[Federal Register Volume 60, Number 78 (Monday, April 24, 1995)]
[Rules and Regulations]
[Pages 20008-20011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10007]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 614, 615, 618
RIN 3052-AB53
Loan Policies and Operations; Funding and Fiscal Affairs, Loan
Policies and Operations, and Funding Operations; General Provisions
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA), by order of the FCA
Board (Board), adopts a final rule that repeals several regulations
concerning loan policies and operations, funding, and miscellaneous
items as well as two Agency prior-approval requirements. These repeals
are part of an ongoing effort by the FCA to reduce unnecessary
regulatory burdens on Farm Credit System (FCS or System) institutions.
EFFECTIVE DATE: This rule shall become effective upon the expiration of
30 days after publication in the Federal Register, during which either
or both Houses of Congress are in session. Notice of the effective date
will be published in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
W. Eric Howard, Policy Analyst, Regulation Development, Office of
Examination, Farm Credit Administration, McLean, VA 22102-5090, (703)
883-4498, TDD (703) 883-4444,
or
Richard A. Katz, Senior Attorney, Regulatory Operations Division,
Office of General Counsel, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4020, TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION:
I. Background
On June 10, 1993, the FCA Board approved a Statement on Regulatory
[[Page 20009]] Burden seeking public comment on the appropriateness of
requirements that the FCA regulations impose on the FCS. More
specifically, the FCA asked the public to identify regulations that
either duplicate other governmental requirements, are not effective, or
impose a burden that is greater than the benefit derived. The notice of
intent was published in the Federal Register (58 FR 34003) on June 23,
1993. After reviewing all responses to the notice of intent, the FCA
proposed on January 10, 1995, to delete the following regulatory
provisions: Secs. 615.5104; 615.5105(c); 615.5170 (b) through (e);
615.5190; 615.5498; 615.5500; 615.5520; 615.5530; and 618.8220.
Additionally, the FCA proposed the repeal of the Agency prior-approval
requirements in Sec. 614.4470 (b)(1) and (b)(3). See 60 FR 2552
(January 10, 1995).
The Farm Credit Council (Council), on behalf of its members, and a
production credit association (PCA) submitted comments concerning the
proposed deletions. The Council strongly supported the repeal of the
above-cited regulations and Agency prior-approval requirements, and
encouraged the FCA to adopt the entire proposal as a final rule.
Although the PCA lauded the FCA's effort to reduce regulatory burdens
on System institutions, it offered no comments about the FCA's proposal
to repeal the above-cited regulations and prior-approval requirements.
Instead, the PCA petitioned the FCA to address three regulatory burden
issues that were not included in the proposed rule.
In response, the FCA emphasizes that its proposal of January 10,
1995, represents the first phase in an ongoing process to reduce
regulatory burdens on FCS institutions. As the FCA explained in the
preamble to the proposed rule, the FCA is in the process of evaluating
all recommendations for reducing regulatory burdens that System
commenters submitted to the Agency in response to the notice of intent.
The FCA will address all remaining regulatory burden issues, including
those raised by the PCA, either in (1) Regulatory projects that the FCA
Board identifies in the Unified Agenda of Federal Regulations, which is
routinely published in the Federal Register, or (2) subsequent phases
of this project.
The FCA now adopts its January 10, 1995 proposal as a final rule
without amendment. The regulations that the FCA now repeals are not
necessary to implement or interpret the Farm Credit Act of 1971, as
amended (Act), or to promote the safe and sound operations of FCS
institutions. For this reason, the repeal of these regulations and
Agency prior-approval requirements will relieve unnecessary regulatory
burdens on the FCS. The following is a brief explanation of the
rationale for repealing each of these regulatory requirements.
II. Analysis of Changes and Comments by Section
A. Loans Subject to Bank Approval
The FCA now eliminates from both Secs. 614.4470 (b)(1) and (b)(3)
the requirement that the Agency preapprove certain insider loan
transactions at System associations. Section 614.4470(a) requires
funding banks to preapprove loans that their affiliated associations
make to: (1) Their own directors or employees; (2) directors or
employees of a jointly managed association; or (3) bank employees.
Until now, Sec. 614.4470(b) required FCA approval of loans to any
borrower whenever certain institution-affiliated parties: (1) Received
proceeds of a loan in excess of an amount established by the funding
bank; or (2) endorsed, guaranteed, or co-made a loan in excess of the
amount established by the funding bank.
These Agency prior-approval requirements in Sec. 614.4470 (b)(1)
and (b)(3) are inconsistent with the FCA's status as an arm's-length
regulator. Furthermore, these insider activities can be adequately
evaluated and controlled through means other than prior approval by the
FCA. Sections 612.2140 and 612.2150 establish adequate safeguards to
prevent directors, officers, and employees of System institutions from
using their positions for personal gain. In addition, Sec. 620.5
requires System institutions to disclose insider loan transactions in
their annual reports to shareholders. The FCA has sufficient
examination and enforcement powers to ensure that loans to institution-
affiliated parties do not undermine the solvency of any FCS bank or
association. Once the repeal of the Agency prior-approval requirements
in Sec. 614.4470(b) becomes effective, the FCA shall rely upon its
examination authority to determine whether: (1) Bank policy adequately
deters insider abuses at System institutions; and (2) associations are
complying with bank policy. The FCA is currently reviewing whether
other prior-approval requirements that are not mandated by the Act
should be retained.
