IB
Union Calendar No. 207
104TH CONGRESS
1ST SESSION
H. R. 2029
[Report No. 104–421]
To amend the Farm Credit Act of 1971 to provide regulatory relief.
IN THE HOUSE OF REPRESENTATIVES
JULY 13, 1995
Mr. ALLARD (for himself, Mr. JOHNSON of South Dakota, and Mr. RAHALL),
introduced the following bill; which was referred to the Committee on
Agriculture
DECEMBER 18 (legislative day, DECEMBER 15), 1995
Additional sponsors: Mr. HOLDEN, Mr. BALDACCI, Mrs. CHENOWETH, Mr.
POMEROY, Mr. EWING, Mr. MINGE, Mr. COOLEY, Mr. LAHOOD, Mr. BLI-
LEY, Mr. STENHOLM, Mr. LUCAS, Mr. CRAPO, Mr. LEWIS of Kentucky,
Mr. WHITFIELD, Mr. MCHUGH, Mr. BONIOR, Ms. MCKINNEY, Mr.
CHAMBLISS, Mr. TAYLOR of North Carolina, Mr. BOEHLERT, Mr.
CONDIT, Mr. KINGSTON, Mr. SPRATT, Mr. POMBO, Mr. WALSH, Mr.
NEAL of Massachusetts, Mr. HINCHEY, Mr. HERGER, and Mr. OLVER
DECEMBER 18 (legislative day, DECEMBER 15), 1995
Reported with amendments, committed to the Committee of the Whole House
on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on July 13, 1995]
A BILL
To amend the Farm Credit Act of 1971 to provide regulatory
relief.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Farm Credit System Regulatory Relief Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. References.
Sec. 3. Regulatory review.
Sec. 4. Examination of Farm Credit System institutions.
Sec. 5. Farm Credit Insurance Fund operations.
Sec. 6. Powers with respect to troubled insured System banks.
Sec. 7. Farm Credit System Insurance Corporation board of directors.
Sec. 8. Conservatorship and receiverships.
Sec. 9. Oversight and regulatory actions by the Farm Credit System Insurance
Corporation.
Sec. 10. Formation of administrative service entities.
Sec. 11. Requirements for loans sold into the secondary market.
Sec. 12. Removal of antiquated and unnecessary paperwork requirements.
Sec. 13. Removal of government certification requirement for certain private sec-
tor financing.
Sec. 14. Reform of regulatory limitations on the dividend, member business, and
voting practices of eligible farmer-owned cooperatives.
Sec. 15. Extension of interest rate reduction program for 5 years.
SEC. 2. REFERENCES.
Except as otherwise expressly provided, wherever in
this Act an amendment or repeal is expressed in terms of
an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or
other provision of the Farm Credit Act of 1971.
SEC. 3. REGULATORY REVIEW.
(a) FINDINGS.—The Congress finds that—
(1) the Farm Credit Administration, in its role
as an arms-length, safety and soundness regulator,
has made considerable progress in reducing the regu-
latory burden on Farm Credit System institutions;
(2) the efforts of the Farm Credit Administration
in this regard have resulted in cost savings for Farm
Credit System institutions; and
(3) such cost savings ultimately benefit the Na-
tion’s farmers, ranchers, agricultural cooperatives,
and rural residents.
(b) REQUIREMENT
FOR CONTINUED REVIEW.—The
Farm Credit Administration shall continue its comprehen-
sive review of regulations governing the Farm Credit Sys-
tem in order to further identify and eliminate, consistent
with safety and soundness, all regulations that are unneces-
sary, unduly burdensome or costly, or not based on statute.
SEC. 4. EXAMINATION OF FARM CREDIT SYSTEM INSTITU-
TIONS.
Section 5.19(a) (12 U.S.C. 2254(a)) is amended by
striking ‘‘each year’’ in the first sentence and inserting
‘‘every 18 months’’.
SEC. 5. FARM CREDIT INSURANCE FUND OPERATIONS.
(a) ADJUSTMENT OF PREMIUMS.—
(1) IN
GENERAL.—Section 5.55(a) (12 U.S.C.
