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).

Subpart A – Farm Credit Administration

§ 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 The prior laws, which were repealed and superseded by the Act, are 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]

§ 600.2 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: 

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 75602-3906

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

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

[70 FR 69644, Nov. 17, 2005, as amended at 80 FR 15680, Mar. 25, 2015; 80 FR 40897, July 14, 2015; 

81 FR 47691, July 22, 2016]
FCA Regulations (as of 2/24/17) 2

§ 600.3 Farm Credit Administration Board.

(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.

[70 FR 69645, Nov. 17, 2005]

§ 600.4 Organization of the Farm Credit Administration.

(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.

(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 Management Services, 

Examination, Regulatory Policy, 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, 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 
FCA Regulations (as of 2/24/17) 3

resources. It also oversees the Agency's travel management, internal controls, and personnel security 

programs.

(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 General Counsel. The Office of General Counsel provides legal advice and 

services to the FCA Chairman, the FCA Board, and Agency staff.

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

visiting our Web site 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 e-mail at info-line@fca.gov; or

(3) By telephone at (703) 883-4056.

[81 FR 47691, July 22, 2016]

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

§ 600.10 Service of Process.

(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.

[54 FR 50735, Dec. 11, 1989, as amended at 59 FR 21642, Apr. 26, 1994]
FCA Regulations (as of 2/24/17) 4

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 branch-wide financial disclosure regulations at 5 CFR part 2634.

[60 FR 30782, June 12, 1995]
FCA Regulations (as of 2/24/17) 5

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.

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.

[64 FR 41770, Aug. 2, 1999]

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

(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.

[64 FR 41770, Aug. 2, 1999; as amended at 78 FR 77562, Dec. 24, 2013]
FCA Regulations (as of 2/24/17) 6

Subpart B - Availability of Records of the Farm Credit Administration

§ 602.3 Definitions.

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. 

[64 FR 41771, Aug. 2, 1999] 

§ 602.4 How to make a 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.

[64 FR 41771, Aug. 2, 1999] 

§ 602.5 FCA response to requests for records.

(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.
FCA Regulations (as of 2/24/17) 7

(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.

[64 FR 41771, Aug. 2, 1999]

§ 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.

[64 FR 41771, Aug. 2, 1999] 

§ 602.7 Confidential business information.

(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.

(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.
FCA Regulations (as of 2/24/17) 8

[64 FR 41771, Aug. 2, 1999]

§ 602.8 Appeals.

(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 E-mail 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 E-mail 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 E-mail at ogis@nara.gov.

[64 FR 41772, Aug. 2, 1999; as amended at 70 FR 69645, Nov. 17, 2005; 81 FR 47692, July 22, 2016; 81 

FR 63366, Sept. 15, 2016]

§ 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.

[64 FR 41772, Aug. 2, 1999]
FCA Regulations (as of 2/24/17) 9

Subpart C - FOIA Fees

§ 602.10 Definitions.

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 x 11 inch or 11 x 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-bypage or line-by-line identification of material within documents.

[64 FR 41772, Aug. 2, 1999]
FCA Regulations (as of 2/24/17) 10

§ 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.

(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.

(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.

Fee Table

Type of Requester

Charges for

Search Time Review Time Reproduction

· 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 41772, Aug. 2, 1999]
FCA Regulations (as of 2/24/17) 11

§ 602.12 Fees.

(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.

(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.

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

(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, E-mail, 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.
FCA Regulations (as of 2/24/17) 12

[64 FR 41773, 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.

[64 FR 41773, Aug. 2, 1999]

§ 602.14 Advance payments -- notice.

(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.

(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.

[64 FR 41773, Aug. 2, 1999]

§ 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.

[64 FR 41773, Aug. 2, 1999]

§ 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.

[64 FR 41773, Aug. 2, 1999, as amended at 81 FR 63366, Sept. 15, 2016]
FCA Regulations (as of 2/24/17) 13

Subpart D - Testimony and Production of Documents in Legal Proceedings in Which FCA 

Is Not a Named Party

§ 602.17 Policy.

(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.

[64 FR 41773, Aug. 2, 1999] 

§ 602.18 Definitions.

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.

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.

[64 FR 41773, Aug. 2, 1999]

§ 602.19 Request for testimony or production of documents.

(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 
FCA Regulations (as of 2/24/17) 14

 (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.

[64 FR 41774, Aug. 2, 1999]

§ 602.20 Testimony of FCA employees.

(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.

[64 FR 41774, Aug. 2, 1999]

§ 602.21 Production of FCA documents.

(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.

[64 FR 41774, Aug. 2, 1999]

§ 602.22 Fees.

(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.

[64 FR 41774, Aug. 2, 1999]
FCA Regulations (as of 2/24/17) 15

§ 602.23 Responses to demands served on FCA employees.

(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.

[64 FR 41774, Aug. 2, 1999]

§ 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.

[64 FR 41774, Aug. 2, 1999]

Subpart E - Release of Records in Public Rulemaking Files

§ 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 41774, Aug. 2, 1999; 81 FR 47692, July 22, 2016]
FCA Regulations (as of 2/24/17) 16

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).

§ 603.300 Purpose and scope.

(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.

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

§ 603.305 Definitions.

For the purposes of this part:

(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.

[51 FR 41941, Nov. 20, 1986]

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

(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:
FCA Regulations (as of 2/24/17) 17

(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.

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

§ 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.

(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.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41941, Nov. 20, 1986]
FCA Regulations (as of 2/24/17) 18

§ 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]

§ 603.330 Request for amendment to 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.

[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:

(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.

[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) 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.
FCA Regulations (as of 2/24/17) 19

(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.

[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 by 71 FR 54900, Sept. 20, 2006]

§ 603.355 Exemptions.

(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:

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.

(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:

(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 
FCA Regulations (as of 2/24/17) 20

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.

[56 FR 2673, Jan. 24, 1991, as amended at 57 FR 32421, July 22, 1992]
FCA Regulations (as of 2/24/17) 21

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:

(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.

[51 FR 41942, Nov. 20, 1986]

§ 604.405 Notice of public observation.

(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.

[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.
FCA Regulations (as of 2/24/17) 22

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) 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;

(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
FCA Regulations (as of 2/24/17) 23

(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.

[51 FR 41943, Nov. 20, 1986, as amended at 56 FR 2673, Jan. 24, 1991; 75 FR 35968, June 24, 2010; 78 

FR 31831, May 28, 2013]

§ 604.425 Announcement of meetings.

(a) The Board meets in the offices of the Farm Credit Administration, 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.

[74 FR 44727, Aug. 31, 2009]

§ 604.430 Closure of meetings.

(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.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, Nov. 20, 1986]
FCA Regulations (as of 2/24/17) 24

§ 604.435 Record of closed meetings 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.

(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.

[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, McLean, Virginia 22102-

5090.

[51 FR 41944, Nov. 20, 1986; 59 FR 21642, Apr. 26, 1994]
FCA Regulations (as of 2/24/17) 25

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 by 71 FR 54900, Sept. 20, 2006]

§ 605.501 Information Security Officer.

(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. 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.

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

§ 605.502 Programs and procedures.

(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 
FCA Regulations (as of 2/24/17) 26

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 circumstances 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.

(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.
FCA Regulations (as of 2/24/17) 27

[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]
FCA Regulations (as of 2/24/17) 28

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.

§ 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.

[53 FR 19889, June 1, 1988]

§ 606.602 Application.

(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.

[53 FR 19889, June 1, 1988]

§ 606.603 Definitions.

For purposes of this part, the term:

(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, notetakers, 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.
FCA Regulations (as of 2/24/17) 29

(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.

(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 one-self, 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 or 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).

[53 FR 19889, June 1, 1988]

§§ 606.604-606.609 [Reserved]

[53 FR 19889, June 1, 1988]

§ 606.610 Self-evaluation.

(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.
FCA Regulations (as of 2/24/17) 30

(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.

[53 FR 19889, June 1, 1988]

§ 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.

[53 FR 19889, June 1, 1988]

§§ 606.612-606.629 [Reserved]

[53 FR 19889, June 1, 1988]

§ 606.630 General prohibitions against discrimination.

(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 opportunity 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.

(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.
FCA Regulations (as of 2/24/17) 31

(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.

[53 FR 19889, June 1, 1988]

§§ 606.631-606.639 [Reserved]

[53 FR 19889, June 1, 1988]

§ 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.

[53 FR 19889, June 1, 1988]

§§ 606.641-606.648 [Reserved]

[53 FR 19889, June 1, 1988]

§ 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.

[53 FR 19889, June 1, 1988]
FCA Regulations (as of 2/24/17) 32

§ 606.650 Program accessibility: Existing facilities.

(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:

(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

(5) Identify the persons or groups who commented on the plan.

[53 FR 19889, June 1, 1988]
FCA Regulations (as of 2/24/17) 33

§ 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 through 101-19.607, apply to 

buildings covered by this section.

[53 FR 19889, June 1, 1988]

§§ 606.652-606.659 [Reserved]

[53 FR 19889, June 1, 1988]

§ 606.660 Communications.

(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.

[53 FR 19889, June 1, 1988]
FCA Regulations (as of 2/24/17) 34

§§ 606.661 - 606.669 [Reserved]

[53 FR 19889, June 1, 1988]

§ 606.670 Compliance procedures.

(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.

[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]

§§ 606.671-606.999 [Reserved]

[53 FR 19889, June 1, 1988]
FCA Regulations (as of 2/24/17) 35

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.

§ 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.

[58 FR 10942, Feb. 23, 1993]

§ 607.2 Definitions.

For the purpose of this part, the following definitions shall apply:

(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.

(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 banks, associations, and designated other System entities with four quarters of riskadjusted 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 as reported on each quarterly Call Report Schedule RC-G to the FCA 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 banks, associations, and 

designated other System entities 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 reported on each 

quarterly Call Report Schedule RC-G to the FCA for the quarters in which it was in existence 

immediately preceding September 15, divided by the number of quarters for which the Call Report 

Schedule RC-G was received;

(3) For banks, associations, and designated other System entities that were formed through 

mergers, consolidations, or transfers of direct lending authority, and have less than four quarters of riskadjusted assets as of June 30, 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 as reported on each 

quarterly Call Report Schedule RC-G filed by the newly chartered institution and the institutions that 

were merged or consolidated or that received direct lending authority, divided by four;

(4) For banks, associations, and designated other System entities chartered during the period July 

1 through September 30 of each year that were not formed by the merger or consolidation of existing 

System institutions or the transfer of direct lending authority from another System institution, the total of 

the average daily risk-adjusted assets as of the last day of the quarter as reported on Call Report Schedule 

RC-G for 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 
FCA Regulations (as of 2/24/17) 36

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.

(j) Other System entities means any service corporation chartered under section 4.25 of the Act, 

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.

[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]

§ 607.3 Assessment of banks, associations, and designated 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 riskadjusted 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 Regulations (as of 2/24/17) 37

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.

Average Risk-Adjusted Asset

Size Range Assessment

(in millions) 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

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 X .0917% = $ 22,925

.85X1 = .000780 therefore $ 25,000,000 X .0780% = $ 19,500

.75X1 = .000688 therefore $ 50,000,000 X .0688% = $ 34,400

.60X1 = .000550 therefore $400,000,000 X .0550% = $220,000

.50X1 = .000458 therefore $ 400,000 X .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:
FCA Regulations (as of 2/24/17) 38

(1) Changes in the FCA budget and necessary reserve; and

(2) Any overpayment or underpayment by a bank, association, or designated other System entity 

in the prior fiscal year.

[58 FR 10942, Feb. 23, 1993, as amended at 63 FR 34268, June 24, 1998]

§ 607.4 Assessment of other System entities.

(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.

[58 FR 10942, Feb. 23, 1993]

§ 607.5 Notice of assessment.

(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.

(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.

[58 FR 10942, Feb. 23, 1993]
FCA Regulations (as of 2/24/17) 39

§ 607.6 Payment of assessment.

(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.

[58 FR 10942, Feb. 23, 1993]

§ 607.7 Late-payment charges on assessments.

(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.

[58 FR 10942, Feb. 23, 1993]

§ 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 non-System entity during the period since the entity's most recent assessment.

[58 FR 10942, Feb. 23, 1993]

§ 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.

[58 FR 10942, Feb. 23, 1993]
FCA Regulations (as of 2/24/17) 40

§ 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.

[58 FR 10942, Feb. 23, 1993]

§ 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.

[58 FR 10942, Feb. 23, 1993]
FCA Regulations (as of 2/24/17) 41

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.

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).

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]

§ 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.

(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.
FCA Regulations (as of 2/24/17) 42

(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.

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]

§ 608.805 Responsibility for collection.

(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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 43

§ 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.

[59 FR 13187, Mar. 21, 1994]

§ 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 by 71 FR 54900, Sept. 20, 2006]
FCA Regulations (as of 2/24/17) 44

§ 608.808 Right to offer to repay claim.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.809 Right to agency review.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.810 Review procedures.

(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.
FCA Regulations (as of 2/24/17) 45

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.811 Special review.

(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.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.812 Charges for interest, administrative costs, and penalties.

(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
FCA Regulations (as of 2/24/17) 46

(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.

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 47

§ 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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 48

Subpart B - Administrative Offset

§ 608.820 Applicability.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.821 Collection by offset.

(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.

(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.
FCA Regulations (as of 2/24/17) 49

[59 FR 13187, Mar. 21, 1994]

§ 608.822 Notice requirements before offset.

(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;

(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;
FCA Regulations (as of 2/24/17) 50

(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,

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.823 Right to review of claim.

(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:
FCA Regulations (as of 2/24/17) 51

(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

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.824 Waiver of procedural requirements.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.825 Coordinating offset with other Federal agencies.

(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)(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 
FCA Regulations (as of 2/24/17) 52

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.

[59 FR 13187, Mar. 21, 1994]

§ 608.826 Stay of offset.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 53

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 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.

[59 FR 13187, Mar. 21, 1994]

§ 608.836 Applicability of regulations.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.837 Definitions.

In this subpart, the following definitions shall apply:

(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 
FCA Regulations (as of 2/24/17) 54

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).

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.838 Waiver requests and claims to the General Accounting Office.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.839 Procedures for salary offset.

(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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 55

§ 608.840 Refunds.

(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:

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.841 Requesting current paying agency to offset salary.

(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.

[59 FR 13187, Mar. 21, 1994]

§ 608.842 Responsibility of the FCA as 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).
FCA Regulations (as of 2/24/17) 56

[59 FR 13187, Mar. 21, 1994]

§ 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.

[59 FR 13187, Mar. 21, 1994]
FCA Regulations (as of 2/24/17) 57

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).

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.

[67 FR 16631, Apr. 8, 2002]

§ 609.910 Compliance with the Electronic Signatures in Global and National Commerce Act 

(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. E-SIGN’s special disclosure rules for consumer transactions do not apply to business 

transactions. Under E-SIGN, 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-
FCA Regulations (as of 2/24/17) 58

electronic form. Under E-SIGN, 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. 

(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.

[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).

[67 FR 16632, Apr. 8, 2002]

Subpart B - Interpretations and Definitions

§ 609.920 Interpretations.

(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. E-SIGN 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.

[67 FR 16632, Apr. 8, 2002]

§ 609.925 Definitions.

We provide the following definitions that apply to the Act and its implementing regulations: 

(a) Electronic means relating to technology having electrical, digital, magnetic, wireless, optical, 

electromagnetic, or similar capabilities.
FCA Regulations (as of 2/24/17) 59

(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. 

(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.

[67 FR 16632, Apr. 8, 2002]

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 E-commerce, 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 Ecommerce, 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:

(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.

[67 FR 16632, Apr. 8, 2002; as corrected at 69 FR 42852, 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.

[67 FR 16633, Apr. 8, 2002]
FCA Regulations (as of 2/24/17) 60

§ 609.940 Internal systems and controls.

When applicable, internal systems and controls must provide reasonable assurances that System 

institutions will:

(a) Follow and achieve business plan objectives and policies and procedures requirements 

regarding E-commerce; and

(b) Prevent and detect material deficiencies on a timely basis.

[67 FR 16633, Apr. 8, 2002]

§ 609.945 Records retention.

Records stored electronically must be accurate, accessible, and reproducible for later reference.

[67 FR 16633, Apr. 8, 2002]

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.

[67 FR 16633, Apr. 8, 2002]
FCA Regulations (as of 2/24/17) 61

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, 2279a2, 2279b, 2279c-10); and secs. 1501 et seq. of Pub. L. 110-289, 122 Stat. 2654.

§ 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)”.

[78 FR 51048, Aug. 20, 2013]
FCA Regulations (as of 2/24/17) 62

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, 3.21, 4.3A, 4.12, 4.12A, 4.15, 4.20, 4.21, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17, 5.25, 7.0-

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, 2142, 2154a, 

2183, 2184, 2203, 2208, 2209, 2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a-2279f-1, 

2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 414 of Pub. 

L. 100-399, 102 Stat. 989, 1004.

Subpart A - General

§ 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.

(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.

[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.

(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 
FCA Regulations (as of 2/24/17) 63

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.

[75 FR 18740, Apr. 12, 2010]

Subpart B - Bank and Association Board of Directors

§ 611.210 Director qualifications and training.

(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.

[71 FR 5761, Feb. 2, 2006]

§ 611.220 Outside directors.

(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. 
FCA Regulations (as of 2/24/17) 64

(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.

(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 two-thirds 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.

[71 FR 5761, Feb. 2, 2006]

Subpart C - Election of Directors and Other Voting Procedures

§ 611.310 Eligibility for membership on bank and association boards and subsequent employment.

(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 outof-territory borrowers may not serve as directors.

[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.

(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 
FCA Regulations (as of 2/24/17) 65

such 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.

[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.

(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-of-territory borrower that out-of-territory borrowers may not serve on the association’s 

nominating committee. 

(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. 
FCA Regulations (as of 2/24/17) 66

(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.

[75 FR 18741, Apr. 12, 2010]

§ 611.326 Floor nominations for open Farm Credit bank and association director positions.

(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.
FCA Regulations (as of 2/24/17) 67

(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 

director-nominees.

(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.

[75 FR 18741, Apr. 12, 2010]

§ 611.330 Disclosures of Farm Credit bank and association director-nominees.

(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 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.

[75 FR 18742, Apr. 12, 2010, as amended at 77 FR 60596, Oct. 3, 2012]
FCA Regulations (as of 2/24/17) 68

§ 611.340 Confidentiality and security in voting.

(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:

(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.
FCA Regulations (as of 2/24/17) 69

(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.

[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.

(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 stockholderassociation 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. 

(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.

[75 FR 18742, Apr. 12, 2010]

§ 611.360 [Removed and reserved]

[77 FR 60596, Oct. 3, 2012; as amended at 79 FR 17856, Mar. 31, 2014]

Subpart D - Compensation Practices of Farm Credit Banks and Associations

§ 611.400 Compensation of bank board members.

(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:
FCA Regulations (as of 2/24/17) 70

(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

(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.

[59 FR 37411, July 22, 1994, as amended at 64 FR 16617, Apr. 6, 1999; 65 FR 8023, Feb. 17, 2000; 77 

FR 60596, Oct. 3, 2012]

§ 611.410 [Removed and reserved]

[77 FR 60596, Oct. 3, 2012; as amended at 79 FR 17856, Mar. 31, 2014]

Subpart E - Transfer of Authorities

§ 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.

[53 FR 50393, Dec. 15, 1988]

§ 611.501 Procedures.

(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.

[53 FR 50393, Dec. 15, 1988]
FCA Regulations (as of 2/24/17) 71

§ 611.505 Farm Credit Administration review.

(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.

(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.

[53 FR 50393, Dec. 15, 1988, as amended at 63 FR 64844, Nov. 24, 1998]

§ 611.510 Approval procedures.

(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 director's 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.

[53 FR 50393, Dec. 15, 1988]

§ 611.515 Information statement.

(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:
FCA Regulations (as of 2/24/17) 72

(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:

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) 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 loan 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.

(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.
FCA Regulations (as of 2/24/17) 73

(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.

[53 FR 50393, Dec. 15, 1988, as amended at 58 FR 48790, Sept. 20, 1993]

§ 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:

(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:

(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 stockholder's 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.

[53 FR 50393, Dec. 15, 1988]

§ 611.525 Stockholder reconsideration.

(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 
FCA Regulations (as of 2/24/17) 74

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.

[53 FR 50393, Dec. 15, 1988]

Subpart F - Bank Mergers, Consolidations and Charter Amendments

§ 611.1000 General authority.

(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.

[80 FR 51116, Aug. 24, 2015]

§ 611.1010 Farm Credit bank charter amendment procedures.

(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;

(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.
FCA Regulations (as of 2/24/17) 75

[80 FR 51116, Aug. 24, 2015]

§ 611.1020 Requirements for mergers or consolidations of Farm Credit banks.

(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.

[80 FR 51116, Aug. 24, 2015]

§ 611.1030 [Removed and Reserved]

[71 FR 5762, Feb. 2, 2006]

§ 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 by 80 FR 51116, Aug. 24, 2015]

Subpart G - Mergers, Consolidations, and Charter Amendments of Associations

§ 611.1120 General authority.

(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.

[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.

(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);
FCA Regulations (as of 2/24/17) 76

(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.

[80 FR 51116, Aug. 24, 2015]

§ 611.1122 Requirements for association mergers or consolidations.

(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:

(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. 
FCA Regulations (as of 2/24/17) 77

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: 

(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:

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) 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 
FCA Regulations (as of 2/24/17) 78

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 stockholders; and must contain appropriate 

footnote disclosures, including data relating to high-risk assets and other property owned, and allowance 

for loan 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 loan losses account and a statement regarding whether, in 

the opinion of management, the allowance for loan 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.

(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 
FCA Regulations (as of 2/24/17) 79

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. 

(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 
FCA Regulations (as of 2/24/17) 80

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.

[80 FR 51117, Aug. 24, 2015]

§ 611.1123 Association merger or consolidation agreements.

(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.

(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.
FCA Regulations (as of 2/24/17) 81

(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.

[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.

(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.

(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.
FCA Regulations (as of 2/24/17) 82

(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. 

(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:

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) 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.

(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 
FCA Regulations (as of 2/24/17) 83

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.

[80 FR 51119, Aug. 24, 2015]

§ 611.1125 Treatment of associations not approving districtwide mergers.

(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.
FCA Regulations (as of 2/24/17) 84

(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.

[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) 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. 

(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).

[80 FR 51121, Aug. 24, 2015]
FCA Regulations (as of 2/24/17) 85

Subpart H - Rules for Inter-System Fund Transfers

§ 611.1130 Inter-System transfer of funds and equities.

(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 losses) exceeds 2 to 1;

(ii) The ratio of the outstanding bonds to capital and surplus exceeds 15 to 1;

(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 paragraphs (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.

[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]
FCA Regulations (as of 2/24/17) 86

Subpart I - Service Corporations 

§ 611.1135 Incorporation of service corporations.

(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.

(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.
FCA Regulations (as of 2/24/17) 87

(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.

[66 FR 16843, Mar. 28, 2001, as amended at 70 FR 53907, Sept. 13, 2005; 71 FR 65386, Nov. 8, 2006; 

78 FR 31831, May 28, 2013]

§ 611.1136 Regulation and examination of service corporations.

(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.

[66 FR 16843, Mar. 28, 2001, as amended at 78 FR 31831, May 28, 2013]

§ 611.1137 Title VIII service corporations.

(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.

[66 FR 16843, Mar. 28, 2001, as amended at 78 FR 31831, May 28, 2013]
FCA Regulations (as of 2/24/17) 88

Subpart J - Unincorporated Business Entities

§ 611.1150 Purpose and scope.

(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.

[78 FR 31831, May 28, 2013]

§ 611.1151 Definitions.

For purposes of this subpart, the following definitions apply:

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.

[78 FR 31831, May 28, 2013]
FCA Regulations (as of 2/24/17) 89

§ 611.1152 Authority over equity investments in UBEs for business activity.

(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.

[78 FR 31832, May 28, 2013]

§ 611.1153 General restrictions and prohibitions on the use of UBEs.

(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 

standards of conduct rules in §§ 612.2130 through 612.2270.

(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.

(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 multilender transaction that includes System and non-System lenders.

(g) Limit on potential liability.
FCA Regulations (as of 2/24/17) 90

(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 one-member 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.

[78 FR 31832, May 28, 2013]

§ 611.1154 Notice of equity investments in UBEs.

(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:

(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 
FCA Regulations (as of 2/24/17) 91

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.

[78 FR 31833, May 28, 2013]

§ 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;
FCA Regulations (as of 2/24/17) 92

(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.

[78 FR 31833, May 28, 2013]

§ 611.1156 Ongoing requirements.

A System institution that organizes or invests in a UBE must also comply with the following 

requirements:

(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.

[78 FR 31833, May 28, 2013]

§ 611.1157 Disclosure and reporting requirements.

(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.

[78 FR 31834, May 28, 2013]
FCA Regulations (as of 2/24/17) 93

§ 611.1158 Grandfather provision.

(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.

(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.

[78 FR 31834, May 28, 2013]

Subpart K – [Reserved]

Subpart K – [Reserved]

[61 FR 67186, Dec. 20, 1996, as amended by 78 FR 31831, May 28, 2013]

Subpart L – [Reserved]

Subpart L – [Reserved]

[61 FR 67186, Dec. 20, 1996, as amended by 78 FR 31831, May 28, 2013]

Subpart M – [Reserved]

Subpart M – [Reserved]

[61 FR 67186, Dec. 20, 1996, as amended by 78 FR 31831, May 28, 2013]
FCA Regulations (as of 2/24/17) 94

Subpart N – [Reserved]

Subpart N – [Reserved]

[61 FR 67186, Dec. 20, 1996, as amended by 78 FR 31831, May 28, 2013]

Subpart O – [Reserved]

Subpart O – [Reserved]

[61 FR 67186, Dec. 20, 1996, as amended by 78 FR 31831, May 28, 2013]

Subpart P - Termination of System Institution Status 

§ 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.

[71 FR 44420, Aug. 4, 2006]

§ 611.1205 Definitions that apply in this subpart.

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(c) 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.

[71 FR 44420, Aug. 4, 2006]

§ 611.1210 Advance notices--commencement resolution and notice to equity holders.

(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). 

(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.
FCA Regulations (as of 2/24/17) 95

(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.

(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.

[71 FR 44421, Aug. 4, 2006, as amended at 75 FR 18743, Apr. 12, 2010]
FCA Regulations (as of 2/24/17) 96

§ 611.1211 Special requirements.

(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.

[71 FR 44421, Aug. 4, 2006]

§ 611.1215 Communications with the public and equity holders.

(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: 

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.

(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), 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.

[71 FR 44421, Aug. 4, 2006]
FCA Regulations (as of 2/24/17) 97

§ 611.1216 Public availability of documents related to the termination.

(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.

[71 FR 44422, Aug. 4, 2006]

§ 611.1217 Plain language requirements.

(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;

(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.

[71 FR 44422, Aug. 4, 2006]

§ 611.1218 Role of directors.

(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 two-thirds 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.

[71 FR 44422, Aug. 4, 2006]
FCA Regulations (as of 2/24/17) 98

§ 611.1219 Prohibited acts.

(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.

[71 FR 44422, Aug. 4, 2006]

§ 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: 

(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.

[71 FR 44422, Aug. 4, 2006]

§ 611.1221 Submission to FCA of plan of termination and disclosure information; other required 

submissions.

(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.

[71 FR 44422, Aug. 4, 2006]

§ 611.1223 Plan of termination--contents.

(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:

The Farm Credit Administration has not determined if this information is accurate or complete. You 

should not rely on any statement to the contrary.
FCA Regulations (as of 2/24/17) 99

(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.

(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:
FCA Regulations (as of 2/24/17) 100

(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.

(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;

(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.
FCA Regulations (as of 2/24/17) 101

(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 high-risk assets, 

other property owned, and allowance for 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:

(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. 