B. Debt Policy and Consolidated Systemwide Notes
The FCA now repeals Secs. 615.5104 and 615.5105(c) because they
have been superseded by a new regulation, Sec. 615.5135. Section
615.5104 requires each bank to adopt a policy for the management of its
debt, while Sec. 615.5105(c) requires the debt management policy of
each bank to identify the maximum amount of discount notes that can be
outstanding at any one time. Each FCS bank is now required by
Sec. 615.5135 to adopt an asset/liability management policy.
Furthermore, Sec. 615.5135 requires the policies of System banks to
address the management of both assets and liabilities in a more
comprehensive manner than Secs. 615.5104 and 615.5105(c). Because
Sec. 615.5135 has rendered Secs. 615.5104 and 615.5105(c) obsolete, the
Agency is deleting these two regulations. In the FCA's opinion, the new
investment regulations in subpart E of part 615 enhance the ability of
Farm Credit banks to control liquidity and solvency risks in their
portfolios.
C. Real and Personal Property
The FCA now repeals Secs. 615.5170 (b) through (e). These
regulations are not needed to: (1) Implement or interpret provisions in
the Act that govern the acquisition of real or personal property by FCS
banks and associations; or (2) promote safety and soundness. In FCA's
opinion, these provisions impose burdens on System institutions that
are no longer justified by the benefits derived. These regulatory
provisions prescribe detailed operational standards, rather than
performance criteria, for ensuring the safe and sound operation of
System banks and associations. The FCA also believes that Sec. 615.5170
(d) and (e) are no longer necessary because the safety and soundness
concerns posed by information system processing technology are now
adequately addressed in FCA Information Systems Bulletins.
Additionally, Information Systems Bulletin 92-1 addresses information
system risks in mergers and acquisitions. The FCA also observes that
paragraphs (b), (c), and (d) of Sec. 615.5170 contain obsolete
references to the ``district boards'' that were abolished by section
409(d) of the Agricultural Credit Technical Corrections Act of
1988.1
\1\ Pub. L. 100-399, section 409(d), 102 Stat. 989, 1003,
(August 17, 1988).
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The FCA will, however, retain Sec. 615.5170(a) because this
provision implements sections 1.5(5) and 3.1(5) of the Act. These
sections authorize each bank, subject to regulation by the FCA, to
acquire, hold, dispose, and otherwise exercise all the usual incidents
of ownership of real and personal property necessary or convenient to
its business. Sections 2.2(5) and 2.12(5) of the Act provide
associations with similar [[Page 20010]] authorities subject to the
supervision by their funding bank and regulation by the FCA. Section
615.5170(a) implements these sections of the Act by specifically
stating that the ownership of real estate for office quarters of any
bank or association ``shall be limited to facilities reasonable and
necessary to meet the foreseeable requirements of the institution.''
Furthermore, Sec. 615.5170(a) expressly prohibits any FCS institution
from acquiring real property ``if it involves, or appears to involve, a
bank or association in the real estate or other unrelated business.''
This restriction also serves a safety and soundness purpose because
such extraneous business activities may increase the exposure of System
institutions to loss.
D. Deposits of Funds
The FCA is repealing Sec. 615.5190 because sections 1.5(14),
2.2(10), 2.12(18) and 3.1(12) of the Act provide the requisite
authority for FCS institutions to deposit current funds in commercial
banks that are either members of the Federal Reserve System or are
insured by the Federal Deposit Insurance Corporation (FDIC).
The FCA is also repealing Sec. 615.5190(b) because there is no
statutory basis for requiring CoBank to make foreign deposits for the
other banks for cooperatives (BCs). The FCA originally adopted this
provision in 1981 because, at that time, only the former Central Bank
for Cooperatives (CBC) had expertise to reduce the safety and soundness
risks that derive from currency exchange transactions. See 46 FR 51881
(October 22, 1981). After the CBC and most district BCs merged to form
CoBank, the FCA amended Sec. 615.5190(b) to require CoBank to assume
the CBC's function. See 56 FR 2671 (January 24, 1991). The rationale
for Sec. 615.5190(b) no longer exists because: (1) Individual BCs have
acquired greater international lending experience since 1981; and (2)
most BCs have consolidated into CoBank. In this context,
Sec. 615.5190(b) unnecessarily restricts BCs, other than CoBank, from
becoming active in the international arena. The FCA has determined that
the safety and soundness risks inherent in currency exchange
transactions should not be controlled by a regulation that unduly
restricts the business flexibility of BCs and ACBs to offer a full
range of high-quality, low-cost international financial and credit
services to their customers independently of CoBank. Rather, the FCA
will rely upon its examination and enforcement powers to ensure that
all BCs and ACBs conduct their currency exchange transactions in a safe
and sound manner. Another FCA regulation, Sec. 614.4900 establishes
safety and soundness standards for currency exchange transactions by
BCs and ACBs.
