[Federal Register Volume 75, Number 202 (Wednesday, October 20, 2010)]
[Notices]
[Pages 64728-64729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26433]


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FARM CREDIT ADMINISTRATION

[BM-14-OCT-10-02]


Cooperative Operating Philosophy--Serving the Members of Farm 
Credit System Institutions

AGENCY: Farm Credit Administration.

ACTION: Policy statement.

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SUMMARY: The Farm Credit Administration (FCA) Board recently adopted a 
policy statement that reaffirms the FCA's support of members' 
participation in their Farm Credit System (System) institution and 
identifies three business practices for operating the cooperative with 
a focus on serving the members. Those practices are engaging members as 
owners, communicating with members, and providing value-added benefits 
to members.

DATES: Effective Date: October 14, 2010.

FOR FURTHER INFORMATION CONTACT: Deborah Wilson, Senior Accountant, 
Office of Regulatory Policy, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4498, TTY (703) 883-4434, or Laura McFarland, 
Senior Counsel, Office of General Counsel, Farm Credit Administration, 
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.

SUPPLEMENTARY INFORMATION: The FCA Board adopted a policy statement 
reaffirming its support for the cooperative structure and operation of 
System institutions. The policy statement, in its entirety, follows:
    The FCA Board Hereby Adopts the Following Policy Statement:

Cooperative Operating Philosophy--Serving the Member of Farm Credit 
System Institutions FCA-PS-80 [BM-14-OCT-10-02]

    Effective Date: 14-OCT-10.
    Effect on Previous Actions: None.
    Source of Authority: Preamble and section 1.1 of the Farm Credit 
Act of 1971, as amended.

Cooperative Commitment

    The Farm Credit Administration (FCA) is committed to the 
cooperative structure under which Farm Credit System (System) 
institutions are required to operate.\1\ The FCA emphasizes cooperative 
principles by advancing regulatory proposals that encourage farmer, 
rancher, and cooperative borrowers to participate in the management, 
control, and ownership of their institutions.\2\ The FCA also 
emphasizes cooperative principles in the examination function and 
Financial Institution Rating System (FIRS) used to categorize the 
safety and soundness of System institutions.\3\
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    \1\ See Sec.  615.5230, ``Implementation of cooperative 
principles.''
    \2\ See FCA Policy Statement ``Regulatory Philosophy'' (FCA-PS-
59), dated June 8, 2005.
    \3\ Under FIRS, each institution is assigned composite and 
component ratings based on an evaluation of the adequacy of Capital, 
Assets, Management, Earnings, Liquidity, and Sensitivity to market 
risk (commonly referred to as ``CAMELS''). Composite and component 
ratings are assigned based on a 1 to 5 numerical scale, with 1 being 
the highest rating indicating the strongest level of performance and 
risk management practices and the least degree of supervisory 
concern. Within the Management component, FCA qualitatively rates 
the use of cooperative principles in the conduct of business 
activities. Please visit www.fca.gov for further information on 
FIRS.
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    The FCA supports cooperative values that encourage member 
participation in System institutions. Cooperatives are, by definition, 
entities with a ``member focus.'' They are owned and controlled by 
their members, and the members benefit from doing business with their 
cooperatives. Cooperative entities that focus on serving and fulfilling 
the needs of their members often realize greater participation in their 
institutions. While System institutions have strong reputations as 
effective cooperatives, they should build on this tradition through a 
cooperative business culture that goes beyond that required by statute 
and regulation.

History

    The System is a Government-sponsored enterprise of cooperative 
institutions owned and controlled by their member-borrowers.\4\ Prior 
to establishment of the System, a political consensus had been forming 
in Congress on a need for an improved system of credit delivery to 
agriculture. When Congress established the System in 1916,\5\ it 
determined that the cooperative structure was the best model for 
furnishing sound, adequate and constructive credit and closely related 
services to rural areas.\6\ Subsequent Farm Credit legislation, 
including the Farm Credit Act of 1971, as amended, has reaffirmed the 
cooperative nature of the System.
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    \4\ The Preamble and section 1.1 of the Farm Credit Act of 1971, 
as amended (Act), Public Law 92-181, 85 Stat. 583.
    \5\ The Federal Farm Loan Act, Public Law 64-158, 39 Stat. 360.
    \6\ The cooperative structure of the System was viewed by 
Congress as providing greater safeguards than other structures under 
consideration at the time.
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Policy on Implementing a Cooperative Operating Philosophy--Serving the 
Members

    The System, through its cooperative structure, makes competitive 
credit available to creditworthy farmers, ranchers, producers and 
harvesters of aquatic products, and their cooperatives. The FCA 
believes the following three core cooperative principles are the 
foundation of the System's structure: \7\
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    \7\ The International Co-operative Alliance (ICA), an 
independent, non-governmental association, has issued a statement on 
cooperative identity in which they espouse seven principles as 
guidelines for cooperatives to put their values into practice. Those 
seven principles are voluntary and open membership, democratic 
member control, member economic participation, autonomy and 
independence, training and information, cooperation among 
cooperatives, and concern for community. The principles can be found 
on the ICA Web site, http://www.ica.coop.
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    (1) The cooperative is owned by its members.\8\
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    \8\ Under 4.3A of the Act, borrower-members of a System 
institution acquire voting stock at loan origination and hold 
allocated equities generated by patronage distributions from net 
earnings. Borrower-members' voting stock and allocated equities are 
at-risk investments.
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    (2) The cooperative is controlled by its members.
    (3) The members benefit from doing business with, and participating 
in, the management, control, and ownership of their institution.
    While business practices may change over time, these underlying 
cooperative

[[Page 64729]]

principles have sufficient flexibility to ensure changes in best 
practices remain member focused. System institutions should apply 
cooperative business practices in a manner that best serves their 
members and meets their mission as Government-sponsored enterprises, 
while continuing to operate in a safe and sound manner, by
    (1) Engaging members as owners,
    (2) Communicating with members, and
    (3) Providing value-added benefits to members.

Serving the Members of Farm Credit System Institutions

    Operating in a cooperative manner requires the boards of directors 
and management to engage, communicate, and provide value-added benefits 
to members. System institutions should proactively identify 
opportunities to reach out to member-borrowers beyond the lending and 
related services relationship.\9\
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    \9\ At a later date, the FCA will issue an Informational 
Memorandum to share its perspective on cooperative business 
practices that System institutions could use to reach out to their 
member-borrowers.
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    Many System institutions have been innovative and diligent in 
maintaining a cooperative philosophy in their business operations. The 
FCA encourages System institutions to continue and further their 
efforts to uphold a cooperative business culture. In addition, the FCA 
Board challenges the board and management of each System institution to 
periodically review and update their cooperative philosophies and 
practices and ensure that they maintain the focus to serve the members.

    Dated this 14th day of October 2010.

    By Order of the Board.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 2010-26433 Filed 10-19-10; 8:45 am]
BILLING CODE 6705-01-P