[Federal Register Volume 63, Number 23 (Wednesday, February 4, 1998)]
[Rules and Regulations]
[Pages 5721-5725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2726]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 23 / Wednesday, February 4, 1998 / 
Rules and Regulations  

[[Page 5721]]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 627

RIN 3052-AB09


Loan Policies and Operations; Title IV Conservators, Receivers, 
and Voluntary Liquidation

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), through the Farm Credit 
Administration Board (Board), issues a final rule amending its 
regulation that governs the funding relationship between a Farm Credit 
Bank (FCB) or agricultural credit bank (ACB) and a direct lender 
association or other financing institution (OFI). This rule repeals the 
requirement that the FCA prior approve the General Financing Agreement 
(GFA) between an FCB or ACB and a direct lender association or OFI and 
eliminates a regulatory direct loan limitation. The rule also amends 
another regulation to permit the voluntary liquidation of Farm Credit 
institutions by means of an FCA-approved liquidation plan.

EFFECTIVE DATE: This regulation shall become effective 30 days after 
publication in the Federal Register during which either or both houses 
of Congress are in session. Notice of the effective date will be 
published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

S. Robert Coleman, Senior Policy Analyst, Regulation and Policy 
Division, Office of Policy and Analysis, Farm Credit Administration, 
McLean, VA 22102-5090, 703) 883-4498,

or

James M. Morris, Senior Counsel, Legal Counsel Division, Office of 
General Counsel, Farm Credit Administration, McLean, VA 22102-5090, 
(703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: On March 24, 1997, the FCA proposed 
amendments to the regulation in subpart C of part 614 that governs the 
funding relationship between FCBs or ACBs and direct lender \1\ 
associations or OFIs. The FCA also proposed amendments to the 
regulation contained in part 627 that governs liquidations. These 
amendments would authorize the voluntary liquidation of Farm Credit 
System (FCS or System) institutions by means of an FCA-approved 
liquidation plan. See 62 FR 13842. The amendments were proposed as part 
of the FCA's continuing effort to streamline its regulations, provide 
flexibility to address issues that pertain to funding relationships, 
and outline minimum regulatory criteria for GFAs.
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    \1\ As defined in Sec. 619.9135 of this chapter.
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    The FCA received 9 comment letters in response to this proposal, 
including a comment letter from the Farm Credit Council (FCC or 
Council) on behalf of its members,\2\ 5 responses from FCBs, 1 response 
from an ACB, and 2 responses from FCS direct lender associations (an 
agricultural credit association (ACA) and a jointly managed production 
credit association (PCA) and Federal land credit association (FLCA)).
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    \2\ The national trade association serving the Farm Credit 
System, including FCBs, ACBs, direct lender associations, and 
Federal land bank associations.
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    In general, all the comments expressed support for the proposed 
regulation and its goal to streamline the regulations and provide 
flexibility. One FCB commended the FCA for properly relying on its 
ongoing examination process and enforcement powers to ensure that GFAs 
preserve the interests of the parties and do not pose excessive safety 
and soundness risks to the parties involved. Another FCB indicated that 
it supports the proposed regulation and, in particular, the elimination 
of the requirement for prior FCA approval, as a significant step toward 
the streamlining and modernization of the debtor/creditor relationship 
between the FCS banks and the direct lender associations.
    The FCA responds to specific concerns below as it explains aspects 
of the rule commented upon. After considering the comments received in 
response to the proposed regulation, the FCA adopts a final rule 
governing GFAs and permitting voluntary liquidation of Farm Credit 
institutions under FCA-approved liquidation plans.

I. Maximum Term of the General Financing Agreement

    The FCA received a comment from the FCC concerning the proposed 3-
year limitation on the term of GFAs. The FCC argued that the final rule 
should leave the term of the GFA to the discretion of the parties 
involved. The FCC believes that the length or term of the GFA should be 
negotiable, like other terms and conditions of the GFA. Further, the 
commenter stated that many types of commercial agreements include 
``evergreen'' provisions automatically renewing the agreement for an 
additional term unless, within a prescribed period of time related to 
the stated renewal date, either party gives written notice to the other 
of an intent to terminate or renegotiate the arrangement. The commenter 
noted that some existing GFAs have terms in excess of 3 years. The FCC 
sees no compelling reason for the FCA to restrict by regulation the 
parties' latitude to negotiate this aspect of the GFA. As additional 
support for its position, the FCC stated that the credit policies and 
underwriting standards of many funding banks typically require a 
periodic review of their direct lender association's lending 
relationship, which includes a review of the GFA itself.
    The FCA believes that it is appropriate for each FCS bank's credit 
policies and underwriting standards to require a periodic review of 
each direct lender's and OFI's lending relationship. These reviews 
enable the funding banks to determine if the existing terms and 
conditions of the GFA continue to appropriately address relevant risks 
in the lending relationship. Because it is this review, rather than a 
re-execution of the GFA, that is fundamental to prudent lending, the 
FCA has modified proposed Sec. 614.4120 to require that FCBs and ACBs 
adopt policies requiring a review of the terms of each GFA at least 
every 5 years. The final regulation permits GFAs to renew automatically 
for an additional term if neither the bank, after reviewing the terms, 
nor the direct lender association (or OFI) offers objection. The FCA 
believes this approach satisfies its concerns while

