[Federal Register Volume 60, Number 78 (Monday, April 24, 1995)]
[Rules and Regulations]
[Pages 20008-20011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10007]



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FARM CREDIT ADMINISTRATION

12 CFR Parts 614, 615, 618

RIN 3052-AB53


Loan Policies and Operations; Funding and Fiscal Affairs, Loan 
Policies and Operations, and Funding Operations; General Provisions

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), by order of the FCA 
Board (Board), adopts a final rule that repeals several regulations 
concerning loan policies and operations, funding, and miscellaneous 
items as well as two Agency prior-approval requirements. These repeals 
are part of an ongoing effort by the FCA to reduce unnecessary 
regulatory burdens on Farm Credit System (FCS or System) institutions.

EFFECTIVE DATE: This rule shall become effective upon the expiration of 
30 days after publication in the Federal Register, during which either 
or both Houses of Congress are in session. Notice of the effective date 
will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:
W. Eric Howard, Policy Analyst, Regulation Development, Office of 
Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498, TDD (703) 883-4444,

      or

Richard A. Katz, Senior Attorney, Regulatory Operations Division, 
Office of General Counsel, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

    On June 10, 1993, the FCA Board approved a Statement on Regulatory 
[[Page 20009]] Burden seeking public comment on the appropriateness of 
requirements that the FCA regulations impose on the FCS. More 
specifically, the FCA asked the public to identify regulations that 
either duplicate other governmental requirements, are not effective, or 
impose a burden that is greater than the benefit derived. The notice of 
intent was published in the Federal Register (58 FR 34003) on June 23, 
1993. After reviewing all responses to the notice of intent, the FCA 
proposed on January 10, 1995, to delete the following regulatory 
provisions: Secs. 615.5104; 615.5105(c); 615.5170 (b) through (e); 
615.5190; 615.5498; 615.5500; 615.5520; 615.5530; and 618.8220. 
Additionally, the FCA proposed the repeal of the Agency prior-approval 
requirements in Sec. 614.4470 (b)(1) and (b)(3). See 60 FR 2552 
(January 10, 1995).
    The Farm Credit Council (Council), on behalf of its members, and a 
production credit association (PCA) submitted comments concerning the 
proposed deletions. The Council strongly supported the repeal of the 
above-cited regulations and Agency prior-approval requirements, and 
encouraged the FCA to adopt the entire proposal as a final rule. 
Although the PCA lauded the FCA's effort to reduce regulatory burdens 
on System institutions, it offered no comments about the FCA's proposal 
to repeal the above-cited regulations and prior-approval requirements. 
Instead, the PCA petitioned the FCA to address three regulatory burden 
issues that were not included in the proposed rule.
    In response, the FCA emphasizes that its proposal of January 10, 
1995, represents the first phase in an ongoing process to reduce 
regulatory burdens on FCS institutions. As the FCA explained in the 
preamble to the proposed rule, the FCA is in the process of evaluating 
all recommendations for reducing regulatory burdens that System 
commenters submitted to the Agency in response to the notice of intent. 
The FCA will address all remaining regulatory burden issues, including 
those raised by the PCA, either in (1) Regulatory projects that the FCA 
Board identifies in the Unified Agenda of Federal Regulations, which is 
routinely published in the Federal Register, or (2) subsequent phases 
of this project.
    The FCA now adopts its January 10, 1995 proposal as a final rule 
without amendment. The regulations that the FCA now repeals are not 
necessary to implement or interpret the Farm Credit Act of 1971, as 
amended (Act), or to promote the safe and sound operations of FCS 
institutions. For this reason, the repeal of these regulations and 
Agency prior-approval requirements will relieve unnecessary regulatory 
burdens on the FCS. The following is a brief explanation of the 
rationale for repealing each of these regulatory requirements.