2277a–4(a)) is amended—
(A) in paragraph (1), by striking ‘‘Until
the aggregate of amounts in the Farm Credit In-
surance Fund exceeds the secure base amount,
the annual premium due from any insured Sys-
tem bank for any calendar year shall’’ and in-
serting ‘‘If, at the end of any calendar year, the
aggregate of the amounts in the Farm Credit In-
surance Fund does not exceed the secure base
amount, the annual premium due from any in-
sured System bank for that calendar year shall,
subject to paragraph (2),’’; and
(B) by redesignating paragraph (2) as
paragraph (3) and inserting after paragraph (1)
the following:
‘‘(2) REDUCED PREMIUMS.—The Corporation, in
its sole discretion, may reduce, by a percentage uni-
formly applied to all insured System banks, the an-
nual premium due from each insured System bank
during any calendar year, as determined under para-
graph (1).’’.
(2) CONFORMING AMENDMENTS.—
(A) SECTION 5.55(b).—Section 5.55(b) (12
U.S.C. 2277a–4(b)) is amended—
(i) by striking ‘‘Insurance Fund’’ each
place such term appears and inserting
‘‘Farm Credit Insurance Fund’’;
(ii) by striking ‘‘for the following cal-
endar year’’; and
(iii) by striking ‘‘subsection (a)’’ and
inserting ‘‘subsection (a)(1)’’.
(B) SECTION 5.56(a).—Section 5.56(a) (12
U.S.C. 2277a–5(a)) is amended in each of para-
graphs (2) and (3) by striking ‘‘section
5.55(a)(2)’’ and inserting ‘‘section 5.55(a)(3)’’.
(C) SECTION 1.12(b).—Section 1.12(b) (12
U.S.C. 2020(b)) is amended—
(i) in paragraph (1), by inserting ‘‘(as
defined in section 5.55(a)(3))’’ after ‘‘gov-
ernment-guaranteed loans’’; and
(ii) in paragraph (3), by inserting
‘‘(as so defined)’’ after ‘‘government-guaran-
teed loans’’ each place such term appears.
(b) TECHNICAL AMENDMENT.—Section 5.55(d) (12
U.S.C. 2277a–4(d)) is amended—
(1) in the matter preceding paragraph (1)—
(A) by striking ‘‘and (c)’’ and inserting ‘‘,
(c), and (e)’’; and
(B) by striking ‘‘a Farm Credit Bank’’ and
inserting ‘‘an insured System bank’’; and
(2) by striking ‘‘Farm Credit Bank’’ each subse-
quent place such term appears and inserting ‘‘insured
System bank’’.
(c) ALLOCATION TO INSURED SYSTEM BANKS AND
OTHER SYSTEM INSTITUTIONS OF EXCESS AMOUNTS IN
THE FARM CREDIT INSURANCE FUND.—Section 5.55 (12
U.S.C. 2277a–4) is amended by adding at the end the fol-
lowing:
‘‘(e) ALLOCATION TO SYSTEM INSTITUTIONS OF EX-
CESS RESERVES.—
‘‘(1) ESTABLISHMENT OF ALLOCATED INSURANCE
RESERVES
ACCOUNTS.—There is hereby established
within the Farm Credit Insurance Fund—
‘‘(A) for each insured System bank; and
‘‘(B) subject to paragraph (5)(C), for all
holders, in the aggregate, of Financial Assistance
Corporation stock,
an Allocated Insurance Reserves Account. Amounts in
any Allocated Insurance Reserves Account shall be
considered to be part of the Farm Credit Insurance
Fund.
‘‘(2) ANNUAL ALLOCATIONS.—If, at the end of
any calendar year, the aggregate of the amounts in
the Farm Credit Insurance Fund exceeds the average
secure base amount for the calendar year (as cal-
culated on an average daily balance basis), the Cor-
poration shall allocate to the Allocated Insurance Re-
serves Accounts such excess amount less the amount
that the Corporation, in its sole discretion, determines
to be the sum of the estimated operating expenses and
estimated insurance obligations of the Corporation for
the immediately succeeding calendar year.