[[Page 5722]]

allowing the parties to GFAs to operate more efficiently.
    The FCA also increases the maximum term for most GFAs from 3 years, 
as proposed, to 5 years. This limit will accommodate the maximum term 
on all existing GFAs. The FCA believes that its safety and soundness 
concerns can be addressed if the FCS banks review GFA terms and seek 
modifications as appropriate at least every 5 years. In addition, the 
direct lender association should be provided a reasonable opportunity 
to periodically request new terms and conditions in its borrowing 
arrangement with the funding bank. Accordingly, final Sec. 614.4120 
adopts a maximum term of 5 years for any GFA used for secured lending. 
The FCA continues to believe that the maximum term for any GFA that 
provides for unsecured lending to direct lender associations should not 
exceed 1 year because of the additional risks inherent in unsecured 
lending.

II. Unsecured Lending

    In the preamble to the proposed regulation, the FCA specifically 
requested comments as to whether there is a need for special 
limitations or restrictions on unsecured lending in addition to the 1-
year limit on the term of any GFA that provides for unsecured lending. 
The FCC submitted a comment letter on behalf of its membership, in 
which it stated it would be inappropriate for FCA to define further the 
circumstances under which unsecured lending may be appropriate or to 
impose any additional limitations or restrictions on unsecured lending.
    The FCA received no comments indicating a need for additional 
limitations or restrictions on unsecured lending activity. Accordingly, 
in adopting the final rule, the FCA has not changed any provisions of 
the proposed rule related to unsecured lending.

III. Providing the FCA Copies of the General Financing Agreement and 
Related Documents

    The FCC commented on the proposed requirement in Secs. 614.4125(b) 
and 614.4130(b) that a funding bank deliver to the FCA's Chief 
Examiner, or designee, a copy of each GFA and all related documents 
within 10 business days after their execution. The FCC suggested,

    To the extent the substantive terms and conditions of two or 
more GFAs in a particular district are identical, the Council's 
membership believe it would be more efficient, and less burdensome, 
for the funding bank to provide FCA one copy of the GFA, together 
with the names of all direct lender associations or OFIs, as the 
case may be, that have executed identical agreements.

    The FCA agrees that submitting duplicate copies of identical GFAs 
may not be necessary. Although FCA has not changed the final 
regulation's general requirement to submit copies of GFAs to the Chief 
Examiner, FCS banks that execute identical GFAs should contact the FCA 
field offices that examine the FCS institutions involved to arrange an 
efficient means of satisfying this requirement.

