[Congressional Record Volume 140, Number 139 (Thursday, September 29, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: September 29, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
     FARM CREDIT SYSTEM AGRICULTURAL EXPORT AND RISK MANAGEMENT ACT

  Mr. JOHNSON of South Dakota. Mr. Speaker, I ask unanimous consent 
that the Committee on Agriculture be discharged from further 
consideration of the bill (H.R. 4379) to amend the Farm Credit Act of 
1971 to enhance the ability of the banks for cooperatives to finance 
agricultural exports, and for other purposes, and ask for its immediate 
consideration.
  The Clerk read the title of the bill.
  The SPEAKER pro tempo. Is there objection to the request of the 
gentleman from South Dakota?
  Mr. ALLARD. Mr. Speaker, reserving the right to object, I will not 
object. I yield to the gentleman from South Dakota [Mr. Johnson] to 
explain the bill.
  Mr. JOHNSON of South Dakota. Mr. Speaker, H.R. 4379, the Farm Credit 
System Agricultural Export and Risk Management Act would expand the 
authority of Farm Credit System's banks for cooperatives to finance 
exports of agricultural products. It allows the banks for cooperatives 
to participate in financing arrangements with other domestic or foreign 
businesses to promote the export of U.S. agricultural commodities. The 
bill specifically prohibits any of these institutions from financing 
the relocation of a plant or facility from the United States to another 
country.
  The bill also allows Farm Credit System banks and associations to 
better manage the risk in their loan portfolios.
  The bill was considered and approved by voice vote of the Committee 
on Agriculture on Wednesday of this week. The bill is designed to help 
American agriculture expand exports. I urge the bill's passage.
  Mr. de la GARZA. Mr. Speaker, yesterday (Wednesday, September 28) the 
House Agriculture Committee considered and approved by voice vote the 
bill H.R. 4379, the Farm Credit System Agricultural Export and Risk 
Management Act. This legislation has two basic objectives.
  First, the bill expands the authority of Farm Credit System's banks 
for cooperatives to finance exports of agricultural products. The bill 
allows the banks for cooperatives to participate in financing 
arrangements with other domestic or foreign businesses to promote the 
export of U.S. agricultural commodities.
  The bill also allows the banks for cooperatives to finance joint 
ventures, partnerships and similar arrangements by eligible U.S. 
agricultural cooperatives, with certain limitations. To safeguard 
American jobs, the bill prohibits any of these institutions from 
financing the relocation of a plant or facility from the United States 
to another country.
  Second, the bill allows Farm Credit System banks and associations to 
better manage the risk in their loan portfolios. The bill authorizes 
Farm Credit System institutions to purchase and sell loan 
participations with non-System lenders, thus reducing their 
concentration of risk by geography and industry.
  Mr. Speaker, the bill was introduced by myself and Mr. Roberts, the 
ranking minority member of the Committee on Agriculture and several 
other Members from both sides of the aisle.
  The bill has been the subject of a public hearing and was also 
included in our committee's proposals for inclusion in the Uruguay 
round implementation bill. This provision was not included in the final 
implementation bill and so we bring it to the House floor today so it 
can be considered as a separate measure.
  Mr. Speaker, the committee has not had an opportunity to complete its 
report to accompany H.R. 4379. I do, however, want to submit and have 
printed in the Congressional Record at this point in the debate 
official correspondence and a technical analysis of the legislation 
received from the Farm Credit Administration, the Federal agency that 
regulates and examines the Farm Credit System institutions. The 
correspondence and technical analysis follows:


                                   Farm Credit Administration,

                                      McLean, VA, August 17, 1994.
     Hon. E. (Kika) de la Garza,
     Chairman, Committee on Agriculture, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: Thank you for the opportunity to provide 
     comment on H.R. 4379, the ``Farm Credit System Agricultural 
     Export and Risk Management Act,'' as modified by the House 
     Committee on Agriculture's recommended changes to the 
     discussion draft of legislation to implement the Uruguay 
     Round Agreements.
       The Farm Credit Administration (FCA) neither supports nor 
     opposes the expanded authorities that would be granted to 
     System institutions by H.R. 4379. Rather, as the agency that 
     regulates and examines the System, we are providing an 
     analysis of the effect of the amendments.
       In addition to the technical analysis of the impact of the 
     proposed legislation on existing authorities earlier provided 
     to Committee staff, the FCA has evaluated the effect of each 
     of the expanded authorities on the safety and soundness risks 
     facing the System. (See attached addendum.) In general, we 
     concluded that certain types of credit risk--underwriting, 
     credit monitoring, currency risk, and political risk--may be 
     increased, but that other risks such as concentration risk 
     and sensitivity to changes in governmental farm and water 
     policies are potentially decreased by the greater 
     opportunities for diversification and the development of a 
     broader business base. Management risk that comes from 
     entering new lines of business may be increased, but this 
     will depend on the extent to which the authorities are used 
     to finance unfamiliar businesses and unfamiliar types of 
     borrowers. In the international arena, the potential for a 
     greater volume of unguaranteed and uninsured lending will 
     require particular attention because of increased currency 
     and political risk.
       Although the expanded authorities granted by H.R. 4379 may 
     require both the System and the FCA to develop additional 
     expertise, the FCA regards the risks resulting from the 
     expanded authorities as manageable. From a safety and 
     soundness viewpoint, such risks, if prudently managed, may be 
     more than offset by the opportunity for greater 
     diversification. We would, of course, continue close 
     regulatory oversight if System institutions were to expand 
     into new lines of business.
       More diverse and sophisticated lending could require the 
     FCA to incur additional expense to acquire needed expertise 
     and examination capability. However, it is not possible to 
     provide the cost estimate you requested until we know how the 
     expanded authority will be used. There is a significant 
     potential, especially for banks for cooperatives, to finance 
     new types of businesses and new types of borrowers, perhaps 
     involving more sophisticated transactions. However, because 
     the proposed legislation expands eligibility by relaxing 
     restrictions on loan purpose and eligibility of existing 
     classes of borrowers, rather than by authorizing new types of 
     loans, it is difficult to predict what additional expertise, 
     if any, will be needed or to quantify the additional 
     resources that will be required. We see no immediate need to 
     increase the FCA staff. Rather, we expect that any additional 
     costs as may be incurred would be in response to demonstrated 
     need and incremental in nature.
       On a final note, the expansion of international lending 
     authority for banks for cooperatives in H.R. 4379 may bring 
     an increase in the volume of uninsured, nonguaranteed 
     international lending, some of which may be to countries of 
     the former Soviet Union and emerging democracies. While such 
     loans now are statutorily required to be 95 percent Federally 
     guaranteed, current guarantee restrictions would be 
     superseded under H.R. 4379. Thus, the National Bank for 
     Cooperatives (CoBank) would be able to lend, on a 
     nonguaranteed basis, up to 35 percent of its capital ($336 
     million), and in certain circumstances, up to 50 percent of 
     its capital, to an emerging democracy. Section 3.28 of the 
     Act constrains the FCA's flexibility to respond to such an 
     increased risk involving a single large CoBank credit.
       We thank you for the opportunity to comment and stand ready 
     to offer whatever further assistance you may require as you 
     consider this legislation.
           Sincerely,
                                                Dorothy L. Nichols
                                 (For Billy Ross Brown, Chairman).

