[Federal Register Volume 65, Number 190 (Friday, September 29, 2000)]
[Proposed Rules]
[Pages 58486-58494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25071]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 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. 65, No. 190 / Friday, September 29, 2000 / 
Proposed Rules  

[[Page 58486]]



FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AC00


Organization; Stockholder Vote on Like Lending Authority

AGENCY: Farm Credit Administration.

ACTION: Reproposed rule; request for comment.

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SUMMARY: The Farm Credit Administration (FCA or Agency) is reproposing 
regulations to carry out territorial consent requirements of the Farm 
Credit Act of 1971, as amended (Act). The reproposed rule requires Farm 
Credit System (FCS or System) institutions and stockholders in certain 
areas of the country to vote on certain charter amendments. The charter 
amendments would provide eligible customers the opportunity to obtain 
lending services from more than one association.

EFFECTIVE DATE: Please send your comments to us by October 30, 2000.

ADDRESSES: You may send comments by electronic mail to ``[email protected]'' or through the Pending Regulations section of our Web 
site at ``www.fca.gov.'' You may also send comments to Patricia W. 
DiMuzio, Director, Regulation and Policy Division, Office of Policy and 
Analysis, Farm Credit Administration, 1501 Farm Credit Drive, McLean, 
Virginia 22102-5090 or fax them to (703) 734-5784. You may review 
copies of all comments we receive in the Office of Policy and Analysis, 
Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:
Eric Howard, Senior Policy Analyst, Office of Policy and Analysis, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 
883-4444,
      or
Joy Strickland, Senior Counsel, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-
4444.

SUPPLEMENTARY INFORMATION:

I. Objectives

    On March 8, 2000, we announced our plan to remove geographic 
barriers by considering applications for national (also referred to as 
nationwide) charters from direct lender associations. We believe 
removing the geographic constraints on System entities will promote 
greater efficiency, improve customer service, and ensure the System 
continues to meet the current and future needs of rural America. We 
also believe national charters can improve the safety and soundness of 
FCS associations' loan portfolios because they offer opportunities to 
diversify commodity and geographic concentration risks. We issued 
guidance to System institutions on May 3, 2000, explaining the process 
of applying for a national charter. Before we can grant national 
charters in all 50 states, however, the Act requires certain 
associations to conduct stockholder votes. Our objectives for this rule 
are to:
     Implement the stockholder approvals required by statute; 
and
     Ensure stockholders have adequate information before 
voting on competitive charters.

II. Background

    On May 9, 2000, we published a proposed rule in the Federal 
Register to amend part 611 of our regulations. See 65 FR 26776. 
Provisions in the Farm Credit Banks and Associations Safety and 
Soundness Act of 1992 (1992 amendments) require stockholder votes on 
competitive charters involving certain associations in Alabama, 
Louisiana, Mississippi, and New Mexico.\1\ Stockholder approval in 
these states is necessary before we can act on applications for 
competitive charters that would include the territory served by the 
covered associations. The proposed rule required stockholders in these 
four states to vote on competitive charters that would allow eligible 
customers to borrow from more than one association.
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    \1\ Pub. L. 102-552, 106 Stat. 4102 (Oct. 28, 1992) (codified as 
section 5.17(a)(2)(B), (a)(2)(C), (a)(13), and (1)(14) of the Act.)
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    We received 18 comment letters in response to the proposed rule. Of 
this total, we received comments from three Farm Credit banks, three 
production credit associations (PCAs), four Federal land credit 
associations (FLCAs), two agricultural credit associations, and one 
jointly managed PCA/FLCA. We also received a comment letter from a Farm 
Credit Bank (FCB) and seven of its affiliated associations. Several 
commenters sent in more than one comment.
    The comment letters revealed several views about the proposed 
requirements for conducting stockholder votes on competitive charters. 
One commenter wrote to convey full support for the proposed rule. 
Several commenters expressed support for removing the territorial 
restrictions that prevent borrowers from choosing their System lender, 
but objected to specific requirements of the proposed rule. Many of the 
commenters objected to the short timeframes required to fulfill the 
proposed voting procedures. Other commenters raised concerns over the 
impact added competition would have on their institution and urged us 
to withdraw or substantially revise the rule to address these concerns. 
Finally, the FCB of Texas and seven of its affiliated associations 
(hereinafter referred to as the FCB of Texas) questioned our authority 
to issue a rule requiring stockholder votes on competitive charters.
    We have decided to repropose this regulation. On July 20, 2000, we 
published a notice in the Federal Register seeking comment on our May 
3, 2000 publication entitled National Charters (Booklet). See 65 FR 
45066. This Booklet is located on our Web site at ``www.fca.gov'' and 
provides guidance on the national charter application process. Because 
we believe that comments on the Booklet may be relevant to this 
regulation, we have decided to ask for further comment on the 
regulation. In addition, we have modified the proposed rule to address 
many of the comments we received. The modifications provide greater 
flexibility for implementing the statutory voting requirements. We 
believe that an additional opportunity for comment may be beneficial to 
the covered associations and their stockholders.