IV. Maximum Credit Limit Calculation

    Proposed Sec. 614.4125(d) would require that each GFA establish a 
maximum credit limit consistent with the FCS bank's lending policies 
and underwriting standards and the creditworthiness of the direct 
lender association. The proposed regulation would also establish a 
ceiling for any maximum credit limit that was equal to the value of the 
``direct lender association's assets available'' to the FCS bank to 
support outstanding obligations under section 4.3(c) of the Farm Credit 
Act of 1971, as amended (Act). The FCA received comments from 6 FCS 
banks and 1 jointly managed PCA/FLCA on this issue.
    Upon further consideration of this issue, the FCA has concluded 
that, in establishing the maximum credit limit in each GFA, each FCS 
bank should be guided by the underwriting standards that FCA 
regulations require it to develop. The FCA believes that the proposed 
regulatory ceiling is unnecessary and potentially misleading for the 
reasons outlined below. Accordingly, the last sentence in each of 
proposed Secs. 614.4125(d) and 614.4130(c) has been deleted in the 
final regulation.
    The comments received generally supported the flexibility offered 
by replacing the existing direct loan formula with a requirement that 
the FCS bank establish credit limits in accordance with its lending 
policies and underwriting standards. The comments differed, however, as 
to the components appropriately included in calculating the proposed 
regulatory ceiling. Most commenters believed that the calculation 
should give a direct lender association at least some credit for its 
investment in the FCS bank, but one bank suggested that the amount of a 
direct lender association's investment should not be included in the 
calculation.
    The comments helped the FCA recognize the potentially misleading 
effect of establishing a regulatory ceiling on maximum credit limits 
that is solely tied to an asset-based calculation. As proposed, the 
ceiling would have been a theoretical, not a practical, limit. The FCA 
believes that if FCS banks develop, and apply to their relationship 
with direct lender associations, sound lending policies and 
underwriting standards, as required by the regulation, the banks will 
establish maximum credit limits that are below the proposed regulatory 
ceiling. The FCA expects the banks' lending policies and underwriting 
standards to produce an appropriate credit limit tailored to each 
direct lender association's circumstances. As required in 
Sec. 614.4120, and further explained in the preamble to the proposed 
rule, each FCS bank must evaluate the creditworthiness of a direct 
lender association on the basis of lending policies and loan 
underwriting standards set forth in Sec. 614.4150. The loan 
underwriting standards will require the bank to go beyond any simple 
asset-based calculation to consider risk factors such as the direct 
lender association's capital adequacy and adherence to all regulatory 
capital requirements, repayment ability, asset quality, liquidity, 
quality of collateral offered, business plan objectives, and quality of 
board and management. This credit evaluation will determine an 
appropriate upper limit on funding for each direct lender association. 
Each FCS bank must also have adequate internal controls in place to 
manage the debtor/creditor relationship, including appropriate 
disbursement and monitoring controls to ensure on-going compliance with 
the funding agreement. Including in the regulation a ceiling based 
simply on the direct lender association's available collateral may 
suggest, incorrectly, that such an asset-based limit could be a safe 
and sound maximum credit limit for most or all associations. Consistent 
with the FCA's emphasis on loan underwriting standards as the key to 
prudent lending, the final regulation eliminates the asset-based 
ceiling for credit extensions to associations and OFIs.

V. Notice of Material Defaults--Monetary Penalties

    The FCC submitted a comment concerning notification to the FCA and 
the Farm Credit System Insurance Corporation (FCSIC) in case of 
``material defaults'' under the GFA. Proposed Sec. 614.4125(e) would 
require that any funding bank that provides notice to a direct lender 
association that it is in material default of any covenant, term, or 
condition of the GFA, promissory note, security agreement, or other 
related documents simultaneously provide written notification to the 
FCA

[[Page 5723]]

and the FCSIC. Proposed Sec. 614.4125(f) would impose a similar 
requirement on a direct lender association that receives such notice 
from an FCB, ACB or non-FCS institution. The FCC suggested that the FCA 
remove the references to the FCSIC in proposed Sec. 614.4125 (e) and 
(f). The FCA has not adopted this suggestion because it believes there 
is a benefit in a direct notice to the FCSIC.
    Finally, the FCA wishes to clarify the discussion contained in the 
preamble to the proposed regulation regarding the ``material default'' 
notice. The discussion indicated that the ``material default'' notice 
requirement ``include[s], but is not limited to, notice from the FCB or 
ACB about the imposition of any monetary penalties on the direct lender 
association, including penalty interest, additional fees, or other 
service charges imposed based on a default by the direct lender 
association.'' See 62 FR 13844, Mar. 24, 1997. Two FCBs, an ACA, and a 
jointly managed PCA/FLCA requested that the FCA clarify that the term 
``penalty interest'' would not include changes in pricing under normal 
differential pricing and price incentive structures. The commenters 
noted that some GFAs provide different interest rates at different 
levels of financial performance as an incentive to improve overall 
credit quality and financial condition. The commenters expressed a 
concern that imposition of notice requirements might encourage 
elimination of these incentive programs. Accordingly, the FCA clarifies 
that final Sec. 614.4125 does not require institutions to notify the 
FCA when changing interest rates in accordance with normal differential 
pricing and price incentive structures. Specifically, if monetary 
penalties are imposed based on a default by the direct lender 
association, notice to the FCA is required. If no default in the GFA 
occurs, notice to the FCA is not required.