II. Analysis of Changes and Comments by Section

A. Loans Subject to Bank Approval

    The FCA now eliminates from both Secs. 614.4470 (b)(1) and (b)(3) 
the requirement that the Agency preapprove certain insider loan 
transactions at System associations. Section 614.4470(a) requires 
funding banks to preapprove loans that their affiliated associations 
make to: (1) Their own directors or employees; (2) directors or 
employees of a jointly managed association; or (3) bank employees. 
Until now, Sec. 614.4470(b) required FCA approval of loans to any 
borrower whenever certain institution-affiliated parties: (1) Received 
proceeds of a loan in excess of an amount established by the funding 
bank; or (2) endorsed, guaranteed, or co-made a loan in excess of the 
amount established by the funding bank.
    These Agency prior-approval requirements in Sec. 614.4470 (b)(1) 
and (b)(3) are inconsistent with the FCA's status as an arm's-length 
regulator. Furthermore, these insider activities can be adequately 
evaluated and controlled through means other than prior approval by the 
FCA. Sections 612.2140 and 612.2150 establish adequate safeguards to 
prevent directors, officers, and employees of System institutions from 
using their positions for personal gain. In addition, Sec. 620.5 
requires System institutions to disclose insider loan transactions in 
their annual reports to shareholders. The FCA has sufficient 
examination and enforcement powers to ensure that loans to institution-
affiliated parties do not undermine the solvency of any FCS bank or 
association. Once the repeal of the Agency prior-approval requirements 
in Sec. 614.4470(b) becomes effective, the FCA shall rely upon its 
examination authority to determine whether: (1) Bank policy adequately 
deters insider abuses at System institutions; and (2) associations are 
complying with bank policy. The FCA is currently reviewing whether 
other prior-approval requirements that are not mandated by the Act 
should be retained.

B. Debt Policy and Consolidated Systemwide Notes

    The FCA now repeals Secs. 615.5104 and 615.5105(c) because they 
have been superseded by a new regulation, Sec. 615.5135. Section 
615.5104 requires each bank to adopt a policy for the management of its 
debt, while Sec. 615.5105(c) requires the debt management policy of 
each bank to identify the maximum amount of discount notes that can be 
outstanding at any one time. Each FCS bank is now required by 
Sec. 615.5135 to adopt an asset/liability management policy. 
Furthermore, Sec. 615.5135 requires the policies of System banks to 
address the management of both assets and liabilities in a more 
comprehensive manner than Secs. 615.5104 and 615.5105(c). Because 
Sec. 615.5135 has rendered Secs. 615.5104 and 615.5105(c) obsolete, the 
Agency is deleting these two regulations. In the FCA's opinion, the new 
investment regulations in subpart E of part 615 enhance the ability of 
Farm Credit banks to control liquidity and solvency risks in their 
portfolios.

C. Real and Personal Property

    The FCA now repeals Secs. 615.5170 (b) through (e). These 
regulations are not needed to: (1) Implement or interpret provisions in 
the Act that govern the acquisition of real or personal property by FCS 
banks and associations; or (2) promote safety and soundness. In FCA's 
opinion, these provisions impose burdens on System institutions that 
are no longer justified by the benefits derived. These regulatory 
provisions prescribe detailed operational standards, rather than 
performance criteria, for ensuring the safe and sound operation of 
System banks and associations. The FCA also believes that Sec. 615.5170 
(d) and (e) are no longer necessary because the safety and soundness 
concerns posed by information system processing technology are now 
adequately addressed in FCA Information Systems Bulletins. 
Additionally, Information Systems Bulletin 92-1 addresses information 
system risks in mergers and acquisitions. The FCA also observes that 
paragraphs (b), (c), and (d) of Sec. 615.5170 contain obsolete 
references to the ``district boards'' that were abolished by section 
409(d) of the Agricultural Credit Technical Corrections Act of 
1988.<SUP>1