III. The Reproposed Regulations--General Comments

A. FCA Authority

    The FCB of Texas commented the FCA lacks the authority to force a 
vote on competitive charters in the covered areas. The commenters 
assert that

[[Page 58487]]

nothing in the Act or its amendments requires affected institutions to 
conduct votes of their stockholders or boards of directors. And, if a 
covered association does not conduct a vote, the FCA would not be able 
to approve a new or amended competitive charter. According to the 
commenters, the FCA's authority is merely to inform the covered 
institutions of an overcharter request. It would then be up to the 
institutions' boards of directors to conduct the votes if they chose to 
do so. Finally, the commenters assert that conducting a vote on 
competitive charters is a business decision that is best left to the 
institution.
    In response to these comments, we observe that the FCA has broad 
authority in section 5.17(a)(9) of the Act to prescribe regulations 
necessary or appropriate for carrying out the Act. Section 5.17(a)(11) 
of the Act gives us the authority to exercise such incidental powers as 
may be necessary or appropriate to fulfill our duties and carry out the 
purposes of the Act. We also have the authority in sections 
2.0(b)(8)(D), 2.10(c)(4) and 5.17(a)(2)(A) of the Act to issue and 
approve amendments to Federal charters of System institutions. This 
reproposed rule is based on these authorities implementing the 
requirements of the 1992 amendments.
    The 1992 amendments state that FCA cannot issue a charter amendment 
that will result in competition for institutions in covered areas 
unless specified approvals take place. The Act does not, however, 
contain any details on how to fulfill the approvals. We agree with the 
commenters that, as a general principle, business decisions should be 
left to System institutions. However, the FCA wishes to implement the 
Act in a way that ensures a fair process for all institutions and 
stockholders affected by this statutory requirement.
    Many institutions have submitted charter amendment requests to us 
for national territories. The Act requires certain approvals before we 
can grant national charter amendments. We believe that it is critical 
that the approval process be fair to both the covered institutions that 
must approve the charter amendments and the institutions seeking the 
charter amendments. To ensure an appropriate approval process, we are 
implementing a voting process through notice and comment rulemaking. By 
taking this action, all affected parties will have an opportunity to 
provide input on the process.
    The commenters have suggested a situation that provides strong 
justification for FCA to adopt regulations requiring a voting process 
to implement the 1992 amendments. The commenters suggest that covered 
institutions could refuse to conduct a stockholder vote. Under this 
scenario, no competitive charter amendments in the covered geographic 
areas would ever be possible. This result would be unfair to the System 
institutions seeking national charters. It would also be unfair to 
stockholders in the covered areas who would be deprived of the 
opportunity to express their views on the merits of having other FCS 
lenders serving their areas. This is clearly not what Congress intended 
when it adopted the 1992 amendments.
    There is no evidence in the plain language of the Act or the 
legislative history that Congress intended to prevent competitive 
charter amendments from being granted. If Congress intended to prevent 
competitive charters, it could have done so. There is also no evidence 
that Congress intended to grant the covered institutions the ability to 
prevent charter amendments through inaction. Instead, the remedy 
Congress granted the covered institutions is to prevent competition by 
disapproving charter amendments through votes of the stockholders and 
bank boards of directors in all the covered areas and association 
boards of directors in New Mexico.
    If the covered associations never act on competitive charters, no 
other associations could get charter amendments for those areas. This 
would unfairly restrict all the other associations in the System from 
seeking competitive charters in the covered areas. In contrast, our 
approach in the reproposed regulation is fair. Those stockholders, 
associations, and banks that do not want competitive charters in the 
covered territories have a full and fair remedy to prevent competitive 
charters. They can vote to disapprove the issuance of competitive 
charters. This rule would ensure that a fair approval process occurs.

