 652.35. At a minimum, Farmer Mac must hold instruments in the liquidity reserve, and

as supplemental liquidity, that are listed and discounted in accordance with the following table, and are

sufficient to cover:

(1) Days 1 through 15 only with Level 1 instruments;

(2) Days 16 through 30 only with Level 1 and Level 2 instruments; and,

(3) Days 31 through 90 with Level 1, Level 2, and Level 3 instruments.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.35(e)(3)

12 CFR 652.40(c)(3) (enhanced display) page 11 of 46
Table to § 652.40(c)

Liquidity

level Instruments

Discount

(multiply market value by)

Level 1 Cash, including cash due from traded but not yet settled debt 100 percent.

Overnight money market instruments, including repurchase

agreements secured exclusively by Level 1 investments

100 percent.

Obligations of U.S. Government agencies with a final

remaining maturity of 3 years or less

97 percent.

GSE senior debt securities that mature within 60 days,

excluding securities issued by the Farm Credit System

95 percent.

Diversified investment funds comprised exclusively of Level

1 instruments

95 percent.

Level 2 Additional Level 1 investments Discount for each Level 1

investment applies.

Obligations of U.S. Government agencies with a final

remaining maturity of more than 3 years

97 percent.

MBS that are fully guaranteed by a U.S. Government agency 95 percent.

Diversified investment funds comprised exclusively of Level

1 and 2 instruments

95 percent.

Level 3 Additional Level 1 or Level 2 investments Discount for each Level 1 or

Level 2 investment applies.

GSE senior debt securities with maturities exceeding 60

days, excluding senior debt securities of the Farm Credit

System

93 percent for all

instruments in Level 3.

MBS that are fully guaranteed by a GSE as to the timely

repayment of principal and interest

Money market instruments maturing within 90 days

Diversified investment funds comprised exclusively of Levels

1, 2, and 3 instruments

Qualifying securities backed by Farmer Mac program assets

(loans) guaranteed by the United States Department of

Agriculture (excluding the portion that would be necessary to

satisfy obligations to creditors and equity holders in Farmer

Mac II LLC)

Supplemental

Liquidity

Eligible investments under § 652.20 and those approved

under § 652.23

90 percent except

discounts for Level 1, 2 or 3

investments apply to such

investments held as

supplemental liquidity.

[78 FR 65553, Nov. 1, 2013; 79 FR 29074, May 21, 2014, as amended at 83 FR 55098, Nov. 2, 2018]

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.40(c)(3)

12 CFR 652.40(c)(3) (enhanced display) page 12 of 46
§ 652.45 Temporary regulatory waivers or modifications for extraordinary situations.

Whenever the FCA determines that an extraordinary situation exists that necessitates a temporary regulatory waiver

or modification, the FCA may, in its sole discretion:

Subpart B—Risk-Based Capital Requirements

Source: 71 FR 77253, Dec. 26, 2006, unless otherwise noted.

§ 652.50 Definitions.

For purposes of this subpart, the following definitions will apply:

[71 FR 77253, Dec. 26, 2006, as amended at 76 FR 23467, Apr. 27, 2011]

(a) Modify or waive the minimum liquidity reserve requirement in § 652.40 of this subpart;

(b) Modify the amount, qualities, and types of eligible investments that you are authorized to hold pursuant to

§ 652.20 of this subpart; and/or

(c) Take other actions as deemed appropriate.

AgVantage Plus means both the product by that name used by Farmer Mac and other similarly structured

program volume that Farmer Mac might finance in the future under other names. Those AgVantage

securities with initial principal amounts under $25 million and whose issuers were part of the original

AgVantage program are excluded from this definition.

Farmer Mac, Corporation, you, and your means the Federal Agricultural Mortgage Corporation and its affiliates as

defined in subpart A of this part.

Our, us, or we means the Farm Credit Administration.

Regulatory capital means the sum of the following as determined in accordance with generally accepted

accounting principles:

(1) The par value of outstanding common stock;

(2) The par value of outstanding preferred stock;

(3) Paid-in capital, which is the amount of owner investment in Farmer Mac in excess of the par value of

stock;

(4) Retained earnings; and,

(5) Any allowances for losses on loans and guaranteed securities.

Risk-based capital means the amount of regulatory capital sufficient for Farmer Mac to maintain positive capital

during a 10-year period of stressful conditions as determined by the risk-based capital stress test

described in § 652.65.

Rural utility guarantee fee means the actual guarantee fee charged for off-balance sheet volume and the

earnings spread over Farmer Mac's funding costs for on-balance sheet volume on rural utility loans.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.45

12 CFR 652.50 “Rural utility guarantee fee” (enhanced display) page 13 of 46
§ 652.55 General.

You must hold risk-based capital in an amount determined in accordance with this subpart.

§ 652.60 Corporate business planning.

[78 FR 65149, Oct. 31, 2013]

§ 652.61 Capital planning.

(a) Farmer Mac's board of directors is responsible for ensuring that Farmer Mac maintain capital at a level

that is sufficient to ensure continued financial viability and provide for growth. In addition, Farmer Mac's

capital must be sufficient to meet statutory and regulatory requirements as well as the goals and

objectives required by paragraph (b)(5) of this section, including the Tier 1 ratio required in §

652.61(c)(2)(ii)(A). Farmer Mac must notify the OSMO within 10 calendar days of determining that capital

is not sufficient to meet those goals and objectives.

(b) No later than 65 days after the end of each calendar year, Farmer Mac's board of directors must adopt an

operational and strategic business plan for at least the next 3 years. The plan must include:

(1) A mission statement;

(2) A business and organizational overview and an assessment of management capabilities;

(3) An assessment of Farmer Mac's strengths and weaknesses;

(4) A review of the internal and external factors that are likely to affect Farmer Mac during the planning

period;

(5) Measurable goals and objectives;

(6) A discussion of how these factors might impact Farmer Mac's current financial position and

business goals;

(7) Forecasted income, expense, and balance sheet statements for each year of the plan;

(8) A marketing plan, and

(9) A capital plan in accordance with § 652.61.

(a) Purpose. This section establishes capital planning requirements for Farmer Mac.

(b) Definitions. For purposes of this section and § 652.62, the following definitions apply:

Basel III means the Basel Committee on Banking Supervision's document “Basel III: A Global Regulatory

Framework for More Resilient Banks and Banking Systems,” June 2011 and as it may be updated

from time to time.

Capital action means any issuance of an equity capital instrument, and any capital distribution, as well as

any similar action that OSMO determines could impact Farmer Mac's consolidated capital.

Capital distribution means a redemption or repurchase of any equity capital instrument, a payment of

common or preferred stock dividends, a payment that may be temporarily or permanently suspended

by the issuer on any instrument that is eligible for inclusion in the numerator of any minimum capital

ratio, and any similar transaction that OSMO determines to be in substance a distribution of capital.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.55

12 CFR 652.61(b) “Capital distribution” (enhanced display) page 14 of 46
Capital plan means a written presentation of Farmer Mac's capital planning strategies and capital

adequacy process that includes the mandatory elements set forth in paragraph (c)(2) of this section.

Capital policy means Farmer Mac's written assessment of the principles and guidelines used for capital

planning, capital issuance, usage and distributions, including internal capital goals; the quantitative

or qualitative guidelines for dividend and stock repurchases; the strategies for addressing potential

capital shortfalls; and the internal governance procedures around capital policy principles and

guidelines.

Planning horizon means the period of at least 12 quarters, beginning with the quarter preceding the quarter

in which Farmer Mac submits its capital plan, over which the relevant projections extend.

Tier 1 Capital means the components meeting the criteria of Common Equity Tier 1 Capital and Additional

Tier 1 Capital and the regulatory adjustments as set forth in Basel III, or Tier 1 Capital as defined in

regulations of the Office of the Comptroller of the Currency, the Board of Governors of the Federal

Reserve, or the Federal Deposit Insurance Corporation, as revised from time to time; or another

measure of high quality capital as approved for use under this regulation by the Director of OSMO.

Tier 1 ratio means the ratio of Farmer Mac's Tier 1 Capital to Total Risk-Weighted Assets.

Total Risk-Weighted Assets means a risk-weighting approach that is appropriate given Farmer Mac's

business activities and consistent with broadly accepted banking practices and standards (e.g., one

of the frameworks of the Basel Committee on Banking Supervision or similar U.S. regulations).

(c) General requirements —

(1) Annual capital planning.

(i) Farmer Mac must develop and maintain a capital plan each year.

(ii) Farmer Mac must submit its complete annual capital plan to OSMO by March 1 or such later

date as directed by OSMO, after consultation with the FCA Board.

(iii) Prior to submission of the capital plan under paragraph (c)(1)(ii) of this section, Farmer Mac's

board of directors must:

(A) Review the robustness of Farmer Mac's process for assessing capital adequacy,

(B) Ensure that any deficiencies in Farmer Mac's process for assessing capital adequacy are

appropriately remedied; and

(C) Approve Farmer Mac's capital plan.

(2) Mandatory elements of capital plan. The capital plan must contain at least the following elements:

(i) An assessment of the expected uses and sources of capital over the planning horizon that

reflects Farmer Mac's size, complexity, risk profile, and scope of operations, assuming both

expected and stressful conditions, including:

(A) Projected revenues, losses, reserves, and pro forma capital levels, including the core

capital and regulatory capital ratios required by sections 8.32 and 8.33 of the Act, the Tier

1 ratio as defined in this section, and any additional capital measures deemed relevant by

Farmer Mac, over the planning horizon under expected conditions and under a range of at

least two progressively severe stress scenarios developed by Farmer Mac appropriate to

its business model and portfolios, as well as any scenarios provided by the Director of

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.61(b) “Capital plan”

12 CFR 652.61(c)(2)(i)(A) (enhanced display) page 15 of 46
OSMO. At least 15 calendar days prior to this stress testing, Farmer Mac must provide to

OSMO a description of the expected and stressed scenarios that Farmer Mac intends to

use to conduct its annual stress test under this section.

(B) A description of all planned capital actions over the planning horizon.

(ii) A detailed description of Farmer Mac's process for assessing capital adequacy, including:

(A) A discussion of how Farmer Mac will, under expected and stressed conditions, maintain

capital commensurate with its risks, maintain capital above the minimum core capital and

regulatory capital ratios and above the Tier 1 ratio set in accordance with a wellarticulated risk tolerance policy established by the board of directors;

(B) A discussion of how Farmer Mac will, under expected and stressed conditions, maintain

sufficient capital to continue its operations by maintaining ready access to funding,

meeting its obligations to creditors and other counterparties, and continuing to serve its

statutory purposes; and

(C) A discussion of the results of the risk-based stress test required by section 8.32 of the Act

and the stress tests required by this section, as well as any other stress test required by

law or regulation, and an explanation of how the capital plan takes these results into

account.

(iii) Farmer Mac's capital policy; and

(iv) A discussion of any expected changes to Farmer Mac's business plan that are likely to have a

material impact on the Corporation's capital adequacy or liquidity.

(d) Review of capital plan by OSMO.

(1) OSMO will consider the following factors in reviewing Farmer Mac's capital plan:

(i) The comprehensiveness of the capital plan, including the extent to which the analysis

underlying the capital plan captures and addresses risks stemming from activities across

Farmer Mac's business lines and operations;

(ii) The reasonableness of Farmer Mac's assumptions and analysis underlying the capital plan and

its methodologies for reviewing the robustness of its capital adequacy process; and

(iii) Farmer Mac's ability to maintain capital above the minimum core capital and regulatory capital

ratios and above a Tier 1 ratio set in accordance with a risk tolerance policy established by the

board of directors on a pro forma basis under expected and stressful conditions throughout the

planning horizon, including but not limited to any stressed scenarios required under paragraphs

(c)(2)(i)(A) and (c)(2)(ii) of this section.