VI. Additional Regulatory Protections

    The FCA received comments from the FCC and an ACA responding to the 
FCA's request for comments as to whether specific regulations are 
needed to protect the interests of FCS institutions negotiating the 
terms and conditions of the GFAs. The FCC indicated that its membership 
believes that ``a sufficiently level playing field between funding 
banks and their direct lender association-stockholders currently 
exists.'' In addition, the FCC, on behalf of its members, stated that 
the ``promulgation of additional regulations specifically designed to 
`protect' the interest of either party in the negotiation process is 
wholly unnecessary and would be inappropriate, in our judgment, for an 
arm's-length regulator.'' The FCC comments provided in response to the 
proposed GFA regulation were developed by the FCC's membership as a 
result of a process that included two Systemwide conference calls. The 
FCC indicates that prior to being finalized, draft comments were 
circulated throughout the FCS for review, and a third Systemwide 
conference call was then held to discuss and finalize the comments 
provided. The result was a consensus that a sufficiently level playing 
field between funding banks and their direct lender association-
stockholders currently exists.
    Only the ACA took exception to the FCC's comment. The commenter 
stated that direct lender associations are at a competitive 
disadvantage when negotiating the GFA and that voting strength alone 
does not level that playing field, particularly for associations who 
are minority shareholders in their bank. The commenter noted that FCS 
associations cannot obtain financing from a source other than their 
funding bank without the bank's consent. This dependence places 
associations at a disadvantage in negotiating the terms of a GFA. The 
commenter did not recommend specific rules that would address the 
perceived imbalance in bargaining power but did suggest that the GFA 
regulation should provide the associations ``meaningful remedies'' in 
the event that an FCS bank fails to perform under the GFA. In addition, 
the commenter suggested that the FCA should devise a mechanism for 
consistently measuring the effective wholesale cost of funding that 
each FCS bank offers to affiliated associations and make that 
information available on a Systemwide basis. Finally, the commenter 
suggested that FCS banks should be required to establish a specific 
policy on approving outside sources of funding for affiliated 
associations.
    After considering the comments received, the FCA does not believe 
that it has been demonstrated that there is a disparity of negotiating 
power between FCS banks and direct lender associations that requires a 
regulatory solution.\3\ Further, the FCA believes that the remedies 
suggested by the ACA commenter go beyond the scope of this regulation.
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    \3\ While the FCA agrees with the comment that based on current 
information a regulatory solution is unnecessary, the FCA does not 
agree that it would be ``inappropriate'' for an arm's-length 
regulator to provide a regulatory solution to protect the interest 
of either party in the negotiation process, if necessary.
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    The FCA adopts conforming changes to the regulations at 
Secs. 614.4000(b) and 614.4010(b) to include the reference to the 
appropriate sections of the final GFA regulation and references the 
definition of an OFI contained in the final regulation at 
Sec. 614.4130(a).

List of Subjects

12 CFR Part 614

    Agriculture, Banks, Banking, Flood insurance, Foreign trade, 
Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 627

    Agriculture, Banks, Banking, Claims, Rural areas.

    For the reasons stated in the preamble, parts 614 and 627 of 
chapter VI, title 12 of the Code of Federal Regulations are amended to 
read as follows:

PART 614--LOAN POLICIES AND OPERATIONS

    1. The authority citation for part 614 continues to read as 
follows:

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 
4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 
4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 
7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 
2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 
2093, 2094, 2096, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 
2183, 2184, 2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 
2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 
2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa, 
2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart A--Lending Authorities


Sec. 614.4000  [Amended]

    2. Section 614.4000 is amended by removing the reference 
``Sec. 614.4130(b)'' and adding in its place, the reference 
``Sec. 614.4125'' in the last sentence of paragraph (b).


Sec. 614.4010  [Amended]

    3. Section 614.4010 is amended by removing the reference 
``Sec. 614.4130(b)'' and adding in its place, the reference 
``Sec. 614.4125'' in the last sentence of paragraph (b).

Subpart C--Bank/Association Lending Relationship

    4. Section 614.4120 is revised to read as follows:

[[Page 5724]]

Sec. 614.4120  Policies governing extensions of credit to direct lender 
associations and OFIs.