B. Group Voting on National Charters

    Some commenters stated that voting on national charters as a group 
violates the 1992 amendments. They contend the 1992 amendments require 
a vote to approve or disapprove each competitive charter amendment. 
They believe that the covered institutions should have an opportunity 
to evaluate the identity of the specific association requesting the 
charter amendment and the impact of granting it a competitive charter. 
The commenters note our concern over the cost and disruptive effect 
voting on each charter request would entail.
    In response, we note that the 1992 amendments do not specify the 
details for stockholders, associations, and bank boards of directors to 
approve or disapprove competitive charter amendments. Therefore, it is 
our responsibility to specify how to carry out the consent requirement 
in a reasonable manner. We acknowledge that there are other, less 
desirable procedures, such as a separate vote on each competitive 
charter amendment that might comply with the Act. We believe, however, 
the Act also permits the covered institutions to conduct a vote on 
whether any association charter amendment can be granted. We further 
believe that the intent of Congress, which was to give covered 
institutions the right to prevent their territories from being 
overchartered without their consent, is preserved by voting on whether 
any association could be chartered in the covered territories.
    The commenters suggest that FCA bundle many requests together to 
lessen the burden of separate stockholder and board votes. This 
suggestion presents many practical problems considering there are over 
100 direct lender associations in the System. Providing specific 
association-by-association information on each association seeking a 
national charter would be cumbersome and burdensome to both the covered 
institutions and the voting stockholders. We believe we are proposing 
the most reasonable approach by requiring covered institutions to 
conduct votes on whether any competitive charter may be granted in 
their territories. If a covered institution wishes to allow competitive 
charters for certain associations but not others, it can vote to 
disapprove the question in the rule and conduct individual votes on 
particular associations at a later time. In the latter event, the 
institution can make the business decision to conduct votes on more 
than one association at a time as it sees fit. However, we do not 
believe it is appropriate for us to place this added burden on covered 
institutions and their stockholders.

C. Fairness of Process

    Finally, one bank and three associations commented that it is 
unfair that a covered association could vote to disapprove 
overchartering but remain eligible to receive a nationwide charter. The 
commenters encouraged us to prevent covered associations from being 
able to protect their current lending area from competition by 
disapproving the question, while at the same time applying for a 
nationwide charter.

[[Page 58488]]

    We note that the commenters make compelling points on this issue. 
We did not, however, make this change in the reproposed regulations for 
several reasons. First, the 1992 amendments grant certain rights to the 
covered associations that the Act does not provide to the rest of the 
FCS associations. We believe implementing the commenters' suggestions 
could be viewed as penalizing the covered associations for exercising 
their statutory protections. Further, limiting those eligible for 
national charters would be inconsistent with the Board's philosophy to 
ensure greater opportunities for agricultural and rural borrowers.