(iv) All supervisory information about Farmer Mac and its subsidiaries;

(v) Farmer Mac's regulatory and financial reports, as well as supporting data that would allow for

an analysis of its loss, revenue, and projections;

(vi) As applicable, OSMO's own pro forma estimates of Farmer Mac's potential losses, revenues,

and resulting capital adequacy measurements under expected and stressful conditions,

including but not limited to any stressed scenarios required under paragraphs (c)(2)(i)(A) and

(c)(2)(ii) of this section, as well as the results of any other stress tests conducted by Farmer

Mac or OSMO; and

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.61(c)(2)(i)(B)

12 CFR 652.61(d)(1)(vi) (enhanced display) page 16 of 46
[78 FR 65149, Oct. 31, 2013]

§ 652.62 Notice to OSMO of capital distributions.

[78 FR 65149, Oct. 31, 2013]

§ 652.65 Risk-based capital stress test.

You will perform the risk-based capital stress test as described in summary form below and as described in detail in

appendix A to this subpart. The risk-based capital stress test spreadsheet is also available electronically at

http://www.fca.gov. The risk-based capital stress test has five components:

(vii) Other information requested or required by OSMO, as well as any other information relevant to

Farmer Mac's capital adequacy.

(e) OSMO action on a capital plan.

(1) OSMO will review the capital plan and provide an assessment to Farmer Mac of the capital adequacy

and planning process through its ongoing examination and oversight process.

(2) Upon a request by OSMO, Farmer Mac must provide OSMO with sufficient information regarding its

planning assumptions, stress test strategies and results and any other relevant qualitative or

quantitative information requested by OSMO to facilitate review of Farmer Mac's capital plan under

this section.

(3) OSMO may require Farmer Mac to revise and re-submit its capital plan.

(f) Farmer Mac response to OSMO's assessment. Regardless of whether re-submission is required, Farmer

Mac must take the results of the stress tests conducted under paragraphs (c)(2)(i)(A) and (c)(2)(ii) of this

section (including any revisions required under paragraph (e)(3) of this section) as well as OSMO's

assessment into account in making changes, as appropriate, to Farmer Mac's capital structure (including

the level and composition of capital); its exposures, concentrations, and risk positions; any plans for

recovery and resolution; and to improve overall risk management. Farmer Mac must document in writing

its actions in response to the stress tests and assessment, as well as decisions not to take actions in

response to any issues raised in the assessment.

(a) Farmer Mac must provide OSMO with notice 15 calendar days prior to a board consideration of a

declaration of a capital distribution or any material changes in capital distributions policies.

(b) Except as provided in paragraph (c), notice under paragraph (a) of this section is not required with respect

to capital distributions set forth (i.e., specifically scheduled as to amount and timing along with a

discussion of the planned distribution) in the capital plan or a regular periodic payment of dividends on

common stock and preferred stock when there is no change in the amount of payment per share from the

previous period.

(c) In the event that OSMO determines a capital plan has not adequately taken into account OSMO's

assessment as required under § 652.61(f), the exception described in paragraph (b) of this section shall

not apply, and Farmer Mac must provide notification of any and all capital distributions as set forth in

paragraph (a) of this section.

(a) Data requirements. You will use the following data to implement the risk-based capital stress test.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.61(d)(1)(vii)

12 CFR 652.65(a) (enhanced display) page 17 of 46
(1) You will use Corporation loan-level data to implement the credit risk component of the risk-based

capital stress test.

(2) You will use Call Report data as the basis for Corporation data over the 10-year stress period

supplemented with your interest rate risk measurements and tax data.

(3) You will use other data, including the 10-year Constant Maturity Treasury (CMT) rate and the

applicable Internal Revenue Service corporate income tax schedule, as further described in appendix

A to this subpart.

(b) Credit risk. The credit risk part estimates loan losses during a period of sustained economic stress.

(1) For each loan in the Farmer Mac I portfolio, you will determine a default probability by using the logit

functions specified in appendix A to this subpart with each of the following variables:

(i) Borrower's debt-to-asset ratio at loan origination;

(ii) Loan-to-value ratio at origination, which is the loan amount divided by the value of the property;

(iii) Debt-service-coverage ratio at origination, which is the borrower's net income (on- and off-farm)

plus depreciation, capital lease payments, and interest, less living expenses and income taxes,

divided by the total term debt payments;

(iv) The origination loan balance stated in 1997 dollars based on the consumer price index; and,

(v) The worst-case percentage change in farmland values (23.52 percent).

(2) You will then calculate the loss rate by multiplying the default probability for each loan by the

estimated loss-severity rate, which is the average loss of the defaulted loans in the data set (20.9

percent).

(3) You will calculate losses by multiplying the loss rate by the origination loan balances stated in 1997

dollars.

(4) You will adjust the losses for loan seasoning, based on the number of years since loan origination,

according to the functions in appendix A to this subpart.

(5) You will calculate loss rates on rural utility loans as further described in appendix A.

(6) You will further adjust losses for loans that collateralize the general obligation of AgVantage Plus

volume, and for loans where the program loan counterparty retains a subordinated interest in

accordance with appendix A to this subpart.

(7) The losses must be applied in the risk-based capital stress test as specified in appendix A to this

subpart.

(c) Interest rate risk.

(1) During the first year of the stress period, you will adjust interest rates for two scenarios, an increase

in rates and a decrease in rates. You must determine your risk-based capital level based on

whichever scenario would require more capital.

(2) You will calculate the interest rate stress based on changes to the quarterly average of the 10-year

CMT. The starting rate is the 3-month average of the most recent CMT monthly rate series. To

calculate the change in the starting rate, determine the average yield of the preceding 12 monthly

10-year CMT rates. Then increase and decrease the starting rate by:

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.65(a)(1)

12 CFR 652.65(c)(2) (enhanced display) page 18 of 46
[71 FR 77253, Dec. 26, 2006, as amended at 73 FR 31940, June 5, 2008; 76 FR 23467, Apr. 27, 2011]

§ 652.70 Risk-based capital level.

The risk-based capital level is the sum of the following amounts:

(i) 50 percent of the 12-month average if the average rate is less than 12 percent; or

(ii) 600 basis points if the 12-month average rate is equal to or higher than 12 percent.

(3) Following the first year of the stress period, interest rates remain at the new level for the remainder

of the stress period.

(4) You will apply the interest rate changes scenario as indicated in appendix A to this subpart.

(5) You may use other interest rate indices in addition to the 10-year CMT subject to our concurrence,

but in no event can your risk-based capital level be less than that determined by using only the

10-year CMT.

(d) Cashflow generator.

(1) You must adjust your financial statements based on the credit risk inputs and interest rate risk inputs

described above to generate pro forma financial statements for each year of the 10-year stress test.

The cashflow generator produces these financial statements. You may use the cashflow generator

spreadsheet that is described in appendix A to this subpart and available electronically at

http://www.fca.gov. You may also use any reliable cashflow program that can develop or produce pro

forma financial statements using generally accepted accounting principles and widely recognized

financial modeling methods, subject to our concurrence. You may disaggregate financial data to any

greater degree than that specified in appendix A to this subpart, subject to our concurrence.

(2) You must use model assumptions to generate financial statements over the 10-year stress period.

The major assumption is that cashflows generated by the risk-based capital stress test are based on

a steady-state scenario. To implement a steady-state scenario, when on- and off-balance sheet

assets and liabilities amortize or are paid down, you must replace them with similar assets and

liabilities (AgVantage Plus volume is not replaced when it matures). Replace amortized assets from

discontinued loan programs with current loan programs. In general, keep assets with small balances

in constant proportions to key program assets.

(3) You must simulate annual pro forma balance sheets and income statements in the risk-based capital

stress test using Farmer Mac's starting position, the credit risk and interest rate risk components,

resulting cashflow outputs, current operating strategies and policies, and other inputs as shown in

appendix A to this subpart and the electronic spreadsheet available at http://www.fca.gov.

(e) Calculation of capital requirement. The calculations that you must use to solve for the starting regulatory

capital amount are shown in appendix A to this subpart and in the electronic spreadsheet available at

http://www.fca.gov.

(a) Credit and interest rate risk. The amount of risk-based capital determined by the risk-based capital test

under § 652.65.

(b) Management and operations risk. Thirty (30) percent of the amount of risk-based capital determined by

the risk-based capital test in § 652.65.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.65(c)(2)(i)

12 CFR 652.70(b) (enhanced display) page 19 of 46
§ 652.75 Your responsibility for determining the risk-based capital level.

§ 652.80 When you must determine the risk-based capital level.

§ 652.85 When to report the risk-based capital level.

[71 FR 77253, Dec. 26, 2006, as amended at 73 FR 31940, June 5, 2008]

§ 652.90 How to report your risk-based capital determination.

(a) You must determine your risk-based capital level using the procedures in this subpart, appendix A to this

subpart, and any other supplemental instructions provided by us. You will report your determination to us

as prescribed in § 652.90. At any time, however, we may determine your risk-based capital level using the

procedures in § 652.65 and appendix A to this subpart, and you must hold risk-based capital in the

amount we determine is appropriate.

(b) You must at all times comply with the risk-based capital levels established by the risk-based capital stress

test and must be able to determine your risk-based capital level at any time.

(c) If at any time the risk-based capital level you determine is less than the minimum capital requirements set

forth in section 8.33 of the Act, you must maintain the statutory minimum capital level.

(a) You must determine your risk-based capital level at least quarterly, or whenever changing circumstances

occur that have a significant effect on capital, such as exposure to a high volume of, or particularly severe,

problem loans or a period of rapid growth.

(b) In addition to the requirements of paragraph (a) of this section, we may require you to determine your riskbased capital level at any time.

(c) If you anticipate entering into any new business activity that could have a significant effect on capital, you

must determine a pro forma risk-based capital level, which must include the new business activity, and

report this pro forma determination to the Director, Office of Secondary Market Oversight, at least

10-business days prior to implementation of the new business program.

(a) You must file a risk-based capital report with us each time you determine your risk-based capital level as

required by § 652.80.

(b) You must also report to us at once if you identify in the interim between quarterly or more frequent reports

to us that you are not in compliance with the risk-based capital level required by § 652.70.

(c) If you make any changes to the data used to calculate your risk-based capital requirement that cause a

material adjustment to the risk-based capital level you reported to us, you must file an amended riskbased capital report with us within 5-business days after the date of such changes;

(d) You must submit your quarterly risk-based capital report for the last day of the preceding quarter by the

earlier of the reporting deadlines for Securities and Exchange Commission Forms 10–K and 10–Q, or the

40th day after each of the quarters ending March 31st, June 30th, and September 30th, and the 75th day

after the quarter ending on December 31st.

(a) Your risk-based capital report must contain at least the following information:

(1) All data integral for determining the risk-based capital level, including any business policy decisions

or other assumptions made in implementing the risk-based capital test;

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.75

12 CFR 652.90(a)(1) (enhanced display) page 20 of 46
§ 652.95 Failure to meet capital requirements.

§ 652.100 Audit of the risk-based capital stress test.

You must have a qualified, independent external auditor review your implementation of the risk-based capital stress

test every 3 years and submit a copy of the auditor's opinion to us.

Appendix A to Subpart B of Part 652—Risk-Based Capital Stress Test

(2) Other information necessary to determine compliance with the procedures for determining riskbased capital as specified in appendix A to this subpart; and

(3) Any other information we may require in written instructions to you.

(b) You must submit each risk-based capital report in such format or medium, as we require.

(a) Determination and notice. At any time, we may determine that you are not meeting your risk-based capital

level calculated according to § 652.65, your minimum capital requirements specified in section 8.33 of the

Act, or your critical capital requirements specified in section 8.34 of the Act. We will notify you in writing

of this fact and the date by which you should be in compliance (if applicable).

(b) Submission of capital restoration plan. Our determination that you are not meeting your required capital

levels may require you to develop and submit to us, within a specified time period, an acceptable plan to

reach the appropriate capital level(s) by the date required.

1.0 Introduction.

2.0 Credit Risk.

2.1 Loss-Frequency and Loss-Severity Models for All Types of Loans, Except Rural Utility Loans.

2.2 Loan-Seasoning Adjustment for All Types of Loans, Except Rural Utility Loans.

2.3 Example Calculation of Dollar Loss on One Loan for All Types of Loans, Except Rural Utility Loans.

2.4 Treatment of Loans Backed by an Obligation of the Counterparty and Loans for Which Pledged Loan

Collateral Volume Exceeds Farmer Mac-Guaranteed Volume.