    \1\ Pub. L. 100-399, section 409(d), 102 Stat. 989, 1003, 
(August 17, 1988).
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    The FCA will, however, retain Sec. 615.5170(a) because this 
provision implements sections 1.5(5) and 3.1(5) of the Act. These 
sections authorize each bank, subject to regulation by the FCA, to 
acquire, hold, dispose, and otherwise exercise all the usual incidents 
of ownership of real and personal property necessary or convenient to 
its business. Sections 2.2(5) and 2.12(5) of the Act provide 
associations with similar [[Page 20010]] authorities subject to the 
supervision by their funding bank and regulation by the FCA. Section 
615.5170(a) implements these sections of the Act by specifically 
stating that the ownership of real estate for office quarters of any 
bank or association ``shall be limited to facilities reasonable and 
necessary to meet the foreseeable requirements of the institution.'' 
Furthermore, Sec. 615.5170(a) expressly prohibits any FCS institution 
from acquiring real property ``if it involves, or appears to involve, a 
bank or association in the real estate or other unrelated business.'' 
This restriction also serves a safety and soundness purpose because 
such extraneous business activities may increase the exposure of System 
institutions to loss.

D. Deposits of Funds

    The FCA is repealing Sec. 615.5190 because sections 1.5(14), 
2.2(10), 2.12(18) and 3.1(12) of the Act provide the requisite 
authority for FCS institutions to deposit current funds in commercial 
banks that are either members of the Federal Reserve System or are 
insured by the Federal Deposit Insurance Corporation (FDIC).
    The FCA is also repealing Sec. 615.5190(b) because there is no 
statutory basis for requiring CoBank to make foreign deposits for the 
other banks for cooperatives (BCs). The FCA originally adopted this 
provision in 1981 because, at that time, only the former Central Bank 
for Cooperatives (CBC) had expertise to reduce the safety and soundness 
risks that derive from currency exchange transactions. See 46 FR 51881 
(October 22, 1981). After the CBC and most district BCs merged to form 
CoBank, the FCA amended Sec. 615.5190(b) to require CoBank to assume 
the CBC's function. See 56 FR 2671 (January 24, 1991). The rationale 
for Sec. 615.5190(b) no longer exists because: (1) Individual BCs have 
acquired greater international lending experience since 1981; and (2) 
most BCs have consolidated into CoBank. In this context, 
Sec. 615.5190(b) unnecessarily restricts BCs, other than CoBank, from 
becoming active in the international arena. The FCA has determined that 
the safety and soundness risks inherent in currency exchange 
transactions should not be controlled by a regulation that unduly 
restricts the business flexibility of BCs and ACBs to offer a full 
range of high-quality, low-cost international financial and credit 
services to their customers independently of CoBank. Rather, the FCA 
will rely upon its examination and enforcement powers to ensure that 
all BCs and ACBs conduct their currency exchange transactions in a safe 
and sound manner. Another FCA regulation, Sec. 614.4900 establishes 
safety and soundness standards for currency exchange transactions by 
BCs and ACBs.
    Another provision in Sec. 615.5190(b) prohibits FCS banks from 
holding certificates of deposit that are denominated in foreign 
currencies as investments under Sec. 615.5140. This provision predates 
the recent revision of Sec. 615.5140, which now requires System banks 
to acquire investments that are denominated only in United States 
dollars. Hence, Sec. 615.5190(b) is unnecessary.

E. Farm Credit Securities as Illustrations

    The FCA also repeals Sec. 615.5498, which regulates the 
illustration of Farm Credit securities that are used for educational or 
illustrative purposes. The purpose of this regulation is to deter 
counterfeiting of definitive FCS securities. Since virtually all FCS 
securities are now issued in book-entry form, Sec. 615.5498 is 
obsolete. The Federal Farm Credit Banks Funding Corporation and 
individual System banks can implement adequate safeguards to minimize 
the risk of counterfeiting of the few securities that are still issued 
in definitive form.