  Analysis of Impact of H.R. 4379\1\ on Risks Facing the Farm Credit 
                                 System

       Expansion of international lending authorities. The 
     expansion of international lending authorities for banks for 
     cooperatives (BCs) would increase credit risk by increasing 
     the potential for uninsured, nonguaranteed lending to 
     noncooperative parties. Although BCs are currently engaged in 
     international lending, most BC loans are guaranteed by the 
     United States Government or agencies thereof. Loans to 
     constituent entities of the former Soviet Union and emerging 
     democracies (FSUs) are statutorily required to be Federally 
     guaranteed in an amount equal to 95 percent of the loan 
     amount. In addition, FCA regulations currently require all 
     loans financing foreign trade receivables to be guaranteed or 
     insured to the extent such insurance or guarantees are 
     available, except for borrowers with high credit ratings and 
     borrowers who have longstanding successful business 
     relationships with the BC.
       The expanded international authority of H.R. 4379 is of two 
     types: (a) authority to lend to any exporter, domestic or 
     foreign (whether or not a cooperative), who gives priority to 
     cooperatively sourced products or services, where reasonably 
     available; and (b) authority to lend to any entity, domestic 
     or foreign, (whether or not a cooperative) in which an 
     eligible cooperative has an ownership interest of any size 
     for any purpose that facilitates the domestic or foreign 
     operations of the eligible cooperative. Under the first of 
     these authorities, loans that do not finance cooperatively 
     sourced products and services and are not 95 percent 
     federally insured or guaranteed are limited to 50 percent of 
     the BC's capital, but there is no such limitation on 
     uninsured loans financing cooperatively sourced goods or on 
     lending to entities in which an eligible cooperative has an 
     ownership interest. Since borrower stock is not required on 
     international loans, capital will act as a constraint on the 
     volume of such loans.
       Because these authorities supersede current FSU authority, 
     there would no longer be a statutory requirement that loans 
     to FSU countries be insured or guaranteed. Although FCA 
     regulations require that loans financing forcing trade 
     receivables be insured or guaranteed if such insurance is 
     available, there is no requirement, statutory or regulatory, 
     for insurance or guarantees if the volume of international 
     lending activity should increase beyond the supply of 
     available insurance and guarantees. This would mean an 
     increase in the volume of uninsured, nonguaranteed 
     international lending, some of which may be to FSU countries.
       In addition, the class of eligible entities and the types 
     of businesses a BC is authorized to finance is significantly 
     expanded by the elimination of the current requirements that 
     an exporter be party to a transaction with an eligible 
     cooperative and that the financing substantially benefit an 
     eligible cooperative, as well as by the broadening of the 
     permissible purposes for which a loan may be made to an 
     entity owned by an eligible cooperative. Such expanded 
     authority potentially increases underwriting and credit 
     monitoring risk and the risk that the institution's 
     expertise may not be adequate to exercise the authority 
     prudently. However, it permits greater diversification and 
     potentially decreases sensitivity to changes in 
     governmental farm and water policies, which decreases the 
     concentration risk of leading to a single industry.
       Expansion of BC domestic lending authority. With respect to 
     domestic lending authority, the relaxation of eligibility 
     requirements for entities owned by eligible cooperatives and 
     utilities eligible for assistance from the Rural 
     Electrification Administration (REA) and Rural Telephone Bank 
     (RTB)(REA- and RTB-eligibles) effects a similar expansion of 
     the class of eligible entities and the types of businesses a 
     BC is authorized to finance under its domestic lending 
     authority. Currently, BCs may lend to any entity that is more 
     than 50 percent owned by eligible cooperatives and/or REA- or 
     RTB-eligibles. The proposed expansion of domestic authority 
     would permit lending to any entity in which an eligible 
     cooperative or REA- or RTB-eligible has an ownership interest 
     for any purpose that facilities its domestic operation, but 
     if the entity is less than 50 percent owned by eligible 
     entities, the amount of the financing is limited to the 
     percentage ownership of the borrower by eligible entities. 
     Since there is no minimum ownership requirement and the loans 
     are not restricted to agricultural purposes, there is a 
     potential for the risks of lending to unfamiliar businesses 
     and unfamiliar borrowers to increase. Once again, however, 