2.5 Calculation of Loss Rates for Use in the Stress Test for All Types of Loans, Except Rural Utility Loans.

2.6 Calculation of Loss Rates on Rural Utility Volume for Use in the Stress Test.

3.0 Interest Rate Risk.

3.1 Process for Calculating the Interest Rate Movement.

4.0 Elements Used in Generating Cashflows.

4.1 Data Inputs.

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Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.90(a)(2)

12 CFR 652.100 (enhanced display) page 21 of 46
1.0 Introduction

2.0 Credit Risk

Loan loss rates are determined by applying the loss-frequency equation and the loss-severity factor to Farmer Mac

loan-level data. Using this equation and severity factor, you must calculate loan losses under stressful economic

conditions assuming Farmer Mac's portfolio remains at a “steady state.” Steady state assumes the underlying

characteristics and risks of Farmer Mac's portfolio remain constant over the 10 years of the stress test. Loss rates

discussed in this section apply to all loans, unless otherwise indicated. Loss rates are computed from estimated

dollar losses for use in the stress test. The loan volume subject to loss throughout the stress test is then multiplied

by the loss rate. Lastly, the stress test allocates losses to each of the 10 years assuming a time pattern for loss

occurrence as discussed in section 4.3, “Risk Measures.”

4.2 Assumptions and Relationships.

4.3 Risk Measures.

4.4 Loan and Cashflow Accounts.

4.5 Income Statements.

4.6 Balance Sheets.

4.7 Capital.

5.0 Capital Calculations.

5.1 Method of Calculation.

a. Appendix A provides details about the risk-based capital stress test (stress test) for Farmer Mac. The

stress test calculates the risk-based capital level required by statute under stipulated conditions of credit

risk and interest rate risk. The stress test uses loan-level data from Farmer Mac's agricultural mortgage

portfolio or proxy data as described in section 4.1 d.(3) below, as well as quarterly Call Report and related

information to generate pro forma financial statements and calculate a risk-based capital requirement.

The stress test also uses historic agricultural real estate mortgage performance data, rural utility

guarantee fees, relevant economic variables, and other inputs in its calculations of Farmer Mac's capital

needs over a 10-year period.

b. Appendix A establishes the requirements for all components of the stress test. The key components of

the stress test are: Specifications of credit risk, interest rate risk, the cashflow generator, and the capital

calculation. Linkages among the components ensure that the measures of credit and interest rate risk

pass into the cashflow generator. The linkages also transfer cashflows through the financial statements

to represent values of assets, liabilities, and equity capital. The 10-year projection is designed to reflect a

steady state in the scope and composition of Farmer Mac's assets.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 22 of 46
2.1 Loss-Frequency and Loss-Severity Models for All Types of Loans, Except Rural Utility

Loans

a. Credit risks are modeled in the stress test using historical time series loan-level data to measure the

frequency and severity of losses on agricultural mortgage loans. The model relates loss frequency and

severity to loan-level characteristics and economic conditions through appropriately specified regression

equations to account explicitly for the effects of these characteristics on loan losses. Loan losses for

Farmer Mac are estimated from the resulting loss-frequency equation combined with the loss-severity

factor by substituting the respective values of Farmer Mac's loan-level data or proxy data as described in

section 4.1 d.(3) below, and applying stressful economic inputs.

b. The loss-frequency equation and loss-severity factor were estimated from historical agricultural real

estate mortgage loan data from the Farm Credit Bank of Texas (FCBT). Due to Farmer Mac's relatively

short history, its own loan-level data are insufficiently developed for use in estimating the default

frequency equation and loss-severity factor. In the future, however, expansions in both the scope and

historic length of Farmer Mac's lending operations may support the use of its data in estimating the

relationships.

c. To estimate the equations, the data used included FCBT loans, which satisfied three of the four

underwriting standards Farmer Mac currently uses (estimation data). The four standards specify:

(1) The debt-to-assets ratio (D/A) must be less than 0.50,

(2) the loan-to-value ratio (LTV) must be less than 0.70,

(3) the debt-service-coverage ratio (DSCR) must exceed 1.25,

(4) and the current ratio (current assets divided by current liabilities) must exceed 1.0. Furthermore, the

D/A and LTV ratios were restricted to be less than or equal to 0.85.

d. Several limitations in the FCBT loan-level data affect construction of the loss-frequency equation. The

data contained loans that were originated between 1979 and 1992, but there were virtually no losses

during the early years of the sample period. As a result, losses attributable to specific loans are only

available from 1986 through 1992. In addition, no prepayment information was available in the data.

e. The FCBT data used for estimation also included as performing loans, those loans that were re-amortized,

paid in full, or merged with a new loan. Including these loans may lead to an understatement of lossfrequency probabilities if some of the re-amortized, paid, or merged loans experience default or incur

losses. In contrast, when the loans that are re-amortized, paid in full, or merged are excluded from the

analysis, the loss-frequency rates are overstated if a higher proportion of loans that are re-amortized, paid

in full, or combined (merged) into a new loan are non-default loans compared to live loans.[1]

[1] Excluding loans with defaults, 11,527 loans were active and 7,515 loans were paid in full, re-amortized or

merged as of 1992. A t-test2 of the differences in the means for the group of defaulted loans and active loans

indicated that active loans had significantly higher D/A and LTV ratios, and lower current ratios than defaulted

loans where loss occurred. These results indicate that, on average, active loans have potentially higher risk

than loans that were re-amortized, paid in full, or merged.

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Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 23 of 46
f. The structure of the historical FCBT data supports estimation of loss frequency based on origination

information and economic conditions. Under an origination year approach, each observation is used only

once in estimating loan default. The underwriting variables at origination and economic factors occurring

over the life of the loan are then used to estimate loan-loss frequency.

g. The final loss-frequency equation is based on origination year data and represents a lifetime lossfrequency model. The final equation for loss frequency is:

p = 1/(1 + exp(−(BX))

Where:

BX = (−12.62738) + 1.91259 · X1 + (−0.33830) · X2 / (1 + 0.0413299)Periods + (−0.19596) · X3 + 4.55390 ·

(1−exp((−0.00538178) · X4) + 2.49482 · X5

Where:

• p is the probability that a loan defaults and has positive losses (Pr (Y = 1 | x));

• X1 is the LTV ratio at loan origination raised to the power 5.3914596;[2]

• X2 is the largest annual percentage decline in FCBT farmland values during the life of the loan dampened

with a factor of 0.0413299 per year;[3]

• X3 is the DSCR at loan origination;

• X4 is 1 minus the exponential of the product of negative 0.00538178 and the original loan balance in

1997 dollars expressed in thousands; and

• X5 is the D/A ratio at loan origination.

h. The estimated logit coefficients and p-values are:[4]

[2] Loss probability is likely to be more sensitive to changes in LTV at higher values of LTV. The power function

provides a continuous relationship between LTV and defaults.

[3] The dampening function reflects the declining effect that the maximum land value decline has on the

probability of default when it occurs later in a loan's life.

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Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 24 of 46
Coefficients p-value

Intercept −12.62738 <0.0001

X1: LTV variable 1.91259 0.0001

X2: Max land value decline variable 0.33830 <0.0001

X3: DSCR −0.19596 0.0002

X4: Loan size variable 4.55390 <0.0001

X5: D/A ratio 2.49482 <0.0000

Hosmer and Lemeshow goodness-of-fit p-value 0.1718

Max-rescaled R2 0.2015

Concordant 85.2%

Disconcordant 12.0%

Tied 2.8%

i. The low p-values on each coefficient indicate a highly significant relationship between the probability ratio

of loan-loss frequency and the respective independent variables. Other goodness-of-fit indicators are:

j. These variables have logical relationships to the incidence of loan default and loss, as evidenced by the

findings of numerous credit-scoring studies in agricultural finance.[5] Each of the variable coefficients has

directional relationships that appropriately capture credit risk from underwriting variables and, therefore,

the incidence of loan-loss frequency. The frequency of loan loss was found to differ significantly across

all of the loan characteristics and lending conditions. Farmland values represent an appropriate variable

for capturing the effects of exogenous economic factors. It is commonly accepted that farmland values

at any point in time reflect the discounted present value of expected returns to the land.[6] Thus, changes

in land values, as expressed in the loss-frequency equation, represent the combined effects of the level

and growth rates of farm income, interest rates, and inflationary expectations—each of which is

accounted for in the discounted, present value process.

[4] The nonlinear parameters for the variable transformations were simultaneously estimated using SAS

version 8e NLIN procedure. The NLIN procedure produces estimates of the parameters of a nonlinear

transformation for LTV, dampening factor, and loan-size variables. To implement the NLIN procedure, the lossfrequency equation and its variables are declared and initial parameter values supplied. The NLIN procedure is

an iterative process that uses the initial parameter values as the starting values for the first iteration and

continues to iterate until acceptable parameters are solved. The initial values for the power function and

dampening function are based on the proposed rule. The procedure for the initial values for the size variable

parameter is provided in an Excel spreadsheet posted at http://www.fca.gov. The Gauss-Newton method is the

selected iterative solving process. As described in the preamble, the loss-frequency function for the nonlinear

model is the negative of the log-likelihood function, thus producing maximum likelihood estimates. In order to

obtain statistical properties for the loss-frequency equation and verify the logistic coefficients, the estimates

for the nonlinear transformations are applied to the FCBT data and the loss-frequency model is re-estimated

using the SAS Logistic procedure. The SAS procedures, output reports and Excel spreadsheet used to

estimate the parameters of the loss-frequency equation are located on the Web site http://www.fca.gov.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 25 of 46
2.2 Loan-Seasoning Adjustment for All Types of Loans, Except Rural Utility Loans

k. When applying the equation to Farmer Mac's portfolio, you must get the input values for X1, X3, X4, and X5

for each loan in Farmer Mac's portfolio on the date at which the stress test is conducted, using either

submitted data or proxy data as described in section 4.1 d.(3) below. For the variable X2, the stressful

input value from the benchmark loss experience is −23.52 percent. You must apply this input to all Farmer

Mac loans subject to loss to calculate loss frequency under stressful economic conditions.[7] The

maximum land value decline from the benchmark loss experience is the simple average of annual land

value changes for Iowa, Illinois, and Minnesota for the years 1984 and 1985.[8]

l. Forecasting with data outside the range of the estimation data requires special treatment for

implementation. While the estimation data embody Farmer Mac values for various loan characteristics,

the maximum farmland price decline experienced in Texas was −16.69 percent, a value below the

benchmark experience of −23.52 percent. To control for this effect, you must apply a procedure that

restricts the slope of all the independent variables to that observed at the maximum land value decline

observed in the estimation data. Essentially, you must approximate the slope of the loss-frequency

equation at the point −16.69 percent in order to adjust the probability of loan default and loss occurrence

for data beyond the range in the estimating data. The adjustment procedure is shown in step 4 of section

2.3 entitled, “Example Calculation of Dollar Loss on One Loan.”

m. Loss severity was not found to vary systematically and was considered constant across the tested loan

characteristics and lending conditions. Thus, the simple weighted average by loss volume of 20.9 percent

is used in the stress test.[9] You must multiply loss severity with the probability estimate computed from

the loss-frequency equation to determine the loss rate for a loan.

n. Using original loan balance results in estimated probabilities of loss frequency over the entire life of a

loan. To account for loan seasoning, you must reduce the loan-loss exposure by the cumulative

probability of loss already experienced by each loan as discussed in section 2.2 entitled, “Loan-Seasoning

Adjustment.” This subtraction is based on loan age and reduces the loss estimated by the loss-frequency

and loss-severity equations. The result is an age-adjusted lifetime dollar loss that can be used in

subsequent calculations of loss rates as discussed in section 2.4, “Calculation of Loss Rates for Use in

the Stress Test.”

