[Federal Register Volume 60, Number 144 (Thursday, July 27, 1995)]
[Proposed Rules]
[Pages 38521-38533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18323]



 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 60, No. 144 / Thursday, July 27, 1995 / 
Proposed Rules  


[[Page 38521]]


FARM CREDIT ADMINISTRATION

12 CFR Parts 615, 618, and 620

RIN 3052-AB48


Funding and Fiscal Affairs, Loan Policies and Operations, and 
Funding Operations; General Provisions; Disclosure to Shareholders; 
Capital Adequacy

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA), by the FCA Board 
(Board), proposes amendments to FCA capital regulations for Farm Credit 
System (Farm Credit or System) institutions to add unallocated surplus 
and total surplus standards for banks and associations; add a 
collateral ratio for banks; add procedures for the establishment of 
individual institution capital standards and for the issuance of 
capital directives; remove outdated provisions; and make other 
technical, clarifying, and conforming changes. The regulation would 
require that each institution maintain at least a minimum level of 
unallocated surplus and total surplus capital, and that banks maintain 
at least a minimum collateral ratio. In addition, the regulations would 
specify procedures for setting higher individual capital standards when 
warranted by higher risk and issuing capital directives.

DATES: Written comments must be received on or before October 25, 1995.

ADDRESSES: Comments should be submitted in writing to Patricia W. 
DiMuzio, Associate Director, Regulation Development, Office of 
Examination, Farm Credit Administration, McLean, Virginia 22102-5090. 
Copies of all communications received will be available for examination 
by interested parties in the Office of Examination, Farm Credit 
Administration.

FOR FURTHER INFORMATION CONTACT:

Dennis K. Carpenter, Senior Policy Analyst, Office of Examination, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 
883-4444, or
Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION:

I. Summary of Proposed Surplus and Collateral Requirements

    System banks and associations should hold sufficient capital to 
operate in a safe and sound manner, provide a foundation for future 
viability, and provide a reasonable level of protection to shareholders 
who must purchase equity in a System institution as a condition of 
receiving a loan. The FCA proposes to require System banks and 
associations to maintain the following capital standards in addition to 
the existing risk-adjusted permanent capital standards:
     A ratio of at least 7 percent of total surplus to risk-
weighted assets; and
     A ratio of at least 3.5 percent of unallocated surplus to 
risk-weighted assets.
    For purposes of the total surplus computation, institutions would 
be permitted to treat the following as surplus: stock held by non-
borrowers, allocated stock, and stock held by borrowers that was not 
purchased as a condition of receiving a loan, provided that all of such 
stock can only be retired pursuant to a discretionary revolvement plan 
of at least 5 years or a similar retirement plan. Perpetual stock held 
by non-borrowers could also be included in the unallocated surplus 
computations. For the purposes of the total surplus computation, the 
double counting of association investments in their affiliated banks 
would be eliminated according to the permanent capital allotment 
agreements. However, the unallocated surplus measurement for an 
association would be net of the association's investment in the bank.
    In addition, banks would also be required to maintain a collateral 
ratio of at least 104 percent of eligible assets (as defined by 
Sec. 615.5050 of existing FCA regulations) to liabilities, net of any 
bank equities that are being counted as permanent capital of 
associations.
    The existing permanent capital requirements would continue 
unchanged. An institution that falls below its permanent capital ratio 
is statutorily prohibited from further retirement of borrower stock, 
but noncompliance with the proposed surplus and collateral standards 
would not result in the same prohibition. However, as proposed by these 
regulations, noncompliance with the surplus or collateral ratios would 
prohibit the board of directors of an institution from delegating the 
decision to retire stock to management.
    Institutions that do not satisfy the proposed surplus and 
collateral standards would be required to develop and implement a plan 
approved by the FCA for building surplus to attain the standards within 
a reasonable time. An association that does not meet the unallocated 
surplus standard would have the option, as part of its capital plan, of 
entering into a risk-sharing agreement with its affiliated bank. Under 
such a risk-sharing agreement, the bank would share association losses 
up to an amount not to exceed the amount of bank equities counted as 
association permanent capital. Institutions meeting the goals of plans 
approved by the FCA would be considered to be in compliance with their 
applicable surplus and collateral ratios.

II. Background

    Since 1986, the Farm Credit Act of 1971, as amended (Act), 12 
U.S.C. 2001 et seq., has required the FCA to ``cause institutions to 
achieve and maintain adequate capital by establishing minimum levels of 
capital for such System institutions and by using such other methods as 
the [FCA] deems appropriate.'' Section 4.3(a) of the Act. Provisions of 
the Agricultural Credit Act of 1987 (1987 Act), Pub. L. 100-233, added 
a requirement that the FCA promulgate regulations establishing minimum 
standards of ``permanent capital'' as defined in the statute. These 
standards were required to be based on financial statements prepared in 
accordance with generally accepted accounting principles (GAAP) and to 
take into consideration relative risk factors as determined by the FCA.
    Most of the FCA's existing capital regulations were adopted in 
1988, in order to implement the permanent capital provisions of the 
1987 Act. Those regulations: (1) Established a minimum permanent 
capital standard for both banks and associations of 7 

[[Page 38522]]
percent of risk-weighted assets, after elimination of intra-System 
reciprocal investments; and (2) prohibited the double counting of 
capital invested by associations in their affiliated banks. Such 
capital was to be counted as permanent capital by only one institution, 
and the regulation specified that eventually only the bank could count 
it. In October 1992, the statutory definition of ``permanent capital'' 
was amended by Congress to permit banks and associations to specify by 
mutual agreement the amount of allocated equities that would be 
considered bank or association equity for the purpose of calculating 
the permanent capital ratio. In July 1994, the FCA amended the 
regulations to implement the statutory change.
    The 1992 statutory change was a response to concerns raised by the 
System that the 1988 regulatory provisions would have resulted in 
additional tax liabilities for Farm Credit associations. The 
associations' investments in their respective banks resulted over a 
period of many years and largely consisted of allocated equities--that 
is, earnings that tax-exempt banks distributed to their owner 
associations in the form of stock or allocated surplus rather than 
cash. When earnings were distributed in the form of equities, taxes did 
not have to be paid by the associations.

III. Purposes of Capital

    The capital structure of a System institution, at a minimum, needs 
to fulfill three broad purposes:
    A. To provide a cushion that will allow an institution to remain 
financially viable during periods of adversity, thereby protecting the 
System institutions, investors, and taxpayers;
    B. To provide a source of funds to help stabilize earnings and 
finance growth; and
    C. To denote and protect the ownership, investment, and rights of 
shareholders.
    There are several categories of capital in the System that, in 
combination, achieve one or more of these fundamental purposes of 
capital. These categories are: borrower stock; participation 
certificates; preferred stock; allocated equities; and unallocated 
surplus. Borrower stock is common shareholder equity purchased as a 
condition of obtaining a loan with a System institution.1 
Participation certificates are similar to borrower stock and arise from 
authorized lending relationships with entities and individuals 
ineligible to own borrower stock.2 Preferred stock may be sold to 
individuals separate from the lending relationship and provides 
preferential treatment, such as the payment of fixed dividends or 
preference over common shareholders upon liquidation. Allocated 
equities, including allocated surplus and allocated borrower stock, 
result from a patronage allocation of an institution's earnings to its 
active members. Finally, unallocated surplus is the unallocated 
retained earnings of an institution.

    \1\ Institutions are authorized to issue common stock to non-
borrowers, but no such stock has been issued.
    \2\ For the remainder of the preamble, further references to 
borrower stock will include participation certificates, as 
applicable. Participation certificates are considered to be similar 
to borrower stock from a financial perspective, even though voting 
rights differ.
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IV. FCA Review and Concerns

    The FCA has been engaged in a comprehensive review of its capital 
regulations to determine whether they create appropriate incentives for 
the accumulation of adequate amounts of various components of capital, 
in light of risks undertaken by the System. The FCA has also reviewed 
the principles of the 1988 international framework for capital 
standards, known as the Basle Accord, and capital regulations imposed 
by Federal banking agencies on commercial banks and thrifts, as well as 
a publication evaluating the adequacy of those regulations by staff of 
the Federal Deposit Insurance Corporation (FDIC), for information that 
may be relevant to determining the adequacy of System capital. As a 
result of this review, the FCA has concluded that the proposed minimum 
surplus and net collateral ratios would generate an additional level of 
protection for both borrower/shareholders and investors in the System's 
debt instruments.