     there is a potential decrease in concentration risk resulting 
     from the opportunity for greater diversification.
       Expansion of BC participation authorities. In 1992, 
     Congress granted BCs authority to purchase participation 
     interests in loans made by other lenders to entities that are 
     ineligible for BC financing, but engaged in operations 
     functionally similar to eligible entities. H.R. 4379 would 
     add a definition of ``participation'' for the purpose of the 
     ``similar entity'' participation authority. The proposed 
     definition is more expansive than the current regulatory 
     definition of ``participation'' in that it permits risk-
     sharing on a basis other than pro rata. In addition, it 
     appears to expand the ``similar entity'' participation 
     authority to include participations in technical and 
     financial assistance. This expanded definition of 
     ``participation'' potentially increases credit risk, in that 
     it permits the purchase of subordinated portions of loans. It 
     increases management risk, in that the increased flexibility 
     as to the types of agreements that are permitted is likely to 
     result in more varied, complex and sophisticated agreements, 
     increasing the risk that an institution may enter into 
     complex arrangements without sufficient expertise to protect 
     its interests. However, the expanded definition of 
     ``participation'' also allows institutions to decrease credit 
     risk by purchasing senior interests in loans and by 
     purchasing interests in loan syndications, which better 
     protect the institution from the insolvency of the lead 
     lender. Here too, concentration risk may be decreased because 
     greater flexibility as to the types of agreements may result 
     in fuller and more effective use of participations to achieve 
     diversification.
       Expanded FCB participation authorities. H.R. 4379 would 
     authorize FCBs and direct lender associations to purchase 
     participations in loans that are made by nonSystem lenders to 
     entities not currently eligible under the Act but whose 
     operations are functionally similar to entities that are. 
     This expansion would provide authority similar to that 
     granted to the BCs in 1991. Since there are no statutory 
     restrictions on the types of entities to which FCBs and 
     associations can lend, as there are for BCs, the effect of 
     the authority is to override such restrictions on eligibility 
     such as the statutory restrictions on processing and 
     regulatory restrictions on foreign ownership of farming 
     corporations. However, such participations are limited to the 
     types of loans the FCBs and associations are authorized to 
     make. Therefore, although there is some opportunity for added 
     diversification from the use of this authority, it is not as 
     likely to involve financing new and unfamiliar businesses as 
     the existing BC authority, because FCBs and associations are 
     subject to more loan purpose restrictions than BCs. For this 
     reason, this authority may not have the same potential for 
     diversification as the corresponding BC authority. The 
     primary benefit may be in facilitating ongoing participation 
     relationships with nonSystem lenders that will permit the 
     sale of participation interests as well.
       Credit risk may be increased to the extent an institution 
     relies on the credit judgment of others or purchases 
     interests in loans too remote to monitor effectively, but 
     these risks are present under existing participation 
     authorities and are addressed in FCA regulations. The more 
     expansive definition of ``participation,'' on the other hand, 
     presents new risks in that it permits institutions to share 
     risk on a basis other than pro rata. This would permit the 
     purchase of subordinated pieces of loans as well as the 
     senior pieces and transactions of increased variety, 
     complexity and sophistication. The greater flexibility 
     permitted under this expanded definition increases the 
     management risk that an institution may lack sufficient 
     expertise to adequately protect its interests in complex and 
     sophisticated transactions.
       On balance, the risks inherent in the exercise of the 
     expanded participation authority are risks that can be 
     managed by prudent underwriting, expert legal counsel, and 
     effective regulatory oversight.
       In sum, the greatest risk posed by the broader lending 
     authority of H.R. 4379 is that institutions may make or 
     participate in loans financing unfamiliar businesses and 
     borrowers without adequate expertise or without adequate 
     capacity to monitor. In addition, the potential for greater 
     volume of unguaranteed and uninsured international lending 
     increases currency and political risk. However, from a safety 
     and soundness standpoint, these risks, if prudently managed, 
     may be more than offset by the opportunity for greater 
     diversification.