[71 FR 44423, Aug. 4, 2006]

§ 611.1230 FCA review and approval--plan of 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
FCA Regulations (as of 2/24/17) 102

(2) May be subject to any condition we impose. 

[71 FR 44424, Aug. 4, 2006]

§ 611.1235 Plan of termination--distribution.

(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.

[71 FR 44424, Aug. 4, 2006]

§ 611.1240 Voting record date and stockholder approval.

(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.

(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.

[71 FR 44424, Aug. 4, 2006, as amended at 75 FR 18743, Apr. 12, 2010]
FCA Regulations (as of 2/24/17) 103

§ 611.1245 Stockholder reconsideration.

(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.

[71 FR 44425, Aug. 4, 2006]

§ 611.1246 Filing of termination application and its contents.

(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;

(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.

[71 FR 44425, Aug. 4, 2006]

§ 611.1247 FCA review and approval--termination.

(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;
FCA Regulations (as of 2/24/17) 104

(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.

[71 FR 44425, Aug. 4, 2006] 

§ 611.1250 Preliminary exit fee estimate.

(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. 

(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.
FCA Regulations (as of 2/24/17) 105

(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.”

(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 loan 

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.

(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.
FCA Regulations (as of 2/24/17) 106

(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.

[71 FR 44425, Aug. 4, 2006, as amended at 71 FR 76118, Dec. 20, 2006]

§ 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 
FCA Regulations (as of 2/24/17) 107

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.”

(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 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.
FCA Regulations (as of 2/24/17) 108

(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.

(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.

[71 FR 44427, Aug. 4, 2006, as amended at 71 FR 76118, Dec. 20, 2006]

§ 611.1260 Payment of debts and assessments--terminating association.

(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 losssharing or other agreement.

[71 FR 44428, Aug. 4, 2006]

§ 611.1265 Retirement of a terminating association's investment in its affiliated bank.

(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.
FCA Regulations (as of 2/24/17) 109

(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.

(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.

[71 FR 44428, Aug. 4, 2006, as amended at 81 FR 49772, July 28, 2016]

§ 611.1270 Repayment of obligations--terminating bank.

(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 

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.

[71 FR 44428, Aug. 4, 2006]
FCA Regulations (as of 2/24/17) 110

§ 611.1275 Retirement of equities held by other System institutions.

(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.

[71 FR 44428, Aug. 4, 2006]

§ 611.1280 Dissenting stockholders' rights.

(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.

(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.
FCA Regulations (as of 2/24/17) 111

(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.

(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.

[71 FR 44429, Aug. 4, 2006]

§ 611.1285 Loan refinancing by borrowers.

(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.
FCA Regulations (as of 2/24/17) 112

[71 FR 44429, Aug. 4, 2006]

§ 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.

[71 FR 44430, Aug. 4, 2006]
FCA Regulations (as of 2/24/17) 113

PART 612 - STANDARDS OF CONDUCT AND REFERRAL OF KNOWN 

OR SUSPECTED CRIMINAL VIOLATIONS

Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2243, 2252, 2254).

Subpart A - Standards of Conduct

§ 612.2130 Definitions.

For purposes of this part, the following terms are defined:

(a) Agent means any person, other than a director or employee, who currently represents a 

System institution in contacts with third parties or who currently provides professional services to a 

System institution, such as legal, accounting, appraisal, and other similar services.

(b) A conflict of interest or the appearance thereof exists when a person has a financial interest in 

a transaction, relationship, or activity that actually affects or has the appearance of affecting the person's 

ability to perform official duties and responsibilities in a totally impartial manner and in the best interest 

of the employing institution when viewed from the perspective of a reasonable person with knowledge of 

the relevant facts.

(c) Controlled entity and entity controlled by mean an entity in which the individual, directly or 

indirectly, or acting through or in concert with one or more persons:

(1) Owns 5 percent or more of the equity;

(2) Owns, controls, or has the power to vote 5 percent or more of any class of voting securities; 

or

(3) Has the power to exercise a controlling influence over the management of policies of such 

entity.

(d) Employee means any salaried officer or part-time, full-time, or temporary salaried employee.

(e) 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.

(f) Family means an individual and spouse and anyone having the following relationship to either: 

parents, spouse, son, daughter, sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister, half 

brother, half sister, uncle, aunt, nephew, niece, grandparent, grandson, granddaughter, and the spouses of 

the foregoing.

(g) Financial interest means an interest in an activity, transaction, property, or relationship with a 

person or an entity that involves receiving or providing something of monetary value or other present or 

deferred compensation.

(h) Financially obligated with means having a joint legally enforceable obligation with, being 

financially obligated on behalf of (contingently or otherwise), having an enforceable legal obligation 

secured by property owned by another, or owning property that secures an enforceable legal obligation of 

another.

(i) Material, when applied to a financial interest or transaction or series of transactions, means 

that the interest or transaction or series of transactions is of such 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 his or her official duties objectively and impartially and in the best interest 

of the institution and its statutory purpose.

(j) 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.

(k) OFI means other financing institutions that have established an access relationship with a 

Farm Credit Bank or an agricultural credit bank under section 1.7(b)(1)(B) of the Act.
FCA Regulations (as of 2/24/17) 114

(l) Officer means the chief executive officer, president, chief operating officer, vice president, 

secretary, treasurer, general counsel, chief financial officer, and chief credit officer of each System 

institution, and any person not so designated who holds a similar position of authority.

(m) Ordinary course of business, when applied to a transaction, means: 

(1) A transaction that is usual and customary between two persons who are in business together; 

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. 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 or employees of a System institution.

(n) Person means individual or entity.

(o) Relative means any member of the family as defined in paragraph (g) of this section.

(p) Service corporation means each service corporation chartered under the Act.

(q) Standards of Conduct Official means the official designated under § 612.2170 of these 

regulations.

(r) Supervised institution is a term which only applies within the context of a System bank or an 

employee of a System bank and refers to each association supervised by that bank.

(s) Supervising institution is a term that only applies within the context of an association or an 

employee of an association and refers to the bank that supervises that association.

(t) System institution and institution mean any bank, association, or service corporation in the 

Farm Credit System, including the Farm Credit Banks, banks for cooperatives, Agricultural Credit Banks, 

Federal land bank associations, agricultural credit associations, Federal land credit associations, 

production credit associations, the Federal Farm Credit Banks Funding Corporation, and service 

corporations chartered under the Act.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004; 71 FR 5762, Feb. 2, 2006; 78 

FR 31834, May 28, 2013]

§ 612.2135 Director and employee responsibilities and conduct--generally.

(a) Directors and employees of all System institutions shall maintain high standards of industry, 

honesty, integrity, impartiality, and conduct in order to ensure the proper performance of System business 

and continued public confidence in the System and each of its institutions. The avoidance of misconduct 

and conflicts of interest is indispensable to the maintenance of these standards.

(b) To achieve these high standards of conduct, directors and employees shall observe, to the best 

of their abilities, the letter and intent of all applicable local, state, and Federal laws and regulations and 

policy statements, instructions, and procedures of the Farm Credit Administration and System institutions 

and shall exercise diligence and good judgment in carrying out their duties, obligations, and 

responsibilities.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]

§ 612.2140 Directors--prohibited conduct.

A director of a System institution shall not:

(a) Participate, directly or indirectly, in deliberations on, or the determination of, any matter 

affecting, directly or indirectly, the financial interest of the director, any relative of the director, any 

person residing in the director's household, any business partner of the director, or any entity controlled 

by the director or such persons (alone or in concert), except those matters of general applicability that 

affect all shareholders/borrowers in a nondiscriminatory way, e.g., a determination of interest rates.
FCA Regulations (as of 2/24/17) 115

(b) Divulge or make use of, except in the performance of official duties, any fact, information, or 

document not generally available to the public that is acquired by virtue of serving on the board of a 

System institution.

(c) Use the director's position to obtain or attempt to obtain special advantage or favoritism for 

the director, any relative of the director, any person residing in the director's household, any business 

partner of the director, any entity controlled by the director or such persons (alone or in concert), any 

other System institution, or any person transacting business with the institution, including borrowers and 

loan applicants.

(d) Use the director's position or information acquired in connection with the director's position 

to solicit or obtain, directly or indirectly, any gift, fee, or other present or deferred compensation or for 

any other personal benefit on behalf of the director, any relative of the director, any person residing in the 

director's household, any business partner of the director, any entity controlled by the director or such 

persons (alone or in concert), any other System institution, or any person transacting business with the 

institution, including borrowers and loan applicants.

(e) Accept, directly or indirectly, any gift, fee, or other present or deferred compensation that is 

offered or could reasonably be viewed as being offered to influence official action or to obtain 

information that the director has access to by reason of serving on the board of a System institution.

(f) Knowingly acquire, directly or indirectly, except by inheritance or through public auction or 

open competitive bidding available to the general public, any interest in any real or personal property, 

including mineral interests, that was owned by the employing, supervising, or any supervised institution 

within the preceding 12 months and that had been acquired by any such institution as a result of 

foreclosure or similar action; provided, however, a director shall not acquire any such interest in real or 

personal property if he or she participated in the deliberations or decision to foreclose or to dispose of the 

property or in establishing the terms of the sale.

(g) Directly or indirectly borrow from, lend to, or become financially obligated with or on behalf 

of a director, employee, or agent of the employing, supervising, or a supervised institution or a borrower 

or loan applicant of the employing institution, unless:

(1) The transaction is with a relative or any person residing in the director's household;

(2) The transaction is undertaken in an official capacity in connection with the institution's 

discounting, lending, or participation relationships with OFIs and other lenders; or

(3) The Standards of Conduct Official determines, pursuant to policies and procedures adopted 

by the board, that the potential for conflict is insignificant because the transaction is in the ordinary course 

of business or is not material in amount and the director does not participate in the determination of any 

matter affecting the financial interests of the other party to the transaction except those matters affecting 

all shareholders/borrowers in a nondiscriminatory way.

(h) Violate an institution's policies and procedures governing standards of conduct.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]

§ 612.2145 Director reporting.

(a) Annually, as of the institution's fiscal yearend, and at such other times as may be required to 

comply with paragraph (c) of this section, each director shall file a written and signed statement with the 

Standards of Conduct Official that fully discloses:

(1) The names of any immediate family members as defined in § 620.1(e) of this chapter, or 

affiliated organizations, as defined in § 620.1(a) of this chapter, who had transactions with the institution 

at any time during the year; 

(2) Any matter required to be disclosed by § 620.6(f) of this chapter; and

(3) Any additional information the institution may require to make the disclosures required by 

part 620 of this chapter.
FCA Regulations (as of 2/24/17) 116

(b) Each director shall, at such intervals as the institution's board shall determine is necessary to 

effectively enforce this regulation and the institution's standards-of-conduct policy adopted pursuant to § 

612.2165, file a written and signed statement with the Standards of Conduct Official that contains those 

disclosures required by the regulations and such policy. At a minimum, these requirements shall include:

(1) The name of any relative or any person residing in the director's household, business 

partner, or any entity controlled by the director or such persons (alone or in concert) if the director knows 

or has reason to know that such individual or entity transacts business with the institution or any 

institution supervised by the director's institution; and

(2) The name and the nature of the business of any entity in which the director has a material 

financial interest or on whose board the director sits if the director knows or has reason to know that such 

entity transacts business with:

(i) The director's institution or any institution supervised by the director's institution; or

(ii) A borrower of the director's institution or any institution supervised by the directors 

institution.

(c) Any director who becomes or plans to become involved in any relationship, transaction, or 

activity that is required to be reported under this section or could constitute a conflict of interest shall 

promptly report such involvement in writing to the Standards of Conduct Official for a determination of 

whether the relationship, transaction, or activity is, in fact, a conflict of interest.

(d) Unless a disclosure as a director candidate under part 620 of this chapter has been made 

within the preceding 180 days, a newly elected or appointed director shall report matters required to be 

reported in paragraphs (a), (b), and (c) of this section to the Standards of Conduct Official within 30 days 

after the election or appointment and thereafter shall comply with the requirements of this section.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004; 77 FR 60596, Oct. 3, 2012]

§ 612.2150 Employees--prohibited conduct.

An employee of a System institution shall not:

(a) Participate, directly or indirectly, in deliberations on, or the determination of, any matter 

affecting, directly or indirectly, the financial interest of the employee, any relative of the employee, any 

person residing in the employee's household, any business partner of the employee, or any entity 

controlled by the employee or such persons (alone or in concert), except those matters of general 

applicability that affect all shareholders/borrowers in a nondiscriminating way, e.g. a determination of 

interest rates.

(b) Divulge or make use of, except in the performance of official duties, any fact, information, or 

document not generally available to the public that is acquired by virtue of employment with a System 

institution.

(c) Use the employee's position to obtain or attempt to obtain special advantage or favoritism for 

the employee, any relative of the employee, any person residing in the employee's household, any 

business partner of the employee, any entity controlled by the employee or such persons (alone or in 

concert), any other System institution, or any person transacting business with the institution, including 

borrowers and loan applicants.

(d) Serve as an officer or director of an entity other than a System institution that transacts 

business with a System institution in the district or of any commercial bank, savings and loan, or other 

non-System financial institution, except employee credit unions. For the purposes of this paragraph, 

“transacts business” does not include loans by a System institution to a family-owned entity, service on 

the board of directors of the Federal Agricultural Mortgage Corporation, or transactions with nonprofit 

entities or entities in which the System institution has an ownership interest. With the prior approval of 

the board of the employing institution, an employee of a Farm Credit Bank or association may serve as a 

director of a cooperative that borrows from a bank for cooperatives. Prior to approving an employee 

request, the board shall determine whether the employee's proposed service as a director is likely to cause 
FCA Regulations (as of 2/24/17) 117

the employee to violate any regulations in this part or the institution's policies, e.g., the requirements 

relating to devotion of time to official duties.

(e) Use the employee's position or information acquired in connection with the employee's 

position to solicit or obtain any gift, fee, or other present or deferred compensation or for any other 

personal benefit for the employee, any relative of the employee, any person residing in the employee's 

household, any business partner of the employee, any entity controlled by the employee or such persons 

(alone or in concert), any other System institution, or any person transacting business with the institution, 

including borrowers and loan applicants.

(f) Accept, directly or indirectly, any gift, fee, or other present or deferred compensation that is 

offered or could reasonably be viewed as being offered to influence official action or to obtain 

information the employee has access to by reason of employment with a System institution.

(g) Knowingly acquire, directly or indirectly, except by inheritance, any interest in any real or 

personal property, including mineral interests, that was owned by the employing, supervising, or any 

supervised institution within the preceding 12 months and that had been acquired by any such institution 

as a result of foreclosure or similar action.

(h) Directly or indirectly borrow from, lend to, or become financially obligated with or on behalf 

of a director, employee, or agent of the employing, supervising, or a supervised institution or a borrower 

or loan applicant of the employing institution, unless:

(1) The transaction is with a relative or any person residing in the employee's household;

(2) The transaction is undertaken in an official capacity in connection with the institution's 

discounting, lending, or participation relationships with OFIs and other lenders; or

(3) The Standards of Conduct Official determines, pursuant to policies and procedures adopted 

by the board, that the potential for conflict is insignificant because the transaction is in the ordinary course 

of business or is not material in amount and the employee does not participate in the determination of any 

matter affecting the financial interests of the other party to the transaction except those matters affecting 

all shareholders/borrowers in a nondiscriminatory way.

(i) Violate an institution's policies and procedures governing standards of conduct.

(j) Act as a real estate agent or broker; provided that this paragraph shall not apply to 

transactions involving the purchase or sale of real estate intended for the use of the employee, a member 

of the employee's family, or a person residing in the employee's household.

(k) Act as an agent or broker in connection with the sale and placement of insurance; provided 

that this paragraph shall not apply to the sale or placement of insurance authorized by section 4.29 of the 

Act.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004; 71 FR 5762, Feb. 2, 2006]

§ 612.2155 Employee reporting.

(a) Annually, as of the institution's fiscal yearend, and at such other times as may be required to 

comply with paragraph (c) of this section, each senior officer must file a written and signed statement 

with the Standards of Conduct Official that fully discloses:

(1) The names of any immediate family members, as defined in § 620.1(e) of this chapter, or 

affiliated organizations, as defined in § 620.1(a) of this chapter, who had transactions with the institution 

at any time during the year;

(2) Any matter required to be disclosed by § 620.6(f) of this chapter; and

(3) Any additional information the institution may require to make the disclosures required by 

part 620 of this chapter.

(b) Each employee shall, at such intervals as the Board shall determine necessary to effectively 

enforce this regulation and the institution's standards-of-conduct policy adopted pursuant to § 612.2165, 

file a written and signed statement with the Standards of Conduct Official that contains those disclosures 

required by the regulation and such policy. At a minimum, these requirements shall include:
FCA Regulations (as of 2/24/17) 118

(1) The name of any relative or any person residing in the employee's household, any business 

partner, or any entity controlled by the employee or such persons (alone or in concert) if the employee 

knows or has reason to know that such individual or entity transacts business with the employing 

institution or any institution supervised by the employing institution; and

(2) The name and the nature of the business of any entity in which the employee has a material 

financial interest or on whose board the employee sits if the employee knows or has reason to know that 

such entity transacts business with:

(i) The employing institution or any institution supervised by the employing institution; or

(ii) A borrower of the employing institution or any institution supervised by the employing 

institution.

(c) Any employee who becomes or plans to become involved in any relationship, transaction, or 

activity that is required to be reported under this section or could constitute a conflict of interest shall 

promptly report such involvement in writing to the Standards of Conduct Official for a determination of 

whether the relationship, transaction, or activity is, in fact, a conflict of interest.

(d) A newly hired employee shall report matters required to be reported in paragraphs (a), (b), 

and (c) of this section to the Standards of Conduct Official 5 business days after starting employment and 

thereafter shall comply with the requirements of this section.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004; 71 FR 5763, Feb. 2, 2006; 71 

FR 65386, Nov. 8, 2006; 77 FR 60596, Oct. 3, 2012]

§ 612.2157 Joint employees.

No officer of a Farm Credit Bank or an agricultural credit bank may serve as an employee of an 

association in its district and no employee of a Farm Credit Bank or an agricultural credit bank may serve 

as an officer of an association in its district. Farm Credit Bank or agricultural credit bank employees 

other than officers may serve as employees other than officers of an association in its district provided 

each institution appropriately reflects the expense of such employees in its financial statements.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]

§ 612.2160 Institution responsibilities.

Each institution shall:

(a) Ensure compliance with this part by its directors and employees and act promptly to preserve 

the integrity of and public confidence in the institution in any matter involving a conflict of interest, 

whether or not specifically addressed by this part or the policies and procedures adopted pursuant to § 

612.2165; 

(b) Take appropriate measures to ensure that all directors and employees are informed of the 

requirements of this regulation and policies and procedures adopted pursuant to § 612.2165;

(c) Adopt and implement policies and procedures that will preserve the integrity of and public 

confidence in the institution and the System pursuant to § 612.2165;

(d) Designate a Standards of Conduct Official pursuant to § 612.2170; and

(e) Maintain all standards-of-conduct policies and procedures, reports, investigations, 

determinations, and evidence of compliance with this part for a minimum of 6 years.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]
FCA Regulations (as of 2/24/17) 119

§ 612.2165 Policies and procedures.

(a) Each institution's board of directors shall issue, consistent with this part, policies and 

procedures governing standards of conduct for directors and employees.

(b) Board policies and procedures issued pursuant to paragraph (a) of this section shall reflect 

due consideration of the potential adverse impact of any activities permitted under the policies and shall at 

a minimum:

(1) Establish such requirements and prohibitions as are necessary to promote public confidence 

in the institution and the System, preserve the integrity and independence of the supervisory process, and 

prevent the improper use of official property, position, or information. In developing such requirements 

and prohibitions, the institution shall address such issues as the hiring of relatives, political activity, 

devotion of time to duty, the exchange of gifts and favors among directors and employees of the 

employing, supervising, and supervised institution, and the circumstances under which gifts may be 

accepted by directors and employees from outside sources, in light of the foregoing objectives;

(2) Outline authorities and responsibilities of the Standards of Conduct Official;

(3) Establish criteria for business relationships and transactions not specifically prohibited by this 

part between employees or directors and borrowers, loan applicants, directors, or employees of the 

employing, supervised, or supervising institutions, or persons transacting business with such institutions, 

including OFIs or other lenders having an access or participation relationship;

(4) Establish criteria under which employees may accept outside employment or compensation;

(5) Establish conditions under which employees may receive loans from System institutions;

(6) Establish conditions under which employees may acquire an interest in real or personal 

property that was mortgaged to a System institution at any time within the preceding 12 months;

(7) Establish conditions under which employees may purchase any real or personal property of a 

System institution acquired by such institution for its operations. Farm Credit institutions must use open 

competitive bidding whenever they sell surplus property above a stated value (as established by the 

board) to their employees;

(8) Provide for a reasonable period of time for directors and employees to terminate transactions, 

relationships, or activities that are subject to prohibitions that arise at the time of adoption or amendment 

of the policies.

(9) Require new directors and new employees involved at the time of election or hiring in 

transactions, relationships, and activities prohibited by these regulations or internal policies to terminate 

such transactions within the same time period established for existing directors or employees pursuant to 

paragraph (b)(8) of this section, beginning with the commencement of official duties, or such shorter time 

period as the institution may establish.

(10) Establish procedures providing for a director's or employee's recusal from official action on 

any matter in which he or she is prohibited from participating under these regulations or the institution's 

policies.

(11) Establish documentation requirements demonstrating compliance with standards-of-conduct 

decisions and board policy;

(12) Establish reporting requirements, consistent with this part, to enable the institution to 

comply with §§ 620.5 and 620.6 of this chapter, monitor conflicts of interest, and monitor recusal 

compliance;

(13) Establish appeal procedures available to any employee to whom any required approval has 

been denied; 

(14) Prohibit directors and employees from purchasing or retiring any stock in advance of the 

release of material non-public information concerning the institution to other stockholders; and

(15) Establish when directors and employees may purchase and retire their preferred stock in the 

institution.

[59 FR 24894, May 13, 1994, as amended at 64 FR 43048, Aug. 9, 1999; 69 FR 10906, Mar. 9, 2004; 70 

FR 53907, Sept. 13, 2005; 77 FR 60596, Oct. 3, 2012]
FCA Regulations (as of 2/24/17) 120

§ 612.2170 Standards of Conduct Official.

(a) Each institution's board shall designate a Standards of Conduct Official who shall:

(1) Advise directors, director candidates, and employees concerning the provisions of this part;

(2) Receive reports required by this part;

(3) Make such determinations as are required by this part;

(4) Maintain records of actions taken to resolve and/or make determinations upon each case 

reported relative to provisions of this part;

(5) Make appropriate investigations, as directed by the institution's board; and

(6) Report promptly, pursuant to part 617 of this chapter, to the institution's board and the Office 

of General Counsel, Farm Credit Administration, 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.

(b) The Standards of Conduct Official shall investigate or cause to be investigated all cases 

involving:

(1) Possible violations of criminal statutes;

(2) Possible violations of §§ 612.2140 and 612.2150, and applicable policies and procedures 

approved under § 612.2165;

(3) Complaints received against the directors and employees of such institution; and

(4) Possible violations of other provisions of this part or when the activities or suspected 

activities are of a sensitive nature and could affect continued public confidence in the Farm Credit 

System.

(c) An association board may comply with this section by contracting with the Farm Credit Bank 

or agricultural credit bank in its district to provide a Standards of Conduct Official.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]

§ 612.2260 Standards of conduct for agents.

(a) Agents of System institutions shall 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) System institutions shall utilize 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. Employing System institutions shall be responsible for the administration of 

relationships with their agents, and shall take appropriate investigative and corrective action in the case of 

a breach of fiduciary duties by the agent or failure of the agent to carry out other agent duties as required 

by contract, FCA regulations, or law.

(c) System institutions shall be responsible for exercising corresponding 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 the employment of agents who are related to 

directors or employees of the institutions; the solicitation and acceptance of gifts, contributions, or special 

considerations by agents; and the use of System and borrower information obtained in the course of the 

agent's association with System institutions.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]
FCA Regulations (as of 2/24/17) 121

§ 612.2270 Purchase of System obligations.

(a) Employees and directors of System institutions, other than the Federal Farm Credit Banks 

Funding Corporation, may only purchase joint, consolidated, or Systemwide obligations that are:

(1) Part of an offering available to the general public; and

(2) Purchased through a dealer or dealer bank affiliated with a member of the selling group 

designated by the Federal Farm Credit Banks Funding Corporation or purchased in the secondary market.

(b) No director or employee of the Federal Farm Credit Banks Funding Corporation may 

purchase or otherwise acquire, directly or indirectly, except by inheritance, any joint, consolidated, or 

Systemwide obligation.

[59 FR 24894, May 13, 1994, as amended at 69 FR 10906, Mar. 9, 2004]

Subpart B - Referral of Known or Suspected Criminal Violations

§ 612.2300 Purpose and scope.

(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.

[62 FR 24562, May 6, 1997, as redesignated by 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 
FCA Regulations (as of 2/24/17) 122

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.

[62 FR 24562, May 6, 1997, as redesignated by 69 FR 10907, Mar. 9, 2004]

§ 612.2302 Notification of board of directors and bonding company.

(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.

[62 FR 24562, May 6, 1997, as redesignated by 69 FR 10907, Mar. 9, 2004]

§ 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.

[62 FR 24562, May 6, 1997, as redesignated by 69 FR 10907, Mar. 9, 2004]
FCA Regulations (as of 2/24/17) 123

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

§ 613.3000 Financing for farmers, ranchers, and aquatic producers or harvesters.

(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.

(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.

[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.

[62 FR 4441, Jan. 30, 1997]

§ 613.3010 Financing for processing or marketing operations.

(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
FCA Regulations (as of 2/24/17) 124

(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 decision-making 

process of the legal entity; or

(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.
FCA Regulations (as of 2/24/17) 125

(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 boarddefined limits on financing provided under this section; and

(5) Reporting requirements necessary to comply with paragraph (c) of this section and any 

board-defined reporting on financing provided under this section.

[62 FR 4441, Jan. 30, 1997, as amended at 73 FR 30475, May 28, 2008]

§ 613.3020 Financing for farm-related service businesses.

(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.

(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.

[62 FR 4441, Jan. 30, 1997; 66 FR 28643, May 24, 2001]
FCA Regulations (as of 2/24/17) 126

§ 613.3030 Rural home financing.

(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.

[62 FR 4441, Jan. 30, 1997; 66 FR 28643, May 24, 2001]

Subpart B - Financing for Banks Operating Under Title III of the Farm Credit Act

§ 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.
FCA Regulations (as of 2/24/17) 127

(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 with or for nonmembers, 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 
FCA Regulations (as of 2/24/17) 128

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

(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.

[62 FR 4441, Jan. 30, 1997; 62 FR 33746, June 23, 1997; 69 FR 43514, July 21, 2004; 71 FR 65386, 

Nov. 8, 2006]

§ 613.3200 International lending.

(a) Definitions. For the purpose of this section only, the following definitions apply:

(1) Agricultural supply includes:

(i) A farm supply; and
FCA Regulations (as of 2/24/17) 129

(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.

[62 FR 4441, 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

§ 613.3300 Participations and other interests in loans to similar entities.

(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 
FCA Regulations (as of 2/24/17) 130

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 shareholders 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.

[62 FR 4441, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004; 75 FR 18743, Apr. 12, 2010]
FCA Regulations (as of 2/24/17) 131

PART 614 - LOAN POLICIES AND OPERATIONS

Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; 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, 4.14C, 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, 2202c, 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); 

sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart A - Lending Authorities

§ 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.

(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.
FCA Regulations (as of 2/24/17) 132

(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.

[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 1281, Jan. 10, 2002]

§ 614.4010 Agricultural credit banks.

