This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

56754 

Vol. 73, No. 190 

Tuesday, September 30, 2008 

DEPARTMENT OF AGRICULTURE 

Farm Service Agency 

7 CFR Parts 761 and 762 

RIN 0560–AH66 

Maximum Interest Rates on 

Guaranteed Farm Loans 

AGENCY: Farm Service Agency, USDA. 

ACTION: Proposed rule. 

SUMMARY: The Farm Service Agency 

(FSA) is proposing to amend its 

guaranteed farm loan program 

regulations governing interest rates to 

increase clarity and to be more 

consistent with other government loan 

guarantee programs. FSA is proposing to 

tie the maximum interest rate that may 

be charged on FSA guaranteed farm 

loans to nationally published indices 

such as the Wall Street Journal Prime 

(also known as New York Prime), or the 

10-year Treasury note rate unless the 

lender uses a formal written risk-based 

pricing model for loans, in which case 

the rate will be the rate charged to 

moderate risk borrowers. This proposed 

rule specifically asks for comments on 

the index to be used and the maximum 

allowable spread between the base rate 

and the rate to be charged to FSA 

guaranteed borrowers. 

DATES: We will consider comments that 

we receive by December 1, 2008. 

ADDRESSES: We invite you to submit 

comments on this proposed rule. In 

your comment, include the volume, 

date, and page number of this issue of 

the Federal Register. You may submit 

comments by any of the following 

methods: 

• E-Mail: Trent.Rogers@wdc.usda.gov. 

• Fax: (202) 720–6797. 

• Mail: Director, Loan Making 

Division, Farm Service Agency, U.S. 

Department of Agriculture, 1400 

Independence Avenue, SW., Stop 0522, 

Washington, DC 20250–0522. 

• Hand Delivery or Courier: Deliver 

comments to Farm Service Agency, 

Loan Making Division, 1280 Maryland 

Ave., SW., Suite 240, Washington, DC 

20024. 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

Comments may be inspected in the 

Office of the Director, Loan Making 

Division, Farm Services Agency, USDA, 

Suite 240, 1280 Maryland Ave., SW., 

Washington, DC 20024, between 8 a.m. 

and 4:30 p.m., except holidays. 

FOR FURTHER INFORMATION CONTACT: 

Trent Rogers, Senior Loan Officer, Loan 

Making Division, Farm Service Agency; 

telephone: (202) 720–3889; facsimile: 

(202) 720–6797; e-mail: 

Trent.Rogers@wdc.usda.gov. Persons 

with disabilities or who require 

alternative means for communications 

should contact the USDA Target Center 

at (202) 720–2600 (voice and TDD). 

SUPPLEMENTARY INFORMATION: 

Background 

FSA guaranteed loans are a means of 

providing credit to farmers whose 

financial risk exceeds a level acceptable 

to commercial lenders. The guarantee 

reduces the lender’s risk of default and 

loss, and thus the lender’s credit cost. 

FSA believes that part of the intent of 

the program is for the borrower to 

receive the benefit of the reduction in 

the lender’s credit cost in the form of a 

lower interest rate. 

The existing regulation, 7 CFR 

762.124(a)(3), limits the interest rate 

that a lender may charge guaranteed 

loan customers to a rate that does not 

exceed the rate charged to its ‘‘average 

agricultural loan customers’’ as defined 

in § 761.2. Currently, 7 CFR 

762.124(a)(2) states that variable rates, if 

used, may change according to the 

normal practices of the lender for its 

average agricultural loan customer, but 

the frequency of change must be specific 

in the loan instrument. Some lenders 

have indicated that the term ‘‘average 

agricultural loan customer’’ is overly 

vague and have encouraged the agency 

to review its current interest rate policy. 

FSA proposes to clarify this section of 

the regulations to simplify compliance 

for stakeholders by setting a maximum 

rate based on certain widely published 

indices, while permitting the continued 

use of risk-based pricing models for 

lenders that prefer that approach. 

The agriculture credit industry 

continues to undergo rapid 

transformation in response to the impact 

of technology and globalization of 

financial markets. FSA’s current interest 

rate policies that are tied to the rate of 

an average customer are no longer 

consistent with industry pricing 

practices that generally consider the 

anticipated risks, costs, market 

competition, and terms of the loan or 

with the practices of other government 

agencies that administer similar 

programs. For example, the Small 

Business Administration has imposed 

rate ceilings which are linked to the 

‘‘prime’’ rate or other index, depending 

on loan size, terms, and rate structure. 