                    technical analysis of H.R. 4379

     (As modified by the En Bloc Proposal Containing Recommended 
     Changes to the Discussion Draft of Legislation to Implement 
     the Uruguay Round Agreements offered by Chairman de la Garza 
     and Mr. Roberts)
     Section 3. Participation defined.
       This section adds a definition of ``participation'' to the 
     authority previously granted to banks for cooperatives (BCs) 
     by section 3.1 (11)(B) of the Farm Credit Act of 1971 (Act) 
     to purchase participations in loans made to ``similar 
     entities'' by non-System lending institutions. This 
     definition does not require an undivided fractional interest 
     in the principal amount of the loan (as FCA regulations do) 
     and hence does not require pro rata risk sharing. Although 
     this definition allows participation in loan syndications, 
     which may better protect the participating institution from 
     the insolvency of the lead lender, the effect of this change 
     is also to allow the purchase of riskier investments, such as 
     the subordinated pieces of loans, and the purchase of less 
     risky investments, such as the senior pieces of loans. Also, 
     although the authority granted by section 3.1(11)(B) is 
     restricted to loans, the definition of participation includes 
     other extensions of credit and other technical and financial 
     assistance. In addition, the phrase ``other forms of the 
     purchase, sale, or transfer of interests in loans'' would 
     appear to allow the purchase of interests in loans other than 
     principal amount, such as servicing rights.
     Section 4. Agricultural Export Financing.
       Section 4 of H.R. 4379 amends section 3.7(b)(1) of the Act 
     as follows
       (1) Section 3.7(b)(1) would be amended by deleting existing 
     all existing international authorities except authority to 
     lend to noncooperative counterparties to import transactions 
     with BC voting stockholders. The deleted authorities would be 
     expanded by the amendment to (b)(2) of the Act, as described 
     below. The remaining authority to finance counterparties to 
     import transactions of voting stockholders is unchanged. The 
     borrower must be a party to a transaction with a voting 
     stockholder of a BC and the financing must substantially 
     benefit the voting stockholder.
       (2) Section 3.7(b)(2) would be amended to expand existing 
     export lending authority and authority to lend to third 
     parties in which eligible cooperatives have an ownership 
     interest to facilitate import and export activities, as well 
     as to expand domestic eligibility. Although the stated 
     purpose of this amendment is to provide more flexibility to 
     fund joint ventures, the authority is not limited to joint 
     ventures. This expansion supersedes the narrower authority to 
     lend to constituent entities of the former Soviet Union and 
     emerging democracies (FSU authority), which sunsets in 1995.
       Export lending authority. Currently, BCs can lend to non-
     cooperative parties with respect to import or export 
     transactions with eligible cooperatives that are voting 
     stockholders of the BC, provided the voting stockholder 
     substantially benefits from the financing. This authority 
     would be expanded by deleting the requirement that the 
     borrower have a transaction with a voting stockholder of the 
     BC and the requirement that the financing provide a 
     substantial benefit to such stockholder. As long as there is 
     compliance with BC policies designed to ensure that priority 
     is give to products or services originally sourced from an 
     eligible cooperative (as defined in 3.8(a)), where reasonably 
     available, the borrower need not be a cooperative or actually 
     export cooperatively sourced products, and the financing need 
     not benefit any cooperative. However, the bill would limit 
     the total volume of loans financing exports not originally 
     sourced from eligible cooperatives and not insured by an 
     agency, bureau, board, commission or establishment of the 
     United States or a corporation wholly owned directly or 
     indirectly by the United States in an amount equal to 95 
     percent of the loan amount. The uninsured amounts of such 
     loans would be limited to 50 percent of the BC's capital. The 
     total amount of uninsured loans financing the export of non-
     cooperatively sourced products and services in excess of 50 
     percent of the BC's capital would be required to be sold 
     outside the Farm Credit System.
       Other international lending authority. Currently, BCs are 
     authorized to lend to domestic or foreign parties in which 
     cooperatives have the minimum ownership interest approved by 
     the FCA for the purpose of facilitating the export or import 
     operations of a voting stockholder of the BC, provided the 
     voting stockholder substantially benefits from the financing. 
     This authority would be expanded by deleting the requirements 
     that the borrower have a transaction with a voting 
     stockholder of the BC and that the financing provide a 
     substantial benefit to such stockholder. In addition, the 
     requirement for the FCA to specify the qualifying minimum 
     ownership is eliminated, and the permissible loan purpose is 
     expanded from facilitating import or export transactions to 
     facilitating the domestic or foreign operations of the 
     eligible cooperative. In addition, the BCs would be permitted 
     under this authority to lend to third parties, domestic or 
     foreign, in which a person who has obtained credit from or 
     been certified as eligible to obtain credit from the Rural 
     Electrification Administration (REA) or the Rural Telephone 
     Bank (RTB) (REA- or RTB-eligible) has an ownership interest, 
     but only for the purpose of facilitating the domestic 
     operations of the REA- or RTB-eligible.
       If entities eligible for this authority--eligible 
     cooperatives as defined in 3.8(a) and REA- and RTB-
     eligibles--own more than 50 percent of the borrowing entity, 
     there is no limitation on the amount of the financing. 
     However, if entities eligible for this authority own less 
     than 50 percent of the borrowing entity, the amount of the 
     financing is limited to the percentage of ownership by 
     eligible entities. (This codifies the FCA's regulatory 
     requirement for international lending and substitutes it for 
     the existing domestic eligibility requirement for more than 
     50 percent cooperative ownership, as discussed below under 
     domestic eligibility.)
       Effect on FSU authority. Although proposed amendment of 
     3.7(b)(2) would delete the specific authority to lend to 
     constituent entities of the former Soviet Union and 
     emerging democracies (FSU authority), the authority that 
     would be granted by the amendment is broad enough to 
     accommodate such lending. This change has the effect of 
     extending FSU authority beyond its current sunset date of 
     1995 and eliminating the requirement that FSU loans be 95% 
     guaranteed. Note that in the proposed legislation the 
     limitation on the amount of uninsured loans applies to the 
     authority granted under 3.7(b)(2)(A)(i) but not to the 
     authority granted by 3.7(b)(2)(A)(ii). However, many, if 
     not most, loans to FSU countries may be made under (A)(i). 
     Although the limitation on noncooperatively sourced 
     uninsured export loans would provide an incentive to 
     insure such loans and limit the risk of such loans, there 
     is no statutory requirement for insurance for export loans 
     that are cooperatively sourced, even if the borrower is an 
     FSU country.
       FCA regulations currently require institutions engaging in 