(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.

(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;
FCA Regulations (as of 2/24/17) 133

(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 banks 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 Untied States to any foreign country, in accordance with § 614.4233 and subpart Q 

of this part 614; 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 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.
FCA Regulations (as of 2/24/17) 134

[55 FR 24880, June 19, 1990, as amended at 57 FR 38246, Aug. 24, 1992; 57 FR 43290, Sept. 18, 1992; 

57 FR 44489, Sept. 28, 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 1281, Jan. 10, 2002; 71 FR 

65387, Nov. 8, 2006]

§ 614.4020 Banks for cooperatives.

(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 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 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 614; 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.

[55 FR 24880, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997; 62 FR 51013, Sept. 30, 1997; 67 

FR 1281, Jan. 10, 2002; 71 FR 65387, Nov. 8, 2006]

§ 614.4030 Federal land credit associations.

(a) Long-term real estate lending. Federal land credit associations 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.

(b) Loan participations. Subject to the requirements of subpart H of this part, Federal land credit 

associations may enter into participation agreements with:
FCA Regulations (as of 2/24/17) 135

(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.

[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 1281, Jan. 10, 2002]

§ 614.4040 Production credit associations.

(a) Loan terms.

 (1) Production credit associations are authorized to make or guarantee loans and other similar 

financial assistance for the following terms:

 (i) Not more than 7 years;

(ii) More than 7 years, but not more than 10 years, subject to authorization in policies approved 

by the funding bank;

(iii) Not more than 15 years to producers or 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 producing or harvesting operation; 

(2) Subject to policies approved by the funding bank, production credit associations may 

amortize loans over a period greater than the loan terms authorized under paragraph (a)(1) of this section, 

provided that:

(i) The loan is amortized over a period not to exceed 15 years;

(ii) The loan may be refinanced only if the lender determines, at the time of refinancing, that the 

loan meets its loan policy and underwriting criteria;

(iii) Any refinancing may not extend repayment beyond 15 years from the date of the original 

loan; and

(iv) The loan is not being made solely for the purpose of acquiring unimproved real estate; and

(3) Short- and intermediate-term loans shall be made with maturities that are appropriate for the 

purpose and underlying collateral of the loan and that comply with an institution’s loan underwriting 

standards adopted pursuant to § 614.4150 and the general requirements of § 614.4200 of this part.

(b) Loan participations. Subject to the requirements of subpart H of this part, a production credit 

association may enter into participation agreements with:
FCA Regulations (as of 2/24/17) 136

(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.

[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 1281, Jan. 

10, 2002]

§ 614.4050 Agricultural credit associations.

Agricultural credit associations are authorized to make or guarantee, subject to the requirements of 

§ 614.4200 of this part:

(a) 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

(b) Short- and intermediate-term loans and provide other similar financial assistance for a term 

of not more than 10 years (15 years for aquatic producers and harvesters).

(c) 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.

(d) 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) 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.
FCA Regulations (as of 2/24/17) 137

(ii) Interests in loans made under paragraph (b) of this part 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) of this section from 

institutions of the Farm Credit System;

(ii) Interests in loans that comply with the requirements of paragraph (b) 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 (c) 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.

[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 1281, Jan. 

10, 2002]

§ 614.4055 Federal Agricultural Mortgage Corporation loan participations.

Subject to the requirements of subpart H of this part 614:

(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.

[67 FR 1281, 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) 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.
FCA Regulations (as of 2/24/17) 138

(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.

(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.

[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.

(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 
FCA Regulations (as of 2/24/17) 139

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.

[55 FR 24883, June 19, 1990]

§ 614.4110 Transfer of direct lending authority to Federal land bank associations and agricultural 

credit 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.

[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]
FCA Regulations (as of 2/24/17) 140

§ 614.4125 Funding and discount relationships between Farm Credit Banks or agricultural credit 

banks and direct lender associations.

(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.

(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.

[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.

(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 
FCA Regulations (as of 2/24/17) 141

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.

[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:

(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 enterprise 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.

[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 
FCA Regulations (as of 2/24/17) 142

by the board, as well as in conjunction with its review and approval of the institution's operational and 

strategic business plan.

[46 FR 51879, Oct. 22, 1981, as amended at 54 FR 1150, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989. 

Redesignated at 62 FR 66818, Dec. 22, 1997]

§ 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 and ranchers and producers or harvesters of aquatic products under 

title I or II of the Act; and

(ii) Interests in participations made to farmers and 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 and ranchers and producers or harvesters of aquatic products under 

title I or II of the Act; and

(ii) Related services to farmers and ranchers and producers or harvesters of aquatic products 

under title I or II of the Act.

(b) Farm Credit bank policies. Each Farm Credit Bank and Agricultural Credit Bank must adopt 

written policies that direct:

(1) The board of each affiliated direct lender association to establish a program to provide sound 

and constructive credit and services to young, beginning, and small farmers and ranchers and producers or 

harvesters of aquatic products (YBS farmers and ranchers or YBS). The terms "bona fide farmer or 

rancher," and "producer or harvester of aquatic products" are defined in § 613.3000 of this chapter;

(2) Each affiliated direct lender association to include in its YBS farmers and ranchers program 

provisions ensuring coordination with other System institutions in the territory and other governmental 

and private sources of credit;

(3) Each affiliated direct lender association to provide, annually, a complete and accurate YBS 

farmers and ranchers operations and achievements report to its funding bank; and

(4) The bank to provide the agency a complete and accurate annual report summarizing the YBS 

program operations and achievements of its affiliated direct lender associations.

(c) 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. Such a program must include the following minimum components:

(1) A mission statement describing program objectives and specific means for achieving such 

objectives.
FCA Regulations (as of 2/24/17) 143

(2) Annual quantitative targets for credit to YBS farmers and ranchers that are based on an 

understanding of reasonably reliable demographic data for the lending territory. Such targets may 

include:

(i) Loan volume and loan number goals for "young," "beginning," and "small" farmers and 

ranchers in the territory;

(ii) Percentage goals representative of the demographics for "young," "beginning," and "small" 

farmers and ranchers in the territory;

(iii) Percentage goals for loans made to new borrowers qualifying as "young," "beginning," and 

"small" farmers and ranchers in the territory; or

(iv) Goals for capital committed to loans made to "young," "beginning," and "small" farmers and 

ranchers in the territory.

(3) Annual qualitative YBS goals that must include efforts to:

(i) Offer related services either directly or in coordination with others that are responsive to the 

needs of the "young," "beginning," and "small" farmers and ranchers in the territory;

(ii) Take full advantage of opportunities for coordinating credit and services offered with other 

System institutions in the territory and other governmental and private sources of credit who offer credit 

and services to those who qualify as "young," "beginning," and "small" farmers and ranchers; and

(iii) Implement effective outreach programs to attract YBS farmers and ranchers, which may 

include the use of advertising campaigns and educational credit and services programs beneficial to 

"young," "beginning," and "small" farmers and ranchers in the territory, as well as an advisory committee 

comprised of "young," "beginning," and "small" farmers and ranchers to provide views on how the credit 

and services of the direct lender association could best serve the credit and services needs of YBS farmers 

and ranchers.

(4) Methods to ensure that credit and services offered to YBS farmers and ranchers are provided 

in a safe and sound manner and within a direct lender association's risk-bearing capacity. Such methods 

could include customized loan underwriting standards, loan guarantee programs, fee waiver programs, or 

other credit enhancement programs.

(d) Review and approval of YBS programs. The YBS program of each direct lender association 

is subject to the review and approval of its funding bank. However, the funding bank's review and 

approval is limited to a determination that the YBS program contains all required components as set forth 

in paragraph (c) of this section. Any conclusion by the bank that a YBS program is incomplete must be 

communicated to the direct lender association in writing.

(e) YBS program and the operational and strategic business plan. Targets and goals outlined in 

paragraphs (c)(2) and (c)(3) 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). 

(f) YBS program internal controls. Each direct lender association must have internal controls 

that establish clear lines of responsibility for YBS program implementation, YBS performance results, 

and YBS quarterly reporting to the association's board of directors.

[69 FR 16470, Mar. 30, 2004]

§ 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.
FCA Regulations (as of 2/24/17) 144

(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;

(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.

[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.

(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.

[53 FR 35454, Sept. 14, 1988; redesignated at 75 FR 35968, June 24, 2010]
FCA Regulations (as of 2/24/17) 145

Subpart E - Loan Terms and Conditions

§ 614.4200 General requirements.

(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. 

(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.

[62 FR 51014, Sept. 30, 1997]

§ 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 
FCA Regulations (as of 2/24/17) 146

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:

(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.

[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 following conditions:

(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.

[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]

Subpart F - Collateral Evaluation Requirements

§ 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.
FCA Regulations (as of 2/24/17) 147

(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.

(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.
FCA Regulations (as of 2/24/17) 148

(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.

(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.

[59 FR 46730, Sept. 12, 1994]
FCA Regulations (as of 2/24/17) 149

§ 614.4245 Collateral evaluation policies.

(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;

(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.

[59 FR 46730, Sept .12, 1994; 62 FR 51015, Sept. 30, 1997]

§ 614.4250 Collateral evaluation standards.

(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

(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. 
FCA Regulations (as of 2/24/17) 150

(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.

[59 FR 46730, Sept. 12, 1994]

§ 614.4255 Independence requirements.

(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 Government-Sponsored 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.

[59 FR 46730, Sept. 12, 1994]

§ 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.
FCA Regulations (as of 2/24/17) 151

(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

(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.

[59 FR 46730, Sept. 12, 1994, as amended at 60 FR 2687, Jan. 11, 1995]
FCA Regulations (as of 2/24/17) 152

§ 614.4265 Real property evaluations.

(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.

(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.

[59 FR 46730, Sept. 12, 1994; 71 FR 65387, Nov. 8, 2006; 75 FR 35968, June 24, 2010]

§ 614.4266 Personal and intangible property evaluations.

(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.
FCA Regulations (as of 2/24/17) 153

[59 FR 46730, Sept. 12, 1994, as amended at 59 FR 50964, Oct. 6, 1994]

§ 614.4267 Professional association membership; competency.

(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 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.

[59 FR 46730, Sept. 12, 1994]

Subpart G – [Reserved]

Subpart G – [Reserved]

[62 FR 66818, Dec. 22, 1997]

Subpart H - Loan Purchases and Sales

§ 614.4325 Purchase and sale of interests in loans.

(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
FCA Regulations (as of 2/24/17) 154

(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.

(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;

(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:
FCA Regulations (as of 2/24/17) 155

(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.

(h) Transactions through agents. Transactions pertaining to purchases of loans, including the 

judgment 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.
FCA Regulations (as of 2/24/17) 156

[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 1281, Jan. 10, 2002; 76 FR 30250, May 25, 2011]
FCA Regulations (as of 2/24/17) 157

§ 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.

(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.

[57 FR 38247, Aug. 24, 1992; 67 FR 1281, Jan. 10, 2002]

§ 614.4335 Borrower stock requirements.

(a) In general. Except as provided in paragraph (b) of this section, a borrower shall meet the 

institution's 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.
FCA Regulations (as of 2/24/17) 158

(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.

[62 FR 63646, Dec. 2, 1997]

§ 614.4336 [Removed]

[69 FR 10906, Mar. 9, 2004]

§ 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) The selling institution shall disclose to the borrower at least 10 days prior to the borrower's 

next payment date:

(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 nonparticipation 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.

[57 FR 38247, Aug. 24, 1992]

Subpart I - Loss-Sharing Agreements

§ 614.4340 General.

(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.

[49 FR 48910, Dec. 17, 1984, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989]
FCA Regulations (as of 2/24/17) 159

§ 614.4341 [Removed]

[75 FR 35968, June 24, 2010]

§ 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

§ 614.4350 Definitions.

For purposes of this subpart, the following definitions shall apply:

(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.

[58 FR 40321, July 28, 1993, as amended at 63 FR 36547, July 7, 1998; 64 FR 34517, June 28, 1999]

§ 614.4351 Computation of lending and leasing limit base.

(a) Lending and leasing limit base. An institution's lending and leasing limit base is composed 

of the permanent capital of the institution, as defined in § 615.5201 of this chapter, with adjustments 

applicable to the institution provided for in § 615.5207 of this chapter, and with the following further 

adjustments:

(1) Where one institution invests in another institution in connection with the sale of a loan 

participation interest, the amount of investment in the institution purchasing this participation interest that 

is owned by the institution originating the loan shall be counted in the lending and leasing limit base of 
FCA Regulations (as of 2/24/17) 160

the originating institution and shall not be counted in the lending and leasing limit base of the purchasing 

institution.

(2) Any amounts of preferred stock not eligible to be included in total capital as defined in § 628.2

of this chapter must be deducted from the lending limit base, except that otherwise 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 and leasing limit base will be calculated on a monthly 

basis as of the preceding month end.

[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]

§ 614.4352 Farm Credit Banks and agricultural credit banks.

(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.

(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.

[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, 1993, as amended at 64 FR 34517, June 28, 1999; 76 FR 29997, May 24, 2011]

§ 614.4354 [Removed]

[58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999; removed at 76 FR 29997, May 

24, 2011]

§ 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: 

(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.
FCA Regulations (as of 2/24/17) 161

(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.

[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]

§ 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: 

(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.

[58 FR 40321, July 28, 1993, as redesignated at 64 FR 34517, June 28, 1999]

§ 614.4358 Computation of obligations.

(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; 
FCA Regulations (as of 2/24/17) 162

(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:

(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.

[58 FR 40321, July 28, 1993, as redesignated and amended at 64 FR 34517, June 28, 1999; 67 FR 1281, 

Jan. 10, 2002]

§ 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.
FCA Regulations (as of 2/24/17) 163

(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 borrowers 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 exists:

(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 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.

[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]
FCA Regulations (as of 2/24/17) 164

TABLE 1

Attribution Rule Criteria Per § 614.4359 Attribute

(A) LIABILITY

* to the extent of the borrower's liability

Borrower has primary or secondary 

liability

Borrower's liability is taken out of an 

abundance of caution

Look-through notes (BC only)

Yes. *

No. *

No.

(B) FINANCIAL INTERDEPENDENCE

(Economic survival of the borrower's 

operations will materially impact economic 

survival of the related borrowers operation)

SOURCE OF REPAYMENT:

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.

COMMINGLED OPERATIONS:

Assets or operations of the borrowers are 

commingled and cannot be separated 

without materially impacting the 

borrowers' repayment capacity.

Yes.

Yes.

(C) CONTROL

(The borrower, directly or indirectly, controls 

the related borrower).

The borrower owns 50 percent or more of 

the stock of 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 management placement 

or marketing agreements, or 

providing services such as insurance 

carrier or bookkeeping.

Yes.

Yes.
FCA Regulations (as of 2/24/17) 165

§614.4360 Lending and leasing limit violations.

(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.

[58 FR 40321, July 28, 1993, as redesignated and amended at 64 FR 34517, June 28, 1999]

§ 614.4361 Transition.

(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.

[58 FR 40321, July 28, 1993, as redesignated and amended at 64 FR 34517, June 28, 1999]
FCA Regulations (as of 2/24/17) 166

§ 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) 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 

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, out-of-territory 

loans, counterparties, or weaknesses in due diligence practices.

[76 FR 29997, May 24, 2011]

Subpart K – [Removed]

Subpart K – [Removed]

[69 FR 16459, Mar. 30, 2004]

Subpart L – [Removed]

Subpart L – [Removed] 

[69 FR 10906, Mar. 9, 2004]

Subpart M - Loan Approval Requirements

§ 614.4450 General requirements.

Authority for loan approval is vested in the Farm Credit banks and associations.
FCA Regulations (as of 2/24/17) 167

[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.

(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 comakers in excess of an amount prescribed by an appropriate 

bank 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]

§ 614.4470 Loans subject to bank approval.

(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.
FCA Regulations (as of 2/24/17) 168

(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.

[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 N – [Reserved] 

[75 FR 35968, June 24, 2010]

§ 614.4511 [Removed and Reserved]

[71 FR 5763, Feb. 2, 2006]

§ 614.4512 [Removed]

[75 FR 35968, June 24, 2010]

§§ 614.4514-614.4522 [Removed]

[69 FR 10906, Mar. 9, 2004]

§ 614.4525 General.

(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.

(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.
FCA Regulations (as of 2/24/17) 169

(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.

[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:

(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.

[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

§ 614.4540 Other financing institution access to Farm Credit Banks and agricultural credit banks 

for funding, discount, and other similar financial assistance.

(a) Basic criteria for access. Any national bank, State bank, trust company, agricultural 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 
FCA Regulations (as of 2/24/17) 170

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.

[63 FR 36547, July 7, 1998, as amended at 69 FR 29863, May 26, 2004]

§ 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.

 (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.
FCA Regulations (as of 2/24/17) 171

(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.

[69 FR 10906, Mar. 9, 2004, as amended at 69 FR 29863, May 26, 2004]

§ 614.4570 Recourse and security.

(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.

(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.

[63 FR 36548, July 7, 1998]

§ 614.4580 Limitation on the extension of funding, discount and other similar financial assistance 

to an OFI.

(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 
FCA Regulations (as of 2/24/17) 172

virtue of such additional indebtedness its aggregate liabilities, direct or contingent, will exceed the 

limitation described in paragraph (a) of this section.

[63 FR 36548, July 7, 1998]

§ 614.4590 Equitable treatment of OFIs and Farm Credit System associations.

 (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. 

(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.

[63 FR 36548, 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.
FCA Regulations (as of 2/24/17) 173

[63 FR 36548, July 7, 1998]

Subpart Q - Banks for Cooperatives and Agricultural Credit Banks Financing 

International Trade

§ 614.4700 Financing foreign trade receivables.

(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 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.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24886, June 19, 1990; 62 FR 4445, Jan. 30, 1997]
FCA Regulations (as of 2/24/17) 174

§ 614.4710 [Removed]

[71 FR 65387, Nov. 8, 2006]

§ 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.

(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.

(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.

[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.

(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.
FCA Regulations (as of 2/24/17) 175

[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]

§ 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 to 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 safe-guarding 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.

(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.
FCA Regulations (as of 2/24/17) 176

(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.

[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.

(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.

[54 FR 1155, Jan. 12, 1989]

Subpart S - Flood Insurance Requirements

§ 614.4920 Purpose and scope.

(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.

[80 FR 43254, July 21, 2015]

§ 614.4925 Definitions.

For purposes of this subpart:

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. 

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. 
FCA Regulations (as of 2/24/17) 177

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. 

NFIP means the National Flood Insurance Program authorized under the 1968 Act. 

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. 

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. 

[80 FR 43254, July 21, 2015]

§ 614.4930 Requirement to purchase flood insurance where available.

(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 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.

[80 FR 43254, July 21, 2015]

§ 614.4932 Exemptions. 

The flood insurance requirement prescribed by § 614.4930 does not apply with respect to:

(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
FCA Regulations (as of 2/24/17) 178

(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.

[80 FR 43255, July 21, 2015]

§ 614.4935 Escrow requirement.

(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;

(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 
FCA Regulations (as of 2/24/17) 179

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 

(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.

[80 FR 43257, July 21, 2015]
FCA Regulations (as of 2/24/17) 180

§ 614.4940 Required use of standard flood hazard determination form.

(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.

[80 FR 43255, July 21, 2015]

§ 614.4945 Forced placement of flood insurance.

(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.

[80 FR 43255, July 21, 2015]

§ 614.4950 Determination fees.

(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 
FCA Regulations (as of 2/24/17) 181

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: 

(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.

[80 FR 43255, July 21, 2015]

§ 614.4955 Notice of special flood hazards and availability of Federal disaster relief assistance.

(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. 
FCA Regulations (as of 2/24/17) 182

(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. 

[80 FR 43256, July 21, 2015, as amended by 80 FR 43258, July 21, 2015]

§ 614.4960 Notice of servicer's identity.

(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. 

[80 FR 43256, July 21, 2015]
FCA Regulations (as of 2/24/17) 183

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%).

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:
FCA Regulations (as of 2/24/17) 184

(1) the outstanding principal balance of the loan; or

(2) the maximum amount of coverage allowed for the type of property under the NFIP.

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.
FCA Regulations (as of 2/24/17) 185

[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.]

___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 nonparticipating 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]
FCA Regulations (as of 2/24/17) 186

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]
FCA Regulations (as of 2/24/17) 187

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, 5.17, 6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 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, 2278b, 2278b-6, 2279aa, 

2279aa-3, 2279aa-4, 2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a), 

Pub. L. 100-233, 101 Stat. 1568, 1608; sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 

(15 U.S.C. 78o-7 note).

Subpart A - Funding

§ 615.5000 General responsibilities.

(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 Systems funding activities, 

pursuant to section 5.10 of the Act.

[54 FR 1158, Jan. 12, 1989]

§ 615.5010 Funding Corporation.

(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.

[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; 75 FR 35968, June 24, 2010]
FCA Regulations (as of 2/24/17) 188

§ 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.

[37 FR 11434, June 7, 1972, as amended at 54 FR 1159, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989]

Subpart B - Collateral

§ 615.5045 Definitions.

(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.

[54 FR 1159, Jan. 12, 1989]

§ 615.5050 Collateral requirements.

(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 loan 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 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 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 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.

(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:
FCA Regulations (as of 2/24/17) 189

(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.

[54 FR 1159, Jan. 12, 1989]

§ 615.5060 Special collateral requirements.

(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:

(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).

[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 
FCA Regulations (as of 2/24/17) 190

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.

[54 FR 1159, Jan. 12, 1989]

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:

(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.

[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) 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.

(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.

[54 FR 1160, Jan. 12, 1989]

§ 615.5102 Issuance of debt obligations through the Funding Corporation.

(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 
FCA Regulations (as of 2/24/17) 191

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.

[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:

(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.

[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.

[43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978]

§ 615.5120 Purchase eligibility requirement.

(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 
FCA Regulations (as of 2/24/17) 192

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 co-owner, 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 co-owner or beneficiary. Co-ownership may not involve a fiduciary or private organization.

(5) In the co-ownership form the connective "or" shall serve the same purpose as "joint 

tenants with right of survivorship."

[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]

§ 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 securities that are defined in 

this section.

Eurodollar time deposit means a non-negotiable deposit denominated in United States dollars and 

issued by an overseas branch of a United States bank or by a foreign bank outside the United States.

Final maturity means the last date on which the remaining principal amount of a security is due 

and payable (matures) to the registered owner. It does not mean the call date, the expected average life, 

the duration, or the weighted average maturity.
FCA Regulations (as of 2/24/17) 193

General obligations of a State or political subdivision means:

(1) The full faith and credit obligations of a State, the District of Columbia, the Commonwealth 

of Puerto Rico, a territory or possession of the United States, or a political subdivision thereof that 

possesses general powers of taxation, including property taxation; or

(2) An obligation that is unconditionally guaranteed by an obligor possessing general powers of 

taxation, including property taxation.

Government agency means the United States Government or an agency, instrumentality, or 

corporation of the United States Government whose obligations are fully and explicitly insured or 

guaranteed as to the timely repayment of principal and interest by the full faith and credit of the United 

States Government.

Government-sponsored agency means an agency, instrumentality, or corporation chartered or 

established to serve public purposes specified by the United States Congress but whose obligations are 

not fully and explicitly insured or guaranteed by the full faith and credit of the United States Government, 

including but not limited to any Government-sponsored enterprise.

Liquid investments are assets that can be promptly converted into cash without significant loss to 

the investor. In the money market, a security is liquid if the spread between its bid and ask price is 

narrow and a reasonable amount can be sold at those prices.

Loans are defined by § 621.2(f) 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 securities 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 mortgage securities, or other multiclass mortgage securities. 

Nationally Recognized Statistical Rating Organization (NRSRO) means a rating organization that 

the Securities and Exchange Commission recognizes as an NRSRO.

Revenue bond means an obligation of a municipal government that finances a specific project or 

enterprise but it is not a full faith and credit obligation. The obligor pays a portion of the revenue 

generated by the project or enterprise to the bondholders.

Weighted average life (WAL) means the average time until the investor receives the principal on a 

security, weighted by the size of each principal payment and calculated under specified prepayment 

assumptions.

You means a Farm Credit bank, association, or service corporation.

[64 FR 28895, May 28, 1999, as amended at 70 FR 51589, Aug. 31, 2005; 77 FR 66370, Nov. 5, 2012]

§ 615.5132 Investment purposes.

(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§ 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 
FCA Regulations (as of 2/24/17) 194

purpose of this calculation, loans include accrued interest and do not include any allowance for loan 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.

[77 FR 66371, Nov. 5, 2012]

§ 615.5133 Investment management.

(a) Responsibilities of board of directors. Your board of directors must adopt written 

policies for managing your 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 annually, 

the 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 and be documented.

(b) Investment policies--general requirements. Your board's written 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 classes of 

investments. Furthermore, your investment policies must address the means for reporting, and approvals 

needed for, exceptions to established policies. Investment policies must be sufficiently detailed, 

consistent with, and appropriate for the amounts, types, and risk characteristics of your investments.

(c) Investment policies--risk tolerance. Your investment policies must establish risk limits 

for the various types, classes, and sectors of eligible investments and for the entire investment portfolio. 

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 

your institutional 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. 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. 

Each association or service corporation that holds significant investments and each bank must establish 

risk limits in its investment policies for these four types of risk.

(1) Credit risk. Investment policies must establish:

(i) Credit quality standards, limits on counterparty risk, and risk diversification standards 

that limit concentrations. Limits must be set for single or related counterparty(ies), a geographical area, 

industries, 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. Investment policies must set market risk limits for specific types of 

investments and for the investment portfolio.

(3) Liquidity risk. Investment policies must describe the liquidity characteristics of eligible 

investments that you will hold to meet your liquidity needs and other institutional 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.
FCA Regulations (as of 2/24/17) 195

(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. 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 function, 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) Eligibility, purpose, and compliance with investment policies. Before you purchase an 

investment, you must conduct sufficient due diligence to determine whether it is eligible under § 

615.5140, is for an authorized purpose under § 615.5132 or § 615.5142, as applicable, and complies with 

your board's investment policies. You must document your assessment and the information used in your 

assessment. Your board must approve your decision to hold an investment that does not comply with 

your investment policies.

(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 assessment of each investment at the time of purchase must at a 

minimum include an evaluation of credit risk, liquidity risk, market risk, interest rate risk, and the 

underlying collateral of the investment. This assessment must be commensurate with the complexity and 

risk in the investment. You must perform stress testing on any investment that is structured or that has 

uncertain cash flows, including all mortgage-backed securities and asset-backed securities, before you 

purchase it. The stress test must be commensurate with the risk and complexity of the investment and 

must enable you to determine that the investment does not expose your capital, earnings, or liquidity to 

risks that are greater than those specified in your investment policies. The stress testing must comply 

with the requirements in paragraph (f)(4)(ii) of this section.

(2) Ongoing 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 investment in your portfolio and in your 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 portfoliowide basis, do not expose your capital, earnings, or liquidity to risks that exceed the risk tolerance 

specified in your investment policies. If your portfolio risk exceeds your investment policy limits, you 

must develop a plan to comply with those limits.

(ii) Your stress tests must be defined in a board-approved policy and must include defined 

parameters for the types of securities you purchase. The stress tests must be comprehensive and 

appropriate for the risk profile of your institution. 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 
FCA Regulations (as of 2/24/17) 196

rate volatility assumptions, when you apply your stress tests. 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, your management must report on the following to your board of directors or a 

designated board committee:

(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 realized during the quarter on individual investments 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 (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 your investment policies; including the expected effect of these investments on 

your capital, earnings, liquidity, and collateral position; and

(9) The terms and status of any required divestiture plan or risk reduction plan.

[77 FR 66371, Nov. 5, 2012]

§ 615.5134 Liquidity reserve.

(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.

(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
FCA Regulations (as of 2/24/17) 197

(3) Days 31 through 90 with Level 1, Level 2, and Level 3 instruments.