FSA believes that the FSA guarantee 

compensates the lender for much of the 

lender’s risk of loss and that the interest 

rate charged by the lender to the 

producer should reflect that reduced 

risk. The changes proposed are 

consistent with that policy. In this rule 

FSA is proposing to eliminate the term 

‘‘average agricultural loan customer’’ 

from 7 CFR 762.124(a)(2) and (3). FSA 

proposes new interest rate limits based 

on widely recognized indices, which 

will provide simple, clear limits rather 

than an ‘‘average’’ customer. For lenders 

who use a formal written risk-based 

pricing model for loans, the option to 

use the rate charged to moderate risk 

borrowers will still be included in the 

regulation. 

FSA has selected the indices that it 

believes most accurately represent 

current rates. FSA has conducted an 

analysis of its guarantee portfolio and 

the rates lenders have charged their 

agricultural loan customers since 1999 

in order to identify a correlation 

between these rates and a published 

index. That analysis indicated that the 

10-year Treasury note rate was the index 

that most closely tracked farm real 

estate loans and Wall Street Journal 

prime was the index that most closely 

tracked short and intermediate term 

loans. The rate for 10 year Treasury 

notes is the yield on 10 year Treasury 

notes issued by the U.S. Department of 

the Treasury through the Bureau of 

Public Debt. The Wall Street Journal 

prime is the rate that at least 23 of the 

30 largest U.S. banks charge for 

corporate loans, as published in the 

print edition of the Wall Street Journal. 

It is sometimes called the New York 

Prime rate. 

The average rate charged on 

guaranteed Farm Ownership (FO) loans 


ebenthall on PROD1PC60 with PROPOSALS
Federal Register / Vol. 73, No. 190 / Tuesday, September 30, 2008 / Proposed Rules 56755 

since 1999 was 291 basis points (2.91 

percent) over the 10-year Treasury rate. 

FSA proposes to limit the interest rate 

charged on guaranteed FO loans to no 

more than 350 basis points (3.5 percent) 

over the 10-year Treasury rate. Of the 

FO loans made since 1999, most would 

have met this interest rate limit, had it 

been in effect. 

The average rate charged on 

guaranteed Operating Loans (OL) during 

the same time period was New York 

Prime plus 195 basis points (1.95 

percent). FSA proposes to limit the 

guaranteed OL interest rate to no more 

than 250 basis points (2.5 percent) over 

the New York Prime rate. Had the 

proposed interest rate limit been in 

effect, most of the guaranteed OLs made 

since 1999 would have met this limit. 

These limits will apply to both fixed 

and variable rate guaranteed loans and 

lines of credit. 

FSA realizes that financial markets 

can be very volatile and that lenders use 

various methodologies to manage their 

funding sources. This proposal does not 

require that the lender tie its guaranteed 

loan interest rates to these indices, nor 

does it require that the rate remain 

below these maximums throughout the 

term of the loan. It only sets the 

maximum rate that may be charged to 

the customer at the time of loan 

origination. In addition, to ensure that 

the benefit of the guarantee is passed on 

to borrowers in financial distress, these 

interest rate limits will apply to 

guaranteed loans at such time that they 

are restructured, too. FSA is specifically 

requesting comments on the suitability 

of using these indices or 

recommendations for another index, 

such as a London Inter Bank Offered 

Rate (known as LIBOR), or the Farmer 

Mac II cost of funds index or alternative 

methodologies for setting maximum 

interest rates. 

FSA also realizes that some lenders 

have well developed risk based pricing 

models and are able to document how 

the interest rate on a guaranteed loan 

reflects the reduced risk of loss due to 

the guarantee. FSA is proposing to 

continue to permit such lenders to price 

guaranteed loans at a rate not exceeding 

the rate charged to their typical, 

moderate risk agricultural loan 

customer. The rate charged this 

customer would be limited to no more 

than the highest interest rate for the tier 

of the lender’s risk rating matrix that 

reflects moderate risk. This would 

typically be the lender’s middle tier, or 

for those lenders with an even number 

of tiers, a rate no higher than an average 

of the lender’s two middle tiers. If such 

tier had a range of interest rates, the 

maximum rate permitted would be the 

highest rate for that tier. Specific 

comments are requested to further 

define this moderate risk agricultural 

loan rate. The lender will be required to 

provide the Agency with their pricing 

model. 

Again, FSA is inviting comments that 

will address the indices to be used, as 

well as the maximum yield spreads. 

FSA is attempting to adhere to current 

lending standards, propose changes that 

will provide clear and straightforward 

guidance for lenders to improve lender 

compliance, allow guaranteed loan 

borrowers to receive the benefit 

resulting from the reduced risk of loss 

with a guarantee, and to promote active 

competition among lenders. FSA 

proposes to reserve the right to change 

the maximum rates on a temporary basis 

by Federal Register notice to ensure 

liquidity in the farm loan market, as 

determined in consultation with the 

Department of the Treasury, in response 

to conditions that result in large interest 

rate changes or term structure changes. 