     the financing of foreign trade receivables to avail 
     themselves of such guarantee and insurance plans as are 
     available in the United States and other countries, such as 
     the Foreign Credit Insurance Association and the Export-
     Import Bank of the United States, except where a prospective 
     borrower has had a longstanding, successful business 
     relationship with the eligible cooperative borrower or has a 
     high credit rating. See 12 CFR 614.4700. However, should the 
     availability of such plans be limited, there would be no 
     requirement, statutory or regulatory, for such guarantees or 
     insurance, even for FSU countries. The statutory limitation 
     on the (A)(ii) authority would be the only statutory or 
     regulatory protection, even for FSU countries, and it only 
     applies to loans financing noncooperatively sourced goods.
       Effect on domestic lending authority. This provision also 
     expands domestic eligibility by authorizing lending to any 
     domestic or foreign party in which an eligible cooperative, 
     as defined in section 3.8(a), has an ownership interest of 
     any size for any purpose that benefits the domestic or 
     international operations of the cooperative. This change 
     accounts for the need for the conforming amendment to section 
     3.8(b)(1)(B) (made by Section 5 of the bill) to delete the 
     more-than-50-percent-ownership requirement and the 
     requirement that the combined entities meet the other 
     eligibility requirements. In lieu of the restriction on 
     ownership, the amendment limits the amount of the financing 
     to the percentage of cooperative ownership in cases where the 
     entity is not at least 50 percent owned by eligible 
     cooperatives. If the cooperative ownership is 50 percent or 
     more, there is no restriction on the amount of the financing.
       New Limitation. The authorities granted by 3.7(b)(2)(A)(i) 
     and (ii) may not be used to finance the relocation of a plant 
     or facility from the United States to another country--a new 
     limitation.
       Effect on Similar Entity Authority. Because of the absence 
     of loan purpose restrictions in Title III of the Act, the 
     restriction on the types of loans a BC can make are primarily 
     in the form of the eligibility requirements of its borrowers. 
     Hence, the expansion of BC eligibility expands the type of 
     loans a BC can make. As the class of eligible BC borrowers 
     expands, the businesses in which they may be engaged is also 
     likely to be more varied. To qualify for the BC similar 
     entity participation authority, an entity need only be 
     engaged in some business functionally similar to that in 
     which an eligible borrower is engaged. Hence expansion of BC 
     eligibility also expands the class of similar entities 
     eligible for the loan participation authority, which may 
     further expand the types of loans a BC can make. Since there 
     is no statutory restriction to agricultural or agriculturally 
     related loans in Title III, the loan need not 
     be agriculturally related to qualify for BC financing. 
     Loans that are not agriculturally related at all will 
     qualify for the BC's similar entity participation 
     authority. For FCBs and associations, on the other hand, 
     this is not as true, because FCBs and associations are 
     subject to statutory loan purpose restrictions. However, 
     to keep the potential for BC participation in loans 
     unrelated to agriculture in perspective, it should be 
     noted that such participations are subject to a limitation 
     of 15 percent of assets. Moreover the added flexibility to 
     diversify may have safety and soundness benefits.
     Section 6. Loan Participation Authority for Farm Credit Banks 
         and Direct Lender Associations.
       This section authorizes Farm Credit and direct lender 
     associations to participate in loans of the types authorized 
     under Titles I and II by other lenders to entities that would 
     be ineligible to borrow under Titles I and II, provided such 
     entities are engaged in operations functionally similar to 
     those of an eligible entity. Because there are no statutory 
     restrictions on the types of entities to which FCBs and 
     associations can lend, the effect of the amendment is to 
     override other types of statutory and regulatory restrictions 
     on eligibility with respect to such participations, such as 
     regulatory requirements designed to ensure that eligibility 
     is restricted to entities that qualify as American farmers, 
     and statutory and regulatory restrictions on the financing of 
     processing and marketing activities.
       The cumulative amount of participations in loans to 
     ineligible entities is limited to 15 percent of the 
     institution's assets, and participation in a particular loan 
     is subject to an individual institution and a Systemwide 
     limitation of 50 percent of the loan. Such loans are also 
     subject to a statutory single credit risk limitation of 10 
     percent of the institution's capital (or the applicable 
     higher lending limit authorized under FCA regulations if 
     shareholders approve).
       For similar entities that are eligible to borrow from a 
     bank for cooperatives under title III, FCBs/associations must 
     obtain the approval of the BC having the greatest loan volume 
     in the state in which the similar entity's headquarters 
     office is located. However, they do not need the approval of 
     any other BC, even though the entity might be eligible to 
     borrow from more than one BC and might in fact have a loan 
     with another BC. Hence, this approval requirement is not 
     quite the reciprocal of the approval requirement in 
     3.1(11)(B)(iii), which requires the approval of any FCB in 
     whose territory the entity is eligible to borrow.
       The authority does not apply to rural housing loans. There 
     is no similar limitation in the existing BC authority to 
     participate in loans to similar entities; possibly it was not 
     deemed necessary because BCs are not expressly authorized to 
     make rural housing loans and do not generally lend to 
     individuals directly. However, restrictions on BC lending are 
     primarily in the form of eligibility requirements of its 
     borrowers rather than on the types of loans it can make, and 
     eligibility is significantly broadened by this bill.
       ``Participation'' is defined in the same manner as for the 
     BC similar entity authority. See comments on section 3 of the 
     bill above. For BCs, the expansion of the similar entity 
     authority to include authority to participate in ``technical 
     and financial assistance'' is consistent with their authority 
     to offer such services directly. For FCBs and associations, 
     however, it is different from their direct authority to offer 
     technical assistance and financially related services 
     appropriate to on-farm operations. It is unclear whether this 
     definition of participation would permit FCBs and 
     associations to purchase participations in financially 
     related services that are not related to on-farm operations, 
     since the authority granted is limited to ``loans of a type 
     otherwise authorized under Titles I and II of the Act.'' If 
     so, the result would be to permit participation in a broader 
     array of financially related services for ineligible 
     borrowers than are available to eligible borrowers.
  H.R. 4379 would help American agriculture take fuller advantage of 
the market opportunities in today's global economy. I urge the House to 
support its passage.
  Mr. ALLARD. Mr. Speaker, I withdraw my reservation of objection.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from South Dakota?
  There was no objection.
  The Clerk read the bill, as follows:

                               H.R. 4379

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Farm Credit System 
     Agricultural Export and Risk Management Act''.

     SEC. 2. REFERENCES.

       Except as otherwise specifically provided, whenever in this 
     Act a section is amended, repealed, or referenced, such 
     amendment, repeal, or reference shall be considered to be 
     made to that section of the Farm Credit Act of 1971 (12 
     U.S.C. 2001 et seq.).

     SEC. 3. PARTICIPATION DEFINED.

       Section 3.1(11)(B) (12 U.S.C. 2122(11)(B)) is amended by 
     adding at the end the following new clause:
       ``(iv) As used in this subparagraph, the term `participate' 
     or `participation' means multi-lender transactions including, 
     but not limited to, syndications, assignments, loan 
     participations, subparticipations, or other form of the 
     purchase, sale, or transfer of interests in loans, other 
     extensions of credit, or other technical and financial 
     assistance.''.

     SEC. 4. AGRICULTURAL EXPORT FINANCING.

       (a) Section 3.7(b)(1) (12 U.S.C. 2128(b)(1)) is amended 
     by--
       (1) striking ``assistance to (A)'' and inserting 
     ``assistance to'';
       (2) striking ``the export or'' and inserting ``the''; and
       (3) striking ``, and (B)'' and all that follows through 
     ``subparagraph (A)''.
       (b) Section 3.7(b) (12 U.S.C. 2128(b)) is further amended 
     by striking paragraph (2) and inserting the following new 
     paragraph:
       ``(2)(A) A bank for cooperatives is authorized to make or 
     participate in loans and commitments to, and to extend other 
     technical and financial assistance to--
       ``(i) any domestic or foreign party for the export, 
     including (where applicable) the cost of freight, of 
     agricultural commodities or products, farm supplies, or 
     aquatic products from the United States under policies and 
     procedures established by the bank for cooperatives to ensure 
     that such commodities, products, or supplies are originally 
     sourced, where reasonably available, from one or more 
     eligible cooperative associations on a priority basis; and
       ``(ii) except as provided in subparagraph (B), any domestic 
     or foreign party in which an eligible cooperative association 
     (as defined in section 3.8) has an ownership interest, for 
     the purpose of facilitating the association's domestic or 
     foreign business operations: Provided, That if the ownership 
     interest by an eligible cooperative association, or 
     associations, is less than 50 percent, then such financing 
     shall be limited to the percentage held in the party by such 
     association or associations.
       ``(B) A bank for cooperatives shall not use the authority 
     provided in paragraph (2)(A)(ii) to provide financial 
     assistance to a party for the purpose of financing 
     the relocation of plants or facilities from the United 
     States to another country.''.

     SEC. 5. CONFORMING AMENDMENT.

       Section 3.8(b)(1) (12 U.S.C. 2129(b)(1)) is amended by--
       (1) striking subparagraph (B); and
       (2) redesignating subparagraph (C), (D), and (E) as 
     subparagraphs (B), (C), and (D), respectively.

     SEC. 6. LOAN PARTICIPATION AUTHORITY FOR FARM CREDIT BANKS 
                   AND DIRECT LENDER ASSOCIATIONS.

       Title IV (12 U.S.C. 2151 ed seq.) is amended by inserting 
     after section 4.18 (12 U.S.C. 2206) the following new 
     section:

     ``SEC. 4.18A. AUTHORITY OF FARM CREDIT BANKS AND DIRECT 
                   LENDER ASSOCIATION TO PARTICIPATE IN LOANS TO 
                   SIMILAR ENTITIES FOR RISK MANAGEMENT PURPOSES.