Liquidity Level Instruments Discount (Multiply by)

Level 1 · Cash, including cash due from traded 

but not yet settled debt

· Overnight money market investments

· Obligations of the United States with a 

final remaining maturity of 3 years or 

less

· Government-sponsored agency senior 

debt securities that mature within 60 

days, excluding securities issued by the 

Farm Credit System

· Diversified investment funds comprised 

exclusively of Level 1 instruments

100 percent

100 percent

97 percent

95 percent

95 percent

Level 2 · Additional Level 1 investments

· Obligations of the United States with a 

final remaining maturity of more than 3 

years

· Mortgage-backed securities that are 

explicitly backed by the full faith and 

credit of the United States as to the 

timely repayment of principal and 

interest

· Diversified investment funds comprised 

exclusively of Levels 1 and 2 

instruments

Discount for each Level 1 

investment applies.

97 percent

95 percent

95 percent

Level 3 · Additional Level 1 or Level 2 

investments

· Government-sponsored agency senior 

debt securities with maturities 

exceeding 60 days, excluding senior 

debt securities of the Farm Credit 

System

· Government-sponsored agency 

mortgage-backed securities that the 

timely repayment of principal and 

interest are not explicitly backed by the 

full faith and credit of the United 

States.

· Money market instruments 

maturing within 90 days

· Diversified investment funds 

comprised exclusively of levels 1, 

2, and 3 instruments 

Discount for each Level 1 or 

Level 2 investment applies.

93 percent for all instruments in 

Level 3
FCA Regulations (as of 2/24/17) 198

(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;

(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.

 

[78 FR 23438, Apr. 18, 2013, as corrected by 78 FR 26701, May 8, 2013]
FCA Regulations (as of 2/24/17) 199

§ 615.5135 [Removed]

[77 FR 66372, Nov. 5, 2012]

§ 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:

(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.

[77 FR 66372, Nov. 5, 2012]

§ 615.5140 Eligible investments.

(a) You may hold only the following types of investments listed in the Investment Eligibility 

Criteria Table. These investments must be denominated in United States dollars.

Investment Eligibility Criteria Table

Asset Class Final Maturity 

Limit

NRSRO 

Credit Rating

Other

Requirements

Investment 

Portfolio Limit

(1) Obligations of the United 

States

· Treasuries

· Agency securities (except 

mortgage securities)

· Other obligations fully 

insured or guaranteed by 

the United States, its 

agencies, instrumentalities 

and corporations

None NA None None

(2) Municipal Securities

· General obligations 10 years One of the 

highest two

None None

· Revenue bonds 5 years Highest At the time of 

purchase, you must 

document that the 

issue is actively 

traded in an 

established secondary 

market

15%

(3) International and 

Multilateral Development 

Bank Obligations

None None The United States 

must be a voting 

shareholder

None
FCA Regulations (as of 2/24/17) 200

(4) Money Market 

Instruments

· Federal funds 1 day or 

continuously 

callable up to 

100 days

One of the two 

highest shortterm

None None

· Negotiable certificates of 

deposit

1 year One of the two 

highest shortterm

None None

· Bankers acceptances None One of the two 

highest shortterm

Issued by a 

depository institution

None

· Commercial paper 270 days Highest shorttermNone None

· Non-callable Term 

Federal funds and 

Eurodollar time 

deposits

100 days Highest shorttermNone 20%

· Master notes 270 days Highest shorttermNone 20%

· Repurchase agreements 

collateralized by eligible 

investments or 

marketable securities 

rated in the highest credit 

rating category by an 

NRSRO

100 days NA None None

(5) Mortgage Securities

· Issued or guaranteed by 

the United States

None NA None None

· Fannie Mae or Freddie 

Mac mortgage securities

None NA None 50%

· Non-Agency securities 

that comply 15 U.S.C. 

77d(5) or 15 U.S.C. 

78c(a)(41)

None Highest None 15%

· Commercial mortgagebacked securitiesNone Highest · Security must be 

backed by a 

minimum of 100 

loans.

· Loans from a 

single mortgagor 

cannot exceed 5% 

of the pool

· Pool must be 

geographically 

diversified 

pursuant to the 

board's policy.
FCA Regulations (as of 2/24/17) 201

(6) Asset-Backed Securities 

secured by:

· Credit card receivables

· Automobile loans

· Home equity loans

· Wholesale automobile 

dealer loans

· Student loans

· Equipment loans

· Manufactured housing 

loans

None Highest 5-year WAL for fixed 

rate or floating rate 

ABS at their 

contractual interest 

rate caps

7-year WAL for 

floating rate ABS that 

remain below their 

contractual interest 

rate cap

20%

(7) Corporate Debt Securities 5 years One of the two 

highest

Cannot be convertible 

to equity securities

20%

(8) Diversified Investment 

Funds

Shares of an investment 

company registered under 

section 8 of the Investment 

Company Act of 1940

NA NA The portfolio of the 

investment company 

must consist solely of 

eligible investments 

authorized by §§ 

615.5140 and 

615.5174.

The investment 

company’s risk and 

return objectives and 

use of derivatives 

must be consistent 

with FCA guidance 

and your investment 

policies.

None, if your 

shares in each 

investment 

company 

comprise 10% or 

less of your 

portfolio. 

Otherwise 

counts toward 

limit for each 

type of 

investment.

(b) Rating of foreign countries. Whenever the obligor or issuer of an eligible investment is 

located outside the United States, the host country must maintain the highest sovereign rating for political 

and economic stability by an NRSRO.

(c) Marketable securities. All eligible investments, except money market instruments, must be 

marketable. An eligible investment is marketable if you can sell it quickly at a price that closely reflects 

its fair value in an active and universally recognized secondary market.

(d) Obligor limits. 

(1) You may not invest more than 20 percent of your total capital in eligible investments issued 

by any single institution, issuer, or obligor. This obligor limit does not apply to obligations, including 

mortgage securities, that are issued or guaranteed as to interest and principal by the United States, its 

agencies, instrumentalities, or corporations.

(2) Obligor limits for your holdings in an investment company. You must count securities that 

you hold through an investment company towards the obligor limit of this section unless the investment 

company's holdings of the security of any one issuer do not exceed five (5) percent of the investment 

company’s total portfolio. 

(e) Other investments approved by the FCA. You may purchase and hold other 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.

[64 FR 28896, May 28, 1999, as amended at 77 FR 66372, Nov. 5, 2012]
FCA Regulations (as of 2/24/17) 202

§ 615.5141 [Removed]

[77 FR 66374, Nov. 5, 2012]

§ 615.5142 Association investments.

An association may hold eligible investments listed in § 615.5140, with the approval of its funding 

bank, for the purposes of reducing interest rate risk and managing surplus short-term funds. Each bank 

must review annually the investment portfolio of every association that it funds.

[64 FR 28899, May 28, 1999]

§ 615.5143 Management of ineligible investments and reservation of authority to require 

divestiture.

(a) Investments ineligible when purchased. Investments that do not satisfy the eligibility 

criteria set forth in § 615.5140 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 the 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:

(1) It must not be used to satisfy your liquidity requirement(s) under § 615.5134;

(2) It must continue to be included in the § 615.5132 investment portfolio limit calculation; 

and

(3) It must be excluded as collateral under § 615.5050.

(b) Investments that no longer satisfy eligibility criteria. If you determine that an investment 

(that satisfied the eligibility criteria set forth in § 615.5140 when purchased) no longer satisfies the 

eligibility criteria, you may continue to hold it, subject to the following requirements:

(1) You must notify us within 15 calendar days after such determination; 

(2) You must not use the investment to satisfy your liquidity requirement(s) under § 

615.5134;

(3) You must continue to include the investment in the § 615.5132 investment portfolio limit 

calculation;

(4) You may continue to hold the investment as collateral under § 615.5050 at the lower of 

cost or market value; and

(5) You must develop a plan to reduce the investment's risk to you.

(c) Reservation of authority. FCA retains the authority to require you to divest of any 

investment at any time for failure to comply with § 615.5132(a) or § 615.5142 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 your financial condition and performance.

[77 FR 66374, Nov. 5, 2012, as amended at 81 FR 49773, July 28, 2016]
FCA Regulations (as of 2/24/17) 203

§ 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 banks for its own account and not on behalf of its members. The bank for cooperatives 

or agricultural credit banks 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. 

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.

(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;

 (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
FCA Regulations (as of 2/24/17) 204

(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.

[64 FR 49961, Sept. 15, 1999]

§ 615.5172 Production credit association and agricultural credit association investment in farmers' 

notes given to cooperatives and dealers.

(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.

[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 
FCA Regulations (as of 2/24/17) 205

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(f)(1)(iii) and § 

615.5133(f)(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.

[64 FR 28899, May 28, 1999, as amended at 70 FR 51590, Aug. 31, 2005; 77 FR 66374, Nov. 5, 2012]

§ 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

§ 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 long-range 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:
FCA Regulations (as of 2/24/17) 206

(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(f)(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.

(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.

[77 FR 66374, Nov. 5, 2012]

§ 615.5181 [Removed]

[77 FR 66375, Nov. 5, 2012]

§ 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

§ 615.5200 Capital planning.

(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 
FCA Regulations (as of 2/24/17) 207

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 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. Such bylaws 

or resolutions must include the information described in paragraph (d) of this section.

(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);

(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 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.

(d) In order to include otherwise eligible purchased and allocated equities in tier 1 capital and 

tier 2 capital under part 628 of this chapter, a System institution must adopt a capitalization bylaw, or its 

board of directors must adopt a resolution, which resolution must be re-affirmed by the board on an 

annual basis in the capital adequacy plan, in which the institution undertakes the following:

(1) The institution shall obtain prior FCA approval under § 628.20(f) of this chapter before:

(i) Redeeming or revolving equities included in CET1 capital;

(ii) Redeeming or calling equities included in additional tier 1 capital; and

(iii) Redeeming, revolving, or calling instruments included in tier 2 capital other than limited life 

preferred stock or subordinated debt on the maturity date.

(2) The institution shall have a minimum redemption or revolvement period of 7 years for 

equities included in CET1 capital, a minimum no-call or redemption period of 5 years for additional tier 1 

capital, and a minimum no-call, redemption, or revolvement period of 5 years for tier 2 capital.

(3) The institution shall obtain prior FCA approval before:

(i) Redesignating URE equivalents as equities that the institution may exercise its discretion to 

redeem other than upon dissolution or liquidation;

(ii) Removing equities or other instruments from CET1, additional tier 1, or tier 2 capital other 

than through repurchase, cancellation, redemption or revolvement; and

(iii) 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.

(4) 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.

[81 FR 49773, July 28, 2016]

§ 615.5201 Definitions.

For the purpose of this subpart, the following definitions apply:
FCA Regulations (as of 2/24/17) 208

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;

(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 allowance for loan 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, Farm Credit 

Leasing Services Corporation, and their successors, and any other institution chartered by the FCA that 

the FCA determines should be considered a System institution for the purposes of this subpart.
FCA Regulations (as of 2/24/17) 209

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).

[81 FR 49773, July 28, 2016]

§ 615.5205 Minimum permanent capital standard.

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]

§ 615.5206 Permanent capital ratio computation.

(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 riskadjusted asset base (the denominator) as defined in § 615.5201, to derive a ratio expressed as a 

percentage.

[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) 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 
FCA Regulations (as of 2/24/17) 210

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.

(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]

[81 FR 49774, July 28, 2016]

§ 615.5208 Allotment of allocated investments.

(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.

(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 
FCA Regulations (as of 2/24/17) 211

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.

[81 FR 49775, July 28, 2016]

§ 615.5209 [Removed and reserved]

[81 FR 49775, July 28, 2016]

§ 615.5210 [Removed and reserved]

[81 FR 49775, July 28, 2016]
FCA Regulations (as of 2/24/17) 212

§ 615.5211 [Removed and reserved]

[81 FR 49775, July 28, 2016]

§ 615.5212 [Removed and reserved]

[81 FR 59775, July 28, 2016]

§ 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]

[62 FR 4446, Jan. 30, 1997]

Subpart I - Issuance of Equities

§ 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.

(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 
FCA Regulations (as of 2/24/17) 213

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 in subpart H of this part, part 628 of this 

chapter, 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.

[81 FR 49775, July 28, 2016]

§ 615.5230 Implementation of cooperative principles.

(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 

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.
FCA Regulations (as of 2/24/17) 214

(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 stockholderelected 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.

(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.

[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.

(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:
FCA Regulations (as of 2/24/17) 215

(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.

[81 FR 49776, July 28, 2016]

§ 615.5245 Limitations on association preferred stock.

(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.

[70 FR 53908, Sept. 13, 2005]

§ 615.5250 Disclosure requirements for sales of borrower stock.

(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;

(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.

[81 FR 49776, July 28, 2016]
FCA Regulations (as of 2/24/17) 216

§ 615.5255 Disclosure and review requirements for sales of other equities.

(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 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.

[81 FR 49776, July 28, 2016]
FCA Regulations (as of 2/24/17) 217

Subpart J - Retirement of Equities and Payment of Dividends

§ 615.5260 Retirement of eligible borrower stock.

(a) Definitions. For the purposes of this subpart the following definitions shall apply:

(1) Eligible borrower 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 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.

[53 FR 40048, Oct. 13, 1988, as amended at 54 FR 7029, Feb. 16, 1989; 62 FR 4447, Jan. 30, 1997; 63 

FR 39228, July 22, 1998]

§ 615.5270 Retirement of other equities.

(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 at-risk 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;
FCA Regulations (as of 2/24/17) 218

(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.

[81 FR 49777, July 28, 2016]

§ 615.5280 Retirement in event of default.

(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 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.

(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.
FCA Regulations (as of 2/24/17) 219

(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.

[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.

(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.

[81 FR 49777, July 28, 2016]

§ 615.5295 Payment of dividends.

(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.

[81 FR 49777, July 28, 2016]
FCA Regulations (as of 2/24/17) 220

Subpart K [Removed and reserved 

§ 615.5301 [Removed and reserved]

[81 FR 49777, July 28, 2016]

§ 615.5330 [Removed and reserved]

[81 FR 49777, July 28, 2016]

§ 615.5335 [Removed and reserved]

[81 FR 49777, July 28, 2016]

§ 615.5336 [Removed and reserved]

[81 FR 49777, July 28, 2016]

Subpart L - Establishment of Minimum Capital Ratios for an Individual Institution

§ 615.5350 General--Applicability.

(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.

[62 FR 4448, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998; 81 FR 49777, July 28, 2016]
FCA Regulations (as of 2/24/17) 221

§ 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:

(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 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.

[62 FR 4449, Jan. 30, 1997]

§ 615.5352 Procedures.

(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.

(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 
FCA Regulations (as of 2/24/17) 222

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.

[62 FR 4449, 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.

[62 FR 4449, Jan. 30, 1997]

§ 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.

[62 FR 4449, Jan. 30, 1997, as amended at 81 FR 49778, July 28, 2016]

Subpart M - Issuance of a Capital Directive

§ 615.5355 Purpose and scope.

(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.
FCA Regulations (as of 2/24/17) 223

(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.

[62 FR 4450, 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:

(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.

[62 FR 4450, Jan. 30, 1997]

§ 615.5357 Response to notice.

(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 

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.

[62 FR 4450, Jan. 30, 1997]

§ 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.

[62 FR 4450, Jan. 30, 1997]
FCA Regulations (as of 2/24/17) 224

§ 615.5359 Issuance of a 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.

[62 FR 4450, Jan. 30, 1997]

§ 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.

[62 FR 4450, Jan. 30, 1997]

§ 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.

[62 FR 4450, Jan. 30, 1997]

Subpart N - [Reserved

Subpart N - [Reserved]

Subpart O - Book-Entry Procedures for Farm Credit Securities

§ 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.
FCA Regulations (as of 2/24/17) 225

(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.

(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 part 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.
FCA Regulations (as of 2/24/17) 226

(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.

[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:

(a) Farm Credit banks operating under the same title of the Act may issue consolidated 

securities in book-entry 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 bearerdefinitive form.

[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.

(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:

(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.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

§ 615.5453 Law governing other interests.

(a) To the extent not inconsistent with these regulations, the law (not including the conflictof-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;
FCA Regulations (as of 2/24/17) 227

(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.

(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 bookentry security is a security entitlement.

[61 FR 67192, Dec. 20, 1996]

§ 615.5454 Creation of participant's security entitlement; security interests.

(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.
FCA Regulations (as of 2/24/17) 228

(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 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.

[61 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.

(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.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]
FCA Regulations (as of 2/24/17) 229

§ 615.5456 Authority of Federal Reserve Banks. 

(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 Book-entry System under this subpart.

[61 FR 67192, Dec. 20, 1996]

§ 615.5457 Withdrawal of eligible book-entry securities for conversion to definitive form.

(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.

[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 these regulations 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.

[61 FR 67192, Dec. 20, 1996]

§ 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 
FCA Regulations (as of 2/24/17) 230

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.

[61 FR 67192, Dec. 20, 1996]

§ 615.5460 Additional provisions.

(a) Additional requirements. In any case or any class of cases arising under these 

regulations, 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.

[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.

(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.

[61 FR 67192, Dec. 20, 1996]

§ 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 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 
FCA Regulations (as of 2/24/17) 231

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.)

[61 FR 67192, Dec. 20, 1996]

Subpart P - Global Debt Securities 

§ 615.5500 Definitions.

In this subpart, unless the context otherwise requires or indicates:

(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.

[60 FR 57916, Nov. 24, 1995]

§ 615.5502 Issuance 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.

[60 FR 57916, 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 - [Removed and Reserved

§ 615.5560 [Removed and Reserved]

[75 FR 35968, June 24, 2010]
FCA Regulations (as of 2/24/17) 232

Subpart S - Federal Agricultural Mortgage Corporation Securities

§ 615.5570 Book-entry procedures for Federal Agricultural Mortgage Corporation Securities.

(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.

(b) Farmer Mac, either in its own name or through an affiliate controlled or owned by Farmer 

Mac, is authorized by section 8.6 or 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.

[61 FR 31392, June 20, 1996, as amended at 61 FR 67195, Dec. 20, 1996]
FCA Regulations (as of 2/24/17) 233

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).

§ 616.6000 Definitions.

For the purposes of this part, the following definitions apply:

(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

(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.

[64 FR 34517, June 28, 1999]

§ 616.6100 Purchase and sale of interests in leases.

(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
FCA Regulations (as of 2/24/17) 234

(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

(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, 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."

[64 FR 34517, June 28, 1999]

§ 616.6200 Out-of-territory leasing.

A System institution may make leases outside its chartered territory.

[64 FR 34519, June 28, 1999]

§ 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 
FCA Regulations (as of 2/24/17) 235

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: 

(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;

(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.

[64 FR 34519, June 28, 1999]

§ 616.6400 Documentation.

Each institution must document that any asset it leases is within its statutory authority.

[64 FR 34519, June 28, 1999]

§ 616.6500 Investment in leased assets.

An institution may acquire property to be leased that is consistent with current or planned leasing 

programs.

[64 FR 34519, June 28, 1999]

§ 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.

[64 FR 34519, June 28, 1999]

§ 616.6700 Stock purchase requirements.

(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.

[64 FR 34519, June 28, 1999]
FCA Regulations (as of 2/24/17) 236

§ 616.6800 Disclosure requirements.

(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.

[64 FR 34519, June 28, 1999]
FCA Regulations (as of 2/24/17) 237

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).

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:

(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.
FCA Regulations (as of 2/24/17) 238

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 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.

[69 FR 10907, Mar. 9, 2004; as amended by 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.

[69 FR 10908, Mar. 9, 2004]

§ 617.7010 May borrower rights be waived?

(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.

[69 FR 10908, Mar. 9, 2004; 70 FR 18968, Apr. 12, 2005]
FCA Regulations (as of 2/24/17) 239

§ 617.7015 What happens to borrower rights when a loan is sold?

(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.

[69 FR 10908, Mar. 9, 2004]

Subpart B - Disclosure of Effective Interest Rates

§ 617.7100 Who must make and who is entitled to receive an effective interest rate disclosure?

(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.
FCA Regulations (as of 2/24/17) 240

[69 FR 16459, Mar. 30, 2004]

§ 617.7105 When must a qualified lender disclose the effective interest rate to a borrower?

(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.

[69 FR 16459, Mar. 30, 2004]

§ 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.

[69 FR 16459, Mar. 30, 2004]

§ 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."

[69 FR 16459, Mar. 30, 2004]

§ 617.7120 How should a qualified lender present the disclosures to a borrower?

A qualified lender must:

(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.
FCA Regulations (as of 2/24/17) 241

[69 FR 16459, Mar. 30, 2004]

§ 617.7125 How should a qualified lender determine the effective interest rate?

(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.

[69 FR 16459, Mar. 30, 2004]

§ 617.7130 What initial disclosures must a qualified lender make to a borrower?

(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;

(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.

[69 FR 16460, Mar. 30, 2004, as amended by 74 FR 67972, Dec. 22, 2009]
FCA Regulations (as of 2/24/17) 242

§ 617.7135 What subsequent disclosures must a qualified lender make to a borrower?

(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

(3) The reason for the increase in the borrower stock (or participation certificates) purchase 

requirement.

[69 FR 16460, Mar. 30, 2004, as amended by 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:

(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.

[69 FR 16460, Mar. 30, 2004]
FCA Regulations (as of 2/24/17) 243

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:

(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).

[69 FR 10908, Mar. 9, 2004]

§ 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 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.

[69 FR 10908, Mar. 9, 2004]

§ 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 
FCA Regulations (as of 2/24/17) 244

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.

(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.

[69 FR 10909, Mar. 9, 2004]

§ 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.

[69 FR 10909, Mar. 9, 2004]

Subpart E - Distressed Loan Restructuring; State Agricultural Loan Mediation Programs

§ 617.7400 What protections exist for borrowers who meet all loan obligations?

(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:
FCA Regulations (as of 2/24/17) 245

(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.

[69 FR 10909, Mar. 9, 2004]

§ 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.

[69 FR 10909, Mar. 9, 2004]

§ 617.7410 When and how does a qualified lender notify a borrower of the right to seek loan 

restructuring?

(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).

(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 
FCA Regulations (as of 2/24/17) 246

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.

[69 FR 10910, Mar. 9, 2004]

§ 617.7415 How does a qualified lender decide to restructure a loan?

(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:

(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?
FCA Regulations (as of 2/24/17) 247

(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.

(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.

[69 FR 10910, Mar. 9, 2004]

§ 617.7420 How will a decision on an application for restructuring be issued?

(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.

[69 FR 10911, Mar. 9, 2004]
FCA Regulations (as of 2/24/17) 248

§ 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.

(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.

(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.

[69 FR 10911, Mar. 9, 2004]

§ 617.7430 Are institutions required to participate in state agricultural loan mediation programs?

(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.

[69 FR 10911, Mar. 9, 2004]

Subpart F - Distressed Loan Restructuring Directive

§ 617.7500 What is a directive used for and what may it require?

(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.
FCA Regulations (as of 2/24/17) 249

(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.

[69 FR 10911, Mar. 9, 2004]

§ 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:

(a) The reasons FCA intends to issue a distressed loan restructuring directive;

(b) The proposed contents of the distressed loan restructuring directive; and 

(c) Any other relevant information.

[69 FR 10912, Mar. 9, 2004]

§ 617.7510 What should the qualified lender do when it receives notice of a distressed loan 

restructuring directive?

(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.

[69 FR 10912, Mar. 9, 2004]

§ 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.

[69 FR 10912, Mar. 9, 2004]

§ 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.
FCA Regulations (as of 2/24/17) 250

[69 FR 10912, Mar. 9, 2004]

§ 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.

[69 FR 10912, Mar. 9, 2004]

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.

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:

(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.

[69 FR 10912, Mar. 9, 2004]

§ 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.

[69 FR 10912, Mar. 9, 2004]

§ 617.7610 What should the System institution do when it decides to sell acquired agricultural real 

estate?

(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 
FCA Regulations (as of 2/24/17) 251

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

(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.

[69 FR 10912, Mar. 9, 2004]

§ 617.7615 What should the System institution do when it decides to lease 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 
FCA Regulations (as of 2/24/17) 252

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

(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.

[69 FR 10913, Mar. 9, 2004]

§ 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:

(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.

[69 FR 10913, Mar. 9, 2004]

§ 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.

[69 FR 10913, Mar. 9, 2004]

§ 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.

[69 FR 10913, Mar. 9, 2004]
FCA Regulations (as of 2/24/17) 253

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).

Subpart A - Related Services

§ 618.8000 Definitions.

For the purposes of this subpart, the following definitions shall apply:

(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, 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.

[60 FR 34099, June 30, 1995, as amended at 69 FR 43514, July 21, 2004]

§ 618.8005 Eligibility.

(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 paragraph (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.

[60 FR 34099, June 30, 1995, as amended at 62 FR 4450, Jan. 30, 1997; 69 FR 43515, July 21, 2004]

§ 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.
FCA Regulations (as of 2/24/17) 254

(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 comments.

(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.

(3) At least 10 business days prior to implementing a related services 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.

[60 FR 34099, June 30, 1995]

§ 618.8015 Policy guidelines.

(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 
FCA Regulations (as of 2/24/17) 255

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.

[60 FR 34099, June 30, 1995]

§ 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:

(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.

[60 FR 34099, June 30, 1995]

§ 618.8025 Feasibility reviews.

(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.

[60 FR 34099, June 30, 1995; 60 FR 42029, Aug. 15, 1995]
FCA Regulations (as of 2/24/17) 256

§ 618.8030 Out-of-territory related services.

(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-of-territory. A service corporation cannot consent to an out-of-territory institution providing services 

in its chartered territory.

[60 FR 34099, June 30, 1995]

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) 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 Risk Analysis Division at (703) 883-4455.

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.
FCA Regulations (as of 2/24/17) 257

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 onfarm or aquatic operations. Includes such 

activities as assisting individuals in defining 

business goals, identifying management 

problems, and formulating or analyzing 

alternative strategies for achieving goals. 

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, 

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 coor- dination (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

(Products may be offered as part of loan 

packages or as stand-alone hedging tools.)

(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.

(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.
FCA Regulations (as of 2/24/17) 258

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.

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.

Subpart B - Member Insurance 

§ 618.8040 Authorized insurance service.

(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 
FCA Regulations (as of 2/24/17) 259

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

(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 fulltime 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.
FCA Regulations (as of 2/24/17) 260

(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.

(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.

[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]

Subpart C – [Reserved]

Subpart C – [Reserved]

[64 FR 34519, June 28, 1999]

Subpart D – E [Reserved

Subpart D – E [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; amended at 78 FR 77562, 

Dec. 24, 2013]
FCA Regulations (as of 2/24/17) 261

§ 618.8310 Lists of borrowers and stockholders.

(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 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.

[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 77562, Dec. 24, 2013]

§ 618.8320 Data regarding borrowers and loan applicants.

(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.
FCA Regulations (as of 2/24/17) 262

(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.

(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.

[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]
FCA Regulations (as of 2/24/17) 263

§ 618.8325 Disclosure of loan documents.

(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 (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.

[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]

§ 618.8330 Production of documents and testimony during litigation.

(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.

[64 FR 43049, Aug. 9, 1999]
FCA Regulations (as of 2/24/17) 264

§ 618.8340 [Reserved]

[61 FR 67188, Dec. 20, 1996]

Subpart H - Disposition of Obsolete Records

§ 618.8360 [Reserved]

[61 FR 67188, Dec. 20, 1996]

§ 618.8370 [Reserved]

[61 FR 67188, Dec. 20, 1996]

Subpart I [Reserved]

Subpart I [Reserved] 

[61 FR 67188, Dec. 20, 1996]

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) 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.

[55 FR 24888, June 19, 1990, as amended at 71 FR 5763, Feb. 2, 2006]
FCA Regulations (as of 2/24/17) 265

§ 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 boardapproved 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

(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.