Examples of these conditions include 

increased loan losses in the sector or 

significant changes in the yield curve. 

Executive Order 12866 

This rule has been designated as not 

significant under Executive Order 12866 

and has not been reviewed by the Office 

of Management and Budget. 

Regulatory Flexibility Act 

In accordance with the Regulatory 

Flexibility Act, 5 U.S.C. 601, FSA 

certifies that there would not be a 

significant economic impact on a 

substantial number of small entities. 

This rule is not expected to change the 

ability of applicants, borrowers, or 

lenders to receive FSA guaranteed 

loans, and would not increase the costs 

of compliance with the program. 

Further, all applicants or borrowers 

affected by this change are small, but no 

lenders are considered small entities. 

Changes will be applied to all affected 

entities equally, however, without 

regard to their size. 

Unfunded Mandates Reform Act of 

1995 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) establishes 

requirements for Federal agencies to 

assess the effects of their regulatory 

actions on State, local, and tribal 

governments and the private sector. 

This rule contains no Federal mandates 

(under the regulatory provisions of title 

II of the UMRA) for State, local, and 

tribal governments or the private sector. 

Therefore, this rule is not subject to the 

requirements of sections 202 and 205 of 

the UMRA. 

Executive Order 12612 

It has been determined under section 

6(a) of Executive Order 12612, 

Federalism, that this rule does not have 

sufficient federalism implications to 

warrant the preparation of a Federalism 

Assessment. The provisions contained 

in this rule will not have a substantial 

direct effect on States or their political 

subdivisions or on the distribution of 

power and responsibilities among the 

various levels of government. 

Executive Order 12372 

These regulations are not subject to 

the provisions of Executive Order 

12372, which require intergovernmental 

consultation with State and local 

officials. See the notice related to 7 CFR 

part 3015, subpart V, published at 48 FR 

29115, June 24, 1983. 

Executive Order 12988 

This rule has been reviewed under 

Executive Order 12988, on Civil Justice 

Reform. The provisions of this rule are 

not retroactive. The provisions of this 

rule preempt State and local laws to the 

extent such State and local laws are 

inconsistent. Generally, all 

administrative appeal provisions, 

including those published at 7 CFR part 

11, must be exhausted before any action 

for judicial review may be brought in 

connection with the matters that are the 

subject of this rule. 

Environmental Evaluation 

The environmental impacts of this 

rule have been considered in a manner 

consistent with the provisions of the 

National Environmental Policy Act 

(NEPA), 42 U.S.C. 4321–4347, the 

regulations of the Council on 

Environmental Quality, 40 CFR parts 

1500–1508, and the FSA regulations for 

compliance with NEPA (7 CFR 799 and 

7 CFR part 1940, subpart G). FSA 

concluded that this rule will not have a 

significant impact on the quality of the 

human environment either individually 

or cumulatively and therefore is 

categorically excluded and not subject 

to environmental assessments or 

environmental impact statements in 

accordance with 7 CFR 1940.310(e)(3). 

Paperwork Reduction Act of 1995 

The information collections to which 

this rule applies have been reviewed by 

OMB under the Paperwork Reduction 

Act of 1995 (44 U.S.C. chapter 35), 

approved, and assigned OMB control 

number 0560–0155. This rule involves 

no change to the currently approved 

collection of information. 


ebenthall on PROD1PC60 with PROPOSALS
56756 Federal Register / Vol. 73, No. 190 / Tuesday, September 30, 2008 / Proposed Rules 

E-Government Act Compliance 

FSA is committed to complying with 

the E-Government Act, to promote the 

use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 

access to Government information and 

services, and for other purposes. 

List of Subjects 

7 CFR Part 761 

Accounting, Loan programs— 

agriculture, Rural areas. 

7 CFR Part 762 

Agriculture, Credit, Loan programs— 

agriculture, Grant programs— 

agriculture, Reporting and 

recordkeeping requirements. 

For the reasons set out in the 

preamble, 7 CFR parts 761 and 762 are 

proposed to be amended as follows: 

PART 761—GENERAL PROGRAM 

ADMINISTRATION 

1. The authority citation for part 761 

continues to read as follows: 

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. 

§ 761.2 [Amended] 

2. In § 761.2(b), remove the definition 

of ‘‘average agricultural loan customer.’’ 

PART 762—GUARANTEED FARM 

LOANS 

3. The authority citation for part 762 

continues to read as follows: 

Authority: 5 U.S.C. 301, 7 U.S.C. 1989. 