[6] Barry, P. J., P. N. Ellinger, J. A. Hopkin, and C. B. Baker. Financial Management in Agriculture, 5th ed.,

Interstate Publishers, 1995.

[5] Splett, N.S., P. J. Barry, B. Dixon, and P. Ellinger. “A Joint Experience and Statistical Approach to Credit

Scoring,” Agricultural Finance Review, 54(1994):39–54.

[8] While the worst-case losses, based on origination year, occurred during 1983 and 1984, this benchmark was

determined using annual land value changes that occurred 2 years later.

[7] On- and off-balance sheet Farmer Mac I agricultural mortgage program assets booked after the 1996 Act

amendments are subject to the loss calculation.

[9] We calculated the weighted-average loss severity from the estimation data.

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Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 26 of 46
2.3 Example Calculation of Dollar Loss on One Loan for All Types of Loans, Except Rural

Utility Loans

Here is an example of the calculation of the dollar losses for an individual loan with the following characteristics

and input values:[11]

Loan Origination Year 1996

Loan Origination Balance $1,250,000

LTV at Origination 0.5

D/A at Origination 0.5

DSCR at Origination 1.3984

Maximum Percentage Land Price Decline (MAX) −23.52

a. You must use the seasoning function supplied by FCA to adjust the calculated probability of loss for each

Farmer Mac loan for the cumulative loss exposure already experienced based on the age of each loan.

The seasoning function is based on the same data used to determine the loss-frequency equation and an

assumed average life of 14 years for agricultural mortgages. If we determine that the relationship

between the loss experience in Farmer Mac's portfolio over time and the seasoning function can be

improved, we may augment or replace the seasoning function.

b. The seasoning function is parameterized as a beta distribution with parameters of p = 4.288 and q =

5.3185.[10] How the loan-seasoning distribution is used is shown in Step 7 of section 2.3, “Example

Calculation of Dollar Loss on One Loan.”

Step 1: Convert 1996 Origination Value to 1997 dollar value (LOAN) based on the consumer price index and

transform as follows:

$1,278,500 = $1,250,000 · 1.0228

0.998972 = 1 − exp((−.00538178) · $1,278,500 / 1000)

Step 2: Calculate the default probabilities using −16.64 percent and −16.74 percent land value declines as

follows:[12]

[10] We estimated the loan-seasoning distribution from portfolio aggregate charge-off rates from the

estimation data. To do so, we arrayed all defaulting loans where loss occurred according to the time from

origination to default. Then, a beta distribution, β(p, q), was fit to the estimation data scaled to the maximum

time a loan survived (14 years).

[11]

In the examples presented we rounded the numbers, but the example calculation is based on a larger

number of significant digits. The stress test uses additional digits carried at the default precision of the

software.

12 CFR Part 652 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 27 of 46
Where:

Z1 = (−12.62738) + 1.91259 · LTV

5.3914596 − 0.33830 · (−16.6439443) − 0.19596 · DSCR + 4.55390 ·

0.998972 + 2.49482 · DA = (−1.428509)

Default Loss Frequency at (−16.64%) =

1 / 1 + exp−(−1.428509) = 0.19333111

And

Z1 = (−12.62738) + 1.91259 · LTV

5.3914596 − 0.33830 · (−16.7439443) − 0.19596 · DSCR + 4.55390 ·

0.998972 + 2.49482 · DA = (−1.394679)

Loss Frequency Probability at (−16.74%) =

1 / 1 + exp−(−1.394679) = 0.19866189

Step 3: Calculate the slope adjustment. You must calculate slope by subtracting the difference between

“Loss-Frequency Probability at −16.64 percent” and “Loss-Frequency Probability at −16.74 percent”

and dividing by −0.1 (the difference between −16.64 percent and −16.74 percent) as follows:

0.05330776 = (0.19333111 − 0.19866189) / −0.1

Step 4: Make the linear adjustment. You make the adjustment by increasing the loss-frequency probability

where the dampened stressed farmland value input is less than −16.69 percent to reflect the

stressed farmland value input, appropriately discounted. As discussed previously, the stressed land

value input is discounted to reflect the declining effect that the maximum land value decline has on

the probability of default when it occurs later in a loan's life.[13] The linear adjustment is the

difference between −16.69 percent land value decline and the adjusted stressed maximum land

value decline input of −23.52 multiplied by the slope estimated in Step 3 as follows:

Loss Frequency at −16.69 percent =

Z1 = (−12.62738) + (1.91259)(LTV

5.3914596) − (0.33830)(−16.6939443) − (0.19596)(DSCR) +

(4.55390)(0.998972) + (2.49482)(DA) = −1.411594

And

1 / 1 + exp−(−1.411594) = 0.19598279

Dampened Maximum Land Price Decline = (−20.00248544) = (−23.52)(1.0413299)−4

[12] This process facilitates the approximation of slope needed to adjust the loss probabilities for land value

declines greater than observed in the estimation data.

[13] The dampened period is the number of years from the beginning of the origination year to the current year

(i.e., January 1, 1996 to January 1, 2000 is 4 years).

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2.4 Treatment of Loans Backed by an Obligation of the Counterparty and Loans for Which

Pledged Loan Collateral Volume Exceeds Farmer Mac-Guaranteed Volume

Slope Adjustment = 0.17637092 = 0.053312247 · (−16.6939443 − (−20.00248544))

Loan Default Probability = 0.37235371 = 0.19598279 + 0.17637092

Step 5: Multiply loan default probability times the average severity of 0.209 as follows:

0.077821926 = 0.37235371 · 0.209

Step 6: Multiply the loss rate times the origination loan balance as follows:

$97,277 = $1,250,000 · 0.077821926

Step 7: Adjust the origination based dollar losses for 4 years of loan seasoning as follows:

$81,987 = $97,277 − $97,277 · (0.157178762)[14]

You must calculate the age-adjusted loss rates for these loans that include adjustments to scale

losses according to the proportion of total submitted collateral to the guaranteed amount as

provided for in the “Dollar Losses” column of the transformed worksheets in the Credit Loss Module

based on new data inputs required in the “Coefficients” worksheet of the Credit Loss Module. Then,

you must adjust the calculated loss rates as follows.

a. For loans in which the seller retains a subordinated interest, subtract from the total estimated ageadjusted dollar losses on the pool the amount equal to current unpaid principal times the subordinated

interest percentage.

b. Some pools of loans underlying specific transactions could include loan collateral volume pledged to

Farmer Mac in excess of Farmer Mac's guarantee amount (“overcollateral”). Overcollateral can be

either:

(i) Contractually required according to the terms of the transaction, or

(ii) not contractually required, but pledged in addition to the contractually required amount at the

discretion of the counterparty, often for purposes of administrative convenience regarding the

collateral substitution process, or

(iii) both (i) and (ii).

[14] The age of adjustment of 0.157178762 is determined from the beta distribution for a 4-year-old loan.

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 29 of 46
Loan

Origination

balance

Ageadjusted

loss rate

(percent)

Estimated ageadjusted losses

Guarantee amount

scaling adjustment

(2/2.2)

(Percent)

Losses adjusted

for overcollateral

1 $1,080,000 7.0 $75,600 90.91 $68,727

2 1,120,000 5.0 56,000 90.91 50,909

1. If a pool of loans includes collateral pledged in excess of the guaranteed amount, you

must adjust the age-adjusted, loan-level dollar losses by a factor equal to the ratio of the

guarantee amount to total submitted collateral. For example, consider a pool of two loans

serving as security for a Farmer Mac guarantee on a note with a total issuance face value

of $2 million and on which the counterparty has submitted 10-percent overcollateral. The

two loans in the example have the following characteristics and adjustments.

2. If a pool of loans includes collateral pledged in excess of the guaranteed amount that is

required under the terms of the transaction, you must further adjust the dollar losses as

follows. Calculate the total losses on the subject portfolio of loans after age adjustments

and any adjustments related to total submitted overcollateral as described in “1.” above.

Calculate the total dollar amount of contractually required overcollateral in the subject

pool. Subtract the total dollars of contractually required overcollateral from the adjusted

total losses on the subject pool. If the result is less than or equal to zero, input a loss rate

of zero for this transaction pool in the Data Inputs worksheet of the RBCST. A new

category must be created for each such transaction in the RBCST. If the loss rate after

subtracting contractually required overcollateral is greater than zero, proceed to additional

adjustment for the risk-reducing effects of the counterparty's general obligation described

in “3.” below.

3. Loans with a positive loss estimate remaining after adjustments in “1.” and “2.” above are

further adjusted for the security provided by the general obligation of the counterparty. To

make this adjustment in our example, multiply the estimated dollar losses remaining after

adjustments in “1.” and “2.” above by the appropriate general obligation adjustment (GOA)

factor based on the counterparty's whole-letter issuer credit rating by a nationally

recognized statistical rating organization (NRSRO) and the ratio of the counterparty's

concentration of risk in the same industry sector as the loans backing the AgVantage Plus

volume, as determined by the Director.

A. The Director will make final determinations of concentration ratios on a case-by-case

basis by using publicly reported data on counterparty portfolios, non-public data

submitted and certified by Farmer Mac as part of its RBCST submissions, and will

generally recognize rural electric cooperatives and rural telephone cooperatives as

separate rural utility sectors. The following table sets forth the GOA factors and their

components by whole-letter credit rating (Adjustment Factor = Default Rate × Severity

Rate × 3), which may be further adjusted for industry sector concentration by the

Director.

[15]

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 30 of 46
A B C D E F G

Whole-letter

rating

Default

rate

(percent)

Severity

rate

(percent)

V3.0 GOA

factor

(percent)

V4.0 GOA

factors (D ×

3)

(percent)

Concentration

ratio (e.g.,

25%)

(percent)

Factor with

concentration

adjustment

1−

((1−E) ×

(1−F))

(percent)

AAA 0.897 54 0.48 1.41 25.00 26.06

AA 2.294 54 1.24 3.70 25.00 27.78

A 2.901 54 1.57 5.13 25.00 28.84

BBB 7.061 54 3.82 11.48 25.00 33.61

Below BBB and

Unrated

26.827 54 14.50 44.52 25.00 58.39

Loan A Loan B

1 Guaranteed Volume $2,000,000

2 Origination Balance of 2-Loan Portfolio $1,080,000 $1,120,000

3 Age-Adjusted Loss Rate 7% 5%

4 Estimated Age-Adjusted Losses $75,600 $56,000

5 Guarantee Volume Scaling Factor 90.91% 90.91%

6 Losses Adjusted for Total Overcollateral $68,727 $50,909

B. The adjustment factors will be updated annually as Moody's annual report on Default

and Recovery Rates of Corporate Bond Issuers becomes available, normally in

January or February of each year. In the event that there is an interruption of Moody's

publication of this annual report, or FCA determines that the format of the report has

changed enough to prevent or call into question the identification of updated factors,

the prior year's factors will remain in effect until FCA revises the process through

rulemaking.

4. Continuing the previous example, the pool contains two loans on which Farmer Mac is

guaranteeing a total of $2 million and with total submitted collateral of 110 percent of the

guaranteed amount. Of the 10-percent total overcollateral, 5 percent is contractually

required under the terms of the transaction. The pool consists of two loans of slightly over

$1 million. Total overcollateral is $200,000 of which $100,000 is contractually required.

The counterparty has a single “A” credit rating, a 25-percent concentration ratio, and after

adjusting for contractually required overcollateral, estimated losses are greater than zero.

The net loss rate is calculated as described in the steps in the table below.

[15] Emery, K., Ou S., Tennant, J., Kim F., Cantor R., “Corporate Default and Recovery Rates, 1920—2007,”

published by Moody's Investors Service, February 2008—the most recent edition as of March 2008; Default

Rates, page 24, Recovery Rates (Severity Rate = 1 minus Senior Unsecured Average Recovery Rate) page 20.