       ``(a) In General.--Notwithstanding any other provision of 
     this Act, any Farm Credit Bank or direct lender association 
     chartered under this Act is authorized to participate in any 
     loan of a type otherwise authorized under title I and II made 
     to a similar entity by any person in the business of 
     extending credit; except that a Farm Credit Bank or direct 
     lender association may not participate in a loan under this 
     section if--
       ``(1) such participation would cause the total amount of 
     all participants by the Farm Credit Bank or association under 
     this section involving a single credit risk to exceed 10 
     percent (or the applicable higher lending limit authorized 
     under regulations issued by the Farm Credit Administration if 
     the stockholders of the respective Farm Credit Bank or 
     association so approve) of the Farm Credit Bank's or 
     association's total capital;
       ``(2) such participation by the Farm Credit Bank or 
     association would itself equal or exceed 50 percent of the 
     principal of the loan or, when taken together with 
     participations in the loan by other Farm Credit Banks and 
     associations under this section would cause the cumulative 
     amount of the participants by all Farm Credit Banks and 
     associations in the loan to equal or exceed 50 percent of the 
     principal of the loan;
       ``(3) such participation would cause the cumulative amount 
     of participations that the Farm Credit Bank or association 
     has outstanding under the section to exceed 15 percent of its 
     total assets; or
       ``(4) the loan is of the type authorized under section 
     1.11(b) or 2.4(a)(2).
       ``(b) Similar Entity Defined.--For the purposes of this 
     section, the term `similar entity' means a person or entity 
     that, while not eligible for a loan from the Farm Credit Bank 
     or association, has operations functionally similar to a 
     person or entity eligible for a loan for the Farm Credit Bank 
     or association in that it derives a majority of its income 
     from, or has a majority of its assets invested in, the 
     conduct of activities functionally similar to those conducted 
     by an eligible person.
       ``(c) Prior Approval Required.--
       ``(1) With respect to a similar entity that is eligible to 
     borrow from a bank for cooperatives under title III, the 
     authority of a Farm Credit Bank or association to participate 
     in a loan to such entity under this section shall be subject 
     to the prior approval of the bank for cooperatives having, at 
     the time the loan is made, the greatest loan volume in the 
     state in which the similar entity's headquarters office is 
     located.
       ``(2) Approval under paragraph (1) of this subsection may 
     be granted on an annual basis and under such terms and 
     conditions as may be agreed on between the Farm Credit Bank 
     or association, as the case may be, and the bank for 
     cooperatives granting the approval.
       ``(3) An association may not participate in a loan to a 
     similar entity under this section without the approval of the 
     association's supervising Farm Credit Bank.
       ``(d) Definition.--For purposes of this section, the term 
     `participate' or `participation' shall have the same meaning 
     as provided in section 3.1(11)(B).''.


amendment in the nature of a substitute offered by mr. johnson of south 
                                 dakota

  Mr. JOHNSON of South Dakota. Mr. Speaker, I offer an amendment in the 
nature of a substitute.
  The Clerk read as follows:

       Amendment in the nature of a substitute offered by Mr. 
     Johnson of South Dakota: Strike out all after the enacting 
     clause and insert in lieu thereof the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Farm Credit System 
     Agricultural Export and Risk Management Act''.

     SEC. 2. PARTICIPATION DEFINED.

       Section 3.1(11)(B) of the Farm Credit Act of 1971 (12 
     U.S.C. 2122(11)(B)) is amended by adding at the end the 
     following new clause:
       ``(iv) As used in this subparagraph, the term `participate' 
     or `participation' refers to multilender transactions, 
     including syndications, assignments, loan participations, 
     subparticipations, or other forms of the purchase, sale, or 
     transfer of interests in loans, other extensions of credit, 
     or other technical and financial assistance.''.

     SEC. 3. AGRICULTURAL EXPORT FINANCING.

       Section 3.7(b) of the Farm Credit Act of 1971 (12 U.S.C. 
     2128(b)) is amended--
       (A) in paragraph (1)--
       (i) by striking ``assistance to (A)'' and inserting 
     ``assistance to'';
       (ii) by striking ``the export or'' and inserting ``the''; 
     and
       (iii) by striking ``and (B)'' and all that follows through 
     ``subparagraph (A): Provided, That a'' and inserting ``if 
     the''; and
       (B) by striking paragraph (2) and inserting the following 
     new paragraph:
       ``(2)(A) A bank for cooperatives may make or participate in 
     loans and commitments to, and extend other technical and 
     financial assistance to--
       ``(i) any domestic or foreign party for the export, 
     including (where applicable) the cost of freight, of 
     agricultural commodities or products thereof, farm supplies, 
     or aquatic products from the United States under policies and 
     procedures established by the bank to ensure that the 
     commodities, products, or supplies are originally sourced, 
     where reasonably available, from one or more eligible 
     cooperative associations described in section 3.8(a) on a 
     priority basis, except that if the total amount of the 
     balances outstanding on loans made by a bank under this 
     clause that--
       ``(I) are made to finance the export of commodities, 
     products, or supplies that are not originally sourced from a 
     cooperative, and
       ``(II) are not guaranteed or insured, in an amount equal to 
     at least 95 percent of the amount loaned, by a department, 
     agency, bureau, board, commission, or establishment of the 
     United States or a corporation wholly-owned directly or 
     indirectly by the United States,
     exceeds an amount that is equal to 50 percent of the bank's 
     capital, then a sufficient interest in the loans shall be 
     sold by the bank for cooperatives to commercial banks and 
     other non-System lenders to reduce the total amount of such 
     outstanding balances to an amount not greater than an amount 
     equal to 50 percent of the bank's capital; and
       ``(ii) except as provided in subparagraph (B), any domestic 
     or foreign party in which an eligible cooperative association 
     described in section 3.8(a) (including, for the purpose of 
     facilitating its domestic business operations only, a 
     cooperative or other entity described in section 
     3.8(b)(1)(A)) has an ownership interest, for the purpose of 
     facilitating the domestic or foreign business operations of 
     the association, except that if the ownership interest by an 
     eligible cooperative association, or associations, is less 
     than 50 percent, the financing shall be limited to the 
     percentage held in the party by the association or 
     associations.
       ``(B) A bank for cooperatives shall not use the authority 
     provided in subparagraph (A)(ii) to provide financial 
     assistance to a party for the purpose of financing the 
     relocation of a plant or facility from the United States to 
     another country.''.