    The board of directors of each Farm Credit Bank and agricultural 
credit bank shall adopt policies and procedures governing the making of 
direct loans to and the discounting of loans for direct lender 
associations and OFIs. The policies and procedures shall prescribe 
lending policies and loan underwriting standards that are consistent 
with sound financial and credit practices. The policies shall require a 
periodic review of the lending relationship with each direct lender 
association and OFI at intervals consistent with the term of the 
general financing agreement but in no case longer than 5 years. The 
policies shall require an evaluation of the creditworthiness of a 
direct lender association on the basis of credit factors and lending 
policies and loan underwriting standards set forth in part 614, subpart 
D, and may permit lending to such an institution on an unsecured basis 
only if the overall condition of the institution warrants. The stated 
term of a general financing agreement shall not exceed 5 years but may 
be automatically renewable for additional terms not to exceed 5 years 
if neither party objects at the time of renewal. The term of any 
general financing agreement that provides for unsecured lending to a 
direct lender association shall not exceed 1 year and may not be 
automatically renewed.
    5. Section 614.4125 is added to read as follows:


Sec. 614.4125  Funding and discount relationships between Farm Credit 
Banks or agricultural credit banks and direct lender associations.

    (a) A Farm Credit Bank or agricultural credit bank shall not 
advance funds to, or discount loans for, any direct lender association 
except pursuant to a general financing agreement.
    (b) The Farm Credit Bank or agricultural credit bank shall deliver 
a copy of the executed general financing agreement and all related 
documents, such as a promissory note or security agreement, and all 
amendments of any of these documents, within 10 business days after any 
such document or amendment is executed, to the Chief Examiner, Farm 
Credit Administration, or to the Farm Credit Administration office that 
the Chief Examiner designates.
    (c) The general financing agreement shall address only those 
matters that are reasonably related to the debtor/creditor relationship 
between the Farm Credit Bank or agricultural credit bank and the direct 
lender association.
    (d) The total credit extended to a direct lender association, 
through direct loan or discounts, shall be consistent with the Farm 
Credit Bank's or agricultural credit bank's lending policies and loan 
underwriting standards and the creditworthiness of the direct lender 
association. The general financing agreement or promissory note shall 
establish a maximum credit limit determined by objective standards as 
established by the Farm Credit Bank or agricultural credit bank.
    (e) A Farm Credit Bank or agricultural credit bank that provides 
notice to a direct lender association that it is in material default of 
any covenant, term, or condition of the general financing agreement, 
promissory note, security agreement, or other related documents 
simultaneously shall provide written notification to the Chief 
Examiner, Farm Credit Administration, or to the Farm Credit 
Administration office that the Chief Examiner designates and the 
Director, Risk Management, Farm Credit System Insurance Corporation.
    (f) A direct lender association shall provide written notification 
to the Chief Examiner, Farm Credit Administration, or to the Farm 
Credit Administration office that the Chief Examiner designates, and 
the Director, Risk Management, Farm Credit System Insurance Corporation 
immediately upon receipt of a notice that it is in material default 
under any general financing agreement, loan agreement, promissory note, 
security agreement, or other related documents with a Farm Credit Bank, 
agricultural credit bank or non-Farm Credit institution.
    (g) A Farm Credit Bank or agricultural credit bank shall obtain 
prior written consent of the Farm Credit Administration before it takes 
any action that leads to or could lead to the liquidation of a direct 
lender association.
    (h) No direct lender association shall obtain financing from any 
party unless the parties agree to the requirements of this paragraph. 
No Farm Credit Bank, agricultural credit bank, or other party shall 
petition any Federal or State court to appoint a conservator, receiver, 
liquidation agent, or other administrator to manage the affairs of or 
liquidate a direct lender association.
    6. Section 614.4130 is revised to read as follows:


Sec. 614.4130  Funding and discount relationships between Farm Credit 
Banks or agricultural credit banks and OFIs.

    (a) A Farm Credit Bank or agricultural credit bank shall not 
advance funds to, or discount loans for, an OFI, as defined in 
Sec. 611.1205(c) of this chapter, except pursuant to a general 
financing agreement.
    (b) The Farm Credit Bank or agricultural credit bank shall deliver 
a copy of the executed general financing agreement and all related 
documents, such as a promissory note or security agreement, and all 
amendments of any of these documents, within 10 business days after any 
such document or amendment is executed, to the Chief Examiner, Farm 
Credit Administration, or to the Farm Credit Administration office that 
the Chief Examiner designates.
    (c) The total credit extended to the OFI, through direct loan or 
discounts, shall be consistent with the Farm Credit Bank's or 
agricultural credit bank's lending policies and loan underwriting 
standards and the creditworthiness of the OFI. The general financing 
agreement or promissory note shall establish a maximum credit limit 
determined by objective standards as established by the Farm Credit 
Bank or agricultural credit bank.
    7. The heading for part 627 is revised to read as follows:

PART 627--TITLE IV CONSERVATORS, RECEIVERS, AND VOLUNTARY 
LIQUIDATIONS

    8. The authority citation for part 627 is revised to read as 
follows:

    Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58 of the Farm 
Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7).