A. Regulatory Requirements Need To Ensure Sufficient Capital

    The FCA believes that a mixture of capital components is necessary 
to achieve a sound capital structure, and that each institution should 
have a minimum amount of secure capital that is not at risk at another 
System institution. As a result, the FCA has the following concerns.
1. Long-term Stability for Associations Requires a More Stable Capital 
Base Than Just Borrower Stock and Should Provide Some Cushion for 
Borrower Investments
    Under existing regulations, it is possible for an institution to 
rely solely on borrower stock to meet its minimum capital standards, by 
establishing a stock purchase requirement of 7 percent or more of the 
loan amount. An institution may then be in compliance but have little 
or no surplus to cushion the investment of a shareholder. While the 
shareholder's investment is at risk and provides some protection to the 
institution, the Agency believes that it is imprudent to make such 
investments vulnerable to even modest levels of adversity, given the 
cooperative structure of the System.
    For most corporations, common equity capital is generally a 
permanent source of funds. Once the equity shares are issued, the 
company permanently retains the proceeds. The stock may trade among 
investors, but an individual shareholder may not demand that the 
company retire the stock. Unlike corporate equity capital, System 
borrower stock may be, and often is, retired upon repayment of a 
borrower's loan at the board's discretion. If pending losses threaten 
the value of an association's stock, borrower/shareholders can obtain 
financing elsewhere, pay down their loan and request retirement of 
their stock. As a practical matter, in a situation in which the 
institution still meets its permanent capital requirements, the degree 
to which borrower stock acts as a buffer for absorbing loss depends on 
the extent to which the association refrains from retiring stock.
    For an association to use this authority in a way that makes 
borrower stock a meaningful buffer, the association has to recognize 
potential losses in a timely manner and be willing to withhold proceeds 
from stock retirement requests. However, such actions can signal 
problems to existing and potential borrowers at the association. Thus, 
an association might continue to make retirements until the evidence of 
serious adverse financial conditions is abundantly clear. By then, the 
stock of many members may have been retired, and remaining members 
would bear the loss. Therefore, despite the fact that borrower stock is 
an at-risk investment like any common equity stock, it is less able to 
absorb losses than common equity capital. By contrast, a minimum 
surplus requirement would provide a more permanent source of capital 
that is capable of absorbing losses and of providing protection to the 
investments of borrower/shareholders.
    Another concern is that an institution can grow in an unbounded 
manner if each new loan is fully capitalized by borrower stock. 
Similarly, the institution's capital base can fluctuate significantly 
when borrowers repay or prepay loans and their stock is retired. 

[[Page 38523]]

    In addition, the most frequent source of an association's financial 
stress is borrower adversity, whether it is the result of widespread 
adverse financial conditions (as it was in the mid-1980s), or the 
result of troubled conditions in a region or industry in which an 
association has a concentration of loans. As occurred in the mid-1980s, 
when an institution is unable to retire borrower stock because of 
financial stress, the institution's business and its borrower/
shareholders are adversely affected.
2. ``Local'' Unallocated Retained Earnings (URE) Are Important to 
Institutions During Periods of Economic Adversity
    Over a number of years, most associations in the System accumulated 
URE, in part, through non-cash earnings distributions from their 
affiliated banks. Since these non-cash distributions have seldom been 
retired, some portion of these distributions has resulted in an 
increase to URE on the associations' balance sheets and yet has 
continued to be reported as allocated equities on the bank's financial 
statements. Certain associations have little or no URE that is not also 
included in the bank's GAAP capital. This group of associations is 
particularly vulnerable to financial adversity at their affiliated 
banks because most of their capital other than borrower stock is at 
risk in both the bank and the association. When a bank sustains losses, 
all of the bank's capital is available to absorb losses, regardless of 
whether it is being counted as permanent capital at the association. It 
follows that such capital will not be available to absorb association 
losses, which can create a domino effect in troubled times, since 
adversity in one institution can cause adversity in many or all 
institutions in the district.
    The FCA conducted a study of production credit associations (PCAs) 
that became financially stressed during the 1980s. The sample used 
represented a comparable set of financially stressed and healthy 
institutions. Although the number of institutions and quarters of 
historical financial data were limited, the FCA was able to make 
inferences regarding capital levels and long-term viability. The 
healthy associations, which had unallocated surplus net of their 
investments in their affiliated banks, were better able to withstand 
adversity and stay financially viable without assistance. However, 
associations with no or low surplus, after deducting the investment in 
the bank, generally could not independently withstand an adverse 
economic environment without assistance or other action to address 
their financial deterioration.3

    \3\ In fact, the stressed PCAs in the study generally had no 
``local'' URE. The median value was actually below zero. These PCAs 
were subsequently merged or provided financial assistance.
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    A URE cushion that does not include the association's 
interdependent investment in its affiliated bank provides optimum 
protection for borrower/shareholders. Losses at the affiliated bank 
stemming from adversity in other associations or from risks borne by 
the bank (funding, investment, operational, etc.) could impair the 
investment in the bank and deplete association capital. Consequently, 
an association with a large URE and a high permanent capital ratio may 
not be adequately insulated from adversity if it relies heavily on 
capital that is invested in its affiliated bank. Strong local URE 
allows the association to remain viable even if the investment in the 
bank becomes impaired. The likelihood of the bank and associations 
sustaining losses simultaneously greatly amplifies the need for a local 
URE standard.
3. A Sufficient Level of Eligible Collateral Is Needed To Protect 
Investors in the System's Debt Instruments
    The basis for funding banks within the System is the maintenance of 
sufficient eligible collateral. Performing agricultural loans make up 
the bulk of eligible collateral,4 followed by marketable 
securities and cash. Nonperforming loans and acquired property also 
provide eligible collateral, after deducting for losses. During the 
1980s, the collateral positions of the Farm Credit banks were a 
critical measure of survival. As an example, the collateral of one bank 
was exhausted, and the bank lost its ability to independently obtain 
funding from the marketplace before its capital was depleted.5

    \4\ Such loans consist of loans made directly by the bank or, in 
the case of a bank's wholesale lending activities, the loans made by 
the direct lender associations which are pledged as security for the 
associations' direct loans from the bank (up to the amount of the 
direct loan).
    \5\ The bank was able to maintain access to the funding markets 
only after certain other System banks agreed to pledge excess 
collateral to the troubled bank.
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    Farm Credit banks have long used a collateral ratio as a principal 
indicator of financial strength. Both the Market Access Agreement and 
the Contractual Interbank Performance Agreement (CIPA) 6 use a 
collateral ratio as a critical measure of bank financial viability and 
survivability. A bank failure within the System would have grave 
consequences not only for that bank and its affiliated associations, 
but also for the other System banks because of joint and several 
liability and the market perception of the System as a single entity 
seeking funding.

    \6\ These are self-monitoring agreements among the Federal Farm 
Credit Banks Funding Corporation (Funding Corporation) and System 
banks that specify levels of bank financial performance, as well as 
the consequences of a bank's falling below such levels.
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    The FCA believes that a bank could be shut out of the securities 
markets if its collateral ratio (as defined in Sec. 615.5050 of the 
regulations) dropped below 100 percent. Thus, a margin of safety above 
this level is reasonable, in order to protect investors and allow 
sufficient time for corrective action to be implemented prior to a 
funding crisis at an individual bank, and thus district, level. Also, 
the FCA believes that the net collateral position of a bank, net of its 
equities counted by associations as part of their permanent capital, 
affords better protection for both investors and shareholders.
    Both the statute and the FCA's capital regulations require a 
permanent capital calculation that eliminates the double counting of 
capital shared by System institutions through the allotment agreements. 
Similarly, the FCA believes a collateral ratio adjusted for the 
allotment agreements is another appropriate measure of financial 
safety. This would help ensure that the bank has sufficient capital, 
net of any capital counted as association permanent capital, to protect 
investors and shareholders. Specifically, it prevents a bank from 
placing such equities at risk for investor protection at the same time 
that associations are placing them at risk for credit and other 
purposes.

B. Basle Accord and Capital Regulations of Other Regulators

    As a part of its review, the FCA has re-examined the 1988 Basle 
Accord agreed to by the Committee on Banking Regulations and 
Supervisory Practices, which meets under the auspices of the Bank for 
International Settlements in Basle, Switzerland. In the existing 
capital regulations, the FCA incorporated the Basle Accord principles 
of weighting assets, including off-balance-sheet items, according to 
categories of risk. However, the FCA did not incorporate in the 
regulations the two-tiered approach of the Basle Accord, which requires 
that each institution have at least a minimum amount of ``core 
capital'' (primarily stable equity capital), which must constitute at 
least 50 percent of the required capital of the institution. Rather, 
the FCA treated all types of capital meeting the statutory definition 
of permanent capital as if they were of 

[[Page 38524]]
equal value to the institution to absorb losses.
    The Federal regulatory agencies for commercial banks and thrifts in 
this country--the Federal Deposit Insurance Corporation (FDIC), the 
Office of the Comptroller of the Currency (OCC), the Office of Thrift 
Supervision, and the Board of Governors of the Federal Reserve System--
have all adopted capital regulations that are consistent with the Basle 
Accord framework. In each agency's two-tiered capital system, core or 
Tier 1 capital is mainly composed of common stock, surplus, 
noncumulative perpetual preferred stock, and minority interests in 
consolidated subsidiaries. Supplementary or Tier 2 capital is composed 
of a portion of the allowance for loan losses and all other kinds of 
capital and capital-like instruments, up to an amount equal to the 
amount of Tier 1 capital. The minimum capital requirement is 8 percent. 
Commercial banks and thrifts also have a minimum leverage requirement, 
calculated as the ratio of Tier 1 capital to total (i.e., not risk-
adjusted) assets, to protect against risks other than credit risk.
    Common shareholders' equity in commercial banks and thrifts is the 
most stable, permanent form of capital because it is fully paid and is 
rarely retired. By contrast, nearly all of the common equity capital of 
System associations is borrower stock, which lacks the characteristic 
of permanence because it is retired in the ordinary course of business 
of the associations.
    The FCA also reviewed an FDIC staff study published in 1993 that 
compared the risk-based standards for commercial banks to the primary 
and secondary capital constraints they had replaced.7 The previous 
standards differed from the current 8-percent standard in two important 
ways: the assets were not risk weighted, and all of the allowance for 
losses (ALL) was included in capital. The study concluded that the 
risk-based standard was a better predictor of the potential failure of 
a bank than the previous standards for two reasons: (1) The exclusion 
of ALL from Tier 1 and its only limited inclusion in Tier 2 improved 
the quality of the capital measure; and (2) the risk-based measure was 
more sensitive to credit risk.8 But the study also concluded that 
using both the risk-based standard and the new Tier 1 capital-to-total-
assets leverage ratio together was a better predictor of failure than 
either one separately, because in many cases the leverage ratio, which 
addressed risks other than credit risk, provided a more stringent test 
of capital adequacy.