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12 CFR 652.100 (enhanced display) page 31 of 46
Loan A Loan B

7 Contractually Required Overcollateral on Pool (5%) $100,000

8 Net Losses on Pool Adjusted for Contractually Required

Overcollateral

$19,636

9 GOA Factor for “A” Issuer with 25% Concentration Ratio 28.84%

10 Losses Adjusted for “A” General Obligation $5,664

11 Loss Rate Input in the RBCST for this Pool 0.28%

2.5 Calculation of Loss Rates for Use in the Stress Test for All Types of Loans, Except

Rural Utility Loans

2.6 Calculation of Loss Rates on Rural Utility Volume for-Use in the Stress Test

You must submit the outstanding principal, maturity date of the loan, maturity date of the AgVantage Plus contract

(if applicable), and the rural utility guarantee fee percentage for each loan in Farmer Mac's rural utility loan portfolio

on the date at which the stress test is conducted. You must multiply the rural utility guarantee fee by two to

calculate the loss rate on rural utility loans under stressful economic conditions and then multiply the loss rate by

the total outstanding principal. To arrive at the net rural utility loan losses, you must next apply the steps “5” through

“11” of section 2.4.b.4 of this Appendix. For loans under an AgVantage Plus-type structure, the calculated losses are

distributed over time on a straight-line basis. For loans that are not part of an AgVantage Plus-type structure, losses

are distributed over the 10-year modeling horizon, consistent with other non-AgVantage Plus loan volume.

3.0 Interest Rate Risk

The stress test explicitly accounts for Farmer Mac's vulnerability to interest rate risk from the movement in interest

rates specified in the statute. The stress test considers Farmer Mac's interest rate risk position through the current

structure of its balance sheet, reported interest rate risk shock-test results,[16] and other financial activities. The

stress test calculates the effect of interest rate risk exposure through market value changes of interest-bearing

A. The net, fully adjusted losses are distributed over time on a straight-line basis. When

a transaction reaches maturity within the 10-year modeling horizon, the losses are

distributed on a straightline over a timepath that ends in the year of the transaction's

maturity.

B. [Reserved]

a. You must compute the loss rates by state as the dollar weighted average seasoned loss rates from

the Cash Window and Standby loan portfolios by state. The spreadsheet entitled, “Credit Loss

Module.XLS” can be used for these calculations. This spreadsheet is available for download on our

Web site, www.fca.gov, or will be provided upon request. The blended loss rates for each state are

copied from the “Credit Loss Module” to the stress test spreadsheet for determining Farmer Mac's

regulatory capital requirement.

b. The stress test use of the blended loss rates is further discussed in section 4.3, “Risk Measures.”

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12 CFR 652.100 (enhanced display) page 32 of 46
assets, liabilities, and off-balance sheet transactions, and thereby the effects to equity capital. The stress test also

captures this exposure through the cashflows on rate-sensitive assets and liabilities. We discuss how to calculate

the dollar impact of interest rate risk in section 4.6, “Balance Sheets.”

3.1 Process for Calculating the Interest Rate Movement

Month end 10-year CMT monthly series

04/1999 5.18

05/1999 5.54

06/1999 5.90

Average 5.54

Month end 10-year CMT monthly series

07/1998 5.46

08/1998 5.34

09/1998 4.81

10/1998 4.53

11/1998 4.83

12/1998 4.65

01/1999 4.72

02/1999 5.00

03/1999 5.23

04/1999 5.18

a. The stress test uses the 10-year Constant Maturity Treasury (10-year CMT) released by the Federal

Reserve in HR. 15, “Selected Interest Rates.” The stress test uses the 10-year CMT to generate earnings

yields on assets, expense rates on liabilities, and changes in the market value of assets and liabilities. For

stress test purposes, the starting rate for the 10-year CMT is the 3-month average of the most recent

monthly rate series published by the Federal Reserve. The 3-month average is calculated by summing the

latest monthly series of the 10-year CMT and dividing by three. For instance, you would calculate the

initial rate on June 30, 1999, as:

b. The amount by which the stress test shocks the initial rate up and down is determined by calculating the

12-month average of the 10-year CMT monthly series. If the resulting average is less than 12 percent, the

stress test shocks the initial rate by an amount determined by multiplying the 12-month average rate by

50 percent. However, if the average is greater than or equal to 12 percent, the stress test shocks the initial

rate by 600 basis points. For example, determine the amount by which to increase and decrease the initial

rate for June 30, 1999, as follows:

[16] See paragraph c. of section 4.1 entitled, “Data Inputs,” for a description of the interest rate risk shockreporting requirement.

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 33 of 46
Month end 10-year CMT monthly series

05/1999 5.54

06/1999 5.90

12-Month Average 5.10

Calculation of shock amount

12-Month Average Less than 12% Yes.

12-Month Average 5.10.

Multiply the 12-Month Average by 50%.

Shock in basis points equals 255.

4.0 Elements Used in Generating Cashflows

c. You must run the stress test for two separate changes in interest rates:

(i) An immediate increase in the initial rate by the shock amount; and

(ii) immediate decrease in the initial rate by the shock amount. The stress test then holds the changed

interest rate constant for the remainder of the 10-year stress period. For example, at June 30, 1999,

the stress test would be run for an immediate and sustained (for 10 years) upward movement in

interest rates to 8.09 percent (5.54 percent plus 255 basis points) and also for an immediate and

sustained (for 10 years) downward movement in interest rates to 2.99 percent (5.54 percent minus

255 basis points). The movement in interest rates that results in the greatest need for capital is then

used to determine Farmer Mac's risk-based capital requirement.

a. This section describes the elements that are required for implementation of the stress test and

assessment of Farmer Mac capital performance through time. An Excel spreadsheet named FAMC

RBCST, available at http://www.fca.gov, contains the stress test, including the cashflow generator. The

spreadsheet contains the following seven worksheets:

(1) Data Input;

(2) Assumptions and Relationships;

(3) Risk Measures (credit risk and interest rate risk);

(4) Loan and Cash Flow Accounts;

(5) Income Statements;

(6) Balance Sheets; and

(7) Capital.

b. Each of the components is described in further detail below with references where appropriate to the

specific worksheets within the Excel spreadsheet. The stress test may be generally described as a set of

linked financial statements that evolve over a period of 10 years using generally accepted accounting

conventions and specified sets of stressed inputs. The stress test uses the initial financial condition of

Farmer Mac, including earnings and funding relationships, and the credit and interest rate stressed inputs

to calculate Farmer Mac's capital performance through time. The stress test then subjects the initial

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12 CFR 652.100 (enhanced display) page 34 of 46
4.1 Data Inputs

financial conditions to the first period set of credit and interest rate risk stresses, generates cashflows by

asset and liability category, performs necessary accounting postings into relevant accounts, and

generates an income statement associated with the first interval of time. The stress test then uses the

income statement to update the balance sheet for the end of period 1 (beginning of period 2). All

necessary capital calculations for that point in time are then performed.

c. The beginning of the period 2 balance sheet then serves as the departure point for the second income

cycle. The second period's cashflows and resulting income statement are generated in similar fashion as

the first period's except all inputs (i.e., the periodic loan losses, portfolio balance by category, and liability

balances) are updated appropriately to reflect conditions at that point in time. The process evolves

forward for a period of 10 years with each pair of balance sheets linked by an intervening set of cashflow

and income statements. In this and the following sections, additional details are provided about the

specification of the income-generating model to be used by Farmer Mac in calculating the risk-based

capital requirement.

The stress test requires the initial financial statement conditions and income generating relationships for

Farmer Mac. The worksheet named “Data Inputs” contains the complete data inputs and the data form

used in the stress test. The stress test uses these data and various assumptions to calculate pro forma

financial statements. For stress test purposes, Farmer Mac is required to supply:

a. Call Report Schedules RC: Balance Sheet and RI: Income Statement. These schedules form the starting

financial position for the stress test. In addition, the stress test calculates basic financial relationships

and assumptions used in generating pro forma annual financial statements over the 10-year stress

period. Financial relationships and assumptions are in section 4.2, “Assumptions and Relationships.”

b. Cashflow Data for Asset and Liability Account Categories. The necessary cashflow data for the

spreadsheet-based stress test are book value, weighted average yield, weighted average maturity,

conditional prepayment rate, weighted average amortization, and weighted average guarantee fees and

rural utility guarantee fees. The spreadsheet uses this cashflow information to generate starting and

ending account balances, interest earnings, guarantee fees, rural utility guarantee fees, and interest

expense. Each asset and liability account category identified in this data requirement is discussed in

section 4.2 “Assumptions and Relationships.”

c. Interest Rate Risk Measurement Results. The stress test uses the results from Farmer Mac's interest rate

risk model to represent changes in the market value of assets, liabilities, and off-balance sheet positions

during upward and downward instantaneous shocks in interest rates of 300, 250, 200, 150, and 100 basis

points. The stress test uses these data to calculate a schedule of estimated effective durations

representing the market value effects from a change in interest rates. The stress test uses a linear

interpolation of the duration schedule to relate a change in interest rates to a change in the market value

of equity. This calculation is described in section 4.4 entitled, “Loan and Cashflow Accounts,” and is

illustrated in the referenced worksheet of the stress test.

d. Loan-Level Data for all Farmer Mac I Program Assets.

(1) The stress test requires loan-level data for all Farmer Mac I program assets to determine lifetime

age-adjusted loss rates. The specific loan data fields required for running the credit risk component

are:

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Farmer Mac I Program Loan Data Fields

Loan Number

Ending Scheduled Balance

Group

Pre/Post Act

Property State

Product Type

Origination Date

Loan Cutoff Date

Original Loan Balance

Original Scheduled P&I

Original Appraised Value

Loan-to-Value Ratio

Debt-to-Assets Ratio

Current Assets

Current Liabilities

Total Assets

Total Liabilities

Gross Farm Revenue

Net Farm Income

Depreciation

Interest on Capital Debt

Capital Lease Payments

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Living Expenses

Income & FICA Taxes

Net Off-Farm Income

Total Debt Service

Guarantee/Commitment Fee

Seasoned Loan Flag

Condition Apply

1. Total Assets = 0 Proxy D/A.

2. Total Liabilities = 0 Proxy D/A.

3. Total assets less total liabilities <0 Proxy D/A.

4. Total debt service = 0 or not calculable Proxy DSCR.

5. Net farm income = 0 Proxy DSCR.

6. LTV ratio = 0 Proxy LTV.

7. Total assets less than original appraised value Proxy LTV, D/A.

8. Total liabilities less than the original loan amount Proxy D/A.

9. Total debt service is less than original scheduled principal and interest payment Proxy DSCR.

10. Depreciation, interest on capital debt, capital lease payments, or living expenses are

reported as less than zero

Proxy DSCR.

11. Original Scheduled Principal and Interest is greater than Total Debt Service Proxy DSCR.

12. Calculated LTV (original loan amount divided by original appraised value) does not

equal the submitted LTV ratio

The greater of

the two LTV

ratios.

13. Any of the fields referenced in “1.” through “12.” above are blank or contain spaces,

periods, zeros, negative amounts, or fonts formatted to any setting other than numbers

Proxy all related

ratios.

In addition, the following loan data adjustments must be made in response to the situations listed below:

Situation Data adjustment

Original loan balance is less than scheduled loan balance Substitute scheduled balance for

(2) From the loan-level data, you must identify the geographic distribution by state of Farmer Mac's loan

portfolio and enter the current loan balance for each state in the “Data Inputs” worksheet. The

lifetime age-adjustment of origination year loss rates was discussed in section 2.0, “Credit Risk.” The

lifetime age-adjusted loss rates are entered in the “Risk Measures” worksheet of the stress test. The

stress test application of the loss rates is discussed in section 4.3, “Risk Measures.”

(3) Under certain circumstances, described below, you must substitute the following data proxies for the

variables LTV, DSCR, and D/A: LTV = 0.70, DSCR = 1.25, and D/A = 0.50. The substitution must be

done whenever any of these data are missing, i.e., cells are blank, or one or more of the conditions in

the following table is true.

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Situation Data adjustment

origination.

Purchase (commitment) date (a.k.a. “cutoff” date) field and

Origination date field are both blank

Insert the quarter end “as of” date of the

RBCST submission.