‘‘(3) ALLOCATION
FORMULA.—From the total
amount required to be allocated at the end of a cal-
endar year pursuant to paragraph (2)—
‘‘(A) 10 percent of such total amount shall
be credited to the Allocated Insurance Reserves
Account established under paragraph (1)(B),
subject to paragraph (5)(C); and
‘‘(B) there shall be credited to the Allocated
Insurance Reserves Account of each insured Sys-
tem bank an amount that bears the same ratio
to such total amount (less any reduction under
subparagraph (A)) as the average principal out-
standing for the 3-year period ending with the
end of such calendar year on loans made by the
bank that are in accrual status bears to the aver-
age principal outstanding for such 3-year period
on loans made by all insured System banks that
are in accrual status (excluding, in each case,
the guaranteed portions of government-guaran-
teed loans described in subsection (a)(1)(C)).
‘‘(4) USE OF FUNDS IN ALLOCATED INSURANCE
RESERVES ACCOUNTS.—To the extent that the sum of
the operating expenses of the Corporation and the in-
surance obligations of the Corporation for a calendar
year exceeds the estimated sum described in para-
graph (2) for the calendar year, the Corporation shall
cover such expenses and obligations by reducing each
Allocated Insurance Reserves Account by the same
proportion and expending the amounts so obtained,
before expending other monies in the Fund.
‘‘(5) OTHER DISPOSITION OF ACCOUNT FUNDS.—
‘‘(A) IN GENERAL.—Beginning in calendar
year 2003, if the aggregate of the amounts in the
Farm Credit Insurance Fund exceeds the secure
base amount, the Corporation may—
‘‘(i) subject to subparagraph (D), pay
to each insured System bank, in a manner
determined by the Corporation, an amount
equal to the lesser of—
‘‘(I) 20 percent of the balance in
the bank’s Allocated Insurance Reserves
Account as of the preceding December
31; or
‘‘(II) 20 percent of the balance in
the bank’s Allocated Insurance Reserves
Account on the date of payment; and
‘‘(ii) subject to subparagraphs (C) and
(E), pay to each System bank and associa-
tion holding Financial Assistance Corpora-
tion stock its proportionate share, deter-
mined by dividing the number of shares of
Financial Assistance Corporation stock held
by such institution by the total number of
shares of Financial Assistance Corporation
stock outstanding, of the lesser of—
‘‘(I) 20 percent of the balance in
the Allocated Insurance Reserves Ac-
count established under paragraph
(1)(B) as of the preceding December
31; or
‘‘(II) 20 percent of the balance in
the Allocated Insurance Reserves Ac-
count established under paragraph
(1)(B) on the date of the payment.
‘‘(B) AUTHORITY TO ELIMINATE OR REDUCE
PAYMENTS.—The Corporation may eliminate or
reduce payments under subparagraph (A) if the
Corporation determines, in its sole discretion,
that such payments, or other circumstances that
might require use of the Farm Credit Insurance
Fund, could cause the amount in the Farm Cred-
it Insurance Fund during that calendar year to
be less than the secure base amount.
‘‘(C) REIMBURSEMENT FOR FINANCIAL AS-
SISTANCE CORPORATION STOCK.—
‘‘(i) SUFFICIENT
FUNDING.—Notwith-
standing paragraph (3)(A), upon provision
by the Corporation for the accumulation in
the account established under paragraph
(1)(B) of funds in an amount equal to $56
million, the Corporation shall not allocate
any further funds to such account except to
replenish such account in the event that
funds are diminished below such amount by
the Corporation pursuant to paragraph (4).
‘‘(ii) WIND DOWN AND TERMINATION.—
‘‘(I) FINAL
DISBURSEMENTS.—
Upon disbursement of a total of $53
million from such Allocated Insurance
Reserves Account, the Corporation shall
disburse the remaining amounts in
such account, as determined under
paragraph (5)(A)(ii), without regard
to 
the 
percentage 
limitation 
in
subclauses (I) and (II) thereof.
‘‘(II) 
TERMINATION
OF
AC-
COUNT.—Upon disbursement of a total
of $56 million from such Allocated In-
surance Reserves Account established
under paragraph (1)(B), the Corpora-
tion shall close the Allocated Insurance
Reserves Account established under
paragraph (1)(B) and transfer any re-
maining funds in such Account to the
remaining Allocated Insurance Re-
serves Accounts in accordance with the
formula in paragraph (3)(B) for the
calendar year in which the transfer oc-
curs.