[53 FR 39250, Oct. 6, 1988, as amended at 62 FR 4450, Jan. 30, 1997; 64 FR 34519, June 28, 1999; 71 

FR 5764, Feb. 2, 2006; 77 FR 25587, May 1, 2012]
FCA Regulations (as of 2/24/17) 266

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, 3.21, 4.9, 5.9, 5.17, 5.19, 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, 2142, 2160, 2243, 2252, 2254, 2279a, 2279a-1, 2279b, 2279c-1, 2279f); 

sec. 514 of Pub. L. 102-552, 106 Stat. 4102.

§ 619.9000 The Act.

The Farm Credit Act of 1971; Pub. L. 92-181 and amendments.

[37 FR 11446, June 7, 1972]

§ 619.9010 Additional security.

Supplementary collateral to the primary security taken in connection with the loan.

[37 FR 11446, June 7, 1972]

§ 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]
FCA Regulations (as of 2/24/17) 267

§ 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.

[37 FR 11446, June 7, 1972]

§ 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.

[37 FR 11446, June 7, 1972]

§ 619.9135 Direct lender.

The term direct lenderrefers 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.

[55 FR 24889, June 19, 1990]

§ 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 chartered 

and regulated by the Farm Credit Administration as described in section 1.2 of the Act, and to the 

Funding Corporation.

[55 FR 24889, June 19, 1990, as amended at 56 FR 2675, Jan. 24, 1991]
FCA Regulations (as of 2/24/17) 268

§ 619.9155 Federal land credit association.

The term Federal land credit associationrefers 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.

[37 FR 11446, June 7, 1972]

§ 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.

[37 FR 11446, June 7, 1972]

§ 619.9185 Funding Corporation.

The term Funding Corporationrefers 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 [Removed and Reserved]

[67 FR 1281, Jan. 10, 2002]

§ 619.9200 Loss-sharing agreement.

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.

[37 FR 11446, June 7, 1972]

§ 619.9230 Open-end mortgage loan plans.

A mortgage loan which permits the borrower to obtain additional sums during the term of the loan.

[37 FR 11446, June 7, 1972]
FCA Regulations (as of 2/24/17) 269

§ 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]

§ 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.

[37 FR 11446, June 7, 1972]

§ 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.

[37 FR 11446, June 7, 1972]

§ 619.9260 Primary security.

The basic collateral securing the loan.

[37 FR 11446, June 7, 1972]

§ 619.9270 Qualified Public Accountant or External Auditor.

A qualified public accountant or external auditor is a person who:

(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.

[71 FR 76119, Dec. 20, 2006, as amended at 74 FR 28599, June 17, 2009]
FCA Regulations (as of 2/24/17) 270

§ 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.

[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 60597, 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.

[37 FR 11446, June 7, 1972]
FCA Regulations (as of 2/24/17) 271

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 of Pub. L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 

102-552, 106 Stat. 4102.

Subpart A - General

§ 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.

(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 
FCA Regulations (as of 2/24/17) 272

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.

[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:

(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 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 bank that prepares its financial statements on a stand-alone basis shall provide in the 

footnotes accompanying its annual report supplemental information containing a condensed statement of 

condition and statement of income for the bank’s related associations on a combined basis. The 

condensed statements may be unaudited and shall disclose the basis of presentation if different from 

accounting policies of the bank-only statements.

(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:
FCA Regulations (as of 2/24/17) 273

(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.

[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 14299, Mar. 

12, 2001; 67 FR 16633, Apr. 8, 2002; 71 FR 76119, Dec. 20, 2006; 77 FR 60597, Oct. 3, 2012] 

§ 620.3 Accuracy of reports and assessment of internal control over financial reporting.

(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.

(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.

(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 
FCA Regulations (as of 2/24/17) 274

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.

[71 FR 76119, Dec. 20, 2006, as amended at 74 FR 28599, June 17, 2009]

Subpart B - Annual Report to Shareholders

§ 620.4 Preparing and providing the annual report.

(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.

[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 14299, 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) 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;

(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 
FCA Regulations (as of 2/24/17) 275

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.

(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.
FCA Regulations (as of 2/24/17) 276

(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.

(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 losses.

(E) Net loans.
FCA Regulations (as of 2/24/17) 277

(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.

(ii) Statement of income.

(A) Net interest income.

(B) Provision for loan 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 loan 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.

(4) The annual report for each fiscal year ending in 2017 through 2021 shall also include in 

comparative columnar form for each fiscal year ending in 2012 through 2016, the following ratios:

(i) Core surplus ratio.

(ii) Total surplus ratio.

(iii) For banks only, net collateral ratio.

(iv) Tier 1 leverage 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.
FCA Regulations (as of 2/24/17) 278

(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 financing 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 loan losses that includes the ratios of the allowance to loans 

and net chargeoffs to average loans, and a discussion of the adequacy of the allowance for losses;

(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)(l)(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 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.
FCA Regulations (as of 2/24/17) 279

(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 yearend 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.

(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. 

(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.
FCA Regulations (as of 2/24/17) 280

(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(c) 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.

[51 FR 8656, Mar. 13, 1986, as amended at 51 FR 21341, June 12, 1986; 51 FR 42087, Nov. 21, 1986; 53 

FR 3335, 3337, Feb. 5, 1988; 53 FR 16697, May 11, 1988. Redesignated and amended at 56 FR 29421, 

29422, June 27, 1991; 56 FR 42649, Aug. 28, 1991; 58 FR 48791, Sept. 20, 1993; 59 FR 37412, July 22, 

1994; 60 FR 34102, June 30, 1995; 62 FR 4451, Jan. 30, 1997; 62 FR 15093, Mar. 31, 1997; 63 FR 

36549, July 7, 1998; 63 FR 39229, July 22, 1998; 64 FR 16617, Apr. 6, 1999; 65 FR 8023, Feb. 17, 2000; 

66 FR 14299, Mar. 12, 2001; 67 FR 16633, Apr. 8, 2002; 69 FR 16471, Mar. 30, 2004; 70 FR 53909, 

Sept. 13, 2005; 71 FR 5765, Feb. 2, 2006, as corrected at 72 FR 4414, Jan. 31, 2007; 71 FR 76119, Dec. 

20, 2006; 74 FR 28599, June 17, 2009; 75 FR 18744, Apr. 12, 2010; 77 FR 60597, Oct. 3, 2012; 78 FR 

31834, May 28, 2013; as amended at 79 FR 17856, Mar. 31, 2014; 81 FR 49778, July 28, 2016]

§ 620.6 Disclosures in the annual report to shareholders relating to directors and senior officers.

(a) General.

(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 
FCA Regulations (as of 2/24/17) 281

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 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:
FCA Regulations (as of 2/24/17) 282

Summary Compensation Table

(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. 

(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 

Annual

Name of 

individual or 

number in 

group

(a)

Year

(b)

Salary

(c)

Bonu

s

(d)

Deferred

/

perquisit

e

(e)

Othe

r

(f)

Total

(g)

CEO

Aggregate 

No. of 

Senior 

Officers (& 

other highly 

compensate

d 

employees, 

if 

applicable)

(X)

(X)

(X)

20X

X

20X

X

20X

X

20X

X

20X

X

20X

X

$ $ $ $ $
FCA Regulations (as of 2/24/17) 283

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:
FCA Regulations (as of 2/24/17) 284

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)

$ $

(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:

(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.
FCA Regulations (as of 2/24/17) 285

(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 (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.
FCA Regulations (as of 2/24/17) 286

(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:

(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.

[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.

(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.

[62 FR 15093, Mar. 31, 1997, as amended at 71 FR 76920, Dec. 20, 2006; 74 FR 28600, June 17, 2009; 

77 FR 60600, Oct. 3, 2012]

§ 620.11 Content of quarterly report to shareholders.

(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 
FCA Regulations (as of 2/24/17) 287

any item is not material, it need not be separately shown. The combination of insignificant items is 

permitted.

(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.

(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, 
FCA Regulations (as of 2/24/17) 288

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. 

[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

§ 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). 

 (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.
FCA Regulations (as of 2/24/17) 289

(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.

[67 FR 16634, Apr. 8, 2002, as amended at 77 FR 60600, Oct. 3, 2012] 

§ 620.17 Special notice provisions for events related to minimum permanent capital.

(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.

(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.

[81 FR 49778, July 28, 2016] 
FCA Regulations (as of 2/24/17) 290

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.

(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.

[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 
FCA Regulations (as of 2/24/17) 291

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.

(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 directornominees 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. 

[75 FR 18744, Apr. 12, 2010, as amended at 77 FR 60601, Oct. 3, 2012]

Subpart F - Bank and Association Audit and Compensation Committees

§ 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.

(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. 

(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 
FCA Regulations (as of 2/24/17) 292

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.

[71 FR 5766, Feb. 2, 2006, 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.

(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.

(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 longterm 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.
FCA Regulations (as of 2/24/17) 293

[71 FR 5767, Feb. 2, 2006, as amended at 77 FR 60601, Oct. 3, 2012]
FCA Regulations (as of 2/24/17) 294

PART 621 – ACCOUNTING AND REPORTING REQUIREMENTS

Authority: Secs. 4.12(b)(5), 5.17, 5.22A, 8.11 of the Farm Credit Act (12 U.S.C. 2183, 2252, 2257a, 

2279aa-11); sec. 514 of Pub. L. 102-552.

Subpart A - Purpose and Definitions

§ 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 48780, 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:

(a) 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.

(b) 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.

(c) Banks and associations mean all Farm Credit Banks, Agricultural credit banks, and 

associations.

(d) 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.

(e) 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.

(f) 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.

(g) 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.

(h) 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.

(i) 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;
FCA Regulations (as of 2/24/17) 295

(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.

(j) 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.

(k) Net realizable value means the net amount the lender would expect to be realized from the 

acquisition and subsequent sale or disposition of a loans 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.

(l) 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.

(m) Reporting entity means the Federal Farm Credit Banks Funding Corporation, or other entity 

approved by the Farm Credit Administration.

(n) 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.

[58 FR 48780, 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]

Subpart B - General Rules

§ 621.3 Application of generally accepted accounting principles.

Each institution shall:

(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.

[58 FR 48780, Sept. 20, 1993]

§ 621.4 Audit by qualified public accountant.

(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.
FCA Regulations (as of 2/24/17) 296

(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:

(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.

[58 FR 48780, Sept. 20, 1993, as amended at 71 FR 76120, Dec. 20, 2006]

§ 621.5 Accounting for the allowance for loan losses and chargeoffs.

Each institution shall:

(a) Maintain at all times an allowance for loan 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 loan 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, 
FCA Regulations (as of 2/24/17) 297

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.

[58 FR 48780, Sept. 20, 1993; 74 FR 28600, June 17, 2009]

Subpart C - Loan Performance and Valuation Assessment

§ 621.6 Performance categories and other property owned.

Each institution shall employ the following practices with respect to categorizing high-risk loans 

and loan-related assets. No loan shall be put into more than one performance category. At a minimum, 

loans meeting the criteria for both nonaccrual and another performance category shall be classified as 

nonaccrual.

(a) Nonaccrual loans. A loan shall be considered nonaccrual if it meets any of the following 

conditions:

(1) Collection of any amount of outstanding principal and all past and future interest accruals, 

considered over the full term of the asset, is not expected;

(2) Any portion of the loan has been charged off, except in cases where the prior chargeoff was 

taken as part of a formal restructuring of the loan; or

(3) The loan is 90 days past due and is not both adequately secured and in process of collection.

(i) A loan is considered adequately secured only if:

(A) It is secured by real or personal property having a net realizable value sufficient to discharge 

the debt in full; or

(B) It is guaranteed by a financially responsible party in an amount sufficient to discharge the 

debt in full.

(ii) A loan is considered in process of collection only if collection efforts are proceeding in due 

course and, based on a probable and specific event, are expected to result in the prompt repayment of the 

debt or its restoration to current status. There must be documented evidence that collection in full of 

amounts due and unpaid is expected to occur within a reasonable time period, not to exceed 180 days 

from the date that payment was due. The commencement of collection efforts through legal action, 

including bankruptcy or foreclosure, or through collection efforts not involving legal action, including 

ongoing workouts and reamortizations, do not, in and of themselves, provide sufficient cause to keep a 

loan out of nonaccrual status. If full collection of the debt or its restoration to current status is dependent 

upon completion of any action by the borrower, the institution must obtain the borrower's written 

agreement to complete all such actions by the specific dates set forth in agreement.

(b) Formally restructured loans. A loan is considered formally restructured if it meets the 

"troubled debt restructuring" definition set forth in Financial Accounting Standards Board Accounting 

Standards Codification Subtopic 310—40, Receivables--Troubled Debt Restructurings by Creditors.

(c) Loans 90 days past due still accruing interest.

(1) Loans 90 days past due still accruing interest means loans that are 90 days or more 

contractually past due, and that are both adequately secured and in process of collection, as described in 

this section.

(2) A loan shall be considered contractually past due when any principal repayment or interest 

payment required by the loan instrument is not received on or before the due date. A loan shall remain 

contractually past due until it is formally restructured 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.
FCA Regulations (as of 2/24/17) 298

(d) Other property owned means 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 means.

[58 FR 48780, Sept. 20, 1993, as amended by 78 FR 21037, April 9, 2013]

§ 621.7 Rule of aggregation.

(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.

(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 reevaluate the credit risk in its loan to the borrower 

and then determine whether an independent credit risk exists.

[58 FR 48780, 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:

(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.
FCA Regulations (as of 2/24/17) 299

(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 loan losses.

[58 FR 48780, Sept. 20, 1993]

§ 621.9 Reinstatement to accrual status.

A loan may be reinstated to accrual status, when each of the following criteria are met:

(a) All contractual principal and interest due on the loan is paid and the loan is current;

(b) Prior chargeoffs are recovered, except for troubled debt restructures;

(c) No reasonable doubt remains regarding the willingness and ability of the borrower to perform 

in accordance with the contractual terms of the loan agreement; and

(d) Reinstatement is supported by a period of sustained performance in accordance with the 

contractual terms of the note and/or loan agreement. Sustained performance will generally be 

demonstrated by 6 consecutive monthly payments, 4 consecutive quarterly payments, 3 consecutive 

semiannual payments, or 2 consecutive annual payments.

[58 FR 48780, Sept. 20, 1993]

§ 621.10 Monitoring of performance categories and other property owned.

(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.

[58 FR 48780, Sept. 20, 1993]
FCA Regulations (as of 2/24/17) 300

Subpart D - Reports of Condition and Performance and Accounts and Exposures

§ 621.12 Reports of condition and performance.

(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.

[58 FR 48780, Sept. 20, 1993, as amended at 74 FR 28600, June 17, 2009; 78 FR 77562, Dec. 24, 2013]

§ 621.13 Content and standards--general rules.

Each institution, including the Federal Agricultural Mortgage Corporation, shall prepare reports 

of condition and performance:

(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.

[58 FR 48780, Sept. 20, 1993; as amended at 78 FR 77562, Dec. 24, 2013]

§ 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.

[58 FR 48780, Sept. 20, 1993; as amended at 78 FR 77562, Dec. 24, 2013]

§ 621.15 Reports of accounts and exposures.

(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:
FCA Regulations (as of 2/24/17) 301

(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 

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:
FCA Regulations (as of 2/24/17) 302

(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.

[78 FR 77562, Dec. 24, 2013]

Subpart E - Auditor Independence

§ 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 § 612.2260 of this chapter.

[71 FR 76120, Dec. 20, 2006]

§ 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. 

(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, 
FCA Regulations (as of 2/24/17) 303

(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 non-audit 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.

[71 FR 76120, Dec. 20, 2006] 

§ 621.32 Conflicts of interest and rotation.

(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.

[71 FR 76120, Dec. 20, 2006]
FCA Regulations (as of 2/24/17) 304

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).

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 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.

[51 FR 21139, June 11, 1986]

§ 622.2 Definitions.

As used in this part:

(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.

[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) 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.
FCA Regulations (as of 2/24/17) 305

(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.

(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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 622.5 Answer.

(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.
FCA Regulations (as of 2/24/17) 306

(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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 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.
FCA Regulations (as of 2/24/17) 307

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.

(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 

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.
FCA Regulations (as of 2/24/17) 308

(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.

[51 FR 21139, June 11, 1986]

§ 622.8 Rules of evidence.

(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.

[51 FR 21139, June 11, 1986]

§ 622.9 Subpoenas.

(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 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 
FCA Regulations (as of 2/24/17) 309

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 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.

[51 FR 21139, June 11, 1986]

§ 622.10 Depositions.

(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 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 
FCA Regulations (as of 2/24/17) 310

certified as a true and complete transcript by the person recording the testimony. If the deposition is not 

signed by he 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.

[51 FR 21139, June 11, 1986]

§ 622.11 Motions.

(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.

(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.

[51 FR 21139, June 11, 1986]

§ 622.12 Proposed findings and conclusions; recommended decision.

(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 
FCA Regulations (as of 2/24/17) 311

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.

[51 FR 21139, June 11, 1986]

§ 622.13 Exceptions.

(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.

[51 FR 21139, June 11, 1986]

§ 622.14 Briefs.

(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.

[51 FR 21139, June 11, 1986]

§ 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 
FCA Regulations (as of 2/24/17) 312

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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 622.18 Filing.

(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 

signers 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.

[51 FR 21139, June 11, 1986]

§ 622.19 Service.

(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 
FCA Regulations (as of 2/24/17) 313

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.

(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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 622.21 Computing time.

(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.

[51 FR 21139, June 11, 1986]

§ 622.22 Retained authority.

Nothing in this part is in derogation of powers of examination and investigation conferred on the 

FCA by any provision of law.

[51 FR 21139, June 11, 1986]

§§ 622.23-622.50 [Reserved]

[51 FR 21139, June 11, 1986]
FCA Regulations (as of 2/24/17) 314

Subpart B - Rules and Procedures for Assessment and Collection of Civil Money Penalties

§ 622.51 Definitions.

Unless noted otherwise, the definitions set forth in § 622.2 of subpart A shall apply to this subpart.

[53 FR 27284, July 19, 1988]

§ 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:

(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.

[53 FR 27284, July 19, 1988, as amended at 70 FR 12584, Mar. 15, 2005]

§ 622.53 [Removed and Reserved]

[70 FR 12585, Mar. 15, 2005]

§ 622.54 [Removed and Reserved]

[70 FR 12585, Mar. 15, 2005]

§ 622.55 Notice of assessment of civil money penalty.

(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.

[53 FR 27284, July 19, 1988, 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 
FCA Regulations (as of 2/24/17) 315

of assessment, with the Chairman of the Board, FCA, 1501 Farm Credit Drive, McLean, VA 22102-

5090.

[53 FR 27284, July 19, 1988]

§ 622.57 Waiver of hearing; consent.

(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.

[53 FR 27284, July 19, 1988, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.58 Hearing on assessment.

(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.

[53 FR 27284, July 19, 1988, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.59 Assessment order.

(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 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 there in, 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.

[53 FR 27284, July 19, 1988, as amended at 70 FR 12585, Mar. 15, 2005]

§ 622.60 Payment of civil money penalty.

(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.
FCA Regulations (as of 2/24/17) 316

(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).

[70 FR 12585, Mar. 15, 2005]

§ 622.61 Adjustment of civil money penalties by the rate of inflation under the Federal Civil 

Penalties Inflation Adjustment Act of 1990, as amended.

(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 $2,224 for violations 

that occur on or after January 15, 2017.

(2) Amount of civil money penalty for violation of the Act or regulations: The maximum daily 

amount is $1,005 for each violation that occurs on or after January 15, 2017.

(b) The maximum civil money penalty amount assessed under 42 U.S.C. 4012a(f) is: $385 for 

each violation that occurs on or after January 16, 2009, but before July 1, 2013, with total penalties under 

such statute not to exceed $120,000 for any single institution during any calendar year; $2,000 for each 

violation that occurs on or after July 1, 2013, but before August 1, 2016, with no cap on the total amount 

of penalties that can be assessed against any single institution during any calendar year; and $2,090 for 

each violation that occurs on or after January 15, 2017, with no cap on the total amount of penalties that 

can be assessed against any single institution during any calendar year.

[82 FR 8807, Jan. 31, 2017]

§§ 622.62-622.75 [Reserved]

[53 FR 27284, July 19, 1988]

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.

[51 FR 21139, June 11, 1986]

§ 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 
FCA Regulations (as of 2/24/17) 317

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.

[51 FR 21139, June 11, 1986]

§ 622.78 Suspension prohibition or removal.

(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.

[51 FR 21139, June 11, 1986]

§ 622.79 Petition for 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.

[51 FR 21139, June 11, 1986]

§ 622.80 Informal hearing.

(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.
FCA Regulations (as of 2/24/17) 318

(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.

(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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 622.82 Decision of the Board.

(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 or 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 
FCA Regulations (as of 2/24/17) 319

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.

[51 FR 21139, June 11, 1986]

§§ 622.83-622.100 [Reserved]

[51 FR 21139, June 11, 1986]

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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]

§ 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.

[51 FR 21139, June 11, 1986]
FCA Regulations (as of 2/24/17) 320

§ 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.

[51 FR 21139, June 11, 1986]

§ 622.106 Service of subpoena and payment of witness fees.

(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.

[51 FR 21139, June 11, 1986]

§ 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 
FCA Regulations (as of 2/24/17) 321

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.

[51 FR 21139, June 11, 1986]
FCA Regulations (as of 2/24/17) 322

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).

§ 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.

[51 FR 21147, June 11, 1986]

§ 623.2 Definitions.

As used in this part:

(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.

(d) The term 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.
FCA Regulations (as of 2/24/17) 323

[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.

(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.

[51 FR 21147, June 11, 1986]

§ 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.
FCA Regulations (as of 2/24/17) 324

(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

(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 paragraphs (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.

[51 FR 21147, June 11, 1986]

§ 623.5 Reinstatement.

(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 or revocation. 
FCA Regulations (as of 2/24/17) 325

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, 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.

[51 FR 21147, June 11, 1986]

§ 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.

[51 FR 21147, June 11, 1986]

§ 623.7 Proceeding under this part.

(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.

[51 FR 21147, June 11, 1986]
FCA Regulations (as of 2/24/17) 326

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.

[71 FR 76120, Dec. 20, 2006; 80 FR 74913, Nov. 30, 2015]

§ 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 securitybased 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 

non-cleared 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. 
FCA Regulations (as of 2/24/17) 327

(e) Compliance dates. Covered swap entities shall comply with the minimum margin

requirements of this part 624 on or before the following dates for non-cleared swaps and non- cleared

security-based swaps entered into on or after the following dates:

(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 security-based 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 security-based 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 security-based 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:

(i) The covered swap entity combined with all its affiliates; and
FCA Regulations (as of 2/24/17) 328

(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 security-based 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, 2020 with respect to the 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 non-cleared 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 624 with respect to that counterparty.

(g)(1) If a covered swap entity’s counterparty changes its status such that a non-cleared swap

or non-cleared security-based swap with that counterparty becomes subject to stricter margin

requirements under this part 624 (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

non-cleared 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 

non-cleared security-based swap with that counterparty becomes subject to less strict margin

requirements under this part 624 (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 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.

[80 FR 74898, 74913, 74923, Nov. 30, 2015]

§ 624.2 Definitions.

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
FCA Regulations (as of 2/24/17) 329

(4) FCA has determined that a company is an affiliate of another company, based on [Agency’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.

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 noncleared 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.
FCA Regulations (as of 2/24/17) 330

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, 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 (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, 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) in order to facilitate the orderly resolution of the defaulting counterparty; or

(ii) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced

in paragraph (2)(i) of this definition;

(3) The agreement does not contain a walkaway clause (that is, a provision that permits a nondefaulting 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 
FCA Regulations (as of 2/24/17) 331

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:

(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, 
FCA Regulations (as of 2/24/17) 332

securities, swaps, funds or other assets; or

(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 624; 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 FCA pursuant to § 624.8.

Initial margin threshold amount means an aggregate credit exposure of $50million 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).

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:
FCA Regulations (as of 2/24/17) 333

(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 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 securitybased 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 government is a shareholder or contributing

member or which FCA determines poses comparable credit risk.

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)).

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 
FCA Regulations (as of 2/24/17) 334

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).

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) 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 securitybased swap dealer or a major security-based swap participant pursuant to the Securities Exchange Act 

of 1934 (15 U.S.C 78a et seq.).

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.
FCA Regulations (as of 2/24/17) 335

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 noncleared swap or non-cleared security-based 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 noncleared swap or non-cleared security-based swap.

[80 FR 74899, 74913, Nov. 30, 2015]

§ 624.3 Initial margin.

(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 securitybased 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 noncleared 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 non-cleared 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.

[80 FR 74902, Nov. 30, 2015]

§ 624.4 Variation margin.

(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 
FCA Regulations (as of 2/24/17) 336

collect variation margin equal to the variation margin amount from the counterparty to such noncleared 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 noncleared 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 noncleared 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 non-cleared 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.

[80 FR 74903, Nov. 30, 2015]

§ 624.5 Netting arrangements, minimum transfer amount, and satisfaction of collecting and 

posting requirements.

(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 624 on an aggregate net basis with respect to all noncleared 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 624 and

included in the aggregate netting portfolio for the purposes of calculating and complying with the

margin requirements of this part 624.

(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 security-based swaps
FCA Regulations (as of 2/24/17) 337

covered by the eligible master netting agreement. Any such netting portfolio that contains any noncleared 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 624. 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 624.

(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

non-cleared security based swaps covered by the agreement on a gross basis for the purposes of 

calculating and complying with the requirements of this part 624 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 624 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 624 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 624 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 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.

[80 FR 74903, Nov. 30, 2015]

§ 624.6 Eligible collateral.

(a) Non-cleared swaps and non-cleared security-based swaps with a swap entity. For a noncleared 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 624 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:

(i) A security that is issued by, or unconditionally guaranteed as to the timely payment of 
FCA Regulations (as of 2/24/17) 338

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 asset-backed 

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 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 immediately available cash funds 

denominated in U.S. dollars; or

(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 immediately-available 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 624 solely in the

form of the following types of collateral:
FCA Regulations (as of 2/24/17) 339

(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:

(A) The Standard & Poor’s Composite 1500 Index or any other similar index of liquid and readily

marketable equity securities as determined by 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.
FCA Regulations (as of 2/24/17) 340

(c)(1) The value of any eligible collateral collected or posted to satisfy margin requirements

pursuant to this part 624 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 nonposting 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 624.

(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.

(d) Notwithstanding paragraphs (a) and (b) of this section, eligible collateral for initial margin

and variation margin required by this part 624 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 624. 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 624. 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 624.

(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 624 in any form of

collateral.

[80 FR 74903, 74913, Nov. 30, 2015]

§ 624.7 Segregation of collateral.

(a) A covered swap entity that posts any collateral other than for variation margin with respect

to a non-cleared 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 
FCA Regulations (as of 2/24/17) 341

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.

(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 624

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 624

would be sufficient to meet the requirements of § 624.3.

[80 FR 74905, Nov. 30, 2015]

§ 624.8 Initial margin models and standardized amounts.

(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 

624.

(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 securitybased 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 FCA before using any initial

margin model to calculate the initial margin required in this part 624.

(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 FCA in writing 60 days prior to:
FCA Regulations (as of 2/24/17) 342

(i) Extending the use of an initial margin model that FCA has approved under this section to an 

additional product type;

(ii) Making any change to any initial margin model approved by 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) 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 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

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

security-based 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 
FCA Regulations (as of 2/24/17) 343

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 security-based 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.

(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 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 FCA that such proxy or approximation is appropriate.

(12) The covered swap entity must have a rigorous and well-defined process for re-estimating,

re-evaluating, 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) 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 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 
FCA Regulations (as of 2/24/17) 344

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;

(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 FCA of the problems, describe to 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 624. 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 noncleared 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.