    \7\ John P. O'Keefe, ``Risk-Based Capital Standards for 
Commercial Banks: Improved Capital-Adequacy Standards?'' published 
in the FDIC Banking Review, Spring-Summer 1993.
    \8\ ALL is already excluded from the permanent capital measure 
for System institutions; so the FDIC staff finding is not directly 
relevant with respect to the inclusion of ALL. However, the finding 
is important because it shows the necessity of assuring at least a 
minimum amount of the highest quality of capital.
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C. Farm Credit System Observations

    In May 1993, the System's Presidents Planning Committee appointed a 
capital adequacy work group (System group) with the charge of reviewing 
the FCA's capital adequacy regulations and making recommendations for 
improvements. As a result of this effort, in November 1993 the System 
group provided the FCA with a report of its findings and suggestions. 
The System group refined this report with a supplemental document 
submitted to the FCA in April 1994. The System group informed the FCA 
that the group had consulted with all the banks and a number of 
associations in developing its final report.
    The final report recognized concerns with existing regulatory 
requirements similar to those identified by the FCA. The System report 
supported a requirement to build unallocated surplus and allocated 
surplus to buffer borrower stock from potential losses and to insulate 
an institution's capital position from the potentially volatile nature 
of borrower stock. The report noted the important role borrower stock 
plays in obtaining new loans and retaining quality business, given the 
cooperative structure of the System. The report also acknowledged the 
need to protect investors in System securities.
    The System group recommended that the FCA establish regulatory 
standards requiring all institutions to build unallocated surplus and 
total surplus (i.e., allocated equities and unallocated surplus) by 
annually retaining a portion of earnings. The System group's proposed 
goals of 3.5-percent unallocated surplus and 7-percent total surplus 
were proposed to be achieved by retaining at least 10 percent of net 
earnings after taxes in unallocated surplus and at least 50 percent of 
net earnings in unallocated and allocated equities. These objectives 
were based on the regulatory permanent capital framework and used risk-
adjusted assets as the ratios' denominators.
    The System group's report also recognized the need to protect 
investors in System securities. The System recommended that each bank 
begin reporting to the Funding Corporation its collateral position net 
of bank equities being counted at associations for permanent capital 
purposes. The System group stated that its recommendation ``effectively 
prevents the bank from placing such equities at risk for investor 
protection at the same time that associations are putting them at risk 
for credit and other purposes pursuant to an allotment agreement,'' and 
further that ``[i]t gives tangible recognition to the spirit and intent 
of the . . . 1992 legislation.''
    Similarities and differences between the FCA's proposed regulation 
and the System group's suggestions are discussed below in section C of 
part V.

V. FCA Conclusions and Proposals for Surplus and Collateral Ratios

    The FCA makes the following proposals:

A. Surplus and Collateral Requirements

    Each Farm Credit institution 9 should have some minimum amount 
of capital in the form of unallocated surplus, allocated equities or 
stock not required to be purchased as a condition of obtaining a loan, 
in order to protect against losses. Part of the surplus should be 
unallocated surplus that provides a cushion for borrower stock and 
allocated equities and that does not also support risks in another 
System institution. The FCA believes that this unallocated surplus 
would better enable an institution to withstand its own losses and also 
insulate both the institution and its borrowers from adversities 
suffered by related System institutions.

    \9\ ``Institution'' includes each System bank, System 
association, and the Farm Credit Leasing Services Corporation. It 
does not include other System entities, such as other service 
corporations. The surplus ratios for the Leasing Corporation are 
calculated the same way as the surplus ratios for banks. However, 
the Leasing Corporation would not have to maintain a net collateral 
standard.
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1. Unallocated Surplus Requirement
    The FCA proposes that institutions have unallocated surplus of at 
least 3.5 percent of risk-weighted assets. For this purpose, 
unallocated surplus would include common stock and noncumulative 
perpetual preferred stock held by non-borrowers, provided that the 
institution adheres to a policy of not retiring such stock. For 
associations, the net investment in its affiliated bank--that is, the 
total investment less reciprocal investments, pass-through stock, and 
investments related to loan participations--would be subtracted from 
the unallocated surplus. For both banks and associations, the risk-
weighted asset base would be calculated as it is for the institution's 
permanent capital requirement, except 

[[Page 38525]]
that an association's assets would be reduced by the net investment in 
the bank. The unallocated surplus ratio would be calculated as follows:
[GRAPHIC][TIFF OMITTED]TP27JY95.000

    If this proposed regulation is enacted, the existing requirement in 
Sec. 615.5330 for banks for cooperatives to add a percentage of 
earnings to unallocated surplus annually would be replaced by the new 
requirement.
    The FCA believes this minimum unallocated surplus requirement is 
needed to provide a source of permanent at-risk capital that does not 
depend on the financial condition of the bank and that protects against 
the suspension of stock retirements when problems emerge.
2. Total Surplus Requirement
    The FCA proposes a requirement that each institution hold total 
surplus (adjusted according to the permanent capital allotment 
agreement, or according to the allotment regulation if there is no 
agreement) equal to 7 percent of risk-weighted assets. The total 
surplus would consist of the capital treated as unallocated surplus for 
the purposes of the unallocated surplus ratio (prior to any deductions 
for investments in the banks), as well as certain allocated equities 
and other stock. Allocated equities would consist of allocated surplus 
and allocated stock subject to a discretionary revolvement plan of 5 
years or more, or not projected to be retired under the institution's 
capital adequacy plan. Other stock included in total surplus would be 
stock other than stock that has been purchased as a requirement of 
obtaining a loan and would be either perpetual stock or, if term stock, 
have an original maturity of at least 5 years; furthermore, the 
institution must adhere to a policy of not retiring the perpetual stock 
and of not retiring the term stock prior to its maturity. The amount of 
such term stock that is eligible to be included in total surplus would 
be reduced by 20 percent in each of the last 5 years of the life of the 
instrument.10 The risk-weighted asset base would be the base as 
calculated for the institution's permanent capital ratio. The total 
surplus ratio would be calculated as follows:

    \10\ Thus, for example, in the first year after its issuance, 
term stock with a 5-year maturity would count in surplus in an 
amount equal to 80 percent of its value; in the fifth year, none of 
the stock would be counted in surplus.
[GRAPHIC][TIFF OMITTED]TP27JY95.001

3. Net Collateral Requirement
    The FCA proposes that all System banks should also maintain a net 
collateral ratio of at least 104 percent of eligible assets (which are 
defined by Sec. 615.5050), exclusive of any amounts counted as 
association permanent capital, divided by total liabilities. This 
measure would differ from the measure of eligible collateral that is 
required by section 4.3(c) of the Act in that it would eliminate any 
double-leveraged capital by ``netting out'' the capital counted as 
association permanent capital pursuant to the allotment 
agreements.11 A 104-percent minimum net collateral ratio affords 
an added measure of protection should market forces cause a decline in 
the underlying value of collateral.

    \11\ This net collateral position would not replace the 
collateral requirement of section 4.3(c) of the Act and, indeed, 
could not do so without a statutory amendment. The FCA is not 
considering proposing such a statutory change.
---------------------------------------------------------------------------

    This ratio would also provide the overall protection against other 
risks that a leverage (i.e., total assets) ratio is intended to address 
and that ratios based on risk-adjusted assets do not fully provide for. 
For example, it would provide important information on a bank's ability 
to withstand losses associated with management and operational risks. 
Management and operational risks are not readily measurable, but they 
are often serious sources of risk in a financial institution.

B. Compliance

1. Capital Plans
    Institutions that are below any applicable minimum surplus or 
collateral standards on the effective date of the regulations, or that 
fall below the minimum standards after the effective date, would be 
required to develop and submit a capital plan acceptable to the FCA for 
achieving the minimum standards.12 The plan would include an 
explanation of how the institution will build surplus, realistic 
projections and goals for increasing the pertinent ratios, and a 
reasonable timeframe for achieving the minimum capital standards. An 
association that proposes a long timeframe for achieving its minimum 
unallocated surplus standard would generally be expected to have a 
Risk-Sharing Agreement, as described below, as part of its capital 
plan; however, determination of the appropriateness of having a Risk-
Sharing Agreement would be made on a case-by-case basis. An institution 
that is meeting the goals of its approved plan would be deemed by the 
FCA to be in compliance with the surplus and collateral standards.