‘‘(D) DISTRIBUTION
OF
PAYMENTS
RE-
CEIVED.—Within 60 days after receipt of a pay-
ment made under subparagraph (5)(A)(i), each
insured System bank, in consultation with its af-
filiated associations, and taking into account the
direct or indirect payment of insurance pre-
miums by such associations, shall develop and
implement an equitable plan to distribute pay-
ments 
received 
pursuant 
to 
subparagraph
(5)(A)(i) among the bank and its associations.
‘‘(E) EXCEPTION
FOR
PREVIOUSLY
REIM-
BURSED
ASSOCIATIONS.—For purposes of sub-
paragraph (5)(A)(ii), in any Farm Credit Dis-
trict in which the funding bank has reimbursed
one or more of its affiliated associations for the
previously unreimbursed portion of the Finan-
cial Assistance stock held by such associations,
the funding bank shall be deemed to be the holder
of the shares of Financial Assistance Corporation
stock for which it has provided such reimburse-
ment.’’.
SEC. 6. POWERS WITH RESPECT TO TROUBLED INSURED
SYSTEM BANKS.
(a) LEAST-COST RESOLUTION.—Section 5.61(a)(3)
(12 U.S.C. 2277a–10(a)(3)) is amended—
(1) by redesignating subparagraph (B) as sub-
paragraph (F); and
(2) by striking subparagraph (A) and inserting
the following:
‘‘(A) LEAST-COST RESOLUTION.—Assistance
may not be provided to an insured System bank
under this subsection unless the total amount of
such assistance is the least costly to the Farm
Credit Insurance Fund of all possible alter-
natives available to the Corporation, including
liquidation of the bank (including paying the in-
sured obligations issued on behalf of the bank).
Before making a least-cost determination under
this subparagraph, the Corporation shall accord
such other insured System banks as the Corpora-
tion determines appropriate the opportunity to
submit information relating to such determina-
tion.
‘‘(B) PROCEDURAL RULES.—In determining
the least costly alternative under subparagraph
(A), the Corporation shall—
‘‘(i) evaluate alternatives on a present-
value basis, using a reasonable discount
rate;
‘‘(ii) document that evaluation and the
assumptions on which the evaluation is
based; and
‘‘(iii) retain the documentation for not
less than 5 years.
‘‘(C) TIME OF DETERMINATION.—
‘‘(i) COST OF ASSISTANCE.—For pur-
poses of this subsection, the determination of
the costs of providing any assistance under
any provision of this section with respect to
any insured System bank shall be made as
of the date on which the Corporation makes
the determination to provide such assistance
to the institution under this section.
‘‘(ii) COST OF LIQUIDATION.—For pur-
poses of this subsection, the determination of
the costs of liquidation of any insured Sys-
tem bank shall be made as of the earliest
of—
‘‘(I) the date on which a conserva-
tor is appointed for the bank;
‘‘(II) the date on which a receiver
is appointed for the bank; or
‘‘(III) the date on which the Cor-
poration makes any determination to
provide any assistance under this sec-
tion with respect to the bank.
‘‘(D) EVALUATION
OF
MANAGEMENT.—Be-
fore providing any assistance under paragraph
(1), the Corporation shall evaluate the adequacy
of the managerial resources of the bank. The con-
tinued service of any director or senior ranking
officer who serves in a policymaking role for the
assisted bank, as determined by the Corporation,
shall be subject to approval by the Corporation
as a condition of such assistance.
‘‘(E) DISCRETIONARY
DETERMINATION.—
Any determination that the Corporation makes
under this paragraph shall be in the sole discre-
tion of the Corporation.’’.
(b) CONFORMING AMENDMENTS.—Section 5.61(a) (12
U.S.C. 2277a–10(a)) is amended—
(1) in paragraph (1), by striking ‘‘IN GENERAL’’
and inserting ‘‘STAND-ALONE ASSISTANCE’’; and
(2) in paragraph (2)—
(A) by striking ‘‘ENUMERATED
POWERS’’
and inserting ‘‘FACILITATION OF MERGERS OR
CONSOLIDATION’’; and
(B) in subparagraph (A), by striking ‘‘FA-
CILITATION
OF
MERGERS
OR
CONSOLIDATION’’
and inserting ‘‘IN GENERAL’’.