Origination date field is blank Model based on Cutoff date.

Seasoned Standby loans that include loan data Proxy data applied.*

* Application of proxy data recognizes that underwriting data on seasoned Standby loans are not

reviewed by Farmer Mac in favor of other criteria and frequently not origination data.

Further, because it would not be possible to compile an exhaustive list of loan data anomalies, FCA reserves the

authority to require an explanation on other data anomalies it identifies and to apply the loan data proxies on such

cases until the anomaly is adequately addressed by the Corporation.

FCA Whole-Letter Credit Ratings Mapped to Rating Agency Credit Ratings

FCA Ratings Category AAA AA A BBB Below BBB and

Unrated.

Standard & Poor's LongTermAAA AA A BBB Below BBB and

Unrated.

Fitch Long-Term AAA AA A BBB Below BBB and

Unrated.

Standard & Poor's ShortTermA–1

+

SP–1

+

A–1

SP–1

A–2

SP–2

A–3 SP–3, B, or Below and

Unrated.

Fitch Short-Term F–1

+

F–1 F–2 F–3 Below F–3 and

Unrated.

Moody's PrimeMIG12

VMIg1

Prime-2 MIG2

VMIG2

Prime-3 MIG3

VMIG3

Not Prime, SG and

Unrated.

e. Loan-Level Data for All Rural Utility Program Volume. The stress test requires loan-level data for all rural

utility program volume. The specific loan data fields required for calculating the credit risk are outstanding

principal, maturity date of the loan, maturity date of the AgVantage Plus contract (if applicable), and the

rural utility guarantee fee percentage for each loan in Farmer Mac's rural utility loan portfolio on the date

at which the stress test is conducted.

f. Weighted Haircuts for Non-Program Investments. For non-program investments, the stress test adjusts the

weighted average yield data referenced in section 4.1.b. to reflect counterparty risk. Non-program

investments are defined in § 652.5. The Corporation must calculate the haircut to be applied to each

investment based on the lowest whole-letter credit rating the investment received from an NRSRO using

the haircut levels in effect at the time. Haircut levels shall be the same amounts calculated for the GOA

factor in section 2.4.b.3 above. The first table provides the mappings of NRSRO ratings to whole-letter

ratings for purposes of applying haircuts. Any “ + ” or “−” signs appended to NRSRO ratings that are not

shown in the table should be ignored for purposes of mapping NRSRO ratings to FCA whole-letter ratings.

The second table provides the haircut levels by whole-letter rating category.

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Fitch Bank Ratings A B

A/B

C

B/C

D

C/D

E.

D/E.

Moody's Bank Financial

Strength Rating

A B C D E.

Farmer Mac RBCST Maximum Haircut by Ratings Classification

Ratings classification

Non-program

investment

counterparties (excluding

derivatives)

(percent)

Cash 0.00

AAA 1.41

AA 3.70

A 5.13

BBB 11.48

Below BBB or Unrated 44.52

4.2 Assumptions and Relationships

1. Certain special cases will receive the following treatment. For an investment structured as a

collateralized obligation backed by the issuer's general obligation and, in turn, a pool of collateral,

reference the Issuer Rating or Financial Strength Rating of that issuer as the credit rating applicable

to the security. Unrated securities that are fully guaranteed by Government-sponsored enterprises

(GSE) such as the Federal National Mortgage Corporation (Fannie Mae) will receive the same

treatment as AAA securities. Unrated securities backed by the full faith and credit of the U.S.

Government will not receive a haircut. Unrated securities that are not fully guaranteed by a GSE will

receive the haircut level in place at that time for “Below BBB and Unrated” investments unless the

Director, at the Director's discretion, determines to apply a lesser haircut. In making this

determination, the Director will consider the risk characteristics associated with the structure of

individual instruments.

2. If portions of investments are later sold by Farmer Mac according to their specific risk

characteristics, the Director will take reasonable measures to adjust the haircut level applied to the

investment to recognize the change in the risk characteristics of the retained portion. The Director

will consider relevant similar methods for dealing with capital requirements adopted by other Federal

financial institution regulators in similar situations.

3. Individual investment haircuts must then be aggregated into weighted-average haircuts by

investment category and submitted in the “Data Inputs” worksheet. The spreadsheet uses these

inputs to reduce the weighted-average yield on the investment category to account for counterparty

insolvency according to a 10-year linear phase-in of the haircuts. Each asset account category

identified in this data requirement is discussed in section 4.2, “Assumptions and Relationships.”

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 39 of 46
a. The stress test assumptions are summarized on the worksheet called “Assumptions and Relationships.”

Some of the entries on this page are direct user entries. Other entries are relationships generated from

data supplied by Farmer Mac or other sources as discussed in section 4.1, “Data Inputs.” After current

financial data are entered, the user selects the date for running the stress test. This action causes the

stress test to identify and select the appropriate data from the “Data Inputs” worksheet. The next section

highlights the degree of disaggregation needed to maintain reasonably representative financial

characterizations of Farmer Mac in the stress test. Several specific assumptions are established about

the future relationships of account balances and how they evolve.

b. From the data and assumptions, the stress test computes pro forma financial statements for 10 years.

The stress test must be run as a “steady state” with regard to program balances (with the exception of

AgVantage Plus volume, in which case maturities are recognized by the model), and where possible, will

use information gleaned from recent financial statements and other data supplied by Farmer Mac to

establish earnings and cost relationships on major program assets that are applied forward in time. As

documented in the stress test, entries of “1” imply no growth and/or no change in account balances or

proportions relative to initial conditions with the exception of pre-1996 loan volume being transferred to

post-1996 loan volume. The interest rate risk and credit loss components are applied to the stress test

through time. The individual sections of that worksheet are:

(1) Elements related to cashflows, earnings rates, and disposition of discontinued program assets.

(A) The stress test accounts for earnings rates by asset class and cost rates on funding. The stress

test aggregates investments into the categories of: Cash and money market securities;

commercial paper; certificates of deposit; agency mortgage-backed securities and

collateralized mortgage obligations; and other investments. With FCA's concurrence, Farmer

Mac is permitted to further disaggregate these categories. Similarly, we may require new

categories for future activities to be added to the stress test. Loan items requiring separate

accounts include the following:

(i) Farmer Mac I program assets post-1996 Act;

(ii) Farmer Mac I program assets post-1996 Act Swap balances;

(iii) Farmer Mac I program assets pre-1996 Act;

(iv) Farmer Mac I AgVantage securities;

(v) Loans held for securitization;

(vi) Farmer Mac II program assets; and

(vii) Rural Utility program volume on balance sheet.

(B) The stress test also uses data elements related to amortization and prepayment experience to

calculate and process the implied rates at which asset and liability balances terminate or “roll

off” through time. Further, for each category, the stress test has the capacity to track account

balances that are expected to change through time for each of the above categories. For

purposes of the stress test, all assets are assumed to maintain a “steady state” with the

implication that any principal balances retired or prepaid are replaced with new balances. The

exceptions are that expiring pre-1996 Act program assets are replaced with post-1996 Act

program assets and AgVantage Plus volume maturities are recognized by the model.

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12 CFR 652.100 (enhanced display) page 40 of 46
(2) Elements related to other balance sheet assumptions through time. As well as interest earning

assets, the other categories of the balance sheet that are modeled through time include interest

receivable, guarantee fees receivable, rural utility guarantee fees receivable, prepaid expenses,

accrued interest payable, accounts payable, accrued expenses, reserves for losses (loans held and

guaranteed securities), and other off-balance sheet obligations. The stress test is consistent with

Farmer Mac's existing reporting categories and practices. If reporting practices change substantially,

the above list will be adjusted accordingly. The stress test has the capacity to have the balances in

each of these accounts determined based upon existing relationships to other earning accounts, to

keep their balances either in constant proportions of loan or security accounts, or to evolve

according to a user-selected rule. For purposes of the stress test, these accounts are to remain

constant relative to the proportions of their associated balance sheet accounts that generated the

accrued balances.

(3) Elements related to income and expense assumptions. Several other parameters that are required to

generate pro forma financial statements may not be easily captured from historic data or may have

characteristics that suggest that they be individually supplied. These parameters are the gain on

agricultural mortgage-backed securities (AMBS) sales, miscellaneous income, operating expenses,

reserve requirement, guarantee fees, rural utility guarantee fees, and loan loss resolution timing.

(A) The stress test applies the actual weighted average gain rate on sales of AMBS over the most

recent 3 years to the dollar amount of AMBS sold during the most recent four quarters in order

to estimate gain on sale of AMBS over the stress period.

(B) The stress test assumes miscellaneous income at a level equal to the average of the most

recent 3-year's actual miscellaneous income as a percent of the sum of; cash, investments,

guaranteed securities, and loans held for investment.

(C) The stress test assumes that short-term cost of funds is incurred in relation to the amount of

defaulting loans purchased from off-balance sheet pools. The remaining unpaid principal

balance on this loan volume is the origination amount reduced by the proportion of the total

portfolio that has amortized as of the end of the most recent quarter. This volume is assumed

to be funded at the short-term cost of funds and this expense continues for a period equal to

the loan loss resolution timing period (LLRT) period minus 1. We will calculate the LLRT period

from Farmer Mac data. In addition, during the LLRT period, all guarantee income associated

with the loan volume ceases.

(D) The stress test generates no interest income on the estimated volume of defaulted on-balance

sheet loan volume required to be carried during the LLRT period, but continues to accrue

funding costs during the remainder of the LLRT period.

(E) You must update the LLRT period in response to changes in the Corporation's actual experience

with each quarterly submission.

(F) Operating costs are determined in the model using weighted moving average of operating

expenses as a percentage of the sum of on-balance sheet assets and off-balance sheet

program activities over the previous four quarters inclusive of the current submission date. The

share will then be applied forward to the balances of the same categories throughout the

10-year period of the RBCST model. As additional data accumulate, the specification will be reexamined and modified if we deem changing the specification results in a more appropriate

representation of operating expenses.

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 41 of 46
Fixed Spread = Weighted Average Yield less 10-year CMT 0.014 = 0.0694—0.0554

Yield = Fixed Spread + 10-year CMT .0994 = .014 + .0854

(G) The reserve requirement as a fraction of loan assets can also be specified. However, the stress

test is run with the reserve requirement set to zero. Setting the parameter to zero causes the

stress test to calculate a risk-based capital level that is comparable to regulatory capital, which

includes reserves. Thus, the risk-based capital requirement contains the regulatory capital

required, including reserves. The amount of total capital that is allocated to the reserve account

is determined by GAAP. The stress test applies quarterly updates of the weighted average

guarantee rates for post-1996 Farmer Mac I assets, pre-1996 Farmer Mac I assets, and Farmer

Mac II assets.

(4) Elements related to earnings rates and funding costs.

(A) The stress test can accommodate numerous specifications of earnings and funding costs. In

general, both relationships are tied to the 10-year CMT interest rate. Specifically, each

investment account, each loan item, and each liability account can be specified as fixed rate, or

fixed spread to the 10-year CMT with initial rates determined by actual data. The stress test

calculates specific spreads (weighted average yield less initial 10-year CMT) by category from

the weighted average yield data supplied by Farmer Mac as described earlier. For example, the

fixed spread for Farmer Mac I program post-1996 Act mortgages is calculated as follows:

(B) The resulting fixed spread of 1.40 percent is then added to the 10-year CMT when it is shocked

to determine the new yield. For instance, if the 10-year CMT is shocked upward by 300 basis

points, the yield on Farmer Mac I program post-1996 Act loans would change as follows:

(C) The adjusted yield is then used for income calculations when generating pro forma financial

statements. All fixed-spread asset and liability classes are computed in an identical manner

using starting yields provided as data inputs from Farmer Mac. The fixed-yield option holds the

starting yield data constant for the entire 10-year stress test period. You must run the stress

test using the fixed-spread option for all accounts except for discontinued program activities,

such as Farmer Mac I program loans made before the 1996 Act. For discontinued loans, the

fixed-rate specification must be used if the loans are primarily fixed-rate mortgages.