[80 FR 74905, Nov. 30, 2015]

§ 624.9 Cross-border application of margin requirements.

(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 securitybased swap is any non-cleared swap or non-cleared security-based swap with respect to which neither the 
FCA Regulations (as of 2/24/17) 345

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;

(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 624 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 624 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

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 non-cleared swap 
FCA Regulations (as of 2/24/17) 346

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

non-cleared 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:

(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
FCA Regulations (as of 2/24/17) 347

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

security-based 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) 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 noncleared 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.

[80 FR 74907, Nov. 30, 2015]

§ 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:

(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 part 624; 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.
FCA Regulations (as of 2/24/17) 348

[80 FR 74908, Nov. 30, 2015]

§ 624.11 Special rules for affiliates.

(a) Affiliates. This part 624 applies to a non-cleared swap or non-cleared security-based swap

of a covered swap entity with its affiliate, unless the swap or security-based swap is excluded from

coverage under § 624.1(d) or as otherwise provided in this section. To the extent of any inconsistency

between this section and any other provision of this part 624, this section will apply.

(b) Initial margin—

(1) Posting of initial margin. 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. A covered swap entity shall calculate the amount of initial 

margin that would be required to be posted to an affiliate that is a financial end user with material swaps 

exposure pursuant to § 624.3(b) and provide documentation of such amount to each affiliate on a daily

basis.

(2) Initial margin threshold amount. For purposes of calculating the amount of initial margin to 

be collected from an affiliate counterparty in accordance with § 624.3(a) or calculating the amount of 

initial margin that would have been posted to an affiliate counterparty in accordance with paragraph

(b)(1) of this section, the initial margin threshold amount is an aggregate credit exposure of $20 million 

resulting from all non-cleared swaps and non-cleared security-based swaps between the covered swap

entity and that affiliate. For purposes of this calculation, an entity shall not count a non-cleared swap or 

non-cleared security-based swap that is exempt pursuant to § 624.1(d).

(c) Variation margin. A covered swap entity shall collect and post variation margin with respect

to a non-cleared swap or non-cleared security-based swap with any counterparty that is an affiliate as

provided in § 624.4.

(d) Custodian for non-cash collateral. To the extent that a covered swap entity collects initial 

margin required by § 624.3(a) from an affiliate with respect to any non-cleared swap or non-cleared

security-based swap 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.

(e) Model holding period and netting—

(1) Model holding period. For any non- cleared swap or non-cleared security-based swap (or

netting portfolio) between a covered swap entity and an affiliate that would be subject to the clearing

requirements of section 2(h)(1)(A) of the Commodity Exchange Act of 1936 or section 3C(a)(1) of the

Securities Exchange Act of 1934 but for an exemption under section 2(h)(7)(C)(iii) or (D) or section 4(c)(1) 

of the Commodity Exchange Act of 1936 or regulations of the Commodity Futures Trading

Commission or section 3C(g)(4) of the Securities Exchange Act of 1934 or regulations of the U.S. 

Securities and Exchange Commission, the covered swap entity’s initial margin model calculation as

described in § 624.8(d)(1) may use a holding period equal to the shorter of five business days or the

maturity of the non-cleared swap or non-cleared security-based swap (or netting portfolio).
FCA Regulations (as of 2/24/17) 349

(2) Netting arrangements. Any netting portfolio that contains any non-cleared swap or noncleared security-based swap with a model holding period equal to the shorter of five business days or

the maturity of the non-cleared swap or non-cleared security-based swap pursuant to paragraph (e)(1)

of this section must be identified and separate from any other netting portfolio for purposes of

calculating and complying with the initial margin requirements of this part 624.

(f) Standardized amounts. If a covered swap entity’s initial margin model does not conform to 

the requirements of § 624.8, the covered swap entity shall calculate the amount of initial margin

required to be collected for one or more non-cleared swaps or non-cleared security-based swaps with a

given affiliate counterparty pursuant to section § 624.3 on a daily basis pursuant to appendix A with the 

gross initial margin multiplied by 0.7.

[80 FR 74909, Nov. 30, 2015]

§ 624.12 Capital.

A covered swap entity shall comply with:

(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.

[80 FR 74909, 74913, Nov. 30, 2015, as amended at 81 FR 49779, July 28, 2016]
FCA Regulations (as of 2/24/17) 350

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
FCA Regulations (as of 2/24/17) 351

1 The initial margin amount applicable to multiple non-cleared swaps or noncleared 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;

Gross Initial Margin = the sum of the product of each non-cleared swap’s or noncleared security-based 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.

[80 FR 74909, Nov. 30, 2015]
FCA Regulations (as of 2/24/17) 352

Appendix B to Part 624 -- Margin Values for Eligible Noncash Margin Collateral.

Table B: Margin Values for Eligible Noncash Margin Collateral

Asset Class1 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 oneyear

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

Eligible GSE debt securities not identified in § 624.6(a)(2)(iv) or (b)(5): residual

maturity between one and five years:

Eligible GSE debt securities not identified in § 624.6(a)(2)(iv) or (b)(5): residual

maturity greater than five years:

1.0

4.0

8.0
FCA Regulations (as of 2/24/17) 353

Other eligible publicly traded debt: residual maturity less than oneyear

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 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.

[80 FR 74910, Nov. 30, 2015]
FCA Regulations (as of 2/24/17) 354

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.

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.

[57 FR 60109, Dec. 18, 1992]

§ 625.2 Proceedings covered.

(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).

[57 FR 60109, Dec. 18, 1992]

§ 625.3 Eligibility of applicants.

(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.
FCA Regulations (as of 2/24/17) 355

(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;

(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.

[57 FR 60109, Dec. 18, 1992]

§ 625.4 Standards for awards.

(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.

[57 FR 60109, Dec. 18, 1992]
FCA Regulations (as of 2/24/17) 356

§ 625.5 Allowable fees and expenses.

(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.

[57 FR 60109, Dec. 18, 1992]

§ 625.6 Rulemaking on maximum rates for attorney fees.

(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.

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]
FCA Regulations (as of 2/24/17) 357

Subpart B - Applicant Information Required

§ 625.11 Net worth exhibit.

(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 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).

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]

§ 625.13 When an application may be filed.

(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.
FCA Regulations (as of 2/24/17) 358

(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.

[57 FR 60109, Dec. 18, 1992]

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.

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]

§ 625.22 Answer to application.

(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.

[57 FR 60109, Dec. 18, 1992]

§ 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.
FCA Regulations (as of 2/24/17) 359

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]

§ 625.25 Further proceedings.

(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.

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]

§ 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
FCA Regulations (as of 2/24/17) 360

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.

[57 FR 60109, Dec. 18, 1992]

§ 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).

[57 FR 60109, Dec. 18, 1992]

§ 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.

[57 FR 60109, Dec. 18, 1992]
FCA Regulations (as of 2/24/17) 361

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.

§ 626.6000 Definitions.

For the purpose of this subpart, the following definitions shall apply:

(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.

(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.

[57 FR 13637, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6005 Nondiscrimination in lending and other services.

(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.
FCA Regulations (as of 2/24/17) 362

(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.

[57 FR 13638, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]

§ 626.6010 Nondiscrimination in applications.

(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.

[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) 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 
FCA Regulations (as of 2/24/17) 363

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:

[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.

(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:

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

• 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
FCA Regulations (as of 2/24/17) 364

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 or 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 and 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.

[57 FR 13639, Apr. 17, 1992. Redesignated at 62 FR 4441, Jan. 30, 1997]
FCA Regulations (as of 2/24/17) 365

PART 627 – TITLE IV CONSERVATORS, RECEIVERS, AND 

VOLUNTARY LIQUIDATIONS

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58, 5.61 of the Farm Credit Act (12 U.S.C. 2183, 2243, 

2244, 2252, 2277a, 2277a-7, 2277a-10). 

Subpart A - General

§ 627.2700 General--applicability.

The provisions of this part shall apply to conservatorships, receiverships and voluntary liquidations.

[63 FR 5724, Feb. 4, 1998]

§ 627.2705 Definitions.

For purposes of this part the following definitions apply:

(a) Act means the Farm Credit Act of 1971, as amended.

(b) Farm Credit institution(s) or institution(s) means all associations, banks, service corporations 

chartered under title IV of the Act, and the Federal Farm Credit Banks Funding Corporation. 

(c) Conservator means the Farm Credit System Insurance Corporation acting in its capacity as 

conservator.

(d) Insurance Corporation means the Farm Credit System Insurance Corporation.

(e) Receiver means the Insurance Corporation acting in its capacity as receiver.

[57 FR 46482, Oct. 9, 1992; as amended at 75 FR 35968, June 24, 2010]

§ 627.2710 Grounds for appointment of conservators and receivers.

(a) Upon a determination by the Farm Credit Administration Board of the existence of one or 

more of the factors set forth in paragraph (b) of this section, with respect to any bank, association, or other 

institution of the System, the Farm Credit Administration Board may, in its discretion, appoint a 

conservator or receiver for such institution. After January 5, 1993, the Insurance Corporation shall be the 

sole entity to be appointed as conservator or receiver.

(b) The grounds for the appointment of a conservator or receiver for a System institution are:

(1) The institution is insolvent, in that the assets of the institution are less than its obligations to 

creditors and others, including its members. For purposes of determining insolvency, "obligations to 

members" shall not include stock or allocated equities held by current or former borrowers.

(2) There has been a substantial dissipation of the assets or earnings of the institution due to the 

violation of any law, rule, or regulation, or the conduct of an unsafe or unsound practice;

(3) The institution is in an unsafe or unsound condition to transact business, including having 

insufficient capital or otherwise. For purposes of this regulation, "unsafe or unsound condition" shall 

include, but shall not be limited to, the following conditions:

(i) [Removed and reserved]

(ii) For associations, a default by the association of one or more terms of its general financing 

agreement with its affiliated bank that the Farm Credit Administration determines to be a material default.

(iii) For all institutions, permanent capital of less than one-half the minimum required level for the 

institution.

(iv) [Removed and reserved]

(v) For associations, stock impairment.
FCA Regulations (as of 2/24/17) 366

(4) The institution has committed a willful violation of a final cease-and-desist order issued by 

the Farm Credit Administration Board; or

(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) The institution is unable to make a timely payment of principal or interest on any insured 

obligation (as defined in section 5.51(3) of the Act) issued by the institution individually, or on which it is 

primarily liable.

[51 FR 32443, Sept. 12, 1986, as amended at 54 FR 1148, Jan. 12, 1989. Redesignated and amended at 

57 FR 46482, Oct. 9, 1992; 63 FR 39229, July 22, 1998; 81 FR 49779, July 28, 2016]

§ 627.2715 Action for removal of conservator or receiver.

Upon the appointment of a conservator or receiver for a Farm Credit institution by the Farm Credit 

Administration Board pursuant to § 627.2710 of this part, the institution may, within 30 days of such 

appointment, bring an action in the United States District Court for the judicial district in which the home 

office of the institution is located, or in 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. Notwithstanding any other 

provision of subpart B or C of this part, the institution'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 such institution's board of directors.

[57 FR 46482, Oct. 9, 1992]

Subpart B - Receivers and Receiverships

§ 627.2720 Appointment of receiver.

(a) The Farm Credit Administration Board may, in its discretion, appoint ex parte and without 

notice a receiver for any Farm Credit institution in accordance with the grounds for appointment set forth 

in § 627.2710 of this part.

(b) The receiver appointed for a Farm Credit institution shall be the Insurance Corporation.

(c) Upon the appointment of the Insurance Corporation as receiver, the Chairman of the Farm 

Credit Administration Board shall immediately notify the institution, and its district bank in the case of an 

association, and shall publish a notice of the appointment in the Federal Register.

(d) In the case of the voluntary or involuntary liquidation of an association, the district bank shall 

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.

(e) Upon the issuance of the order placing a Farm Credit institution into liquidation and 

appointing the Insurance Corporation as receiver, all rights, privileges, and powers of the board of 

directors, officers, and employees of the institution shall be vested exclusively in the receiver. The Farm 

Credit Administration Board may simultaneously, or any time thereafter, cancel the charter of the 

institution.

[57 FR 46482, Oct. 9, 1992, as amended at 63 FR 5724, Feb. 4, 1998]
FCA Regulations (as of 2/24/17) 367

§ 627.2725 Powers and duties of the receiver.

(a) General.

(1) Upon appointment as receiver, the receiver shall take possession of a Farm Credit institution 

pursuant to 12 U.S.C. 2183 and § 627.2710 of this part in order to wind up the business operations of 

such institution, collect the debts owed to the institution, 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 an institution's operation as provided for in this subpart.

(2) Upon its appointment as receiver, the receiver automatically succeeds to--

(i) All rights, titles, powers and privileges of the institution and of any stockholder, officer, or 

director of such institution with respect to the institution and the assets of the institution; and

(ii) Title to the books, records, and assets of any previous conservator or other legal custodian of 

such institution.

(3) The receiver of a Farm Credit institution serves as the trustee of the receivership estate and 

conducts its operations for the benefit of the creditors and stockholders of the institution.

(b) Specific powers. The receiver may:

(1) Exercise all powers as are conferred upon the officers and directors of the institution under 

law and the charter, articles, and bylaws of the institution.

(2) Take any action the receiver considers appropriate or expedient to carry on the business of the 

institution during the process of liquidating its assets and winding up its affairs.

(3) Extend credit to existing borrowers as necessary to honor existing commitments and to 

effectuate the purposes of the receivership.

(4) Borrow such sums as necessary to effectuate the purposes of the receivership.

(5) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect the 

institution's assets or property or rehabilitate or improve such property and assets.

(6) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect any 

asset or property on which the institution has a lien or in which the institution has a financial or property 

interest, and pay off and discharge any liens, claims, or charges of any nature against such property.

(7) Investigate any matter related to the conduct of the business of the institution, including, but 

not limited to, any claim of the institution against any individual or entity, and institute appropriate legal 

or other proceedings to prosecute such claims.

(8) Institute, prosecute, maintain, defend, intervene, and otherwise participate in any legal 

proceeding by or against the institution or in which the institution or its creditors or members have any 

interest, and represent in every way the institution, its members, and creditors.

(9) 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.

(10) Hire any agents or employees necessary for proper administration of the receivership.

(11) 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 institution's officers by authority of its board of 

directors.

(12) Sell for cash or otherwise any mortgage, deed of trust, chose in action, note contract, 

judgment or decree, stock, or debt owed to the institution, or any property (real or personal, tangible or 

intangible).

(13) Purchase or lease office space, automobiles, furniture, equipment, and supplies, and purchase 

insurance, professional, and technical services necessary for the conduct of the receivership.

(14) 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.

(15) Settle, release, or obtain release of, for cash or other consideration, claims and demands 

against or in favor of the institution or receiver.
FCA Regulations (as of 2/24/17) 368

(16) Pay, out of the assets of the institution, all expenses of the receivership and all costs of 

carrying out or exercising the rights, powers, privileges, and duties as receiver.

(17) Pay out of the assets of the institution all approved claims of indebtedness in accordance with 

priorities established in this subpart.

(18) Take all actions and have such rights, powers, and privileges as are necessary and incident to 

the exercise of any specific power.

(19) 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.

(c) Authority to pay claims. The receiver of a bank is also empowered to pay claims of holders 

of notes, bonds, debentures, or other obligations issued by the bank under 12 U.S.C. 2153(c) or (d) in 

accordance with procedures specified by the Insurance Corporation pursuant to § 627.2740(d) of this part.

[57 FR 46482, Oct. 9, 1992]

§ 627.2726 Treatment by the conservator or receiver of financial assets transferred in connection 

with a securitization or participation.

(a) Definitions. For the purposes of this section, the following definitions apply: 

Beneficial interest means debt or equity (or mixed) interests or obligations of any type issued by a 

special purpose entity that entitle their holders to receive payments that depend primarily on the cash flow 

from financial assets owned by the special purpose entity. 

 Financial asset means cash or a contract or instrument that conveys to one entity a contractual 

right to receive cash or another financial instrument from another entity. 

 Participation means the transfer or assignment of an undivided interest in all or part of a loan or a 

lease from a seller, known as the "lead", to a buyer, known as the "participant", without recourse to the 

lead, pursuant to an agreement between the lead and the participant. Without recourse means that the 

participation is not subject to any agreement that requires the lead to repurchase the participant's interest 

or to otherwise compensate the participant due to a default on the underlying obligation. 

 Securitization means the issuance by a special purpose entity of beneficial interests: 

 (1) The most senior class of which at the time of issuance is rated in one of the four highest 

categories assigned to long-term debt or in an equivalent short-term category (within either of which there 

may be sub-categories or gradations indicating relative standing) by one or more nationally recognized 

statistical rating organizations, or 

 (2) Which are sold in transactions by an issuer not involving any public offering for purposes of 

section 4 of the Securities Act of 1933 (15 U.S.C. 77d), as amended, or in transactions exempt from 

registration under such Act pursuant to Regulation S thereunder (or any successor regulation). 

 Special purpose entity means a trust, corporation, or other entity demonstrably distinct from the 

Farm Credit institution that is primarily engaged in acquiring and holding (or transferring to another 

special purpose entity) financial assets, and in activities related or incidental thereto, in connection with 

the issuance by such special purpose entity (or by another special purpose entity that acquires financial 

assets directly or indirectly from such special purpose entity) of beneficial interests. 

 (b) The receiver shall not, by exercise of its authority to repudiate contracts under § 

627.2725(b)(2) and (b)(14), reclaim, recover, or recharacterize as property of the institution or the 

receivership any financial assets transferred by a Farm Credit institution in connection with a 

securitization or participation, provided that such transfer meets all conditions for sale accounting 

treatment under generally accepted accounting principles, other than the "legal isolation" condition as it 

applies to institutions for which the FCSIC may be appointed as receiver which is addressed by this 

section. 

 (c) Paragraph (b) of this section shall not apply unless the Farm Credit institution received 

adequate consideration for the transfer of financial assets at the time of the transfer, and the 
FCA Regulations (as of 2/24/17) 369

documentation effecting the transfer of financial assets reflects the intent of the parties to treat the 

transaction as a sale, and not as a secured borrowing, for accounting purposes. 

 (d) Paragraph (b) of this section shall not be construed as waiving, limiting, or otherwise 

affecting the power of the receiver to disaffirm or repudiate any agreement imposing continuing 

obligations or duties upon the institution in receivership. 

 (e) Paragraph (b) of this section shall not be construed as waiving, limiting or otherwise affecting 

the rights or powers of the receiver to take any action or to exercise any power not specifically limited by 

this section, including, but not limited to, any rights, powers or remedies of the receiver regarding 

transfers taken in contemplation of the institution's insolvency or with the intent to hinder, delay, or 

defraud the institution or the creditors of such institution, or that is a fraudulent transfer under applicable 

law. 

 (f) The receiver shall not seek to avoid an otherwise legally enforceable securitization agreement 

or participation agreement executed by a Farm Credit institution solely because such agreement does not 

meet the "contemporaneous" requirement of section 5.61(d) of the Act. 

 (g) This section may be repealed or amended by the Farm Credit Administration, but any such 

repeal or amendment shall not apply to any transfers of financial assets made in connection with a 

securitization or participation that was in effect before such repeal or modification.

[70 FR 55515, Sept. 22, 2005]

§ 627.2730 Preservation of equity.

(a) Except as provided for upon final distribution of the assets of the institution, no capital stock, 

participation certificates, equity reserves, or other allocated equities of an institution in receivership shall 

be issued, allocated, retired, sold, distributed, transferred, assigned, or applied against any indebtedness of 

the owners of such equities.

(b) Notwithstanding paragraph (a) of this section, eligible borrower stock shall be retired in 

accordance with section 4.9A of the Act.

[57 FR 46482, Oct. 9, 1992, as amended at 63 FR 5725, Feb. 4, 1998]

§ 627.2735 Notice to holders of uninsured accounts and stockholders.

(a) Upon the placing of an institution in liquidation, the receiver shall immediately notify every 

borrower who has an uninsured account (voluntary or involuntary) as described in § 614.4175 of this 

chapter that the funds ceased earning interest when the receivership was instituted and will be applied 

against the outstanding indebtedness of any loans of such borrower unless, within 15 days of such notice, 

the borrower directs the receiver to otherwise apply such funds in the manner provided for in existing 

loan documents.

(b) As soon as practicable after the receiver takes possession of the institution, the receiver shall 

notify, by first class mail, each holder of stock and participation certificates of the following matters:

(1) The number of shares such holder owns;

(2) That the stock and other equities of the institution may not be retired or transferred until the 

liquidation is completed, whereupon the receiver will distribute a liquidating dividend, if any, to the 

owners of such equities; and

(3) Such other matters as the receiver or the Farm Credit Administration deems necessary.

[57 FR 46482, Oct. 9, 1992; as amended at 75 FR 35968, June 24, 2010]
FCA Regulations (as of 2/24/17) 370

§ 627.2740 Creditor's claims.

(a) The receiver shall publish promptly a notice to creditors to present their claims against the 

institution, 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 institution'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 institution'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 which 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, 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 subpart and in such 

manner and amounts as the receiver deems appropriate. In the event the institution has a claim against a 

creditor of the institution, the receiver shall offset the amount of such claim against the claim asserted by 

such creditor.

(d) The claims of holders of notes, bonds, debentures, or other obligations issued by a bank under 

12 U.S.C. 2153(c) or (d) shall be made, if deemed necessary or appropriate, in accordance with 

procedures formulated by the Insurance Corporation. In the formulation of such procedures, the 

Insurance Corporation shall consult with the Farm Credit Administration.

[57 FR 46482, Oct. 9, 1992]

§ 627.2745 Priority of claims--associations.

The following priority of claims shall apply to the distribution of the assets of an association in 

liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration 

of the receivership.

(b) Administrative expenses of the association, 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 which were authorized and 

reimbursable under a pre-existing expense reimbursement policy, that, in the opinion of the receiver, are 

of benefit to the receivership, and shall not include wages or salaries of employees of the association.

(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 association 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 association 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.
FCA Regulations (as of 2/24/17) 371

(f) All claims of creditors, including the district bank, which are secured by assets or equities of 

the association in accordance with applicable Federal or State law.

(g) All claims of the district bank other than those provided for in paragraph (f) of this section, 

based on the financing agreement between the association and the bank, including interest accrued before 

and after the appointment of the receiver, minus any setoff for stock or other equity of the district bank 

owned by the association made in accordance with this paragraph or paragraph (f) of this section. Prior to 

making such setoff, the district bank must obtain the approval of the Farm Credit Administration Board 

for the retirement of such equities.

(h) All claims of general creditors.

(i) All claims that, by their terms, are subordinated in whole or in part to the claims of general 

creditors, other than distributions covered under § 627.2755(b). Such claims shall receive the priority 

specified in the written instruments that evidence the claims and, to the extent that the written documents 

provide different priorities for different categories of such claims, each category shall be considered a 

class of claims for purposes of § 627.2755(a).

[57 FR 46482, Oct. 9, 1992, as amended by 72 FR 54527, Sept. 26, 2007]

§ 627.2750 Priority of claims--banks.

The following priority of claims shall apply to the distribution of the assets of a bank in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration 

of the receivership.

(b) Administrative expenses of the bank, 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 which were authorized and 

reimbursable under a pre-existing expense reimbursement policy, that, in the opinion of the receiver, are 

of benefit to the receivership, and shall not include wages or salaries of employees of the bank.

(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 bank 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 bank 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 or equities of the bank, 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 holders of bonds issued by the bank individually to the extent such are 

collateralized in accordance with 12 U.S.C. 2154.

(h) All claims of holders of consolidated and System-wide bonds and all claims of the other Farm 

Credit banks arising from their payments on consolidated and System-wide bonds pursuant to 12 U.S.C. 

2155 or pursuant to an agreement among the banks to reallocate the payments, provided the agreement is 

in writing and approved by the Farm Credit Administration.

(i) All claims of general creditors.

(j) All claims that, by their terms, are subordinated in whole or in part to the claims of general 

creditors, other than distributions covered under § 627.2755(b). Such claims shall receive the priority 
FCA Regulations (as of 2/24/17) 372

specified in the written instruments that evidence the claims and, to the extent that the written documents 

provide different priorities for different categories of such claims, each category shall be considered a 

class of claims for purposes of § 627.2755(a).

[57 FR 46482, Oct. 9, 1992; as amended by 72 FR 54527, Sept. 26, 2007; 72 FR 54529, September 26, 

2007]

§ 627.2752 Priority of claims--other Farm Credit institutions.

The following priority of claims shall apply to the distribution of the assets of an institution, other 

than a bank or association, in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration 

of the receivership.

(b) Administrative expenses of the institution, 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 which were authorized and 

reimbursable under a pre-existing expense reimbursement policy, that, in the opinion of the receiver, are 

of benefit to the receivership, and shall not include wages or salaries of employees of the institution.

(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 institution 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 institution 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 or equities of the institution, 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.

(h) All claims that, by their terms, are subordinated in whole or in part to the claims of general 

creditors, other than distributions covered under § 627.2755(b). Such claims shall receive the priority 

specified in the written instruments that evidence the claims and, to the extent that the written documents 

provide different priorities for different categories of such claims, each category shall be considered a 

class of claims for purposes of § 627.2755(a).

[57 FR 46482, Oct. 9, 1992; as amended by 72 FR 54527, Sept. 26, 2007]

§ 627.2755 Payment of claims.

(a) All claims of each class described in § 627.2745, § 627.2750, or § 627.2752 of this part, 

respectively, 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 in full any class of claims, distribution 

on such class shall be on a pro rata basis.

(b) Following the payment of all claims, the receiver shall distribute the remainder of the assets 

of the institution to the owners of stock, participation certificates, and other equities in accordance with 

the priorities for impairment set forth in the bylaws of the institution.
FCA Regulations (as of 2/24/17) 373

(c) Notwithstanding this section, eligible borrower stock shall be retired in accordance with 

section 4.9A of the Act.

[57 FR 46482, Oct. 9, 1992; as amended by 72 FR 54529, Sept. 26, 2007]

§ 627.2760 Inventory, audit, and reports.

(a) As soon as practicable after taking possession of an institution, the receiver shall make an 

inventory of the assets and liabilities as of the date possession was taken.

(b) The institution in receivership shall be audited on an annual basis by a certified public 

accountant selected by the receiver.

(c) With respect to each receivership, the receiver shall make an annual accounting or report, as 

appropriate, available upon request to any stockholder of the institution in receivership or any member of 

the public, with a copy provided to the Farm Credit Administration.

(d) Upon the final liquidation of the institution, 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.

[57 FR 46482, Oct. 9, 1992]

§ 627.2765 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.

[57 FR 46482, Oct. 9, 1992]

Subpart C - Conservators and Conservatorships

§ 627.2770 Conservators.

(a) The Insurance Corporation shall be appointed as conservator by the Farm Credit 

Administration Board pursuant to section 4.12 of the Act and § 627.2710 of this part to take possession of 

an institution in accordance with the terms of the appointment. Upon appointment, the conservator shall 

direct the institution's further operation until the Farm Credit Administration Board decides whether to 

place the institution into receivership. Upon correction or resolution of the problem or condition that 

provided the basis for the appointment and upon a determination by the Farm Credit Administration 

Board that the institution can be returned to normal operations, the Farm Credit Administration Board 

may turn the institution 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 

institution, to conserve and preserve the institution's assets and property, and otherwise protect the 

interests of the institution, its stockholders, and creditors as provided in this subpart.

[57 FR 46482, Oct. 9, 1992]

§ 627.2775 Appointment of a conservator.