SEC. 7. FARM CREDIT SYSTEM INSURANCE CORPORATION
BOARD OF DIRECTORS.
Section 201 of the Farm Credit Banks and Associa-
tions Safety and Soundness Act of 1992 (106 Stat. 4104–
4105) is repealed.
SEC. 8. CONSERVATORSHIP AND RECEIVERSHIPS.
(a) INCLUSION AMONG GENERAL CORPORATE POW-
ERS.—Section 5.58(9) (12 U.S.C. 2277a–7(9)) is amended
to read as follows:
‘‘(9) CONSERVATOR
OR
RECEIVER.—The Cor-
poration may act as conservator or receiver.’’.
(b) CONFORMING AMENDMENTS.—Section 5.51 (12
U.S.C. 2277a) is amended by striking paragraph (5) and
redesignating paragraph (6) as paragraph (5).
SEC. 9. OVERSIGHT AND REGULATORY ACTIONS BY THE
FARM CREDIT SYSTEM INSURANCE CORPORA-
TION.
Part E of title V of the Farm Credit Act of 1971 (12
U.S.C. 2277–2277a–14) is amended by inserting after sec-
tion 5.61 the following:
‘‘SEC. 5.61A. AUTHORITY TO REGULATE GOLDEN PARA-
CHUTE AND INDEMNIFICATION PAYMENTS.
‘‘(a) IN GENERAL.—The Corporation may prohibit or
limit, by regulation or order, any golden parachute pay-
ment or indemnification payment by a Farm Credit Sys-
tem institution (including the Federal Agricultural Mort-
gage Corporation and any conservator or receiver for the
Federal Agricultural Mortgage Corporation) in troubled
condition (as defined in regulations issued by the Corpora-
tion).
‘‘(b) FACTORS TO BE TAKEN INTO ACCOUNT.—The
Corporation shall prescribe, by regulation, the factors to be
considered by the Corporation in taking any action under
subsection (a), which may include the following:
‘‘(1) Whether there is a reasonable basis to be-
lieve that the institution-related party has committed
any fraudulent act or omission, breach of trust or fi-
duciary duty, or insider abuse with regard to the
Farm Credit System institution involved that has
had a material effect on the financial condition of the
institution.
‘‘(2) Whether there is a reasonable basis to be-
lieve that the institution-related party is substantially
responsible for the insolvency of the Farm Credit Sys-
tem institution, the appointment of a conservator or
receiver for the institution, or the institution’s trou-
bled condition (as defined in regulations prescribed by
the Corporation).
‘‘(3) Whether there is a reasonable basis to be-
lieve that the institution-related party has materially
violated any applicable law or regulation that has
had a material effect on the financial condition of the
institution.
‘‘(4) Whether there is a reasonable basis to be-
lieve that the institution-related party has violated or
conspired to violate—
‘‘(A) section 215, 657, 1006, 1014, or 1344
of title 18, United States Code; or
‘‘(B) section 1341 or 1343 of title 18,
United States Code, affecting a Farm Credit
System institution.
‘‘(5) Whether the institution-related party was in
a position of managerial or fiduciary responsibility.
‘‘(6) The length of time that the party was relat-
ed with the Farm Credit System institution and the
degree to which—
‘‘(A) the payment reasonably reflects com-
pensation earned over the period of employment;
and
‘‘(B) the compensation involved represents a
reasonable payment for services rendered.
‘‘(c) CERTAIN PAYMENTS PROHIBITED.—No Farm
Credit System institution may prepay the salary or any
liability or legal expense of any institution-related party
if such payment—
‘‘(1) is made in contemplation of the insolvency
of such institution or after the commission of an act
of insolvency; and
‘‘(2) is made with a view to, or has the result
of—
‘‘(A) preventing the proper application of
the assets of the institution to creditors; or
‘‘(B) preferring one creditor over another.