(5) Elements related to interest rate shock test. As described earlier, the interest rate shock test is

implemented as a single set of forward interest rates. The stress test applies the up-rate scenario

and down-rate scenario separately. The stress test also uses the results of Farmer Mac's shock test,

as described in paragraph c. of section 4.1, “Data Inputs,” to calculate the impact on equity from a

stressful change in interest rates as discussed in section 3.0 titled, “Interest Rate Risk.” The stress

test uses a schedule relating a change in interest rates to a change in the market value of equity. For

instance, if interest rates are shocked upward so that the percentage change is 262 basis points, the

linearly interpolated effective estimated duration of equity is −6.7405 years given Farmer Mac's

interest rate measurement results at 250 and 300 basis points of −6.7316 and 76.7688 years,

respectively found on the effective duration schedule. The stress test uses the linearly interpolated

estimated effective duration for equity to calculate the market value change by multiplying duration

by the base value of equity before any rate change from Farmer Mac's interest rate risk

measurement results with the percentage change in interest rates.

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 42 of 46
4.3 Risk Measures

4.4 Loan and Cashflow Accounts

The worksheet labeled “Loan and Cashflow Data” contains the categorized loan data and cashflow accounting

relationships that are used in the stress test to generate projections of Farmer Mac's performance and condition.

The steady-state formulation results in account balances that remain constant except for the effects of

discontinued programs, maturing AgVantage Plus positions, and the LLRT adjustment. For assets with maturities

under 1 year, the results are reported for convenience as though they matured only one time per year with the

additional convention that the earnings/cost rates are annualized. For the pre-1996 Act assets, maturing balances

are added back to post-1996 Act account balances. The liability accounts are used to satisfy the accounting

identity, which requires assets to equal liabilities plus owner equity. In addition to the replacement of maturities

under a steady state, liabilities are increased to reflect net losses or decreased to reflect resulting net gains.

Adjustments must be made to the long- and short-term debt accounts to maintain the same relative proportions as

existed at the beginning period from which the stress test is run with the exception of changes associated with the

funding of defaulted loans during the LLRT period. The primary receivable and payable accounts are also

maintained on this worksheet, as is a summary balance of the volume of loans subject to credit losses.

a. This section describes the elements of the stress test in the worksheet named “Risk Measures” that

reflect the interest rate shock and credit loss requirements of the stress test.

b. As described in section 3.1, the stress test applies the statutory interest rate shock to the initial 10-year

CMT rate. It then generates a series of fixed annual interest rates for the 10-year stress period that serve

as indices for earnings yields and cost of funds rates used in the stress test. (See the “Risk Measures”

worksheet for the resulting interest rate series used in the stress test.)

c. The Credit Loss Module's state-level loss rates, as described in section 2.4 entitled, “Calculation of Loss

Rates for Use in the Stress Test,” are entered into the “Risk Measures” worksheet and applied to the loan

balances that exist in each state. The distribution of loan balances by state is used to allocate new loans

that replace loan products that roll off the balance sheet through time. The loss rates are applied both to

the initial volume and to new loan volume that replaces expiring loans. The total life of loan losses that

are expected at origination are then allocated through time based on a set of user entries describing the

time-path of losses.

d. The loss rates estimated in the credit risk component of the stress test are based on an origination year

concept, adjusted for loan seasoning. All losses arising from loans originated in a particular year are

expressed as lifetime age-adjusted losses irrespective of when the losses actually occur. The fraction of

the origination year loss rates that must be used to allocate losses through time are 43 percent to year 1,

17 percent to year 2, 11.66 percent to year 3, and 4.03 percent for the remaining years. The total allocated

losses in any year are expressed as a percent of loan volume in that year to reflect the conversion to

exposure year.

e. The credit loss exposure on rural utility volume, described in section 2.6, “Calculation of Loss Rates on

Rural Utility Volume for Use in the Stress Test,” is entered into the “Risk Measures” worksheet applied to

the volume balance. All losses arising from rural utility loans are expressed as annual loss rates and

distributed over the weighted average maturity of the rural utility AgVantage Plus Volume, or as annual

loss across the full 10-year modeling horizon in the case of rural utility Cash Window loans.

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12 CFR 652.100

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4.5 Income Statements

4.6 Balance Sheets

a. Information related to income performance through time is contained on the worksheet named “Income

Statements.” Information from the first period balance sheet is used in conjunction with the earnings and

cost-spread relationships from Farmer Mac supplied data to generate the first period's income statement.

The same set of accounts is maintained in this worksheet as “Loan and Cashflow Accounts” for

consistency in reporting each annual period of the 10-year stress period of the test with the exception of

the line item labeled “Interest reversals to carry loan losses” which incorporates the LLRT adjustment to

earnings from the “Risk Measures” worksheet. Loans that defaulted do not earn interest or guarantee and

commitment fees during LLRT period. The income from each interest-bearing account is calculated, as

are costs of interest-bearing liabilities. In each case, these entries are the associated interest rate for that

period multiplied by the account balances.

b. The credit losses described in section 2.0, “Credit Risk,” are transmitted through the provision account, as

is any change needed to re-establish the target reserve balance. For determining risk-based capital, the

reserve target is set to zero as previously indicated in section 4.2. Under the income tax section, it must

first be determined whether it is appropriate to carry forward tax losses or recapture tax credits. The tax

section then establishes the appropriate income tax liability that permits the calculation of final net

income (loss), which is credited (debited) to the retained earnings account.

a. The worksheet named “Balance Sheets” is used to construct pro forma balance sheets from which the

capital calculations can be performed. As can be seen in the Excel spreadsheet, the worksheet is

organized to correspond to Farmer Mac's normal reporting practices. Asset accounts are built from the

initial financial statement conditions, and loan and cashflow accounts. Liability accounts including the

reserve account are likewise built from the previous period's results to balance the asset and equity

positions. The equity section uses initial conditions and standard accounts to monitor equity through

time. The equity section maintains separate categories for increments to paid-in-capital and retained

earnings and for mark-to-market effects of changes in account values. The process described below in

the “Capital” worksheet uses the initial retained earnings and paid-in-capital account to test for the

change in initial capital that permits conformance to the statutory requirements. Therefore, these

accounts must be maintained separately for test solution purposes.

b. The market valuation changes due to interest rate movements must be computed utilizing the linearly

interpolated schedule of estimated equity effects due to changes in interest rates, contained in the

“Assumptions & Relationships” worksheet. The stress test calculates the dollar change in the market

value of equity by multiplying the base value of equity before any rate change from Farmer Mac's interest

rate risk measurement results, the linearly interpolated estimated effective duration of equity, and the

percentage change in interest rates. In addition, the earnings effect of the measured dollar change in the

market value of equity is estimated by multiplying the dollar change by the blended cost of funds rate

found on the “Assumptions & Relationships” worksheet. Next, divide by 2 the computed earnings effect to

approximate the impact as a theoretical shock in the interest rates that occurs at the mid-point of the

income cycle from period t0 to period t1. The measured dollar change in the market value of equity and

related earnings effect are then adjusted to reflect any tax-related benefits. Tax adjustments are

determined by including the measured dollar change in the market value of equity and the earnings effect

in the tax calculations found in the “Income Statements” worksheet. This approach ensures that the value

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 44 of 46
4.7 Capital

The “Capital” worksheet contains the results of the required capital calculations as described below, and provides a

method to calculate the level of initial capital that would permit Farmer Mac to maintain positive capital throughout

the 10-year stress test period.

5.0 Capital Calculation

of equity reflects the economic loss or gain in value of Farmer Mac's capital position from a change in

interest rates and reflects any immediate tax benefits that Farmer Mac could realize. Any tax benefits in

the module are posted through the income statement by adjusting the net taxes due before calculating

final net income. Final net income is posted to accumulated unretained earnings in the shareholders'

equity portion of the balance sheet. The tax section is also described in section 4.5 entitled, “Income

Statements.”

c. After one cycle of income has been calculated, the balance sheet as of the end of the income period is

then generated. The “Balance Sheet” worksheet shows the periodic pro forma balance sheets in a format

convenient to track capital shifts through time.

d. The stress test considers Farmer Mac's balance sheet as subject to interest rate risk and, therefore, the

capital position reflects mark-to-market changes in the value of equity. This approach ensures that the

stress test captures interest rate risk in a meaningful way by addressing explicitly the loss or gain in value

resulting from the change in interest rates required by the statute.

a. The stress test computes regulatory capital as the sum of the following:

(1) The par value of outstanding common stock;

(2) The par value of outstanding preferred stock;

(3) Paid-in capital;

(4) Retained earnings; and

(5) Reserve for loan and guarantee losses.

b. Inclusion of the reserve account in regulatory capital is an important difference compared to minimum

capital as defined by the statute. Therefore, the calculation of reserves in the stress test is also important

because reserves are reduced by loan and guarantee losses. The reserve account is linked to the income

statement through the provision for loan-loss expense (provision). Provision expense reflects the amount

of current income necessary to rebuild the reserve account to acceptable levels after loan losses reduce

the account or as a result of increases in the level of risky mortgage positions, both on- and off-balance

sheet. Provision reversals represent reductions in the reserve levels due to reduced risk of loan losses or

loan volume of risky mortgage positions. The liabilities section of the “Balance Sheets” worksheet also

includes separate line items to disaggregate the Guarantee and commitment obligation related to the

Financial Accounting Standards Board Accounting Standards Codification Topic 460, Guarantees. This

item is disaggregated to permit accurate calculation of regulatory capital post-adoption of FIN 45. When

calculating the stress test, the reserve is maintained at zero to result in a risk-based capital requirement

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Federal Agricultural Mortgage Corporation Funding and Fiscal Affairs

12 CFR 652.100

12 CFR 652.100 (enhanced display) page 45 of 46
5.1 Method of Calculation

[71 FR 77253, Dec. 26, 2006, as amended at 73 FR 31940, June 5, 2008; 76 FR 23467, Apr. 27, 2011; 78 FR 21037, Apr. 9, 2013]

that includes reserves, thereby making the requirement comparable to the statutory definition of

regulatory capital. By setting the reserve requirement to zero, the capital position includes all financial

resources Farmer Mac has at its disposal to withstand risk.

a. Risk-based capital is calculated in the stress test as the minimum initial capital that would permit Farmer

Mac to remain solvent for the ensuing 10 years. To this amount, an additional 30 percent is added to

account for managerial and operational risks not reflected in the specific components of the stress test.

b. The relationship between the solvency constraint (i.e., future capital position not less than zero) and the

risk-based capital requirement reflects the appropriate earnings and funding cost rates that may vary

through time based on initial conditions. Therefore, the minimum capital at a future point in time cannot

be directly used to determine the risk-based capital requirement. To calculate the risk-based capital

requirement, the stress test includes a section to solve for the minimum initial capital value that results in

a minimum capital level over the 10 years of zero at the point in time that it would actually occur. In

solving for initial capital, it is assumed that reductions or additions to the initial capital accounts are made

in the retained earnings accounts, and balanced in the debt accounts at terms proportionate to initial

balances (same relative proportion of long- and short-term debt at existing initial rates). Because the

initial capital position affects the earnings, and hence capital positions and appropriate discount rates

through time, the initial and future capital are simultaneously determined and must be solved iteratively.

The resulting minimum initial capital from the stress test is then reported on the “Capital” worksheet of

the stress test. The “Capital” worksheet includes an element that uses Excel's “solver” or “goal seek”

capability to calculate the minimum initial capital that, when added (subtracted) from initial capital and

replaced with debt, results in a minimum capital balance over the following 10 years of zero.

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12 CFR 652.100

12 CFR 652.100 (enhanced display) page 46 of 46
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 653 Federal Agricultural Mortgage Corporation Risk Management

§ 653.1 Definitions.

§ 653.2 General.

§ 653.3 Risk management.

§ 653.4 Internal controls.

PART 653—FEDERAL AGRICULTURAL MORTGAGE CORPORATION

RISK MANAGEMENT

Authority: Secs. 8.3, 8.4, 8.6, 8.8, and 8.10 of Pub. L. 92–181, 85 Stat. 583 (12 U.S.C. 2279aa–3, 2279aa–4,

2279aa–6, 2279aa–8, and 2279aa–10).