    \12\ Such a plan would supplement or amend the capital adequacy 
plan required by Sec. 615.5200 of the regulations.
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2. Risk-Sharing Agreements
    a. Noncompliance on the Effective Date. Associations that are below 
their unallocated surplus standard on the effective date of the surplus 
requirements would have the option of including a Risk-Sharing 
Agreement with their affiliated bank as a part of their capital plan. 
Under such a Risk-Sharing Agreement, the affiliated bank could agree to 
share specified association losses. The maximum amount of such 
specified losses may not be greater than the amount of the 
association's investment in the bank counted as association permanent 
capital during the term of the Risk-Sharing Agreement. While the 
agreement is in effect, the bank would have to defer sharing in losses 
when it is below its own minimum capital standards, or when doing so 
would cause it to fall below them.
    An association would be able to count in its unallocated surplus 
the amount its bank agrees to cover in the event of loss. 

[[Page 38526]]
Any association losses actually absorbed by the bank (which would 
probably be reflected by a reduction of the amount of the association's 
direct loan) would then have to be allocated back to the association by 
the bank, which would result in a reduction of the association's 
investment in the bank.
    The FCA notes that an association with a Risk-Sharing Agreement 
must continue to build unallocated surplus net of the investment in the 
bank during the time period of its capital plan, so that the 
association will have achieved at least the minimum standard when the 
Agreement terminates.
    The risk-sharing arrangement would have two potential benefits for 
the associations. First, an association would be able to report a 
higher unallocated surplus ratio without directly generating the 
earnings itself or causing a taxable event. Second, in the event that 
the association does sustain losses, the sharing of the losses by the 
bank would mitigate the effect of the losses on the association's 
loanable funds position. ``Loanable funds position'' refers to the 
association's levels of interest-earning assets and interest-bearing 
liabilities. A positive loanable funds position means that interest-
earning assets exceed interest-bearing liabilities.
    There is also a benefit for the bank and the other associations in 
the district. That is, the allocation of losses by the bank back to the 
association would mean that the bank's unallocated surplus would not be 
reduced by the association's losses shared in by the bank, and the 
interest rates on direct loans to the other associations should not be 
affected.13 Without a loss-allocation requirement, the Risk-
Sharing Agreement would require a bank to come to the assistance of an 
association without ultimately holding the association accountable for 
that assistance.

    \13\ Most wholesale banks in the System currently do not require 
equalization of associations' investments in the bank; instead the 
banks compensate their affiliated associations based on the relative 
size of the association's investment in the bank. The risk-sharing 
arrangement would work under these circumstances. If the district's 
associations are required to equalize their relative investments in 
the bank on a regular basis, risk sharing might not be a viable 
option.
b. Subsequent Noncompliance

    An association that falls below the unallocated surplus standard 
subsequent to the effective date of the regulations could propose a 
Risk-Sharing Agreement with its affiliated bank as part of its capital 
plan, but the FCA would approve it only under appropriate 
circumstances. Factors the FCA would consider would include: (1) The 
causes of the decline in the association's surplus ratio; (2) the 
present and projected financial health of the affiliated bank and other 
associations in the district; (3) the bank's continued ability to meet 
its own capital ratios under risk sharing; and (4) the likelihood that 
the association will sustain significant losses in the near term.
    An example of a circumstance in which risk sharing may be 
appropriate would be a temporary decrease in an association's 
unallocated surplus ratio due to a significant and immediate growth in 
assets. There may also be times when an association is experiencing 
losses, but the affiliated bank is very well capitalized and the other 
associations in the district are healthy. In this situation, the 
prospects are very high that a bank would be able to share an 
association's losses when needed, without causing undue stress on the 
bank or other associations in the district. Therefore, a Risk-Sharing 
Agreement may be appropriate.
3. Other Considerations
    In the development of these proposed regulations, the FCA 
considered making the Risk-Sharing Agreement a permanent means of 
association compliance with the unallocated surplus standard. If the 
Agreement were a permanent method of compliance, an association with an 
Agreement would not be required to build unallocated surplus to at 
least 3.5 percent net of its investment in the bank. Arguments in favor 
of doing so are that this approach would better reflect the value to 
the association of an important intra-System asset and that it would 
not limit the discretion of an association and its affiliated bank to 
accumulate earnings at the bank in order to minimize taxes. However, 
permitting a Risk-Sharing Agreement to, in effect, substitute for 
unallocated surplus net of the investment in the bank would fail to 
address an important safety and soundness concern--that is, the concern 
that institutions have a minimum amount of capital in excess of 
borrower-owned equities that is not at risk in other Farm Credit 
institutions. It is only by having unallocated surplus net of its 
investment in the bank that an association will be insulated from 
problems that may be suffered by the bank (due, in most cases, to 
problems at other associations).
    As stated above, a Risk-Sharing Agreement would not permit the bank 
to share association losses if the bank is not meeting all of its 
capital requirements, including the surplus and collateral 
requirements.14 Consequently, in a time of widespread financial 
stress for Farm Credit institutions, associations with Risk-Sharing 
Agreements would not be sufficiently insulated from the problems of 
other Farm Credit institutions, because the bank may be unable to 
perform under the Risk-Sharing Agreement.15

    \14\  The FCA recognizes that sharing association losses under 
the Agreement would not reduce the permanent capital or total 
surplus ratios of the bank and would only temporarily reduce the 
unallocated surplus and collateral ratios, until losses are 
allocated back to the association. However, the risk sharing would 
result in a reduction of total bank capital, which could eventually 
expose System investors to greater risk.
    \15\  The FCA notes that there were complaints from certain 
System managers during the late 1980s, and even as recently as 1994, 
about bank assistance to weaker associations. During the 1980s, 
certain financially strong direct lender associations in some 
districts expressed reservations about their district bank's 
provision of assistance to other, weaker associations in the 
district. The managers of the stronger associations complained that 
the weaker associations were being given assistance without any 
requirements to repay, and that the funds were coming from the 
unallocated surplus of the bank, which, in the view of some, should 
be used to keep the cost of all direct loans to associations at the 
lowest level possible.
---------------------------------------------------------------------------

    The FCA has, therefore, provided in the proposed regulations that 
Risk-Sharing Agreements may be used only temporarily as a means of 
complying with the unallocated surplus requirement and that 
associations must eventually meet the minimum standard on their own. 
However, the FCA specifically invites comments and suggestions on the 
use of the Risk-Sharing Agreements to meet the unallocated surplus 
requirements on a permanent basis, as well as any alternative methods 
of ensuring that associations have sufficient surplus that is not at 
risk in other Farm Credit institutions.
4. Terms and Conditions of the Risk-Sharing Agreement
    The term ``Risk-Sharing Agreement'' has been chosen to distinguish 
the arrangement from the loss-sharing agreements previously entered 
into by some Farm Credit institutions. Unlike the previous loss-sharing 
agreements, which obligated one institution to use funds that it had 
earned to absorb losses at another institution that otherwise had no 
claim on the funds, the Risk-Sharing Agreement covers only funds earned 
(albeit allocated from the bank) by an association and accumulated at 
the bank to absorb losses at that association.
    The basic terms and conditions of a Risk-Sharing Agreement would 
limit the amount of exposure to the bank. Restrictions on such an 
arrangement, which are intended to protect both parties, would be as 
follows: 

[[Page 38527]]

    a. The maximum dollar amount of losses the bank could participate 
in would be specified by the Agreement and could not be greater than 
the amount allocated to the association by the bank that is counted as 
permanent capital of the association. Such amount would be counted in 
the 3.5-percent unallocated surplus capital of the association.
    b. The bank's participation in association losses must begin on or 
before the point when losses of the association exceed the 
association's current year's earnings.
    c. The percentage of bank participation in a loss could not be less 
than 25 percent and would automatically increase to 100 percent when 
the association's unallocated surplus, net of the investment in the 
bank, is exhausted. In other words, the bank would share losses up to 
the maximum amount specified in the Agreement before other association 
capital is charged.
    d. The amount committed to risk sharing by a bank could not be 
reduced, except by payment to the association, until the association's 
unallocated surplus ratio net of its investment in the bank is in 
excess of 3.5 percent. The association and the bank may, of course, 
agree that the bank will share losses of the association even when the 
association's unallocated surplus ratio exceeds the minimum requirement 
without counting the amount covered by the Risk-Sharing Agreement.
    e. A bank would be prohibited from sharing any association losses 
under the Agreement when the bank's permanent capital ratio, surplus 
ratios, or net collateral ratio is below any of the minimum standards, 
or if sharing in the losses would cause it to fall below any of the 
standards.
    f. A bank would be required to allocate any losses shared pursuant 
to the Risk-Sharing Agreement back to the association where the loss 
was incurred. The allocation of losses back to the association, which 
may be implemented under general cooperative practices in the System, 
is essential to hold the association fully accountable for losses 
incurred.16

