[Federal Register Volume 65, Number 80 (Tuesday, April 25, 2000)]
[Rules and Regulations]
[Pages 24101-24102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9955]



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 Rules and Regulations
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  Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Rules 
and Regulations  

[[Page 24101]]



FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB87


Loan Policies and Operations; Participations

AGENCY: Farm Credit Administration (FCA).

ACTION: Final rule.

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SUMMARY: This final rule deletes requirements for a Farm Credit System 
(Farm Credit or System) institution to provide notice to or seek 
consent from other System institutions when it buys participation 
interests in loans originated outside its chartered territory. 
Repealing these notice and consent requirements can help increase the 
flow and availability of agricultural credit and help diversify 
geographic and industry concentrations in the loan portfolios of Farm 
Credit banks and associations. As a result of this rule, a Farm Credit 
bank or association will no longer need approval from other System 
institutions when it buys participations in loans from non-System 
lenders.

EFFECTIVE DATE: These regulations will become effective 30 days after 
publication in the Federal Register during which either one or both 
houses of Congress are in session. We will publish a notice of the 
effective date in the Federal Register.

FOR FURTHER INFORMATION CONTACT:   

S. Robert Coleman, Senior Policy Analyst, Office of Policy and 
Analysis, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4498, TDD (703) 883-4444; or
Richard A. Katz, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090. (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION:   

I. Objective

    Our objectives are to:
     Increase the flow and availability of agricultural credit 
to farmers, ranchers, and aquatic producers;
     Diversify geographic and industry concentrations in the 
loan portfolios of Farm Credit banks and associations; and
     Remove notice and consent requirements for loan 
participations purchased from non-System lenders.

II. Background

    We repeal the notice and consent requirements that apply to loan 
participations between Farm Credit and non-System lenders. As a result, 
a System bank or association will no longer need approval from other 
Farm Credit institutions when it buys participations in loans that non-
System lenders make outside of the purchaser's chartered territory.
    This final rule does not affect loan participations between System 
institutions. We have never required consent for intra-System 
participations because the originating lender's consent is implicit 
when it offers the participation.
    On November 9, 1998, we published a proposal to repeal several 
regulations that restrict your institution's authority to make loans, 
buy loan participations, and offer related services outside your 
chartered territory. See  63 FR 60219. On December 16, 1998, we 
extended the comment period until May 10, 1999. See 63 FR 69229.
    We received over 270 comment letters on the proposed rule. No 
commenter cited any statutory provision that restricts the authority of 
System banks and associations to participate in loans outside of their 
chartered territory. Only one comment letter mentioned the statutory 
authorities of System institutions to participate in loans.
    Separately, three System associations asked us for permission to 
participate in loans in the territory of other System institutions 
without consent. These institutions wanted to diversify credit and 
concentration risks in their loan portfolios and help farmers and 
ranchers by increasing the liquidity of non-System lenders.

III. Removing Notice and Consent Requirements for Loan 
Participations

    Removing the geographic restrictions on loan participation 
authorities will allow System lenders and non-System lenders to work 
together at a time when the agricultural economy is experiencing 
significant stress. Currently, farmers and ranchers are suffering from 
weak commodity prices, depressed export markets, drought, and reduced 
production.
    Our final rule will benefit farmers, System institutions, and non-
System lenders such as commercial banks and the finance arms of farm 
supply businesses and equipment dealers. Sound loan participation 
programs can increase the availability of agricultural credit to 
farmers and ranchers. System banks and associations can increase the 
liquidity of community banks and independent finance companies by 
purchasing participation interests in loans that these lenders make to 
farmers and ranchers. System institutions can also diversify geographic 
and industry concentrations in their loan portfolios by buying 
participation interests in sound credits made in a larger geographic 
territory. Cooperation among System and non-System lenders can increase 
agricultural credit availability, particularly during downturns in the 
economic cycle, such as the one that agriculture is currently 
experiencing.
    Our former regulations restricted out-of-territory loan 
participations for policy reasons. Agriculture and financial markets 
have changed dramatically over the past 20 years. Commercial lenders 
have consolidated and are subject to few restrictions on their 
authority to lend to farmers throughout the United States. As a result, 
our former regulations are outdated because the System cannot 
effectively work with non-System lenders to most efficiently deliver 
credit to agriculture and rural America.
    In recent years, we have eliminated non-statutory restrictions that 
prevent System institutions from leasing and participating in similar 
entity \1\ loans outside of their territories. This rule extends our 
policy to loan participations purchased from non-System lenders. This 
final rule creates a consistent policy that allows System banks and 
associations to participate in loans that