Source: 81 FR 49154, July 27, 2016, unless otherwise noted.

§ 653.1 Definitions.

The following definitions apply to this part:

§ 653.2 General.

The Corporation's board of directors must approve the overall risk-appetite of the Corporation and regularly monitor

internal controls to provide reasonable assurance that risk-taking activities are conducted in a safe and sound

manner.

§ 653.3 Risk management.

This content is from the eCFR and is authoritative but unofficial.

Corporation means the Federal Agricultural Mortgage Corporation and its affiliates.

FCA means the Farm Credit Administration, an independent Federal agency of the executive branch.

OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of

the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws

and regulations.

(a) Risk management program. The Corporation's board of directors must establish, maintain, and periodically

update an enterprise-wide risk management program addressing how the Corporation's activities are

exercised in a safe and sound manner. The implementation of the risk management program may reside

with senior management. The risk management program at a minimum must:

12 CFR Part 653 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Risk Management 12 CFR Part 653 (Mar. 7, 2024)

12 CFR 653.3(a) (enhanced display) page 1 of 3
§ 653.4 Internal controls.

(1) Periodically assess and document the Corporation's risk profile.

(2) Align the Corporation's risk profile with the board-approved risk appetite and the Corporation's

operational planning strategies and objectives.

(3) Specify management's authority to carry out risk management responsibilities.

(4) Integrate risk management and control objectives into management goals and compensation

structures.

(5) Comply with all applicable FCA regulations and policies.

(b) Risk committee. The Corporation's board-level risk committee assists the full board of directors in the

oversight of the enterprise-wide risk management program of the Corporation.

(1) The risk committee must have at least one member with an understanding of risk management

commensurate with the Corporation's capital structure, risk profile, complexity, activities, size, and

other appropriate risk-related factors.

(2) The responsibilities of the risk committee include, but are not limited to:

(i) Periodically assessing management's implementation of the enterprise-wide risk management

program;

(ii) Recommending changes to the risk management program to keep the program commensurate

with the Corporation's capital structure, risk appetite, complexity, activities, size, and other

appropriate risk-related factors; and

(iii) Receiving and reviewing regular reports directly from personnel responsible for implementing

the Corporation's risk management program.

(c) Management of risk. The Corporation must have a risk officer, however styled, who is responsible for

implementing and maintaining the enterprise-wide risk management practices of the Corporation. The

risk officer must have risk management experience commensurate with the Corporation's capital

structure, risk appetite, complexity, activities, and size. The responsibilities of the risk officer include, but

are not limited to:

(1) Identifying and monitoring compliance with risk limits, exposures, and controls;

(2) Implementing risk management policies, procedures, and risk controls;

(3) Developing appropriate processes and systems for identifying and reporting risks, including

emerging risks;

(4) Reporting on risk management issues, emerging risks, and compliance concerns; and

(5) Making recommendations on adjustments to the risk management policies, procedures, and risk

controls of the Corporation.

(a) The Corporation's board of directors must adopt an internal controls policy that provides adequate

directions for, and identifies expectations in, establishing effective safety and soundness control over, and

accountability for, the Corporation's operations, programs, and resources.

(b) The internal controls system must address:

12 CFR Part 653 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Risk Management 12 CFR 653.3(a)(1)

12 CFR 653.4(b) (enhanced display) page 2 of 3
(1) The efficiency and effectiveness of the Corporation's activities;

(2) Safeguarding the assets of the Corporation;

(3) Evaluating the reliability, completeness, and timely reporting of financial and management

information;

(4) Compliance with applicable laws, regulations, regulatory directives, and the policies of the

Corporation's board of directors and senior management;

(5) The appropriate segregation of duties among the Corporation personnel so that personnel are not

assigned conflicting responsibilities; and

(6) The completeness and quality of information provided to the Corporation's board of directors.

(c) The Corporation is responsible for establishing and implementing an effective system to identify internal

controls weaknesses and taking action to correct detected weaknesses. The Corporation must document:

(1) The process used to identify weaknesses,

(2) Any found weaknesses, and

(3) How identified weaknesses were addressed.

12 CFR Part 653 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Risk Management 12 CFR 653.4(b)(1)

12 CFR 653.4(c)(3) (enhanced display) page 3 of 3
Title 12 —Banks and Banking

Chapter VI —Farm Credit Administration

Subchapter B —Farm Credit System

Part 655 Federal Agricultural Mortgage Corporation Disclosure and Reporting

Requirements

Subpart A General

§ 655.1 Definitions.

Subpart B Reports of Condition of the Federal Agricultural Mortgage Corporation

§ 655.10 Reports of condition.

§ 655.15 Interim reports, notices, and proxy statements.

Subpart C Reports Relating to Securities Activities of the Federal Agricultural

Mortgage Corporation

§ 655.20 Securities not registered under the Securities Act.

§ 655.21 Filings and communications with the U.S. Treasury, the SEC, and NYSE.

PART 655—FEDERAL AGRICULTURAL MORTGAGE CORPORATION

DISCLOSURE AND REPORTING REQUIREMENTS

Authority: Secs. 5.9, 8.3, 8.11, and 8.12 of Pub. L. 92–181, 85 Stat. 583 (12 U.S.C. 2243, 2279aa–3, 2279aa–11,

2279aa–12).

Source: 81 FR 49155, July 27, 2016, unless otherwise noted.

Subpart A—General

§ 655.1 Definitions.

The following definitions apply to this part:

This content is from the eCFR and is authoritative but unofficial.

Act or authorizing statute means the Farm Credit Act of 1971, as amended.

Business day means a day the Corporation is open for business, excluding the legal public holidays identified in

5 U.S.C. 6103(a).

Corporation means the Federal Agricultural Mortgage Corporation and its affiliates.

FCA means the Farm Credit Administration, an independent Federal agency of the executive branch.

Material, when used to qualify a requirement to furnish information as to any subject, means the information

required for those matters to which there is a substantial likelihood that a reasonable person would attach

importance in making investor decisions or determining the financial condition of the Corporation.

12 CFR Part 655 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Disclosure and Reporting... 12 CFR Part 655 (Mar. 7, 2024)

12 CFR 655.1 “Material” (enhanced display) page 1 of 4
Subpart B—Reports of Condition of the Federal Agricultural Mortgage Corporation

§ 655.10 Reports of condition.

[81 FR 49155, July 27, 2016, as amended at 86 FR 27798, May 24, 2021]

NYSE means the New York Stock Exchange, a listing exchange.

OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of

the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws

and regulations.

Our or us means the FCA or OSMO, as appropriate to the context of the provision employing the term.

Person means individual or entity.

SEC means the Securities and Exchange Commission.

Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et seq.) or the Exchange Act of 1934 (15 U.S.C.

78a et seq., or both, as appropriate to the context of the provision employing the term.

Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means

marked in a manner that authenticates each signer's identity.

(a) General. The Corporation must prepare and publish annual reports to its shareholders of its condition,

including financial statements and related schedules, exhibits, and other documents that are part of the

reports. The contents of each report must be equivalent in content to the annual report to shareholders

required by the Securities Act unless we issue instructions otherwise.

(b) Signatures and certification. Each report issued under this subpart must be signed. The Corporation must

designate the representatives who will sign each report. The name and position title of each person

signing the report must be printed beneath his or her signature. The signatories must certify the report by

using the SEC rules on certifications for disclosures in annual reports to shareholders.

(c) Distribution. The Corporation must distribute the signed annual report of condition to its shareholders

within 120 days of its fiscal year-end. Within 5 days of signing, the Corporation must provide to us an

electronic copy of every signed report that is distributed to its shareholders. If it is impossible to provide

an electronic copy, a paper copy must be submitted within the required time frame and an electronic copy

as soon as possible after that.

(1) The Corporation must publish on its Web site a copy of each annual report to shareholders within 3

business days of filing the report with us. The report must remain on the Web site until the next

report is posted. When the reports are the same as those filed with the SEC, electronic links to the

SEC filings Web site may be used in satisfaction of this requirement.

(2) Upon receiving a request for an annual report of condition from a stockholder, investor, or the public,

the Corporation must promptly provide the requester the most recent annual report issued in

compliance with this section.

12 CFR Part 655 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Disclosure and Reporting... 12 CFR 655.1 “NYSE”

12 CFR 655.10(c)(2) (enhanced display) page 2 of 4
§ 655.15 Interim reports, notices, and proxy statements.

[81 FR 49155, July 27, 2016, as amended at 86 FR 27798, May 24, 2021]

Subpart C—Reports Relating to Securities Activities of the Federal Agricultural Mortgage

Corporation

§ 655.20 Securities not registered under the Securities Act.

The Corporation must make special filings with the Director of OSMO for securities either issued or guaranteed by

the Corporation that are not registered under the Securities Act. These filings include, but are not limited to:

§ 655.21 Filings and communications with the U.S. Treasury, the SEC, and NYSE.

(a) The Corporation must provide to us an electronic copy of every interim report, notice, and proxy statement

filed with the SEC within 1 business day of filing the item with the SEC, including all papers and

documents that are a part of the report, notice, or statement. If it is impossible to provide an electronic

copy, a paper copy must be submitted within the required time frame and an electronic copy as soon as

possible after that.

(b) The Corporation must publish a copy of each interim report, notice, and proxy statement on its Web site

within 5 business days of filing the document(s) with the SEC. The Corporation may omit from these

postings confidential, non-public information contained in the interim report, notice, or proxy statement.

The interim report, notice, or proxy statement must remain on the Web site for 6 months or until the next

annual report of condition is posted, whichever is later. Electronic links to the SEC filings Web site may be

used in satisfaction of this requirement.

(a) Either one paper or one electronic copy of any offering circular, private placement memorandum, or

information statement prepared in connection with the securities offering at or before the time of the

securities offering.

(b) For securities backed by qualified loans as defined in section 8.0(9)(A) of the Act, either one paper or one

electronic copy of the following within 1 business day of the finalization of the transaction:

(1) The private placement memoranda for securities sold to investors; and

(2) The final agreement and all supporting documents material to the Corporation's purchase of a

security under section 8.6(e) of the Act.

(c) For securities backed by qualified loans as defined in section 8.0(9)(B) of the Act, the Corporation must

provide summary information on such securities issued during each calendar quarter in the form

prescribed by us. Such summary information must be provided with each report of condition and

performance (Call report) filed pursuant to § 621.12, and at such other times as we may require.

(a) The Corporation must send us an electronic copy of every filing made with U.S. Treasury, the SEC, or

NYSE, including financial statements and related schedules, exhibits, and other documents that are a part

of the filing. Such items must be filed with us no later than 1 business day after the U.S. Treasury, SEC, or

NYSE filing. For those filings with the NYSE that duplicate ones made to the SEC, the Corporation may

send only the SEC filing to us. If the filing is one addressed in subpart B of this part, no action under this

paragraph is required. If it is impossible to provide an electronic copy, a paper copy must be submitted

within the required time frame and an electronic copy as soon as possible after that.

12 CFR Part 655 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Disclosure and Reporting... 12 CFR 655.15

12 CFR 655.21(a) (enhanced display) page 3 of 4
[81 FR 49155, July 27, 2016, as amended at 86 FR 27798, May 24, 2021]

(b) The Corporation must send us, within 3 business days and according to instructions provided by us,

electronic copies of all substantive correspondence between the Corporation and the U.S. Treasury, the

SEC, or NYSE that are directed at the activities of the Corporation.

(c) The Corporation must notify us within 1 business day if it becomes exempt or claims exemption from the

filing requirements of the Securities Act. Notice is not required when the Corporation claims an exemption

that is generally available under SEC rules and regulations to similarly situated filers.

12 CFR Part 655 (up to date as of 3/07/2024)

Federal Agricultural Mortgage Corporation Disclosure and Reporting... 12 CFR 655.21(b)

12 CFR 655.21(c) (enhanced display) page 4 of 4