    \16\  The allocation of losses back to the association could be 
a book entry only, without the actual physical movement of assets. 
At the association level, capital would decrease because the 
investment in the bank would decrease. The allocation of losses by 
the bank would decrease the bank's allocated surplus and restore its 
unallocated surplus to the level prior to the losses taken under the 
Risk-Sharing Agreement.
---------------------------------------------------------------------------

C. Comparison of FCA Proposed Regulations and System Group's Proposal

    The FCA's proposed regulations are broadly similar to the System 
group's suggested approach for establishing unallocated and total 
surplus standards. However, the FCA's proposed regulations differ with 
respect to achieving the standards, because the FCA believes that the 
System's proposal to require that a percentage of earnings be retained 
annually until the standards are met would not ensure that an 
institution experiencing growth, making cash distributions, or 
allocating equities would ever achieve the minimum surplus standards. 
The FCA proposes instead to require institutions not meeting the 
standards to submit a capital plan to achieve such standards. The FCA 
believes that achieving the standards over time is a complex planning 
issue with many considerations that are best addressed in a 
comprehensive capital plan. An institution that does not submit, or 
does not meet the goals of, an acceptable capital plan would not be in 
compliance with the capital requirements.
    The FCA's proposed regulations also differ from the System group's 
proposal in how the unallocated surplus standard is calculated. The FCA 
is proposing that URE be reduced by an association's net investment in 
its bank. This approach would ensure that an association has a level of 
unallocated surplus to provide for financial strength that is 
independent of its bank affiliation. The FCA notes that, because the 
proposed surplus standards are separate requirements apart from the 
permanent capital standard, the failure to meet the minimum surplus 
standards would not alone trigger the statutory prohibition on the 
retirement of borrower stock.
    The net collateral ratio for banks is proposed by the FCA to be 
calculated as recommended by the System group. However, the FCA is 
proposing that an enforceable minimum regulatory standard be set in 
lieu of the requirement to report the net collateral position to the 
Funding Corporation. The FCA concluded that a minimum net collateral 
standard is key to ensuring the building of capital at the bank to 
protect investors in System securities and to ensure an early warning 
mechanism for market access to funding, which is a critical safety and 
soundness issue.
VI. Retirement of Borrower Stock

    As long as an institution's 17 unallocated and total surplus 
ratios meet or exceed applicable minimum standards, and the permanent 
capital position is at least 9 percent, the retirement of borrower 
stock may be delegated by its board of directors to management within 
certain parameters.

    \17\ While this provision of the regulation addresses all 
institutions it is recognized that the delegation restriction would 
have a limited impact on most banks.
---------------------------------------------------------------------------

    This provision clarifies what kind of delegations may be made by 
the board to management, consistent with the statutory mandate that 
stock is retirable only at the board's discretion. If an institution is 
meeting or exceeding its minimum surplus standards and, if applicable, 
collateral standard, the board may delegate the decision to retire 
borrower stock to management provided that the institution's permanent 
capital will remain at 9 percent or greater after the retirement. 
Management may make such retirements only in accordance with the 
institution's retirement policy and must report the aggregate amount of 
the retirements and their impact on the institution's capital position 
to the board every quarter. If an institution's surplus and collateral 
standards are less than the minimum requirements, or if its permanent 
capital would be less than 9 percent after the retirement, the 
institution's board of directors must specifically consider and approve 
each retirement of borrower stock prior to actual cash retirement or 
payout of the stock.
    This proposed regulation is similar to a suggestion made by the 
System group. The System group recommended that stock retirements be 
delegable to management when an institution's permanent capital ratio 
is greater than 8 percent after the retirement, or when the institution 
had reached the surplus requirements (or, if not, had been applying the 
required proportion of earnings to surplus). The proposed regulation 
would set a higher permanent capital standard for delegations and would 
require the institution also to be in compliance with the surplus and 
collateral standards.

VII. Individual Institution Capital Ratios and Capital Directives

    The FCA proposes regulations providing procedures to implement its 
statutory authorities: (1) To establish individual capital ratios for a 
single institution, and (2) to issue a capital directive to an 
institution that is below its minimum capital requirements (including 
individual institution standards, if any), or to the board of directors 
of an institution to prohibit the board from reducing the capital of 
the institution. These authorities would apply with respect to the 
proposed 

[[Page 38528]]
surplus and collateral ratios as well as to the permanent capital 
ratio. They provide another regulatory tool to the FCA to take 
appropriate action when an institution's capital is insufficient. The 
authorities differ from a cease and desist order in that a full hearing 
(as mandated by section 5.25 of the Act) is not required; therefore, 
the FCA may respond more quickly in order to minimize further 
deterioration of an institution's capital position.
    These powers were granted to the FCA in 1986, at the same time the 
Agency was directed to set capital standards for System institutions. 
The FCA was authorized to ``establish such minimum level of capital for 
a System institution as the [FCA], in its discretion, deems to be 
necessary or appropriate in light of the particular circumstances of 
the System institution.'' Section 4.3(a) of the Act. The FCA was 
further authorized to issue a capital directive to any System 
institution failing to maintain capital at or above the required level, 
including any individual minimum standard. Such a capital directive 
may, among other things, require the System to submit and adhere to a 
plan acceptable to the FCA describing how the institution will achieve 
its minimum capital requirements. Section 4.3(b)(2) and (3) of the Act.
    The 1987 Act, which added permanent capital provisions to the Act, 
prohibited System institutions from reducing the permanent capital of 
an institution through the payment of patronage refunds or dividends, 
or the retirement of stock, if the permanent capital of the institution 
failed, or would fail, to meet the minimum capital adequacy standards 
established under section 4.3(a) of the Act, including the permanent 
capital standards. In addition, the FCA was authorized, pursuant to 
section 4.3A(e), to issue a capital directive to the board of directors 
of an institution to comply with such prohibitions if the board has 
failed to do so.
    The issuance of a capital directive would be at the discretion of 
the FCA. Section 5.31 of the Act, as amended by the 1987 Act, provides 
that a capital directive ``shall be treated as an effective and 
outstanding order enforceable in the appropriate United States district 
court in the same manner and to the same extent as a final cease and 
desist order issued under section 5.25.'' In addition, civil money 
penalties may be imposed for violation of a capital directive pursuant 
to section 5.32. A capital directive could be issued in lieu of, in 
conjunction with, or in addition to other enforcement actions available 
to the FCA. Furthermore, the FCA could take any available enforcement 
action in lieu of issuing a capital directive.
    These proposed regulations contain procedures for the establishment 
by the FCA of a permanent capital ratio, surplus ratios and, if 
applicable, a collateral ratio for an individual institution, as well 
as for the issuance of capital directives. The regulations are similar 
to the regulations of the OCC and the FDIC, which have nearly identical 
authority to the FCA's with respect to individual capital ratios and 
capital directives. See 12 U.S.C. 3907.
    For the establishment of individual institution capital ratios, the 
procedures provide for notice to the institution setting forth the 
proposed individual capital ratio or ratios, the reasons the FCA has 
determined that such ratio or ratios are appropriate for the 
institution, and a statement that the institution has 30 days within 
which to comment in writing on the proposal. The 30-day time period may 
be shortened or lengthened in the discretion of the FCA, with proper 
notice of its action to the institution. The institution has the 
opportunity to agree to or object to the FCA's proposals and to state 
the reasons therefor, to propose modifications to the proposal, and to 
provide documentation or other relevant information, including 
information about any mitigating circumstances.
    For the issuance of capital directives, the procedures are 
similar--notification to the institution of the proposed capital 
directive, a 30-day period for the institution to respond, an 
evaluation of the institution's response, and a determination to issue 
the capital directive as proposed, to modify it, or not to issue the 
capital directive at all.

VIII. Other Proposed Changes

A. Exclusion of Impact of FASB 115

    The FCA has concluded that unrealized gains and losses should not 
be reflected in the permanent capital, surplus, or collateral ratios. 
The FCA is considering the implementation of interest rate risk 
requirements that would ensure that System institutions have sufficient 
capital to cover the level of risk taken for interest rates. The 
current requirements of the Financial Accounting Standards Board's 
(FASB) Statement No. 115 would include unrealized gains or losses based 
largely on the shifts in interest rates. Such a requirement may 
duplicate the efforts of an interest rate risk standard. The FCA notes 
that the other Federal bank regulators have now eliminated the 
unrealized gains and losses requirements of FASB Statement No. 115 from 
their capital standards.

B. Technical and Conforming Changes

    The following amendments are being proposed to add new terms to the 
capital regulations, to remove obsolete terms and provisions, and to 
make conforming changes in other parts of the regulations:
    Section 615.5201 is proposed to be amended to include the terms 
``Federal land credit association'' and ``agricultural credit bank'' in 
the definition of ``institution.'' Changes would also be made to 
Sec. 615.5220(d) and (e) to include such terms.
    Section 615.5216, which granted forbearance to institutions that 
were below the minimum permanent capital standards when those standards 
became effective in 1988, is proposed to be deleted from the 
regulations because all institutions are now in excess of the minimum 
standard. References to the interim standards would also be deleted in 
Secs. 615.5205, 615.5220(f), 615.5240(a), 615.5250(a)(4)(ii) and (iii), 
615.5250(c)(3), and 615.5270(b).
    Section 615.5230(b)(1) is proposed to be amended to eliminate the 
reference to preferred stock issued to the Financial Assistance 
Corporation. All such stock has been retired.
    Section 615.5250(c), which pertains to the mandatory exchange of 
eligible borrower stock, is proposed to be deleted because all 
mandatory exchanges have been completed. A related provision in 
Sec. 615.5260(a) would also be deleted.
    Section 615.5260(d), which requires FCA approval of eligible 
borrower stock retirements other than in the ordinary course of 
business, is proposed to be deleted. The FCA has determined that it no 
longer has significant safety and soundness concerns regarding such 
retirements, because there is only a small amount of eligible borrower 
stock outstanding, and the FCA has not received an approval request 
since 1990.