Another provision in Sec. 615.5190(b) prohibits FCS banks from
holding certificates of deposit that are denominated in foreign
currencies as investments under Sec. 615.5140. This provision predates
the recent revision of Sec. 615.5140, which now requires System banks
to acquire investments that are denominated only in United States
dollars. Hence, Sec. 615.5190(b) is unnecessary.
E. Farm Credit Securities as Illustrations
The FCA also repeals Sec. 615.5498, which regulates the
illustration of Farm Credit securities that are used for educational or
illustrative purposes. The purpose of this regulation is to deter
counterfeiting of definitive FCS securities. Since virtually all FCS
securities are now issued in book-entry form, Sec. 615.5498 is
obsolete. The Federal Farm Credit Banks Funding Corporation and
individual System banks can implement adequate safeguards to minimize
the risk of counterfeiting of the few securities that are still issued
in definitive form.
F. Open Registered Mail and Express Policy
The FCA now repeals subpart P of part 615, which consists of
Secs. 615.5500, 615.5520, and 615.5530. These three regulations govern
the shipment of negotiable securities through the United States Postal
Service. The regulations of subpart P of part 615 were designed to
eliminate the System's exposure to loss at a time when FCS negotiable
securities were routinely shipped by mail between the Bureau of
Printing and Engraving and the Federal Reserve Bank of New York. The
practice of shipping negotiable securities through the mail was
discontinued several years ago. The advent of electronic and computer
technology for transferring negotiable securities through the book-
entry system has rendered subpart P of part 615 obsolete.
G. Contributions and Membership in Other Organizations
The FCA is repealing Sec. 618.8220, which requires the boards of
directors of FCS banks and associations to approve: (1) Charitable
contributions; and (2) the payment of membership dues in any voluntary
association, club, or society. The regulation further requires boards
of directors, during the approval process, to consider the business
benefits and tax consequences of such contributions and memberships for
the bank or association.
In the FCA's opinion, Sec. 618.8220 unnecessarily interferes in the
internal operations of System institutions and imposes a regulatory
burden that is not commensurate with the safety and soundness risks
posed by System charitable and social activities. The FCA's examination
and enforcement powers can adequately deter System institutions from
conducting these activities in an unsafe and unsound manner.
List of Subjects
12 CFR Part 614
Agriculture, Banks, banking, Foreign trade, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 615
Accounting, Agriculture, Banks, banking, Government securities,
Investments, Rural areas.
12 CFR Part 618
Agriculture, Archives and records, Banks, banking, Insurance,
Reporting and recordkeeping requirements, Rural areas, Technical
assistance.
For the reasons stated in the preamble, parts 614, 615, and 618 of
chapter VI, title 12 of the Code of Federal Regulations are hereby
amended to read as follows:
PART 614--LOAN POLICIES AND OPERATIONS
1. The authority citation for part 614 continues to read as
follows:
Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 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, 4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E,
4.18, 4.19, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 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, 2071, 2073, 2074, 2075, 2091, 2093, 2094,
2096, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184,
2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2207, 2219a,
2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2,
2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101
Stat. 1568, 1639.
Subpart M--Loan Approval Requirements
Sec. 614.4470 [Amended]
2. Section 614.4470 is amended by removing the words ``and approved
by the Farm Credit Administration'' from paragraphs (b)(1) and
(b)(3). [[Page 20011]]
PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,
AND FUNDING OPERATIONS
3. The authority citation for part 615 continues to read as
follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5,
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20,
6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit Act (12
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093,
2122, 2128, 2132, 2146, 2154, 2160, 2202b, 2211, 2243, 2252, 2278b,
2278b-6, 2279aa, 2279aa-4, 2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10,
2279aa-12); sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608.
Subpart C--Issuance of Bonds, Notes, Debentures and Similar
Obligations
Sec. 615.5104 [Removed]
4. Section 615.5104 is removed.
Sec. 615.5105 [Amended]
5. Section 615.5105 is amended by removing paragraph (c).
Subpart F--Property and Other Investments
Sec. 615.5170 [Amended]
6. Section 615.5170 is amended by removing paragraphs (b), (c),
(d), (e) and the designation for paragraph (a).
Subpart G--[Removed and reserved]
7. Subpart G, consisting of Sec. 615.5190, is removed and reserved.
Subpart O--Issuance of Farm Credit Securities
Sec. 615.5498 [Removed and reserved]
8. Section 615.5498 is removed and reserved.
Subpart P--[Removed and reserved]
9. Subpart P, consisting of Secs. 615.5500, 615.5520, and 615.5530
is removed and reserved.
PART 618--GENERAL PROVISIONS
10. The authority citation for part 618 continues to read as
follows:
Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7,
4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act (12
U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183,
2200, 2211, 2218, 2243, 2244, 2252).
Subpart F--Miscellaneous Provisions
Sec. 618.8220 [Removed and reserved]
11. Section 618.8220 is removed and reserved.
Dated: March 13, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-10007 Filed 4-21-95; 8:45 am]
BILLING CODE 6705-01-P