(a) The Farm Credit Administration Board may appoint ex parte and without notice a conservator 

for any Farm Credit institution provided that one or more of the grounds for appointment as set forth in § 

627.2710 exist.
FCA Regulations (as of 2/24/17) 374

(b) Upon the appointment of a conservator, the Chairman of the Farm Credit Administration 

shall immediately notify the institution and, in the case of an association, the district bank, and notice of 

the appointment shall be published in the Federal Register. As soon as practicable after the conservator 

takes possession of the institution, the conservator shall notify, by first class mail, each holder of stock 

and participation certificates in the institution of the establishment of the conservatorship and shall 

describe the effect of the conservatorship on the institution's operations and on the borrower's loan and 

equity holdings.

(c) Upon the issuance of the order placing a Farm Credit institution in conservatorship, all rights, 

privileges, and powers of the members, board of directors, officers, and employees of the institution are 

vested exclusively in the conservator.

(d) The conservator is responsible for conserving and preserving the assets of the institution and 

continuing the ongoing operations of the institution until the conservatorship is terminated by order of the 

Farm Credit Administration Board.

(e) The Board may, at any time, terminate the conservatorship and direct the conservator to turn 

over the institution's operations to such management as the Board may designate, in which event the 

provisions of this subpart shall no longer apply.

[57 FR 46482, Oct. 9, 1992]

§ 627.2780 Powers and duties of conservators.

(a) The conservator of an institution serves as the trustee of the institution and conducts its 

operations for the benefit of the creditors and stockholders of the institution.

(b) The conservator may, with respect to Farm Credit institutions, exercise the powers that a 

receiver of an institution may exercise under any of the provisions of § 627.2725(b) of this part, except 

paragraphs § 627.2725(b)(2) and (b)(17). The provisions of § 627.2726 shall also apply to the 

conservator of a Farm Credit institution. In interpreting the applicable paragraphs for purposes of this 

section, the terms "conservator" and "conservatorship" shall be read for "receiver" and "receivership."

(c) The conservator may extend credit to new and existing borrowers as is necessary to the 

continuing operation of the institution and to effectuate the purposes of the conservatorship.

(d) The conservator may also take any other action the conservator considers appropriate or 

expedient to the continuing operation of the institution.

[57 FR 46482, Oct. 9, 1992, as amended at 70 FR 55515, Sept. 22, 2005]

§ 627.2785 Inventory, examination, audit, and reports to stockholders.

(a) As soon as practicable after taking possession of a Farm Credit institution the conservator shall 

make an inventory of the assets and liabilities of the institution as of the date possession was taken. One 

copy of the inventory shall be filed with the Farm Credit Administration.

(b) The institution in conservatorship shall be examined by the Farm Credit Administration in 

accordance with section 5.19 of the Act. The institution must also be audited by a qualified public 

accountant in accordance with part 621 of this chapter.

(c) Each institution in conservatorship shall prepare and file with the Farm Credit Administration 

financial reports in accordance with the requirements of part 621 of this chapter. The conservator of the 

institution shall provide the certification required in § 621.14 of this chapter.

(d) Each institution in conservatorship must prepare and issue published financial reports in 

accordance with the provisions of part 620 of this chapter, and the certifications and signatures of the 

board of directors or management provided for in § 620.3 of this chapter must be provided by the 

conservator of the institution.
FCA Regulations (as of 2/24/17) 375

[57 FR 46482, Oct. 9, 1992, as amended at 58 FR 48791, Sept. 20, 1993; 71 FR 76121, Dec. 20, 2006]

§ 627.2790 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.

[57 FR 46482, Oct. 9, 1992]

Subpart D - Voluntary Liquidation

§ 627.2795 Voluntary liquidation.

(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 B 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.

[63 FR 5725, Feb. 4, 1998]

§ 627.2797 Preservation of equity.

(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 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, except that if the Farm Credit institution is placed in receivership, 

the provisions of § 627.2730(a) shall govern further disposition of the equities of the Farm Credit 

institution.
FCA Regulations (as of 2/24/17) 376

(b) Notwithstanding paragraph (a) of this section, eligible borrower stock shall be retired in 

accordance with section 4.9A of the Act.

[63 FR 5725, Feb. 4, 1998]
FCA Regulations (as of 2/24/17) 377

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, 6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 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, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-7, 

2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608; sec. 939A, Pub. L. 

111-203, 124 Stat. 1326, 1887 (15 U.S.C. 78o-7 note).

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:

(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) [Reserved]

(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 
FCA Regulations (as of 2/24/17) 378

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]

(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]

[81 FR 49779, July 28, 2016]

§ 628.2 Definitions.

As used in this part:

Additional tier 1 capital (AT1) is defined in § 628.20(c).

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.

Allowances for loan losses (ALL) means valuation allowances that have been established through 

a charge against earnings to cover estimated credit losses on loans, lease financing receivables, or other 

extensions of credit as determined in accordance with generally accepted accounting principles (GAAP). 

For purposes of this part, ALL includes allowances that have been established through a charge against 

earnings to cover estimated credit losses associated with off-balance sheet credit exposures as determined 

in accordance with GAAP.

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.

 

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. 
FCA Regulations (as of 2/24/17) 379

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.

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) [Reserved] 

(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 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, or laws of foreign 

jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (1) in order to 

facilitate the orderly resolution of the defaulting counterparty; or

(2) Where the agreement is subject by its terms to any of the laws referenced in paragraph (1) of 

this definition.

Commitment means any legally binding arrangement that obligates a System institution to extend 

credit or to purchase assets.
FCA Regulations (as of 2/24/17) 380

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 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) [Reserved]

(5) [Reserved]

(6) [Reserved]

(7) A cleared transaction;

(8) [Reserved] 

(9) A securitization exposure; 

(10) An equity exposure; or

(11) An unsettled transaction.

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. 

Credit-enhancing 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;
FCA Regulations (as of 2/24/17) 381

(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 overthe-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.

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, nthto-default swap, total return swap, or any other form of credit derivative approved by the FCA, provided 

that:
FCA Regulations (as of 2/24/17) 382

(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:

(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

(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 
FCA Regulations (as of 2/24/17) 383

(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, any exercise of rights under the agreement will not be stayed or avoided 

under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, 

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) in order to facilitate 

the orderly resolution of the defaulting counterparty.

(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

 

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 of the 

Federal Reserve Board's Regulation EE (12 CFR part 231).
FCA Regulations (as of 2/24/17) 384

(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.).

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-to-maturity 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-tomaturity, 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 repo-style 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.
FCA Regulations (as of 2/24/17) 385

(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;

(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.
FCA Regulations (as of 2/24/17) 386

Insurance company means an insurance company as defined in section 201 of the DoddFrank 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.

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: 

(1) Those subject to revolvement; and 
FCA Regulations (as of 2/24/17) 387

(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.

Nth-to-default credit derivative means a credit derivative that provides credit protection only for

the nth-defaulting 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 memberborrowers 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

(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 
FCA Regulations (as of 2/24/17) 388

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);

(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, any exercise of rights under the agreement will not be stayed or 

avoided under applicable law in the relevant jurisdictions, other than:
FCA Regulations (as of 2/24/17) 389

(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 (2)(i) in order to facilitate the orderly resolution of the defaulting 

counterparty; or

(ii) Where the agreement is subject by its terms to, or incorporates, any of the laws 

reference in paragraph (2)(i) of this definition;

(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;

(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) or a 

qualified financial contract under section 11(e)(8) of the Federal Deposit Insurance Act; 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, any exercise of rights under the agreement will not be stayed or 

avoided under applicable law in the relevant jurisdictions, other than in receivership, 

conservatorship, or resolution under the Federal Deposit Insurance Act, title II of the DoddFrank 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) in order to facilitate the orderly resolution of the defaulting counterparty; 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

(3) [Reserved]

(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) of this part 

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
FCA Regulations (as of 2/24/17) 390

(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-tofour 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 creditenhancing 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

(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;
FCA Regulations (as of 2/24/17) 391

(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 allowance for loan 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, 

Farm Credit Leasing Services Corporation, and their successors, and any other institution 

chartered by the FCA that the FCA determines should be considered a System institution for 

the purposes of this part.

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;

(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 
FCA Regulations (as of 2/24/17) 392

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.

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.

[81 FR 49780, July 28, 2016]

§ 628.3 Operational requirements for certain exposures.
FCA Regulations (as of 2/24/17) 393

For purposes of calculating risk-weighted assets under subpart D of this part:

(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.

(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
FCA Regulations (as of 2/24/17) 394

(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.

[81 FR 49787, July 28, 2016]

§ 628.4 [Reserved]

[81 FR 49788, July 28, 2016]

§ 628.5 [Reserved]

[81 FR 49788, July 28, 2016]

§ 628.6 [Reserved]

[81 FR 49788, July 28, 2016]

§ 628.7 [Reserved]

[81 FR 49788, July 28, 2016]

§ 628.8 [Reserved]

[81 FR 49788, July 28, 2016]

§ 628.9 [Reserved]

[81 FR 49788, July 28, 2016]

Subpart B - Capital Ratio Requirements and Buffers

§ 628.10 Minimum capital requirements.
FCA Regulations (as of 2/24/17) 395

(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. 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 minus amounts deducted from tier 1 capital under §§ 628.22(a) 

and (c) and 628.23.

(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.

(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.

[81 FR 49788, July 28, 2016]

§ 628.11 Capital buffer amounts.

(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:
FCA Regulations (as of 2/24/17) 396

(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:

(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
FCA Regulations (as of 2/24/17) 397

(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:

(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.

TABLE 1 to § 628.11 – CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio 

(as a percentage of

eligible retained income)
FCA Regulations (as of 2/24/17) 398

> 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

(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]

[81 FR 49788, July 28, 2016]

§ 628.12 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.13 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.14 [Reserved]

[81 FR 49790, July 28, 2016]
FCA Regulations (as of 2/24/17) 399

§ 628.15 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.16 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.17 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.18 [Reserved]

[81 FR 49790, July 28, 2016]

§ 628.19 [Reserved]

[81 FR 49790, July 28, 2016]

Subpart C - Definition of Capital

§ 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 issued directly by the System institution and represents a claim 

subordinated to general creditors, subordinated debt holders, and preferred stock holders 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, the claim will be paid only after all creditors, subordinated debt holders, and preferred stock 

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;
FCA Regulations (as of 2/24/17) 400

(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;

(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 the minimum 

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 § 615.5200(d) of this chapter and re-affirmed by the board on an annual 

basis, 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 § 628.20(f), except that the minimum statutory borrower stock described 

in paragraph (b)(1)(x) of this section may be redeemed without a minimum period outstanding after 

issuance and without the prior approval of the FCA.

(2) Unallocated retained earnings.

(3) Paid-in capital resulting from a merger of System institutions or repurchase of 

third-party capital. 

(4) [Reserved]

(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: 
FCA Regulations (as of 2/24/17) 401

(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;

(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-in-kind, 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.
FCA Regulations (as of 2/24/17) 402

(xiv) The System institution's capitalization bylaws, or a resolution adopted by its 

board of directors under § 615.5200(d) of this chapter and re-affirmed by the board on an annual 

basis, 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 § 628.20(f).

(2) [Reserved]

(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, is a common cooperative equity, or is 

member equity purchased in accordance with paragraph (d)(1)(viii) of this section;

(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.
FCA Regulations (as of 2/24/17) 403

(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 the statutory minimum stock purchase 

amount.

(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 § 615.5200(d) of this chapter and re-affirmed by the board on an annual 

basis, 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 § 628.20(f).

(2) [Reserved]

(3) ALL up to 1.25 percent of the System institution's total risk-weighted assets not 

including any amount of the ALL.

(4) [Reserved]

 

5 A System institution may replace tier 2 capital instruments concurrent with the redemption of existing tier 2 capital 

instruments.
FCA Regulations (as of 2/24/17) 404

(5) [Reserved]

(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) [Reserved]

(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.

(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 
FCA Regulations (as of 2/24/17) 405

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, the dollar amount of the System institution's CET1 

capital equals or exceeds the dollar amount of CET1 capital on the same date 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.

[81 FR 49790, July 28, 2016]

§ 628.21 [Reserved]

[81 FR 49792, July 28, 2016]

§ 628.22 Regulatory capital adjustments and deductions.

(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; 

and

(7) [Reserved]

(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) [Reserved]
FCA Regulations (as of 2/24/17) 406

(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) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(3) [Reserved]

(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.

(2) A DTL may only be netted against a single asset.

(3) [Reserved]

(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.

 

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 ALL includable in tier 2 capital under § 628.20(d)(3).
FCA Regulations (as of 2/24/17) 407

(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]

[81 FR 49792, July 28, 2016]

§ 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:

(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.

[81 FR 49793, July 28, 2016]

§ 628.24 [Reserved]

[81 FR 49793, July 28, 2016]

§ 628.25 [Reserved]

[81 FR 49793, July 28, 2016]

§ 628.26 [Reserved]

[81 FR 49793, July 28, 2016]

§ 628.27 [Reserved]

[81 FR 49793, July 28, 2016]

§ 628.28 [Reserved]

[81 FR 49793, July 28, 2016]

§ 628.29 [Reserved]
FCA Regulations (as of 2/24/17) 408

[81 FR 49793, July 28, 2016]

Subpart D - Risk Weighted Assets--Standardized Approach

§ 628.30 Applicability.

(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]

[81 FR 49793, July 28, 2016]
FCA Regulations (as of 2/24/17) 409

Risk-Weighted Assets for General Credit Risk

§ 628.31 Mechanics for calculating risk-weighted assets for general credit risk.

(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 riskweighted asset amounts calculated under this section.

[81 FR 49793, July 28, 2016]

Risk-Weighted Assets for General Credit Risk

§ 628.32 General risk weights.

(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.
FCA Regulations (as of 2/24/17) 410

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 non-System 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.

(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 
FCA Regulations (as of 2/24/17) 411

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.

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

(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.

(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.
FCA Regulations (as of 2/24/17) 412

(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.

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.
FCA Regulations (as of 2/24/17) 413

(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:

(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) [Reserved]

(i) [Reserved]

(j) [Reserved]
FCA Regulations (as of 2/24/17) 414

(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.

(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, in transit, or in accounts at a depository institution or 

a Federal Reserve Bank; to gold bullion 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]

[81 FR 49793, July 28, 2016]
FCA Regulations (as of 2/24/17) 415

Risk-Weighted Assets for General Credit Risk

§ 628.33 Off-balance sheet exposures.

(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.

(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;
FCA Regulations (as of 2/24/17) 416

(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.

[81 FR 49796, July 28, 2016]

Risk-Weighted Assets for General Credit Risk

§ 628.34 OTC derivative contracts.

(a) Exposure amount—

(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.
FCA Regulations (as of 2/24/17) 417

TABLE 1 TO § 628.34 – CONVERSION FACTOR MATRIX FOR DERIVATIVE CONTRACTS1

Remaining maturity2 Interest 

rate

Foreign 

exchange 

rate and 

gold

Credit 

(investment 

grade 

reference 

asset)

3

Credit

(noninvestmentgrade 

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.
FCA Regulations (as of 2/24/17) 418

(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)

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.

(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 counterpartiesfor risk-based 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 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.
FCA Regulations (as of 2/24/17) 419

(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]

[81 FR 49796, July 28, 2016]

Risk-Weighted Assets for General Credit Risk

§ 628.35 Cleared transactions.

(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

(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 
FCA Regulations (as of 2/24/17) 420

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 arrangementsto 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) [Reserved]

(d) [Reserved]

[81 FR 49797, July 28, 2016]

Risk-Weighted Assets for General Credit Risk

§ 628.36 Guarantees and credit derivatives: substitution treatment.

(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.

(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:
FCA Regulations (as of 2/24/17) 421

(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.

(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)]

Where:
FCA Regulations (as of 2/24/17) 422

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.

(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

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).

(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)

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.

(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:

Where TM equals the greater of 10 or the number of days between revaluation.
FCA Regulations (as of 2/24/17) 423

[81 FR 49798, July 28, 2016]

Risk-Weighted Assets for General Credit Risk

§ 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.

(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—
FCA Regulations (as of 2/24/17) 424

(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)]} 

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;

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.

(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:
FCA Regulations (as of 2/24/17) 425

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.
FCA Regulations (as of 2/24/17) 426

(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.

(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:

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.

(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]

[81 FR 49799, July 28, 2016]
FCA Regulations (as of 2/24/17) 427

Risk-Weighted Assets for Unsettled Transactions

§ 628.38 Unsettled transactions.

(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.

(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 transactionsinvolving 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 requirementsfor 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.
FCA Regulations (as of 2/24/17) 428

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

(e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-payment) transactions.

(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.

[81 FR 49800, July 28, 2016]

Risk-Weighted Assets for Unsettled Transactions

§ 628.39 [Reserved]

[81 FR 49801, July 28, 2016]

Risk-Weighted Assets for Unsettled Transactions

§ 628.40 [Reserved]

[81 FR 49801, July 28, 2016]
FCA Regulations (as of 2/24/17) 429

Risk-Weighted Assets for Securitization Exposures

§ 628.41 Operational requirementsfor securitization exposures.

(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 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.
FCA Regulations (as of 2/24/17) 430

(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:

(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.

[81 FR 49801, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.42 Risk-weighted assets for securitization exposures.

(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.
FCA Regulations (as of 2/24/17) 431

(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 risk-weighted asset

amount of the exposure equal to the amount of the exposure as determined in paragraph (c) of this section.

(b) Total risk-weighted assets for securitization exposures. A System institution's total riskweighted 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) [Reserved]

(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.

(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.
FCA Regulations (as of 2/24/17) 432

(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-businessloans 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

small-business 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) [Reserved]

(ii) [Reserved]

(i) Nth-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) [Reserved]

(3) [Reserved]

(4) Protection purchaser—

(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 riskweighted 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-todefault 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 riskweighted asset amount and had obtained no credit risk mitigant on the underlying exposures.
FCA Regulations (as of 2/24/17) 433

(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.

(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).

[81 FR 49802, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.43 Simplified supervisory formula approach (SSFA) and the gross-up approach.

(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 Wis 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; 
FCA Regulations (as of 2/24/17) 434

(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.

(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:

KA-A 

D-A

(ii) The weight assigned to 1,250 percent times KSSFA equals:

D-KA

D-A

(iii) The risk weight will be set equal to:
FCA Regulations (as of 2/24/17) 435

(d) SSFA equation. (1) The System institution must define the following parameters:

(2) Then the System institution must calculate KSSFA according to the following equation:

Where:

(3) The risk weight for the exposure (expressed as a percent) is equal to KSSFA x 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:

A = X

Y expressed as a percent

(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
FCA Regulations (as of 2/24/17) 436

(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 grossup 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.

[81 FR 49803, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.44 Securitization exposures to which the SSFA and gross-up approach do not apply.

(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]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.45 Recognition of credit risk mitigants for securitization exposures.

(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.

[81 FR 49805, July 28, 2016]
FCA Regulations (as of 2/24/17) 437

Risk-Weighted Assets for Securitization Exposures

§ 628.46 [Reserved]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.47 [Reserved]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.48 [Reserved]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.49 [Reserved]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Securitization Exposures

§ 628.50 [Reserved]

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.51 Introduction and exposure measurement.

(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 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.
FCA Regulations (as of 2/24/17) 438

(2) [Reserved]

(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-forsale, 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 commitmentsreceive a CF of 100 percent.

[81 FR 49805, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.52 Simple risk-weight approach (SRWA).

(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 risk-weighted 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.

(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.
FCA Regulations (as of 2/24/17) 439

(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 etseq.; 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).

(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) [Reserved]

(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):
FCA Regulations (as of 2/24/17) 440

(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:

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.

(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.

[81 FR 49806, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.53 Equity exposures to investment funds.

(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
FCA Regulations (as of 2/24/17) 441

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 risk-weighted 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 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.

[81 FR 49807, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.54 [Reserved]

[81 FR 49808, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.55 [Reserved]

[81 FR 49808, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.56 [Reserved]

[81 FR 49808, July 28, 2016]
FCA Regulations (as of 2/24/17) 442

Risk-Weighted Assets for Equity Exposures

§ 628.57 [Reserved]

[81 FR 49808, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.58 [Reserved]

[81 FR 49808, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.59 [Reserved]

[81 FR 49808, July 28, 2016]

Risk-Weighted Assets for Equity Exposures

§ 628.60 [Reserved]

[81 FR 49808, July 28, 2016]

Disclosures

§ 628.61 Purpose and scope.

Sections 628.62 and 628.63 establish public disclosure requirementsfor each System bank related to 

the capital requirements contained in this part.

[81 FR 49808, July 28, 2016]

Disclosures

§ 628.62 Disclosure requirements.

(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
FCA Regulations (as of 2/24/17) 443

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.

(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.

[81 FR 49808, July 28, 2016]

Disclosures

§ 628.63 Disclosures.

(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) Regulatory capital ratios during the transition period, including a description of all the

regulatory capital elements and all regulatory adjustments and deductions needed to calculate the

numerator and denominator of each capital ratio during the transition period; and

(4) A reconciliation of regulatory capital elements as they relate to its balance sheet in any audited

consolidated financial statements.
FCA Regulations (as of 2/24/17) 444

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 entities2 for 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. 

2

Entities include any subsidiaries authorized by the FCA, including operating subsidiaries, service corporations, and 

unincorporated business entities.
FCA Regulations (as of 2/24/17) 445

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.
FCA Regulations (as of 2/24/17) 446

(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 thirdparty capital under § 628.23.
FCA Regulations (as of 2/24/17) 447

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 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
FCA Regulations (as of 2/24/17) 448

(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.
FCA Regulations (as of 2/24/17) 449

(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.
FCA Regulations (as of 2/24/17) 450

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 allowance for loan 

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 

Disclosures

(b) Total credit risk exposures and average credit risk exposures, after accounting offsets in 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
FCA Regulations (as of 2/24/17) 451

(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 allowance for loan 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,5

further categorized as required by GAAP.

(g) Reconciliation of changes in allowances for loan 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.
FCA Regulations (as of 2/24/17) 452

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 probable loan losses during the period; any other 

adjustments (for example, exchange rate differences, business combinations, acquisitions and disposals of 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.
FCA Regulations (as of 2/24/17) 453

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;

(2) 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.
FCA Regulations (as of 2/24/17) 454

TABLE 7 TO § 628.63 – CREDIT RISK MITIGATION 1, 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).
FCA Regulations (as of 2/24/17) 455

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]
FCA Regulations (as of 2/24/17) 456

(c) Summary of the System bank's accounting policies for securitization activities, including:

(1) Whether the transactions are treated as sales or financings; 

(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
FCA Regulations (as of 2/24/17) 457

(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 riskbased 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. 
FCA Regulations (as of 2/24/17) 458

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 third-party 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 thirdparty 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.
FCA Regulations (as of 2/24/17) 459

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.

(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.
FCA Regulations (as of 2/24/17) 460

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).
FCA Regulations (as of 2/24/17) 461

[81 FR 49808, July 28, 2016]

Disclosures

§§ 628.64 through 628.99 [Reserved]

[81 FR 49812, July 28, 2016]

Subpart E [Reserved]

Subpart E [Reserved]

[81 FR 49812, July 28, 2016]

Subpart F [Reserved]

Subpart F [Reserved]

[81 FR 49812, July 28, 2016]

Subpart G - Transition Provisions 

§ 628.300 Transitions.

(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.

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
FCA Regulations (as of 2/24/17) 462

≤ 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

≤ 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

(b) through (e) [Reserved]

[81 FR 49812, July 28, 2016]

§ 628.301 Initial compliance and reporting requirements.

(a) A System institution that fails to satisfy one or more of its minimum applicable CET1, tier 1, 

or total risk-based capital ratios or its tier 1 leverage ratio at the end of the quarter in which these 
FCA Regulations (as of 2/24/17) 463

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.

(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.

[81 FR 49813, July 28, 2016]
FCA Regulations (as of 2/24/17) 464

PART 630 – DISCLOSURE TO INVESTORS IN SYSTEM-WIDE 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 of Pub. L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-552, 106 

Stat. 4102.

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.

[59 FR 46742, Sept. 12, 1994]

§ 630.2 Definitions.

For purposes of this part, the following definitions shall apply: 

(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.

[59 FR 46742, Sept. 12, 1994, as amended at 71 FR 76121, Dec. 20, 2006]
FCA Regulations (as of 2/24/17) 465

§ 630.3 Publishing and filing the report to investors.

(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. 

(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.

[59 FR 46742, 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.

(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 
FCA Regulations (as of 2/24/17) 466

true and that there are no omissions of material information. The system of internal controls, at a 

minimum, shall require that the Funding Corporation:

(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:

(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. 
FCA Regulations (as of 2/24/17) 467

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. 

[59 FR 46742, 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.

(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.

(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 
FCA Regulations (as of 2/24/17) 468

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.

[71 FR 76121, Dec. 20, 2006, as amended at 72 FR 64130, Nov. 15, 2007]

§ 630.6 Funding Corporation committees.

(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. 

(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.
FCA Regulations (as of 2/24/17) 469

(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.

(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.

[71 FR 5767, Feb. 2, 2006, as amended at 71 FR 76122, Dec. 20, 2006; 77 FR 59053, 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:

(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
FCA Regulations (as of 2/24/17) 470

(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 bank's 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.

(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.
FCA Regulations (as of 2/24/17) 471

(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 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 loan 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.

(iii) Net interest income as a percentage of average earning assets.

(iv) Net loan chargeoffs as a percentage of average loans.

(v) Allowance for loan 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) Provide an analysis of the allowance for loan losses that includes the ratios of the allowance for 

loan losses to loans (outstanding at yearend) and net chargeoffs to average loans, and a discussion of the 

adequacy of the allowance for loan losses to absorb the risk inherent in the loan portfolio and the basis for 

such determination.

(iii) Secondary market activities.

(A) If material, quantify System institution's 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.
FCA Regulations (as of 2/24/17) 472

(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.

(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.

(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.
FCA Regulations (as of 2/24/17) 473

(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

(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.
FCA Regulations (as of 2/24/17) 474

(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 nonaudit 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 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 
FCA Regulations (as of 2/24/17) 475

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 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.

[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 59053, Sept. 26, 2012; 77 FR 60602, Oct. 3, 

2012; 78 FR 31835, May 28, 2013; 79 FR 17856, Mar. 31, 2014]

Subpart C - Quarterly Reports to Investors

§ 630.40 Contents of the quarterly report to investors.

(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 
FCA Regulations (as of 2/24/17) 476

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 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.

(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.
FCA Regulations (as of 2/24/17) 477

(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.

[59 FR 46742, Sept. 12, 1994; 71 FR 5768, Feb. 2, 2006]
FCA Regulations (as of 2/24/17) 478

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:

TABLE A--SUPPLEMENTAL BALANCE SHEET INFORMATION

Banks1 Associations2Financial 

assistance 

corporation

EliminationsCombined 

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

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.

4

Any item that is no longer applicable, e.g., protected borrower stock, may be omitted.
FCA Regulations (as of 2/24/17) 479

TABLE B--SUPPLEMENTAL INCOME STATEMENT INFORMATION

Banks1 Associations2Financial 

assistance 

corporation

EliminationsCombined 

without 

insurance 

fund3

Insurance 

fund and 

related 

combination 

entries

Combined 

with 

insurance 

fund

Net interest income

Provision for loan 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.
FCA Regulations (as of 2/24/17) 480

PART 650 – FEDERAL AGRICULTURAL MORTGAGE CORPORATION 

GENERAL PROVISIONS

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 Pub. L. 92-181, 

85 Stat. 583 (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.

§ 650.1 Definitions.

The following definitions apply to this part:

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 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.

[81 FR 49152, July 27, 2016]

§ 650.2 Regulatory authority.

(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.

[81 FR 49152, July 27, 2016]
FCA Regulations (as of 2/24/17) 481

§ 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.

(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.

[81 FR 49152, July 27, 2016]

§ 650.4 Access to Corporation records and personnel.

(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.

[81 FR 49152, July 27, 2016]

§ 650.5 Reports of examination.

The Corporation is subject to the provisions in 12 CFR part 602 regarding FCA Reports of 

Examination.