IX. Regulatory Impact and FCA Regulatory Philosophy

    These proposed regulations are consistent with the FCA Board's 
Policy Statement on Regulatory Philosophy and achieve the Board's 
objective of creating an environment that promotes the confidence of 
borrower/shareholders, investors and the public in the System's 
financial strength, and future viability. See 60 FR 26034, May 16, 
1995.
    The objective of the revisions to the capital regulations is to 
establish standards that encourage the building of a sound capital 
structure in System 

[[Page 38529]]
institutions. The FCA expects the building of a sound capital structure 
at each institution to improve the likelihood of an institution's 
survival during periods of economic stress and thereby improve the 
safety and soundness of the System as a whole. Additionally, the 
regulations reflect the importance of capital structure to business 
viability for System institutions. The FCA believes that regulations 
implementing these goals must provide a meaningful measurement of 
capital adequacy and be appropriate for all System institutions.
    These proposed regulations will affect all System banks, 
associations, and the Leasing Corporation because all such institutions 
will be required to adhere to the standards. However, less than 10 
percent of the institutions would be below the standards, if the 
standards were in effect today, and those institutions will be required 
to build capital. As of the quarter ending March 31, 1995, 90 percent 
of the direct lender associations would have met the proposed surplus 
requirements had the requirements been in place on that date. All of 
the Federal land bank associations would have met the proposed surplus 
standards. Of the direct lender associations that would not have been 
in compliance, two associations would not have met either the total 
surplus or unallocated surplus ratios, nine additional associations 
would not have met the unallocated surplus ratio, and four additional 
associations would not have met the total surplus requirements. 
However, in most of those associations both types of surplus have been 
increasing steadily during the past 5 years, and the FCA estimates that 
most, if not all, of the associations would achieve the minimum 
standards in 7 years or less if these trends continue.
    As of the quarter ending March 31, 1995, all eight banks would have 
been above the 7-percent total surplus standard.18 In addition, 
five of the eight banks would have been above the proposed unallocated 
surplus ratio and the net collateral ratio. Of those that would not 
have met the proposed requirements, two banks would have been below the 
minimum unallocated surplus standard and one bank would have been below 
the net collateral standard. All banks have been building allocated and 
unallocated surplus over the past several years, although in some cases 
the ratios have not increased because assets have also grown.

    \18\ The FCB of Columbia and the FCB of Baltimore, which merged 
on April 1, 1995, to form AgFirst, FCB, are treated here as a single 
bank.
---------------------------------------------------------------------------

    The FCA has determined that the proposed regulations would not have 
a significant effect upon the general economy. In addition, the 
proposed regulations pertain only to System institutions and, 
therefore, would not present a conflict with the rules and regulations 
of other financial regulatory agencies. Due to the nature of the 
regulations, it is not anticipated that the regulations will have any 
material impact upon governmental entitlements, grants, user fees, or 
loan programs.

List of Subjects

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.

12 CFR Part 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.

    For reasons stated in the preamble, parts 615, 618, and 620 of 
chapter VI, title 12 of the Code of Federal Regulations are proposed to 
be amended to read as follows:

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

    1. The authority citation for part 615 is revised 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, 4.3A, 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, 2154a, 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 H--Capital Adequacy


Sec. 615.5201  [Amended]

    2. Section 615.5201 is amended by adding the words ``Federal land 
credit association,'' after the words ``Federal land bank 
association,''; and by removing the words ``National Bank for 
Cooperatives,'' and adding in their place, the words ``agricultural 
credit bank,'' in paragraph (g).
    3. Section 615.5205 is revised to read as follows:


Sec. 615.5205  Minimum permanent capital standards.

    Each Farm Credit System institution shall at all times maintain 
permanent capital at a level of at least 7 percent of its risk-adjusted 
assets.
    4. Section 615.5210 is amended by removing paragraphs (f)(2)(i)(D) 
and (f)(2)(v)(D); redesignating paragraph (f)(2)(v)(E) as new paragraph 
(f)(2)(v)(D); adding a new paragraph (e)(2)(ii)(G)(10); and revising 
paragraphs (e)(2)(ii)(G)(7) and (f)(2)(i)(C) to read as follows:


Sec. 615.5210  Computation of the permanent capital ratio.

* * * * *
    (e) * * *
    (2) * * *
    (ii) * * *
    (G) * * *
    (7) Each institution shall deduct from its total capital an amount 
equal to any goodwill.
* * * * *
    (10) The permanent capital of an institution shall exclude any 
impact from unrealized holding gains or losses for available-for-sale 
securities.
    (f) * * *
    (2) * * *
    (i) * * *
    (C) Goodwill.
* * * * *


Sec. 615.5216  [Removed and reserved]

    5. Section 615.5216 is removed and reserved.

Subpart I--Issuance of Equities


Sec. 615.5220  [Amended]

    6. Section 615.5220 is amended by removing paragraph (f), 
redesignating paragraphs (g), (h), and (i) as paragraphs (f), (g), and 
(h), respectively; removing the words ``may be more than, but'' each 
place they appear in paragraphs (d) and (e); by adding the words ``, 
agricultural credit banks (with respect to loans other than to 
cooperatives),'' after the words ``For Farm Credit Banks'' in paragraph 
(d); by adding the words ``and agricultural credit banks (with respect 
to loans to cooperatives)'' after the words ``For banks for 
cooperatives'' in paragraph (e); and by removing the words ``(including 
interim standards)'' in newly designated paragraph (f).


Sec. 615.5230  [Amended]

    7. Section 615.5230 is amended by removing the words ``preferred 
stock to be issued to the Farm Credit System Financial Assistance 
Corporation and'' in paragraph (b)(1).
    8. Section 615.5240 is amended by removing paragraph (b); 
redesignating the introductory paragraph and 

[[Page 38530]]
paragraph (a) introductory text as paragraphs (a) and (b) introductory 
text, respectively; adding a new paragraph (c); and revising newly 
designated paragraph (a) to read as follows:


Sec. 615.5240  Permanent capital requirements.

    (a) The capitalization bylaws shall enable the institution to meet 
the minimum permanent capital adequacy standards established under 
subpart H of this part and the total capital requirements established 
by the board of directors of the institution.
* * * * *
    (c) An institution's board of directors may delegate to management 
the decision whether to retire borrower stock, provided that:
    (1) The institution's permanent capital ratio will be in excess of 
9 percent after any such retirements;
    (2) The institution meets and maintains all applicable minimum 
surplus and collateral standards;
    (3) Any such retirements are in accordance with the institution's 
capital plan; and
    (4) The aggregate amount of stock purchases, retirements, and the 
net effect of such activities are reported to the board of directors on 
a quarterly basis.


Sec. 615.5250  [Amended]

    9. Section 615.5250 is amended by removing paragraph (c); 
redesignating paragraphs (d) and (e) as paragraphs (c) and (d) 
respectively; by removing the words ``(including interim standards)'' 
in paragraphs (a)(4)(ii) and newly designated (c)(3); and by removing 
the words ``, including interim standards'' in paragraph (a)(4)(iii).

Subpart J--Retirement of Equities


Sec. 615.5260  [Amended]

    10. Section 615.5260 is amended by removing ``; or'' at the end of 
paragraph (a)(2)(ii) and inserting a period in its place and by 
removing paragraphs (a)(2)(iii) and (d).


Sec. 615.5270  [Amended]

    11. Section 615.5270 is amended by removing the words ``(including 
interim standards)'' in paragraph (b).
    12. Subpart K is revised to read as follows:

Subpart K--Surplus and Collateral Requirements

Sec.
615.5301  Definitions.
615.5330  Minimum surplus ratios.
615.5335  Bank net collateral ratio requirements.
615.5336  Compliance.

Subpart K--Surplus and Collateral Requirements


Sec. 615.5301  Definitions.