[[Page 24102]]

non-System institutions make to both eligible borrowers and similar 
entities that operate in the chartered territory of other System 
institutions.
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    \1\ Similar entity means a party that is ineligible for a loan 
from a Farm Credit bank or association, but has operations that are 
functionally similar to the activities of eligible borrowers in that 
a majority of its income is derived from, or a majority of its 
assets are invested in, the conduct of activities that are performed 
by eligible borrowers. See sections 3.1(11)(B)(ii) and 4.18A(a)(2) 
of the Act.
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    The final rule does not authorize direct lender associations to 
exercise lending authority outside their chartered territory without 
consent. Furthermore, buying out-of-territory loan participation does 
not change the chartered territory of any System institution. In buying 
participations in loans that non-System lenders originate, a System 
institution is not lending outside its chartered territory.
    We believe buying out-of-territory loan participations helps the 
System to fulfill its mission to finance agriculture. Our rule enables 
the System under section 1.1(a) of the Farm Credit Act of 1971, as 
amended (Act) to improve ``the income and well-being of American 
farmers and ranchers by furnishing sound, adequate, and constructive 
credit * * * to them * * *.'' By eliminating artificial territorial 
restrictions for loan participations, we promote cooperation among 
creditors, which will in turn benefit farmers, ranchers, and rural 
America.
    We achieve these objectives by exercising our statutory power to 
repeal regulations that restrict the free flow of credit to farmers and 
ranchers. The Act specifically allows System banks and associations to 
participate with commercial lenders in the types of loans that they can 
make. In granting this broad authority, the Act places no geographic 
restrictions on where System banks and associations may buy 
participations in loans.

List of Subjects in 12 CFR Part 614

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

    For the reasons stated in the preamble, part 614 of chapter VI, 
title 12 of the Code of Federal Regulations is 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, 2097, 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, 2279c-1, 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. Amend Sec. 614.000 as follows:
    a. Remove paragraph (d)(2);
    b. Remove the words ``and paragraph (d)(2) of this section'' from 
paragraph (d)(1);
    c. Redesignate paragraphs (d)(1), (d)(1)(i), and (d)(1)(ii) as 
paragraphs (d) introductory text, (d)(1) and (d)(2), respectively;
    d. Remove the ``:'' at the end of newly designated paragraph (d)(1) 
and add ``; and''; and
    e. Remove ``; and'' at the end of newly designated paragraph (d)(2) 
and add ``.''.


Sec. 614.4010  [Amended]

    3. Amend Sec. 614.4010 as follows:
    a. Remove paragraph (e)(2);
    b. Remove the words ``and paragraph (d)(2) of this section'' from 
paragraph (e)(1);
    c. Redesignate paragraphs (e)(1), (e)(1)(i), and (e)(1)(ii) as 
paragraphs (e) introductory text, (e)(1) and (e)(2), respectively; and
    d. Remove ``; and'' at the end of newly designated paragraph (e)(2) 
and add ``.''.


Sec. 614.4030  [Amended]

    4. Amend Sec. 614.4030 as follows:
    a. Remove paragraph (b)(2);
    b. Remove the words ``and paragraph (b)(2) of this section'' from 
paragraph (b)(1); and
    c. Redesignate paragraphs (b)(1), (b)(1)(i), and (b)(1)(ii) as 
paragraphs (b) introductory text, (b)(1) and (b)(2), respectively; and
    d. Remove the ``:'' at the end of newly designated paragraph (b)(1) 
and add ``; and''; and
    e. Remove ``; and'' at the end of newly designated paragraph (b)(2) 
and add ``.''.


Sec. 614.4040  [Amended]

    5. Amend Sec. 614.4040 as follows:
    a. Remove paragraph (b)(2);
    b. Remove the words ``and paragraph (b)(2) of this section'' from 
paragraph (b)(1); and
    c. Redesignate paragraphs (b)(1), (b)(1)(i), and (b)(1)(ii) as 
paragraphs (b) introductory text, (b)(1) and (b)(2), respectively.


Sec. 614.4050  [Amended]

    6. Amend Sec. 614.4050 as follows:
    a. Remove paragraph (c)(2);
    b. Remove the words ``and paragraph (c)(2) of this section'' from 
paragraph (c)(1); and
    c. Redesignate paragraphs (c)(1), (c)(1)(i), and (c)(1)(ii) as 
paragraphs (c) introductory text, (c)(1) and (c)(2), respectively.

    Dated: April 14, 2000.
Vivian L. Portis,
Secretary, Farm Credit Administration Board.
[FR Doc. 00-9955 Filed 4-24-00; 8:45 am]
BILLING CODE 6705-01-M