‘‘(d) GOLDEN PARACHUTE PAYMENT DEFINED.—As
used in this section:
‘‘(1) IN GENERAL.—The term ‘golden parachute
payment’ means any payment (or any agreement to
make any payment) in the nature of compensation by
any Farm Credit System institution for the benefit
of any institution-related party under an obligation
of the institution that—
‘‘(A) is contingent on the termination of the
party’s relationship with the institution; and
‘‘(B) is received on or after the date on
which—
‘‘(i) the institution is insolvent;
‘‘(ii) any conservator or receiver is ap-
pointed for the institution;
‘‘(iii) the Farm Credit Administration
has assigned the institution a composite
CAMEL rating of 4 or 5 under the Farm
Credit Administration Rating System, or
an equivalent rating; or
‘‘(iv) the Corporation otherwise deter-
mines that the institution is in a troubled
condition (as defined in regulations issued
by the Corporation).
‘‘(2) CERTAIN PAYMENTS IN CONTEMPLATION OF
AN EVENT.—Any payment that would be a golden
parachute payment but for the fact that the payment
was made before the date referred to in paragraph
(1)(B) shall be treated as a golden parachute payment
if the payment was made in contemplation of the oc-
currence of an event described in any clause of such
paragraph.
‘‘(3) CERTAIN PAYMENTS NOT INCLUDED.—The
term ‘golden parachute payment’ shall not include—
‘‘(A) any payment made under a retirement
plan that is qualified (or is intended to be quali-
fied) under section 401 of the Internal Revenue
Code of 1986 or other nondiscriminatory benefit
plan;
‘‘(B) any payment made under a bona fide
deferred compensation plan or arrangement that
the Corporation determines, by regulation or
order, to be permissible; or
‘‘(C) any payment made by reason of the
death or disability of an institution-related
party.
‘‘(e) OTHER DEFINITIONS.—As used in this section:
‘‘(1) INDEMNIFICATION PAYMENT.—The term ‘in-
demnification payment’ means any payment (or any
agreement to make any payment) by any Farm Cred-
it System institution for the benefit of any person
who is or was an institution-related party, to pay or
reimburse the person for any liability or legal expense
with regard to any administrative proceeding or civil
action instituted by the Farm Credit Administration
that results in a final order under which the person—
‘‘(A) is assessed a civil money penalty; or
‘‘(B) is removed or prohibited from partici-
pating in the conduct of the affairs of the insti-
tution.
‘‘(2) LIABILITY OR LEGAL EXPENSE.—The term
‘liability or legal expense’ means—
‘‘(A) any legal or other professional expense
incurred in connection with any claim, proceed-
ing, or action;
‘‘(B) the amount of, and any cost incurred
in connection with, any settlement of any claim,
proceeding, or action; and
(2) CONFORMING
AMENDMENT.—Section 8.9(b)
(12 U.S.C. 2279aa–9(b)) is amended by inserting
‘‘(as defined in section 4.14A(a)(5))’’ after ‘‘At the
time of application for a loan’’.
SEC. 12. REMOVAL OF ANTIQUATED AND UNNECESSARY PA-
PERWORK REQUIREMENTS.
(a) DISCLOSURE ON ADJUSTABLE RATE LOANS.—Sec-
tion 4.13(a)(4) (12 U.S.C. 2199(a)(4)) is amended by in-
serting ‘‘, except that any regulation of the Farm Credit
Administration implementing this paragraph shall include
a provision permitting notice to a borrower of a change
in the interest rate applicable to the borrower’s loan to be
made within a reasonable time after the effective date of
the change’’ before the semicolon.
(b) COMPENSATION OF ASSOCIATION PERSONNEL.—
Section 1.5(13) (12 U.S.C. 2013(13)) is amended by strik-
ing ‘‘and the appointment and compensation of the chief
executive officer thereof,’’.
(c) 
JOINT
MANAGEMENT
AGREEMENTS.—Section
5.17(a)(2)(A) (12 U.S.C. 2252(a)(2)(A)) is amended in the
1st sentence by striking ‘‘or management agreements’’.
(d) REMOVAL OF CERTAIN BORROWER REPORTING
REQUIREMENTS.—Section 1.10(a) (12 U.S.C. 2018(a)) is
amended by striking paragraph (5).
(e) USE OF PRIVATE MORTGAGE INSURANCE.—