    For the purposes of this subpart, the following definitions shall 
apply:
    (a) The terms institution, permanent capital, risk-adjusted asset 
base, and total capital shall have the meanings set forth in 
Sec. 615.5201.
    (b) Net collateral ratio means a bank's collateral position as 
defined by Sec. 615.5050, less an amount equal to that portion of the 
allocated investments of affiliated associations that is not counted as 
permanent capital of the bank, divided by the bank's total liabilities.
    (c) Net investment in the bank means the total investment by an 
association in its affiliated bank, less reciprocal investments and 
investments resulting from a loan originating/service agency 
relationship, including participations.
    (d) Risk-Sharing Agreement means a binding contract between a bank 
and its affiliated association, under which a bank agrees to share 
losses that the affiliated association may incur and which specifies at 
least the following:
    (1) The maximum dollar amount of association losses to be shared by 
the bank shall be specified and shall not be greater than the amount of 
the association's allocated investment in the bank that is counted as 
association permanent capital.
    (2) The participation in losses shall begin on or before the point 
when losses of the association exceed its current year's earnings, net 
of non-cash allocated earnings allocated to the association from the 
affiliated bank.
    (3) The percentage of bank participation in a loss shall be not 
less than 25 percent and shall automatically increase to 100 percent 
when the association's unallocated surplus less the net investment in 
the bank is zero.
    (4) The dollar amount committed to risk sharing by the bank under 
the agreement shall not be reduced except by payment to the 
association, unless the association has an unallocated surplus ratio in 
excess of 3.5 percent, net of the net investment in the bank.
    (5) At any time a bank's permanent capital ratio, surplus ratios, 
or net collateral ratio is less than the minimum applicable standards 
or would fall below upon payment, the bank shall defer its payments 
under the agreement until such time as the payments do not result in 
the bank's failure to meet its minimum standards.
    (6) The bank shall allocate any and all losses shared under the 
agreement back to the association where the loss was incurred.
    (e)(1) Total surplus means:
    (i) Unallocated retained earnings;
    (ii) Allocated equities, including allocated surplus and stock 
which, if subject to revolvement, have a revolvement of not less than 5 
years and are eligible to be included in permanent capital pursuant to 
Sec. 615.5201(j)(4)(iv); and
    (iii) Stock that is not purchased as a condition of obtaining a 
loan, provided that it is either perpetual stock or term stock with an 
original maturity of at least 5 years, and provided that the 
institution has and adheres to a policy of not retiring such perpetual 
stock and of not retiring such term stock prior to its stated maturity. 
The amount of term stock that is eligible to be included in total 
surplus shall be reduced by 20 percent in each of the last 5 years of 
the life of the instrument.
    (2)The surplus of an institution shall exclude any impact from 
unrealized holding gains or losses for available-for-sale securities.
    (f) Unallocated surplus means unallocated retained earnings and any 
common or non-cumulative perpetual preferred stock held by non-
borrowers, provided that the institution has and adheres to a policy of 
not retiring the stock. Any impact from unrealized holding gains or 
losses for available-for-sale securities shall be excluded from 
unallocated surplus.


Sec. 615.5330  Minimum surplus ratios.

    (a) Total surplus. Each institution shall achieve and maintain a 
ratio of at least 7 percent of total surplus to risk-adjusted assets.
    (b) Unallocated surplus. (1) Each institution shall achieve and 
maintain a ratio of unallocated surplus to risk-adjusted assets of at 
least 3.5 percent.
    (2) Each association shall compute its unallocated surplus ratio by 
deducting an amount equal to the net investment in its affiliated Farm 
Credit bank from which it has received allocated equities from both its 
unallocated surplus and its risk-adjusted asset base, except that the 
amount specified as the maximum amount of losses to be shared by the 
bank in a Risk-Sharing Agreement that is in effect shall not be 
deducted from the unallocated surplus or risk-adjusted asset base.
    (c) An institution's total and unallocated surplus ratios shall be 
computed as of the end of each month.


Sec. 615.5335  Bank net collateral ratio requirements.

    (a) Each bank shall achieve and maintain a net collateral ratio of 
at least 104 percent of net collateral to total liabilities. 

[[Page 38531]]

    (b) A bank's net collateral ratio shall be computed as of the end 
of each month.


Sec. 615.5336  Compliance.

    (a) Association compliance requirements. (1) Each association that 
fails to satisfy either or both of its minimum surplus ratios shall 
submit a plan for achieving and maintaining the standards, with 
appropriate annual progress toward meeting the goal, to the Farm Credit 
Administration within 60 days of the month-end in which the failure 
occurred. If the capital plan is not approved by the Farm Credit 
Administration, the association shall submit a revised capital plan 
within the time specified by the Farm Credit Administration.
    (2) An association whose unallocated surplus ratio is less than the 
minimum requirement on [the effective date of the final rule] shall 
have the option to include a Risk-Sharing Agreement with its affiliated 
bank in the capital plan, provided that the capital plan also 
incorporates provisions for achieving and maintaining the unallocated 
surplus standard exclusive of the Risk-Sharing Agreement.
    (3) An association whose unallocated surplus ratio is less than the 
minimum requirement subsequent to [the effective date of the final 
rule] may include a Risk-Sharing Agreement in its capital plan only if 
the Farm Credit Administration approves such inclusion.
    (b) Bank compliance requirements. A bank that fails to meet its 
minimum applicable unallocated or total surplus standard or net 
collateral standard shall submit a plan for achieving and maintaining 
the standards to the Farm Credit Administration within 60 days of the 
month-end when the failure occurred for meeting the standard. If such 
plan is not acceptable to the Farm Credit Administration, the bank 
shall submit a revised capital plan within the time specified by the 
Farm Credit Administration.
    (c) Compliance with the use of a capital plan. An institution that 
is adhering to a capital plan that has been submitted to the Farm 
Credit Administration under this subpart and that has been approved by 
the Agency shall be deemed to be in compliance with the requirements of 
this subpart.
    13. Subparts L and M are added to read as follows:
Subpart L--Establishment of Minimum Capital Ratios for an Individual 
Institution
Sec.
615.5350  General--Applicability.
615.5351  Standards for determination of appropriate individual 
institution minimum capital ratios.
615.5352  Procedures.
615.5353  Relation to other actions.
615.5354  Enforcement.

Subpart M--Issuance of a Capital Directive

615.5355  Purpose and scope.
615.5356  Notice of intent to issue a capital directive.
615.5357  Response to notice.
615.5358  Decision.
615.5359  Issuance of a capital directive.
615.5360  Reconsideration based on change in circumstances.
615.5361  Relation to other administrative actions.

Subpart L--Establishment of Minimum Capital Ratios for an 
Individual Institution


Sec. 615.5350  General--Applicability.

    (a) The rules and procedures specified in this subpart are 
applicable to a proceeding to establish required minimum capital ratios 
that would otherwise be applicable to an institution under 
Secs. 615.5205, 615.5330, and 615.5335. The Farm Credit Administration 
is authorized to establish such minimum capital requirements for an 
institution as the Farm Credit Administration, in its discretion, deems 
to be necessary or appropriate in light of the particular circumstances 
of the institution. Proceedings under this subpart also may be 
initiated to require an institution having capital ratios greater than 
those set forth in Secs. 615.5205, 615.5330, or 615.5335 to continue to 
maintain those higher ratios.
    (b) The Farm Credit Administration may require higher minimum 
capital ratios for an individual institution in view of its 
circumstances. For example, higher capital ratios may be appropriate 
for:
    (1) An institution receiving special supervisory attention;
    (2) An institution that has, or is expected to have, losses 
resulting in capital inadequacy;
    (3) An institution with significant exposure due to operational 
risk; interest rate risk; the risks from concentrations of credit; 
certain risks arising from other products, services, or related 
activities; or management's overall inability to monitor and control 
financial risks presented by concentrations of credit and related 
services activities;
    (4) An institution exposed to a high volume of, or particularly 
severe, problem loans;
    (5) An institution that is growing rapidly; or
    (6) An institution that may be adversely affected by the activities 
or condition of System institutions with which it has significant 
business relationships or in which it has significant investments.


Sec. 615.5351  Standards for determination of appropriate individual 
institution minimum capital ratios.

    The appropriate minimum capital ratios for an individual 
institution cannot be determined solely through the application of a 
rigid mathematical formula or wholly objective criteria. The decision 
is necessarily based in part on subjective judgment grounded in Agency 
expertise. The factors to be considered in the determination will vary 
in each case and may include, for example:
    (a) The conditions or circumstances leading to the Farm Credit 
Administration's determination that higher minimum capital ratios are 
appropriate or necessary for the institution;
    (b) The exigency of those circumstances or potential problems;
    (c) The overall condition, management strength, and future 
prospects of the institution and, if applicable, affiliated 
institutions;
    (d) The institution's capital, risk asset and other ratios compared 
to the ratios of its peers or industry norms; and
    (e) The views of the institution's directors and senior management.


Sec. 615.5352  Procedures.