     SEC. 4. CONFORMING AMENDMENT.

       Section 3.8(b)(1) of the Farm Credit Act of 1971 (12 U.S.C. 
     2129(b)(1)) is amended--
       (A) by striking subparagraph (B);
       (B) by redesignating subparagraphs (C), (D), and (E) as 
     subparagraphs (B), (C), and (D), respectively; and
       (C) by aligning the margin of subparagraph (D) (as so 
     redesignated) so as to align with the margin of subparagraph 
     (C) (as so redesignated).

     SEC. 5. LOAN PARTICIPATION AUTHORITY FOR FARM CREDIT BANKS 
                   AND DIRECT LENDER ASSOCIATIONS.

       In General.--Title IV of the Farm Credit Act of 1971 (12 
     U.S.C. 2151 et seq.) is amended by inserting after section 
     4.18 (12 U.S.C. 2206) the following new section:

     ``SEC. 4.18A. AUTHORITY OF FARM CREDIT BANKS AND DIRECT 
                   LENDER ASSOCIATIONS TO PARTICIPATE IN LOANS TO 
                   SIMILAR ENTITIES FOR RISK MANAGEMENT PURPOSES.

       ``(a) Definitions.--As used in this section:
       ``(1) Participate and participation.--The terms 
     `participate' and `participation' shall have the meaning 
     provided in section 3.1(11)(B)(iv).
       ``(2) Similar entity.--The term `similar entity' means a 
     person that--
       ``(A) is not eligible for a loan from the Farm Credit Bank 
     or association; and
       ``(B) has operations that are functionally similar to a 
     person that is eligible for a loan from the Farm Credit Bank 
     or association in that the person derives a majority of the 
     income of the person from, or has a majority of the assets of 
     the person invested in, the conduct of activities that are 
     functionally similar to the activities that are conducted by 
     an eligible person.
       ``(b) Loan Participation Authority.--Notwithstanding any 
     other provision of this Act, any Farm Credit Bank or direct 
     lender association charted under this Act may participate in 
     any loan of a type otherwise authorized under title I or II 
     made to a similar entity by any person in the business of 
     extending credit, except that a Farm Credit Bank or direct 
     lender association may not participate in a loan under 
     this section if--
       ``(1) the participation would cause the total amount of all 
     participations by the Farm Credit Bank or association under 
     this section involving a single credit risk to exceed 10 
     percent (or the applicable higher lending limit authorized 
     under regulations issued by the Farm Credit Administration if 
     the stockholders of the respective Farm Credit Bank or 
     association so approve) of the total capital of the Farm 
     Credit Bank or association;
       ``(2) the participation by the Farm Credit Bank or 
     association would equal or exceed 50 percent of the principal 
     of the loan or, when taken together with participations in 
     the loan by other Farm Credit System institutions, would 
     cause the cumulative amount of the participations by all Farm 
     Credit System institutions in the loan to equal or exceed 50 
     percent of the principal of the loan;
       ``(3) the participation would cause the cumulative amount 
     of participations that the Farm Credit Bank or association 
     has outstanding under this section to exceed 15 percent of 
     the total assets of the Farm Credit Bank or association; or
       ``(4) the loan is of the type authorized under section 
     1.11(b) or 2.4(a)(2).
       ``(c) Prior Approval Required.--
       ``(1) In general.--With respect to a similar entity that is 
     eligible to borrow from a bank for cooperatives under title 
     III, the authority of a Farm Credit Bank or association to 
     participate in a loan to the entity under this section shall 
     be subject to the prior approval of the bank for cooperatives 
     having, at the time the loan is made, the greatest loan 
     volume in the State in which the headquarters office of the 
     similar entity is located.
       ``(2) Terms and conditions.--Approval under paragraph (1) 
     may be granted on an annual basis and under such terms and 
     conditions as may be agreed on between the Farm Credit Bank 
     or association, as the case may be, and the bank for 
     cooperatives granting the approval.
       ``(3) Approval by supervising farm credit bank.--An 
     association may not participate in a loan to a similar entity 
     under this section without the approval of the supervising 
     Farm Credit Bank of the association.''.

     SEC. 6. CONFORMING AMENDMENTS.

       Section 3.1(11)(B)(i)(I)(bb) of the Farm Credit Act of 1971 
     (12 U.S.C. 2122(11)(B)(i)(I)(bb)) is amended--
       (A) by striking ``the other banks for cooperatives under 
     this subparagraph'' and inserting ``other Farm Credit System 
     institutions''; and
       (B) by striking ``all banks for cooperatives'' and 
     inserting ``all Farm Credit System institutions''.

  Mr. JOHNSON of South Dakota (during the reading). Mr. Speaker, I ask 
unanimous consent that the amendment in the nature of a substitute be 
considered as read and printed in the Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from South Dakota?
  There was no objection.
  The SPEAKER pro tempore. The question is on the amendment in the 
nature of a substitute offered by the gentleman from South Dakota [Mr. 
Johnson].
  The amendment in the nature of a substitute was agreed to.
  The bill was ordered to be engrossed and read a third time, was read 
the third time, and passed, and a motion to reconsider was laid on the 
table.

                          ____________________