IV. The Reproposed Regulations--Section-by-Section Discussion

A. Section 611.1150--Definitions

    We received three comments concerning which institutions should be 
covered by the voting requirements. The FCB of Wichita commented that 
Farm Credit of New Mexico, FLCA, (New Mexico FLCA), should be a covered 
association. The New Mexico FLCA commented that we should include it as 
a covered association and that it supports the comments of the FCB of 
Wichita. The bank stated that the New Mexico FLCA exercises lending 
authority in territory that was served by associations that were 
reassigned pursuant to section 433 of the Agricultural Credit Act of 
1987 (1987 Act).\2\ Thus, the bank concluded that the New Mexico FLCA 
comes within the protections of the 1992 amendments. The bank believes 
that excluding the New Mexico FLCA could result in unfair competition 
from other New Mexico associations should cross-title lending authority 
be implemented.\3\
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    \2\ Pub. L. 100-233, 101 Stat. 1568 (Jan. 6, 1988).
    \3\ The FCA Board stated on March 8, 2000, that the second phase 
for implementing its philosophy on intra-System competition would 
involve cross-title authority for direct lender associations. The 
FCA will provide guidance on cross-title authority issues at a later 
date.
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    We did not include the New Mexico FLCA as a covered association 
because we believe the 1992 amendments apply only to associations that 
were reassigned. The language of the 1992 amendments must be 
interpreted consistent with its legislative history. The legislative 
history clarifies that Congress intended the amendments to only apply 
to those ``associations availing themselves of the opportunity to be 
reassigned.'' \4\ Congress stated that: ``The amendment is intended 
only to assure the farmer-borrowers who own the reassigned associations 
that their associations would not be overchartered without their 
consent.'' \5\ Thus, the legislative history demonstrates that section 
5.17(a)(13) and (14) does not apply to the New Mexico FLCA.
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    \4\ H.R. Rep. No. 783, 102nd Cong., 2nd Sess. (Aug. 4, 1992).
    \5\ Id.
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    After the PCAs changed their affiliation from the FCB of Wichita to 
the FCB of Texas, the FCB of Texas' charter was amended to include 
short-and intermediate-term lending in New Mexico, but that authority 
was not deleted from the FCB of Wichita's charter. The overlapping bank 
charters created the potential for PCA overchartering that the 1992 
amendments were designed to address. At the time the 1992 amendments 
were enacted, there was no potential for overchartering the New Mexico 
FLCA because it was not reassigned and the FCB of Wichita continued to 
have the only long-term lending charter for that territory. \6\ 
Therefore, we believe Congress clearly intended to protect only the 
reassigned New Mexico PCAs from overchartering without consent.
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    \6\ Until recently, the New Mexico FLCA was a Federal land bank 
association that had no direct lending authority of its own. It made 
loans only as an agent of the FCB of Wichita.
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    We also received comments from the Northwest Louisiana PCA and the 
FCB of Texas that the rule should include the Northwest Louisiana PCA 
as a covered association. The commenters maintain that the 1992 
amendments were intended to protect those areas that suffered because 
of the failure and subsequent receivership of the former Federal 
Intermediate Credit Bank of Jackson (FICBJ). Because the Northwest 
Louisiana PCA is included in that geographic area, it should not be 
overchartered without its consent. They further maintain that excluding 
the PCA merely because it reassigned to the FCB of Texas would unfairly 
deny it this statutory protection.
    This position is contrary to the language of the 1992 amendments. 
Congress carefully crafted a description of the area where the 
protections would apply. Section 5.17(a)(2)(B) applies only to the 
geographic area where due to the failure of the FICBJ to merge, the 
FICBJ or its successor (AgFirst FCB) is chartered to provide short-and 
intermediate-term credit, and a neighboring FCB that is not the FICBJ's 
successor (FCB of Texas) is chartered to provide long-term credit. 
Northwest Louisiana PCA was reassigned from the FICBJ to the FCB of 
Texas in 1993. However, because the reassignment was not under section 
433 of the 1987 Act, the PCA's territory was deleted from the FICBJ's 
charter. The FCB of Texas is currently chartered to provide long-term 
credit in the geographic area served by Northwest Louisiana PCA. 
Neither the FICBJ nor its successor (AgFirst FCB) is chartered to 
provide short-and intermediate-term credit in this area. As a result, 
Northwest Louisiana PCA is not entitled to the protections of the 1992 
amendments.
    Finally, one association commented the 1992 amendments should not 
apply in areas where the FCB of Texas no longer provides direct long-
term credit because it has transferred its long-term lending authority 
to the FLCAs. Thus, the commenter believes that the protections should 
not apply to the FLCAs and should only apply to the remaining Federal 
land bank association (FLBA), the Federal Land Bank Association of 
South Mississippi. In response, we note that under section 
5.17(a)(2)(C) the protections apply in the area where the FCB of Texas 
``is chartered to provide long-term credit.'' \7\ As the commenters 
correctly note, the FCB of Texas has transferred direct lending 
authority to the FLCAs in the former Jackson district and no longer 
provides credit directly.\8\ Although the direct lending authority 
remains in the bank's charter, our regulations make clear that this 
authority cannot be exercised once a bank transfers direct lending 
authority to its FLCAs. However, the FCB of Texas' charter also 
authorizes it to lend to its associations for the purpose of providing 
long-term credit. We conclude that the charter thus allows the bank to 
``provide long-term credit'' within the meaning of section 
5.17(a)(2)(C) and that the consent provisions apply to the FLCAs.
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    \7\ Section 5.17(a)(2)(B) and (a)(2)(C) of the Act.
    \8\ Id.
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    We have carefully considered the comments on the definition of 
covered associations. For the reasons stated above, we are making no 
changes to the associations covered by the reproposed rule.