    (a) Notice. When the Farm Credit Administration determines that 
minimum capital ratios greater than those set forth in Secs. 615.5205, 
615.5330, or 615.5335 are necessary or appropriate for a particular 
institution, the Farm Credit Administration will notify the institution 
in writing of the proposed minimum capital ratios and the date by which 
they should be reached (if applicable) and will provide an explanation 
of why the ratios proposed are considered necessary or appropriate for 
the institution.
    (b) Response. (1) The institution may respond to any or all of the 
items in the notice. The response should include any matters which the 
institution would have the Farm Credit Administration consider in 
deciding whether individual minimum capital ratios should be 
established for the institution, what those capital ratios should be, 
and, if applicable, when they should be 

[[Page 38532]]
achieved. The response must be in writing and delivered to the 
designated Farm Credit Administration official within 30 days after the 
date on which the institution received the notice. In its discretion, 
the Farm Credit Administration may extend the time period for good 
cause. The Farm Credit Administration may shorten the time period with 
the consent of the institution or when, in the opinion of the Farm 
Credit Administration, the condition of the institution so requires, 
provided that the institution is informed promptly of the new time 
period.
    (2) Failure to respond within 30 days or such other time period as 
may be specified by the Farm Credit Administration shall constitute a 
waiver of any objections to the proposed minimum capital ratios or the 
deadline for their achievement.
    (c) Decision. After the close of the institution's response period, 
the Farm Credit Administration will decide, based on a review of the 
institution's response and other information concerning the 
institution, whether individual minimum capital ratios should be 
established for the institution and, if so, the ratios and the date the 
requirements will become effective. The institution will be notified of 
the decision in writing. The notice will include an explanation of the 
decision, except for a decision not to establish individual minimum 
capital requirements for the institution.
    (d) Submission of plan. The decision may require the institution to 
develop and submit to the Farm Credit Administration, within a time 
period specified, an acceptable plan to reach the minimum capital 
ratios established for the institution by the date required.
    (e) Reconsideration based on change in circumstances. If, after the 
Farm Credit Administration's decision in paragraph (c) of this section, 
there is a change in the circumstances affecting the institution's 
capital adequacy or its ability to reach the required minimum capital 
ratios by the specified date, either the institution or the Farm Credit 
Administration may propose a change in the minimum capital ratios for 
the institution, the date when the minimums must be achieved, or the 
institution's plan (if applicable). The Farm Credit Administration may 
decline to consider proposals that are not based on a significant 
change in circumstances or are repetitive or frivolous. Pending a 
decision on reconsideration, the Farm Credit Administration's original 
decision and any plan required under that decision shall continue in 
full force and effect.


Sec. 615.5353  Relation to other actions.

    In lieu of, or in addition to, the procedures in this subpart, the 
required minimum capital ratios for an institution may be established 
or revised through a written agreement or cease and desist proceedings 
under part C of title V of the Act, or as a condition for approval of 
an application.
Sec. 615.5354  Enforcement.

    An institution that does not have or maintain the minimum capital 
ratios applicable to it, whether required in subparts H and K of this 
part, in a decision pursuant to this subpart, in a written agreement or 
temporary or final order under part C of title V of the Act, or in a 
condition for approval of an application, or an institution that has 
failed to submit or comply with an acceptable plan to attain those 
ratios, will be subject to such administrative action or sanctions as 
the Farm Credit Administration considers appropriate. These sanctions 
may include the issuance of a capital directive pursuant to subpart M 
of this part or other enforcement action, assessment of civil money 
penalties, and/or the denial or condition of applications.

Subpart M--Issuance of a Capital Directive


Sec. 615.5355  Purpose and scope.

    (a)(1) This subpart is applicable to proceedings by the Farm Credit 
Administration to issue a capital directive under sections 4.3(b) and 
4.3A(e) of the Act. A capital directive is an order issued to an 
institution that does not have or maintain capital at or greater than 
the minimum ratios set forth in Secs. 615.5205, 615.5330, and 615.5335; 
or established for the institution under subpart L, by a written 
agreement under part C of title V of the Act, or as a condition for 
approval of an application. A capital directive may order the 
institution to:
    (i) Achieve the minimum capital ratios applicable to it by a 
specified date;
    (ii) Adhere to a previously submitted plan to achieve the 
applicable capital ratios;
    (iii) Submit and adhere to a plan acceptable to the Farm Credit 
Administration describing the means and time schedule by which the 
institution shall achieve the applicable capital ratios;
    (iv) Take other action, such as reduction of assets or the rate of 
growth of assets, restrictions on the payment of dividends or 
patronage, or restrictions on the retirement of stock, to achieve the 
applicable capital ratios; or
    (v) A combination of any of these or similar actions.
    (2) A capital directive may also be issued to the board of 
directors of an institution, requiring such board to comply with the 
requirements of section 4.3A(d) of the Act prohibiting the reduction of 
permanent capital.
    (b) A capital directive issued under this subpart, including a plan 
submitted under a capital directive, is enforceable in the same manner 
and to the same extent as an effective and outstanding cease and desist 
order which has become final as defined in section 5.25 of the Act. 
Violation of a capital directive may result in assessment of civil 
money penalties in accordance with section 5.32 of the Act.


Sec. 615.5356  Notice of intent to issue a capital directive.

    The Farm Credit Administration will notify an institution in 
writing of its intention to issue a capital directive. The notice will 
state:
    (a) The reasons for issuance of the capital directive;
    (b) The proposed contents of the capital directive, including the 
proposed date for achieving the minimum capital requirement; and
    (c) Any other relevant information concerning the decision to issue 
a capital directive.


Sec. 615.5357  Response to notice.

    (a) An institution may respond to the notice by stating why a 
capital directive should not be issued and/or by proposing alternative 
contents for the capital directive or seeking other appropriate relief. 
The response shall include any information, mitigating circumstances, 
documentation, or other relevant evidence that supports its position. 
The response may include a plan for achieving the minimum capital 
ratios applicable to the institution. The response must be in writing 
and delivered to the Farm Credit Administration within 30 days after 
the date on which the institution received the notice. In its 
discretion, the Farm Credit Administration may extend the time period 
for good cause. The Farm Credit Administration may shorten the 30-day 
time period:
    (1) When, in the opinion of the Farm Credit Administration, the 
condition of the institution so requires, provided that the institution 
shall be informed promptly of the new time period;
    (2) With the consent of the institution; or
    (3) When the institution already has advised the Farm Credit 
Administration that it cannot or will not achieve its applicable 
minimum capital ratios. 

[[Page 38533]]

    (b) Failure to respond within 30 days or such other time period as 
may be specified by the Farm Credit Administration shall constitute a 
waiver of any objections to the proposed capital directive.


Sec. 615.5358  Decision.

    After the closing date of the institution's response period, or 
receipt of the institution's response, if earlier, the Farm Credit 
Administration may seek additional information or clarification of the 
response. Thereafter, the Farm Credit Administration will determine 
whether or not to issue a capital directive, and if one is to be 
issued, whether it should be as originally proposed or in modified 
form.
Sec. 615.5359  Issuance of a capital directive.

    (a) A capital directive will be served by delivery to the 
institution. It will include or be accompanied by a statement of 
reasons for its issuance.
    (b) A capital directive is effective immediately upon its receipt 
by the institution, or upon such later date as may be specified 
therein, and shall remain effective and enforceable until it is stayed, 
modified, or terminated by the Farm Credit Administration.


Sec. 615.5360  Reconsideration based on change in circumstances.

    Upon a change in circumstances, an institution may request the Farm 
Credit Administration to reconsider the terms of its capital directive 
or may propose changes in the plan to achieve the institution's 
applicable minimum capital ratios. The Farm Credit Administration also 
may take such action on its own motion. The Farm Credit Administration 
may decline to consider requests or proposals that are not based on a 
significant change in circumstances or are repetitive or frivolous. 
Pending a decision on reconsideration, the capital directive and plan 
shall continue in full force and effect.


Sec. 615.5361  Relation to other administrative actions.

    A capital directive may be issued in addition to, or in lieu of, 
any other action authorized by law, including cease and desist 
proceedings, civil money penalties, or the conditioning or denial of 
applications. The Farm Credit Administration also may, in its 
discretion, take any action authorized by law, in lieu of a capital 
directive, in response to an institution's failure to achieve or 
maintain the applicable minimum capital ratios.

PART 618--GENERAL PROVISIONS

    14. 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 J--Internal Controls


Sec. 618.8440  [Amended]

    15. Section 618.8440 is amended by removing the reference 
``Sec. 615.5200(b)'' and adding in its place, the references 
``Secs. 615.5200(b), 615.5330 (c) or (d), and 615.5335(b)'' in 
paragraph (b)(6).

PART 620--DISCLOSURE TO SHAREHOLDERS

    16. The authority citation for part 620 continues to read as 
follows:

    Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12 
U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101 
Stat. 1568, 1656.

Subpart B--Annual Report to Shareholders

    17. Section 620.5 is amended by revising paragraphs (d)(1)(ix) and 
(g)(4)(ii) to read as follows:


Sec. 620.5  Contents of the annual report to shareholders.

* * * * *
    (d) * * *
    (1) * * *
    (ix) The statutory and regulatory restriction regarding retirement 
of stock and distribution of earnings pursuant to Sec. 615.5215, and 
any requirements to add capital under a plan approved by the Farm 
Credit Administration pursuant to Secs. 615.5330, 615.5335, 615.5351, 
or 615.5357.
* * * * *
    (g) * * *
    (4) * * *
    (ii) Describe any material trends or changes in the mix and cost of 
debt and capital resources. The discussion shall consider changes in 
protected borrower capital, permanent capital, surplus requirements and 
collateral position, debt, risk-sharing agreements, and any off-
balance-sheet financing arrangements.
* * * * *
    Dated: July 20, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-18323 Filed 7-26-95; 8:45 am]
BILLING CODE 6705-01-P