F. Open Registered Mail and Express Policy

    The FCA now repeals subpart P of part 615, which consists of 
Secs. 615.5500, 615.5520, and 615.5530. These three regulations govern 
the shipment of negotiable securities through the United States Postal 
Service. The regulations of subpart P of part 615 were designed to 
eliminate the System's exposure to loss at a time when FCS negotiable 
securities were routinely shipped by mail between the Bureau of 
Printing and Engraving and the Federal Reserve Bank of New York. The 
practice of shipping negotiable securities through the mail was 
discontinued several years ago. The advent of electronic and computer 
technology for transferring negotiable securities through the book-
entry system has rendered subpart P of part 615 obsolete.

G. Contributions and Membership in Other Organizations

    The FCA is repealing Sec. 618.8220, which requires the boards of 
directors of FCS banks and associations to approve: (1) Charitable 
contributions; and (2) the payment of membership dues in any voluntary 
association, club, or society. The regulation further requires boards 
of directors, during the approval process, to consider the business 
benefits and tax consequences of such contributions and memberships for 
the bank or association.
    In the FCA's opinion, Sec. 618.8220 unnecessarily interferes in the 
internal operations of System institutions and imposes a regulatory 
burden that is not commensurate with the safety and soundness risks 
posed by System charitable and social activities. The FCA's examination 
and enforcement powers can adequately deter System institutions from 
conducting these activities in an unsafe and unsound manner.

List of Subjects

12 CFR Part 614

    Agriculture, Banks, banking, Foreign trade, Reporting and 
recordkeeping requirements, Rural areas.

12 CFR Part 615

    Accounting, Agriculture, Banks, banking, Government securities, 
Investments, Rural areas.

12 CFR Part 618

    Agriculture, Archives and records, Banks, banking, Insurance, 
Reporting and recordkeeping requirements, Rural areas, Technical 
assistance.

    For the reasons stated in the preamble, parts 614, 615, and 618 of 
chapter VI, title 12 of the Code of Federal Regulations are hereby 
amended to read as follows:

PART 614--LOAN POLICIES AND OPERATIONS

    1. The authority citation for part 614 continues to read as 
follows:

    Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 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, 4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 
4.18, 4.19, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 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, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 
2096, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 
2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2207, 2219a, 
2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 
2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 
Stat. 1568, 1639.

Subpart M--Loan Approval Requirements


Sec. 614.4470  [Amended]

    2. Section 614.4470 is amended by removing the words ``and approved 
by the Farm Credit Administration'' from paragraphs (b)(1) and 
(b)(3). [[Page 20011]] 

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

    3. The authority citation for part 615 continues to read as 
follows:

    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, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 
6.26, 8.0, 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, 2160, 2202b, 2211, 2243, 2252, 2278b, 
2278b-6, 2279aa, 2279aa-4, 2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 
2279aa-12); sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart C--Issuance of Bonds, Notes, Debentures and Similar 
Obligations


Sec. 615.5104  [Removed]

    4. Section 615.5104 is removed.


Sec. 615.5105  [Amended]

    5. Section 615.5105 is amended by removing paragraph (c).

Subpart F--Property and Other Investments


Sec. 615.5170  [Amended]

    6. Section 615.5170 is amended by removing paragraphs (b), (c), 
(d), (e) and the designation for paragraph (a).

Subpart G--[Removed and reserved]

    7. Subpart G, consisting of Sec. 615.5190, is removed and reserved.

Subpart O--Issuance of Farm Credit Securities


Sec. 615.5498  [Removed and reserved]

    8. Section 615.5498 is removed and reserved.

Subpart P--[Removed and reserved]

    9. Subpart P, consisting of Secs. 615.5500, 615.5520, and 615.5530 
is removed and reserved.

PART 618--GENERAL PROVISIONS

    10. The authority citation for part 618 continues to read as 
follows:

    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 F--Miscellaneous Provisions


Sec. 618.8220  [Removed and reserved]

    11. Section 618.8220 is removed and reserved.

    Dated: March 13, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-10007 Filed 4-21-95; 8:45 am]
BILLING CODE 6705-01-P