[81 FR 49152, July 27, 2016]
FCA Regulations (as of 2/24/17) 482

§ 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.

[81 FR 49152, July 27, 2016]

§ 650.10 Voluntary liquidation.

(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 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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.13 Grounds for appointment of a receiver or conservator.

(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 AdministrationBoard;

(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 Corporationif:

(1) The Corporation is classified under section 8.35 of the Act as within enforcement level III

or IV; or
FCA Regulations (as of 2/24/17) 483

(2) The authority of the Corporation to purchase qualified loans or issue or guarantee loanbacked securities is suspended.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 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 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.15 Appointment of a 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. 

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.20 Powers and duties 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.
FCA Regulations (as of 2/24/17) 484

 (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.

 (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.

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]
FCA Regulations (as of 2/24/17) 485

§ 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.

[62 FR 43633, Aug. 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, July 

27, 2016]

§ 650.30 Preservation of equity.

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 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:

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.40 Creditor claims.

 (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 
FCA Regulations (as of 2/24/17) 486

class mail to the claimant’s address appearing on the proof of claim shall be sufficient notice. The 

disallowance shall be final unless, 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. 

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.45 Priority of claims.

The following priority of claims shall apply to the distribution of the assets of the Corporation in 

liquidation:

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.50 Payment of claims.

 (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. 
FCA Regulations (as of 2/24/17) 487

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.55 Inventory, audit, and reports.

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.65 Appointment of a conservator.

 (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.
FCA Regulations (as of 2/24/17) 488

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.70 Powers and duties of the conservator.

(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.

 (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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]

§ 650.75 Inventory, examination, and reports to stockholders.

(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.

[62 FR 43633, Aug. 15, 1997; redesignated and amended at 70 FR 40650, 40651, July 14, 2005; 

redesignated at 81 FR 49151, July 27, 2016]

§ 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.

[62 FR 43633, Aug. 15, 1997; redesignated at 70 FR 40650, July 14, 2005; redesignated at 81 FR 49151, 

July 27, 2016]
FCA Regulations (as of 2/24/17) 489

PART 651 – FEDERAL AGRICULTURAL MORTGAGE CORPORATION 

GOVERNANCE

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 Pub. L. 92-181, 

85 Stat. 583 (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.

§ 651.1 Definitions.

The following definitions apply to this part:

Act or Authorizing statute means the Farm Credit Act of 1971, as amended. 

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.

Affiliate means any entity established under authority granted to the Corporation under section 

8.3(c)(14) of the Act.

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.
FCA Regulations (as of 2/24/17) 490

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. 

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.
FCA Regulations (as of 2/24/17) 491

[81 FR 49152, July 27, 2016]

§ 651.2 [Reserved]

[81 FR 49153, July 27, 2016]

§ 651.21 [Reserved]

[81 FR 49153, July 27, 2016]

§ 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:

(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;
FCA Regulations (as of 2/24/17) 492

(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.

[81 FR 49153, July 27, 2016]

§ 651.23 Implementation of policy.

(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.

[81 FR 49153, July 27, 2016]

§ 651.24 Director, officer, employee, and agent responsibilities.

(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;
FCA Regulations (as of 2/24/17) 493

(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.

[81 FR 49153, July 27, 2016]

§ 651.30 [Reserved]

[81 FR 49154, July 27, 2016]

§ 651.35 [Reserved]

[81 FR 49154, July 27, 2016]

§ 651.40 [Reserved]

[81 FR 49154, July 27, 2016]

§ 651.50 Committees of the Corporation’s board of directors.

(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.

(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.
FCA Regulations (as of 2/24/17) 494

(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.

[81 FR 49154, July 27, 2016]
FCA Regulations (as of 2/24/17) 495

PART 652 – FEDERAL AGRICULTURAL MORTGAGE CORPORATION 

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. 11-203, 124 Stat. 1326, 1887 

(15 U.S.C. 78o-7 note) (July 21, 2010).

Subpart A - Investment Management

§ 652.1 Purpose.

The purpose of this subpart is to ensure safety and soundness, continuity of funding, and 

appropriate use of non-program 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.

[77 FR 66382, Nov. 5, 2012]

§ 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 purposes of this subpart, ABS exclude mortgage securities that are defined 

below.

Cash means cash balances held at Federal Reserve Banks, proceeds from traded-but-not-yetsettled debt, and deposit accounts at Federal Deposit Insurance Corporation-insured banks.

Contingency Funding Plan (CFP) is described in § 652.35(d)(2).

Eurodollar time deposit means a non-negotiable deposit denominated in United States dollars and 

issued by an overseas branch of a United States bank or by a foreign bank outside the United States.

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.

Final maturity means the last date on which the remaining principal amount of a security is due 

and payable (matures) to the registered owner. It does not mean the call date, the expected average life, 

the duration, or the weighted average maturity.

General obligations of a state or political subdivision means:

(1) The full faith and credit obligations of a state, the District of Columbia, the Commonwealth 

of Puerto Rico, a territory or possession of the United States, or a political subdivision thereof that 

possesses general powers of taxation, including property taxation; or

(2) An obligation that is unconditionally guaranteed by an obligor possessing general powers of 

taxation, including property taxation.

Government agency means the United States or an agency, instrumentality, or corporation of the 

United States Government whose obligations are fully and explicitly insured or guaranteed as to the 

timely repayment of principal and interest by the full faith and credit of the United States Government. 
FCA Regulations (as of 2/24/17) 496

Government-sponsored agency means an agency, instrumentality, or corporation chartered or 

established to serve public purposes specified by the United States Congress but whose obligations are 

not fully and explicitly insured or guaranteed by the full faith and credit of the United States Government, 

including but not limited to any Government-sponsored enterprise.

Liability Maturity Management Plan (LMMP) is described in § 652.35(d)(2)(iv).

Liquid investments are assets that can be promptly converted into cash without significant loss to 

the investor. A security is liquid if the spread between its bid price and ask price is narrow and a 

reasonable amount can be sold at those prices promptly. 

Liquidity reserve is described in § 652.40.

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 long-term standby purchase commitments or repurchases of agricultural mortgage securities. 

Mortgage securities 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 mortgage securities, or other multiclass mortgage securities. 

(3) This definition does not include agricultural mortgage-backed securities guaranteed by 

Farmer Mac itself. 

Nationally recognized statistical rating organization (NRSRO) means a rating organization that 

the Securities and Exchange Commission recognizes as an NRSRO.

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. 

Revenue bond means an obligation of a municipal government that finances a specific project or 

enterprise, but it is not a full faith and credit obligation. The obligor pays a portion of the revenue 

generated by the project or enterprise to the bondholders.

Weighted average life (WAL) means the average time until the investor receives the principal on a 

security, weighted by the size of each principal payment and calculated under specified prepayment 

assumptions.

[77 FR 66382, Nov. 5, 2012; as amended at 78 FR 65552, Nov. 1, 2013]
FCA Regulations (as of 2/24/17) 497

§ 652.10 Investment management.

(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 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 four 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), geographical areas, 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.

(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. 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.
FCA Regulations (as of 2/24/17) 498

(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 asset-backed 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 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;
FCA Regulations (as of 2/24/17) 499

(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.

[77 FR 66383, Nov. 5, 2012]

§ 652.15 Non-program investment purposes and limitation.

(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.

[77 FR 66384, Nov. 5, 2012]

§ 652.20 Eligible non-program investments.

(a) You may hold only the types, quantities, and qualities of non-program investments listed in 

the following Non-Program Investment Eligibility Criteria Table. These investments must be 

denominated in United States dollars. 

Non-Program Investment Eligibility Criteria Table

ASSET CLASS

FINAL 

MATURITY 

LIMIT

NRSRO ISSUE OR 

ISSUER CREDIT 

RATING 

REQUIREMENT

OTHER 

REQUIREMENTS

MAXIMUM 

PERCENTAGE 

OF TOTAL NONPROGRAM 

INVESTMENT 

PORTFOLIO 

(1) Obligations of the 

United States

Treasuries 

Other obligations (except 

mortgage securities) fully 

insured or guaranteed by 

the United States 

Government or a 

Government agency.

None NA None None

(2) Obligations of 

Government-sponsored 

agencies

· Government-sponsored 

agency securities (except 

mortgage securities).

None NA None None
FCA Regulations (as of 2/24/17) 500

· Other obligations (except 

mortgage securities) fully 

insured or guaranteed by 

Government-sponsored 

agencies.

(3) Municipal 

Securities

· General obligations 10 years One of the two 

highest.

None None

· Revenue bonds 5 years for fixed 

rate bonds and 

10 years for 

index/ floating 

rate bonds

Highest None 15% 

(4) International and 

Multilateral 

Development Bank 

Obligations

None None The United States must 

be a voting shareholder.

None

(5) Money Market 

Instruments

· Federal funds 1 day or 

continuously 

callable up to 

100 days

One of the two 

highest short-term.

None None

· Negotiable 

certificates of deposit 1 year One of the two 

highest short-term.

None None

· Bankers acceptances None One of the two 

highest short-term.

Issued by a depository 

institution.

None

· Prime commercial 

paper 270 days Highest short-term. None None

· Non-callable term 

Federal funds and Eurodollar 

time deposits.

100 days Highest short-term. None 20%

· Master notes 270 days Highest short-term. None 20%

· Repurchase 

agreements collateralized by 

eligible investments or 

marketable securities rated in 

the highest credit rating 

category by an NRSRO.

100 days NA None

Note: You must also comply with requirements of paragraphs (b), (c), and (d) of this section, and § 651.40 when applicable. 

“NA” means not applicable.
FCA Regulations (as of 2/24/17) 501

ASSET CLASS

FINAL 

MATURITY 

LIMIT

NRSRO ISSUE OR 

ISSUER CREDIT 

RATING 

REQUIREMENT

OTHER 

REQUIREMENTS

MAXIMUM 

PERCENTAGE OF 

TOTAL NONPROGRAM 

INVESTMENT 

PORTFOLIO 

(6) Mortgage 

Securities 

· Issued or 

guaranteed by the United 

States or a Government 

agency.

None NA None

· Governmentsponsored agency mortgage 

securities.

None One of the two 

highest.

50%

· Non-Government 

agency or Governmentsponsored agency securities 

that comply with 15 U.S.C. 

77d(5) or 15 U.S.C. 

78c(a)(41).

None Highest

15% combined · Commercial 

mortgage-backed securities. None Highest Security must be backed by a minimum 

of 100 loans.

· Loans from a 

single mortgagor cannot 

exceed 5% of the pool.

Pool must be 

geographically 

diversified pursuant 

to the board’s policy.

(7) Asset-Backed 

Securities secured by:

Credit card 

receivables

Automobile loans

Home equity 

loans

Wholesale 

automobile dealer loans

Student loans

Equipment loans

Manufactured 

housing loans

None Highest Maximum of 5-year 

WAL for fixed rate or 

floating rate ABS at 

their contractual interest 

rate caps.

25% combined

(8) Corporate Debt 

Securities

5 years One of the highest 

two for maturities 

greater than 3 years, 

and one of the 

highest three for 

maturities of three 

years or less.

Cannot be convertible 

to equity securities.

25%

(9) Diversified Investment 

Funds

Shares of an 

investment company 

registered under 

section 8 of the 

NA NA The portfolio of the 

investment company 

must consist solely of 

eligible investments 

authorized by this 

section.

None, if your shares in 

each investment 

company comprise less 

than 10% of your 

portfolio. Otherwise 

counts toward limit for 
FCA Regulations (as of 2/24/17) 502

Investment Company 

Act of 1940. The investment 

company’s risk and 

return objectives and 

use of derivatives must 

be consistent with FCA 

guidance and your 

investment policies.

each type of 

investment.

Note: You must also comply with requirements of paragraphs (b), (c), and (d) of this section, and § 651.40 when applicable. 

“NA” means not applicable.

(b) Rating of foreign countries. Whenever the obligor or issuer of an eligible investment is 

located outside the United States, the host country must maintain the highest sovereign rating for political 

and economic stability by an NRSRO.

(c) Marketable investments. All eligible investments, except money market instruments, must be 

readily marketable. An eligible investment is marketable if you can sell it promptly at a price that closely 

reflects its fair value in an active and universally recognized secondary market. You must evaluate and 

document the size and liquidity of the secondary market for the investment at time of purchase. 

(d) Obligor limits. 

(1) You may not invest more than 25 percent of your regulatory capital in eligible investments 

issued by any single entity, issuer, or obligor. This obligor limit does not apply to Government-sponsored 

agencies or Government agencies. You may not invest more than 100 percent of your regulatory capital 

in any one Government-sponsored agency. There are no obligor limits for Government agencies. 

(2) Obligor limits for your holdings in an investment company. You must count securities that 

you hold through an investment company toward the obligor limits of this section unless the investment 

company’s holdings of the security of any one issuer do not exceed 5 percent of the investment 

company’s total portfolio.

(e) Preferred stock and other investments approved by the FCA. 

(1) You may purchase non-program investments in preferred stock issued by other Farm Credit 

System institutions only with our written prior approval. You may also purchase non-program 

investments other than those listed in the Non-Program Investment Eligibility Criteria Table at paragraph 

(a) of this section only with our written prior approval. 

(2) Your request for our approval must explain the risk characteristics of the investment and your 

purpose and objectives for making the investment.

[77 FR 66384, Nov. 5, 2012]

§ 652.25 Management of ineligible investments and reservation of authority.

(a) Investments ineligible when purchased. Investments that do not satisfy the eligibility 

criteria set forth in § 652.20 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 the 

OSMO within 15 calendar days after such determination. You must divest of the investment no later than 

60 calendar days after the determination unless we approve, in writing, a plan that authorizes you to 

divest of the investment over a longer period of time.

(b) Investments that no longer satisfy eligibility criteria. If you determine that an investment 

(that satisfied the eligibility criteria set forth in § 652.20 when purchased) no longer satisfies the 

eligibility criteria, you must notify the OSMO within 15 calendar days of the determination. 

(c) Requirements for investments that are ineligible or no longer satisfy eligibility criteria.

(1) Reporting requirements. Each quarter, you must report to the OSMO and your board on 

the status of investments identified in paragraph (a) or (b). Your report must demonstrate the effect that 

these investments may have on the Corporation’s capital, earnings, and liquidity position. Additionally, 
FCA Regulations (as of 2/24/17) 503

the report must address how the Corporation plans to reduce its risk exposure from these investments or 

exit the position(s).

(2) Other requirements. Investments identified in paragraph (a) or (b) of this section may 

not be used to satisfy the liquidity requirement(s) in § 652.40. These investments must continue to be 

included in the investment portfolio limit calculation established in § 652.15(b). 

(d) Reservation of authority. FCA retains the authority to require you to divest of any 

investment at any time for failure to comply with § 652.15(a) or for safety and soundness reasons. The 

timeframe set by FCA for such required divestiture will consider the expected loss on the transaction (or 

transactions) and the effect on the Corporation’s financial condition and performance.

[77 FR 66386, Nov. 5, 2012]

§ 652.30 Interest rate risk management.

(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.

(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.

[77 FR 66387, Nov. 5, 2012]
FCA Regulations (as of 2/24/17) 504

§ 652.35 Liquidity management.

(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 enterprisewide 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. 

(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 are 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 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:
FCA Regulations (as of 2/24/17) 505

(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.

[78 FR 65553, Nov. 1, 2013]

§ 652.40 Liquidity reserve requirement and supplemental liquidity.

(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. 
FCA Regulations (as of 2/24/17) 506

Liquidity 

Level

Instruments Discount (Multiply 

market value by)

Level 1 • Cash, including cash due from traded but not yet settled debt

• Overnight money market instruments, including repurchase agreements secured 

exclusively by Level 1 investments

• Obligations of the United States with a final remaining maturity of 3 years or less

• Government-sponsored agency senior debt securities that mature within 60 days, 

excluding securities issued by the Farm Credit System

• Diversified investment funds comprised of cash, overnight money market funds, 

obligations of the United States, and Government-sponsored agency senior debt securities 

provided that such diversified investment funds meet the requirements of 17 CFR 270.2a7(c)(2).

100 percent

100 percent

97 percent

95 percent

95 percent

Level 2 • Additional Level 1 investments

• Obligations of the United States with a final remaining maturity of more than 3 years

• Mortgage-backed securities that are explicitly backed by the full faith and credit of 

the United States as to the timely payment of principal and interest.

• Diversified investment funds that qualify for Level 1 or are comprised exclusively of 

Level 2 instruments.

Discount for each 

Level 1 investment 

applies

97 percent

95 percent

95 percent

Level 3 • Additional Level 1 or Level 2 investments

• Government-sponsored agency senior debt securities with maturities exceeding 60 days, 

excluding senior debt securities of the Farm Credit System

• Government-sponsored agency mortgage-backed securities that the timely repayment of 

principal and interest are not explicitly backed by the full faith and credit of the 

United States, excluding Farmer Mac mortgage-backed securities.

• 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).

Discount for each 

Level 1 or Level 2 

investment applies

93 percent for all 

instruments in 

Level 3

Supplemental 

Liquidity

• Eligible investments under § 652.20. 90 percent except 

discounts for Level 

1, 2 or 3 

investments apply to 

such investments 
FCA Regulations (as of 2/24/17) 507

held as supplemental 

liquidity. 

[78 FR 65552, Nov. 1, 2013]
FCA Regulations (as of 2/24/17) 508

§ 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:

(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.

[77 FR 66388, Nov. 5, 2012]

Subpart B - Risk-Based Capital Requirements 

§ 652.50 Definitions.

For purposes of this subpart, the following definitions will apply:

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. 

[71 FR 77253, Dec. 26, 2006; as amended at 76 FR 23467, Apr. 27, 2011]

§ 652.55 General.

You must hold risk-based capital in an amount determined in accordance with this subpart.

[71 FR 77254, Dec. 26, 2006]

§ 652.60 Corporate business 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 
FCA Regulations (as of 2/24/17) 509

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.

[78 FR 65149, Oct. 31, 2013]

§ 652.61 Capital planning.

(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.

 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).
FCA Regulations (as of 2/24/17) 510

 (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 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 well-articulated 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.
FCA Regulations (as of 2/24/17) 511

 (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

 (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.

[78 FR 65149, Oct. 31, 2013]

§ 652.62 Notice to OSMO of capital distributions.

(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.

[78 FR 65151, 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 www.fca.gov. The risk-based capital stress test has five components:
FCA Regulations (as of 2/24/17) 512

(a) Data requirements. You will use the following data to implement the risk-based capital 

stress test. 

(1) You will use Corporation loan-level data to implement the credit risk component of the riskbased 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 offfarm) 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:

(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.
FCA Regulations (as of 2/24/17) 513

(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 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 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 www.fca.gov.

[71 FR 77254, 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:

(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.

[71 FR 77255, Dec. 26, 2006]

§ 652.75 Your responsibility for determining the risk-based capital level.

(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 riskbased 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.

[71 FR 77255, Dec. 26, 2006]

§ 652.80 When you must determine the risk-based capital level.
FCA Regulations (as of 2/24/17) 514

(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 risk-based 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.

[71 FR 77255, Dec. 26, 2006]

§ 652.85 When to report the risk-based capital level.

(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 

risk-based 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.

[71 FR 77255, Dec. 26, 2006; as amended at 73 FR 31940, June 5, 2008]

§ 652.90 How to report your risk-based capital determination.

(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;

(2) Other information necessary to determine compliance with the procedures for determining 

risk-based 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.

[71 FR 77255, Dec. 26, 2006]

§ 652.95 Failure to meet capital requirements.

(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.

[71 FR 77255, Dec. 26, 2006]
FCA Regulations (as of 2/24/17) 515

§ 652.100 Audit of the risk-based capital stress test.

You must have a qualified, independent external auditor review your implementation of the riskbased capital stress test every 3 years and submit a copy of the auditor's opinion to us.

[71 FR 77255, Dec. 26, 2006]
FCA Regulations (as of 2/24/17) 516

Appendix A--Subpart B of Part 652--Risk-Based Capital Stress Test

Appendix A—Subpart B of Part 652—Risk-Based Capital Stress Test

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.

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.

1.0 Introduction.

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.

 

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 
FCA Regulations (as of 2/24/17) 517

indicated. 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." 

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 loss-frequency 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 

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 

loss-frequency 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
FCA Regulations (as of 2/24/17) 518

· (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

 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

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:

Hosmer and Lemeshow goodness-of-fit p-value 0.1718 

Max-rescaled R2

 0.2015 

Concordant 85.2%

Disconcordant 12.0%

Tied 2.8%

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.
FCA Regulations (as of 2/24/17) 519

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."

2.2 Loan-Seasoning Adjustment for All Types of Loans, Except Rural Utility Loans.

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." 

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
FCA Regulations (as of 2/24/17) 520

D/A at Origination 0.5

DSCR at Origination 1.3984

Maximum Percentage Land Price Decline (MAX) -23.52

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

 

Where,

Z1 = (-12.62738) + 1.91259 · LTV5.3914596 – 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 · LTV5.3914596 – 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)(LTV5.3914596) - (0.33830)

(-16.6939443) – (0.19596) (DSCR) + (4.55390)(0.998972) + 

(2.49482) (DA) = -1.411594
FCA Regulations (as of 2/24/17) 521

And

1 / 1 + exp-(-1.411594) = 0.19598279

Dampened Maximum Land Price Decline = 

(-20.00248544) = (-23.52)(1.0413299)-4

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

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.

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 

age-adjusted 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).

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.
FCA Regulations (as of 2/24/17) 522

Loan Origination 

Balance

Age-Adjusted 

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 

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 riskreducing 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 x Severity Rate x 

3), which may be further adjusted for industry sector concentration by the Director.15 

A B C F E F G

Whole-Letter 

Rating

Default 

Rate 

(Percent)

Severity 

Rate 

(Percent)

V3.0 GOA 

Factor 

(Percent)

V4.0 GOA 

Factors (D 

x 3) 

(Percent)

Concentration 

Ratio (e.g., 25%) 

(Percent)

Factor with 

Concentration 

Adjustment 1-((1-

E)x(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

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 
FCA Regulations (as of 2/24/17) 523

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.
FCA Regulations (as of 2/24/17) 524

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.

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

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%

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]

2.5 Calculation of Loss Rates for Use in the Stress Test for All Types of Loans, Except Rural Utility 

Loans.

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." 
FCA Regulations (as of 2/24/17) 525

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 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.

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:

Month End

10-year CMT

Monthly Series

04/1999 5.18

05/1999 5.54

06/1999 5.90

Average 5.54

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:
FCA Regulations (as of 2/24/17) 526

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

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

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.

4.0 Elements Used in Generating Cashflows.

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 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;
FCA Regulations (as of 2/24/17) 527

(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 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.

 

4.1 Data Inputs.

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. 
FCA Regulations (as of 2/24/17) 528

(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: 
FCA Regulations (as of 2/24/17) 529

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 

Living Expenses 

Income & FICA Taxes 

Net Off-Farm Income 

Total Debt Service 

Guarantee/Commitment Fee

Seasoned Loan Flag
FCA Regulations (as of 2/24/17) 530

(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.

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 

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.
FCA Regulations (as of 2/24/17) 531

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.

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. Nonprogram 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 wholeletter 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.

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 LongTerm

AAA AA A BBB Below BBB 

and unrated

Fitch LongTermAAA AA A BBB Below BBB 

and Unrated

Standard & 

Poor's ShortTerm

A-1+

SP-1+

A-1

SP-1

A-2

SP-2

A-3 SP-3, B, or 

Below and 

Unrated

Fitch ShortTermF-1+ F-1 F-2 F-3 below F-3 and 

Unrated

Moody's Prime- MIG12

VMIg1

Prime-2 MIG2 

VMIG2

Prime-3 MIG3 

VMIG3

Not Prime, SG 

and Unrated

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
FCA Regulations (as of 2/24/17) 532

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

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 
FCA Regulations (as of 2/24/17) 533

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."

4.2 Assumptions and Relationships.

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.

(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 
FCA Regulations (as of 2/24/17) 534

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 re-examined and modified if we deem changing the 

specification results in a more appropriate representation of operating expenses.

 (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 
FCA Regulations (as of 2/24/17) 535

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:

Fixed Spread = Weighted Average Yield less 10-year CMT

0.014 = 0.0694 - 0.0554 

(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:

Yield = Fixed Spread + 10-year CMT

.0994 = .014 + .0854

(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 -6.7688 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.

 

4.3 Risk Measures.

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. 
FCA Regulations (as of 2/24/17) 536

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.

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.

4.5 Income Statements.

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.

4.6 Balance Sheets.

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 
FCA Regulations (as of 2/24/17) 537

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 

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 retained 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.

 

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.

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-
FCA Regulations (as of 2/24/17) 538

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 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.

5.1 Method of Calculation.

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.

_____________________

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.

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. 

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 loss-frequency 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 
FCA Regulations (as of 2/24/17) 539

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 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 www.fca.gov.

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. 

6

Barry, P. J., P. N. Ellinger, J. A. Hopkin, and C. B. Baker. Financial Management in Agriculture, 5th 

ed., Interstate Publishers, 1995. 

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.

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.

9

We calculated the weighted-average loss severity from the estimation data.

10We 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).

11In 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.

12This process facilitates the approximation of slope needed to adjust the loss probabilities for land value 

declines greater than observed in the estimation data.

13The 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).

14The age adjustment of 0.157178762 is determined from the beta distribution for a 4-year-old loan.

15Emery, 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.

16Application 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.
FCA Regulations (as of 2/24/17) 540

[71 FR 77255, Dec. 26, 2006; as amended at 73 FR 31940, June 5, 2008; 76 FR 23467, Apr. 27, 2011; 78 

FR 21037, April 9, 2013]
FCA Regulations (as of 2/24/17) 541

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).

[81 FR 49154, July 27, 2016]

§ 653.1 Definitions.

The following definitions apply to this part:

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.

[81 FR 49154, July 27, 2016]

§ 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. 

[81 FR 49154, July 27, 2016]

§ 653.3 Risk management.

(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:

(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; 
FCA Regulations (as of 2/24/17) 542

(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.

[81 FR 49154, July 27, 2016]

§ 653.4 Internal controls.

(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:

(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.

[81 FR 49154, July 27, 2016]
FCA Regulations (as of 2/24/17) 543

PART 654 [ADDED AD RESERVED]

Authority: (Not Yet Determined)

[70 FR 40651, July 14, 2005]

PART 654 [ADDED AND RESERVED]

[70 FR 40651, July 14, 2005]
FCA Regulations (as of 2/24/17) 544

PART 655 FEDERAL AGRICULTURAL MORTGAGE CORPORATION 

DISCLOSURE AND REPORTING REQUIREMENTS

Authority: Sec. 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).

Subpart A - General

§ 655.1 Definitions.

The following definitions apply to this part:

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.

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.

[81 FR 59155, July 27, 2016]
FCA Regulations (as of 2/24/17) 545

Subpart B - Reports of Condition of the Federal Agricultural Mortgage Corporation

§ 655.10 Reports of condition.

(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 us one paper and one electronic copy of every signed report that is distributed to its shareholders. 

If the report is the same as that filed with the SEC, the Corporation may instead provide the signed reports 

to us only in electronic form and simultaneous with filing the report with the SEC. 

(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.

[81 FR 49155, July 27, 2016]

§ 655.15 Interim reports, notices, and proxy statements.

(a) The Corporation must provide to us one paper and one 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.
FCA Regulations (as of 2/24/17) 546

(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.

[81 FR 49155, July 27, 2016]

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:

(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.

[81 FR 49155, July 27, 2016]
FCA Regulations (as of 2/24/17) 547

§ 655.21 Filings and communications with the U.S. Treasury, the SEC, and NYSE.

(a) The Corporation must send us one paper and one 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.

(b) The Corporation must send us, within 3 business days and according to instructions provided 

by us, 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.

[81 FR 49156, July 27, 2016]