Source: https://www.federalregister.gov/articles/2011/05/24/2011-12771/loan-policies-and-operations-lending-and-leasing-limits-and-risk-management
Timestamp: 2015-07-01 12:00:36
Document Index: 312114869

Matched Legal Cases: ['§ 614', '§ 614', '§ 614', '§ 614', '§ 614', 'art 614', 'ART 614', 'art 614', '§ 614', '§ 614', '§ 614', '§ 614', '§ 614']

Federal Register | Loan Policies and Operations; Lending and Leasing Limits and Risk Management
-29997 (6 pages)
Document Number: 2011-12771
Shorter URL: https://federalregister.gov/a/2011-12771 Related Topics
Loan Policies and Operations; Lending and Leasing Limits and Risk Management 4 actions from August 18th, 2010 to July 1st, 2012
Ensure the establishment of consistent, uniform and prudent loan and lease concentration risk mitigation policies by System institutions;
III. Comments on the Proposed Rule and Our Responses Back to Top
One commenter questioned the need to lower the lending limit since risk may be mitigated using Farm Service Agency guarantees, farm program subsidies and crop insurance. We note that loans or portions of loans that have a Government guarantee, as well as loans fully secured by obligations fully guaranteed by the United States Government, are exempt from the computation of loans to one borrower under § 614.4358 of the lending limit regulation. Hence, the fact that a System institution may mitigate risk using such guarantees has no bearing on loans subject to the lending limit.
The FCA also considered, but did not adopt exceptions to the rule based on the type and quantity of collateral supporting the loan. The concern over the time and difficulty of administering such exceptions outweighed any potential benefits that might result for System borrowers. Furthermore, the FCA does not wish to encourage System institutions to place undue reliance upon collateral as a basis for extending credit above the 15-percent limit.
A few commenters stated that, while lower limits may be appropriate for larger System associations, they would cause hardships on smaller associations. These commenters were concerned that the lower lending limit would make it even more challenging for small associations to meet the capital demands of those borrowers with large farming and ranching operations. One commenter suggested that the Agency should consider making exceptions to the 15-percent limit for small associations or allowing the System funding banks to make such exceptions in their general financing agreements with their district associations. Alternatively, this commenter suggested allowing the funding banks to authorize an association's use of a higher lending limit, not to exceed 25 percent, subject to other credit factors such as the association's size and capital base. The Agency is sensitive to the fact that the lower limit may initially be more of a burden on smaller System associations. In response to this concern, we are issuing this regulation with a delayed effective date of approximately 1 year to give all titles I and II lenders more time to establish participation, syndication, capital pooling or other risk-sharing agreements so that they may continue to serve the needs of the borrowers in their territories.
One commenter indicated that the transition rule contained in § 614.4361 should be lengthened to allow System institutions sufficient time to develop risk-sharing agreements to conform new loans to the 15-percent lending limits without a loss of business or customers. The FCA agrees with the need to provide more time to System institutions to develop such agreements which is why, as mentioned earlier, this final rule is being issued with a delayed effective date, giving institutions approximately 1 year to comply with the rule's requirements.
Therefore, we are deleting proposed § 614.4361(c), which in the proposed rule would have given titles I and II System institutions 6 months from the effective date to comply with the new limits and would have given titles I, II and III System institutions 6 months from the effective date to comply with the new policy requirements.
The risk mitigation policy required by this rule is intended to strengthen a System institution's loan portfolio so that it can better withstand stresses experienced by a single borrower, industry sector or counterparty. The policy must set forth sound loan and lease concentration risk mitigation practices in order to prevent weak and unsound practices. In contrast, our enforcement authorities apply when a System institution (or other persons) engages, has engaged, or is about to engage in an unsafe or unsound practice in conducting the business of the institution. In addition, this commenter stated that the lower lending limits do not justify the need to regulate the specific content of an institution's lending policies, asserting that FCA's existing loan policy regulation at § 614.4150 already establishes the necessary regulatory framework for lending standards. In lieu of the regulations proposed by the FCA, this commenter suggests simply adding the phrase “effectively measure, limit and monitor exposures to concentration risk” to existing § 614.4150.
List of Subjects in 12 CFR Part 614 Back to Top
PART 614—LOAN POLICIES AND OPERATIONS Back to Top
1.The authority citation for part 614 continues to read as follows: 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 100, 101 Stat. 1568, 1639.
Subpart J—Lending and Leasing Limits Back to Top
§ 614.4352 [Amended]
2.Section 614.4352 is amended by: a. Removing the comma after the word “borrower” and removing the number “25” and adding in its place, the number “15” in paragraph (a);
§ 614.4353 [Amended]
3.Section 614.4353 is amended by: a. Adding the words “direct lender” after the word “No”;
§ 614.4354 [Removed]
4.Section 614.4354 is removed. § 614.4356 [Amended]
5.Section 614.4356 is amended by removing the number “25” and adding in its place, the number “15”. 6.Section 614.4362 is added to subpart J to read as follows: § 614.4362 Loan and lease concentration risk mitigation policy.