    9. Section 627.2700 is revised to read as follows:

Subpart A--General


Sec. 627.2700  General--applicability.

    The provisions of this part shall apply to conservatorships, 
receiverships, and voluntary liquidations.

Subpart B--Receivers and Receiverships

    10. Section 627.2720 is amended by removing paragraph (a); 
redesignating paragraphs (b), (c), (d), (e), and (f) as new paragraphs 
(a), (b), (c), (d), and (e); and revising newly designated paragraph 
(b) to read as follows:


Sec. 627.2720  Appointment of receiver.

* * * * *
    (b) The receiver appointed for a Farm Credit institution shall be 
the Insurance Corporation.
* * * * *
    11. Section 627.2730 is amended by removing paragraph (b); 
redesignating paragraph (c) as new paragraph (b); and

[[Page 5725]]

revising newly designated paragraph (b) to read as follows:


Sec. 627.2730  Preservation of equity.

* * * * *
    (b) Notwithstanding paragraph (a) of this section, eligible 
borrower stock shall be retired in accordance with section 4.9A of the 
Act.
* * * * *
    12. Part 627 is amended by adding a new subpart D to read as 
follows:

Subpart D--Voluntary Liquidation


Sec. 627.2795  Voluntary liquidation.


Sec. 627.2797  Preservation of equity.


Sec. 627.2795  Voluntary liquidation.

    (a) A Farm Credit institution may voluntarily liquidate by a 
resolution of its board of directors, but only with the consent of, and 
in accordance with a plan of liquidation approved by, the Farm Credit 
Administration Board. Upon adoption of such resolution to liquidate, 
the Farm Credit institution shall submit the proposed voluntary 
liquidation plan to the Farm Credit Administration for preliminary 
approval. The Farm Credit Administration Board, in its discretion, may 
appoint a receiver as part of an approved liquidation plan. If a 
receiver is appointed for the Farm Credit institution as part of a 
voluntary liquidation, the receivership shall be conducted pursuant to 
subpart B of this part, except to the extent that an approved plan of 
liquidation provides otherwise.
    (b) If the Farm Credit Administration Board gives preliminary 
approval to the liquidation plan, the board of directors of the Farm 
Credit institution shall submit the resolution to liquidate and the 
liquidation plan to the stockholders for approval.
    (c) The resolution to liquidate and the liquidation plan shall be 
approved by the stockholders if agreed to by at least a majority of the 
voting stockholders of the institution voting, in person or by written 
proxy, at a duly authorized stockholders' meeting.
    (d) The Farm Credit Administration Board will consider final 
approval of the liquidation plan after an affirmative stockholder vote 
on the resolution to liquidate.
    (e) Any subsequent amendments, modifications, revisions, or 
adjustments to the liquidation plan shall require Farm Credit 
Administration Board approval.
    (f) The Farm Credit Administration Board, in its discretion, 
reserves the right to terminate or modify the liquidation plan at any 
time.


Sec. 627.2797  Preservation of equity.

    (a) Immediately upon the adoption of a resolution by its board of 
directors to voluntarily liquidate a Farm
    Credit institution, the capital stock, participation certificates, 
equity reserves, and allocated equities of the Farm Credit institution 
shall not be issued, allocated, retired, sold, distributed, 
transferred, assigned, or applied against any indebtedness of the 
owners of such equities. Such activities could resume if the 
stockholders of the Farm Credit institution disapprove the resolution 
to liquidate or the Farm Credit Administration Board disapproves the 
liquidation plan. In the event the resolution to liquidate is approved 
by the stockholders of the Farm Credit institution and the liquidation 
plan is approved by the Farm Credit Administration Board, the 
liquidation plan shall govern disposition of the equities of the Farm 
Credit institution, except that if the Farm Credit institution is 
placed in receivership, the provisions of Sec. 627.2730(a) shall govern 
further disposition of the equities of the Farm Credit institution.
    (b) Notwithstanding paragraph (a) of this section, eligible 
borrower stock shall be retired in accordance with section 4.9A of the 
Act.

    Dated: January 27, 1998.
Floyd Fithian,
Secretary,
Farm Credit Administration Board.
[FR Doc. 98-2726 Filed 2-3-98; 8:45 am]
BILLING CODE 6705-01-P]