4. Amend § 762.124 by revising 

paragraphs (a)(2) and (a)(3) to read as 

follows: 

§ 762.124 Interest rate, terms, charges, 

and fees. 

(a) * * * 

(2) If a variable rate is used, it must 

be tied to an index or rate specifically 

agreed to between the lender and 

borrower in the loan instruments and 

the rate adjustments must be in 

accordance with normal practices of the 

lender for unguaranteed loans. Upon 

request, the lender must provide the 

Agency with copies of written rate 

adjustment practices. 

(3) At loan closing and at the time of 

loan restructuring, the interest rate on 

the guaranteed portion and the 

unguaranteed portion of a fixed or 

variable rate loan may not exceed the 

following, as applicable: 

(i) For lenders utilizing a pricing 

model based on loan risk, the highest 

interest rate for tier of the lender’s risk 

rating matrix that reflects moderate risk. 

The lender must provide the Agency 

with this pricing model. 

(ii) For lenders without a risk based 

pricing model, the 10-year Treasury rate 

plus 350 basis points for FO and the 

New York Prime (as published in the 

Wall Street Journal) plus 250 basis 

points for OL. In the event of 

extraordinary conditions resulting in 

large interest rate changes or term 

structure changes, the Agency may 

temporarily set a different maximum 

rate under this paragraph as determined 

in consultation with the Department of 

the Treasury; and 

* * * * * 

5. Amend § 762.150 by revising 

paragraph (g) to read as follows: 

§ 762.150 Interest Assistance Program. 

* * * * * 

(g) Rate of Interest. The lender interest 

rate will be set according to 

§ 762.124(a). 

* * * * * 

Signed at Washington, DC, on September 

24, 2008. 

Glen L. Keppy, 

Acting Administrator, Farm Service Agency. 

[FR Doc. E8–22871 Filed 9–29–08; 8:45 am] 

BILLING CODE 3410–05–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 3 

[Docket ID OCC–2008–0014] 

RIN 1557–AD13 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 208 and 225 

[Regulations H and Y; Docket No. R–1329] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 325 

RIN 3064–AD32 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

12 CFR Part 567 

[Docket No. OTS–2008–0010] 

RIN 1550–AC22 

Minimum Capital Ratios; Capital 

Adequacy Guidelines; Capital 

Maintenance; Capital: Deduction of 

Goodwill Net of Associated Deferred 

Tax Liability 

AGENCIES: Office of the Comptroller of 

the Currency, Treasury; Board of 

Governors of the Federal Reserve 

System; Federal Deposit Insurance 

Corporation; and Office of Thrift 

Supervision, Treasury. 

ACTION: Joint notice of proposed 

rulemaking. 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC), the Board of 

Governors of the Federal Reserve 

System (Board), the Federal Deposit 

Insurance Corporation (FDIC), and the 

Office of Thrift Supervision (OTS) 

(collectively, the Agencies) are 

proposing to permit banks, bank holding 

companies, and savings associations 

(collectively, banking organizations) to 

reduce the amount of goodwill that a 

banking organization must deduct from 

tier 1 capital by the amount of any 

deferred tax liability associated with 

that goodwill. The proposed change 

would effectively reduce the amount of 

goodwill that a banking organization 

must deduct from tier 1 capital and 

would reflect a banking organization’s 

maximum exposure to loss in the event 

that such goodwill is impaired or 

derecognized for financial reporting 

purposes. 

DATES: Comments must be received on 

or before October 30, 2008. 

ADDRESSES: Comments should be 

directed to: 

OCC: Because paper mail in the 

Washington, DC area and at the OCC is 

subject to delay, commenters are 

encouraged to submit comments by the 

Federal eRulemaking Portal or e-mail, if 

possible. Please use the title ‘‘Capital 

Adequacy Guidelines; Deduction of 

Goodwill Net of Associated Deferred 

Tax Liability’’ to facilitate the 

organization and distribution of the 

comments. You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal— 

‘‘Regulations.gov’’: Go to http:// 

www.regulations.gov, under the ‘‘More 

Search Options’’ tab click next to the 

‘‘Advanced Docket Search’’ option 

where indicated, select ‘‘Comptroller of 

the Currency’’ from the agency dropdown menu, then click ‘‘Submit.’’ In the 

‘‘Docket ID’’ column, select ‘‘OCC– 

2008–0014’’ to submit or view public 

comments and to view supporting and 

related materials for this notice of 

proposed rulemaking. The ‘‘How to Use 

This Site’’ link on the Regulations.gov 


ebenthall on PROD1PC60 with PROPOSALS