B. Section 611.1151--What Stockholders Must Decide

    Most of the commenters expressed concern with the wording of the 
proposed stockholder question. Some of the commenters believe the 
question could be confusing or misleading to stockholders on the 
consequences of their vote. Commenters also inquired why we proposed 
one question for stockholders and another for boards of directors. 
Others felt that the question was too vague and should more closely 
follow the language of the statute. Finally, other commenters contended

[[Page 58489]]

that the question was designed to encourage approval.
    These commenters have persuaded us to repropose a single question 
for both stockholders and boards of directors. The question in the 
reproposed rule more closely follows the statute, but is written in 
plain language to promote greater understanding by the voters. By more 
closely following the statute, the consequences of approving or 
disapproving the question should be clearer to stockholders. We note 
that neither the proposed nor reproposed question is intended to 
encourage a particular outcome. In addition, to help reduce the 
potential for confusion, we are adding a statement for the New Mexico 
PCAs to explain that the territories that currently overlap will not be 
affected by the outcome of the question.
    Two banks and two associations encouraged us to change the voting 
process to allow reciprocal approval of the question. The commenters 
expressed concern that under the proposal, a covered association voting 
``yes'' would open its territory to another covered association that 
voted ``no.'' The commenters suggested that covered associations should 
be able to condition their approval of the question on the approval of 
other covered associations.
    We agree with the commenters' suggestion, and the reproposed 
question provides for reciprocal voting. The reproposed question is as 
follows:

Should the Farm Credit Administration issue a charter or charter 
amendment that would allow any Farm Credit System association to 
exercise lending authority in the territory now served by X 
Association?

    Approval. Voting to approve means that any other association will 
be able to make loans in the territory now served by X Association, but 
only if X Association has the opportunity to make loans in the 
territory served by the other association.
    Disapproval. Voting to disapprove means that no other association 
will be able to [make long-term mortgage loans or make short-and 
intermediate-term loans as appropriate] in the territory now served by 
X Association.
[For New Mexico PCAs--Currently, more than one PCA serves your 
territory. This competition will not be eliminated regardless of your 
vote.]

C. Section 611.1152--Bank and Association Boards of Directors' Votes

    The FCB of Texas commented that its stockholders should be 
permitted to vote on the question as it affects lending in the former 
Jackson district. The bank believes that its charter will be affected 
by the national charter amendments and therefore, the Act requires a 
vote of its stockholders. Section 5.17(a)(2)(B) of the Act requires 
approval by various parties depending on which charters are 
``affected.'' Because this rulemaking only addresses amendments to 
association charters, only the provisions of section 5.17(a)(2)(B)(i) 
apply. Under that section, bank stockholders do not participate in the 
voting. Further, this rule applies to charter amendment requests for 
direct lender associations only. By the time voting occurs under this 
rule, the FCB of Texas will have no direct lending authority in the 
former Jackson district.\9\ Therefore, the FCB of Texas' charter will 
not be affected by direct lender association charter amendment 
requests. Thus, we are not including bank stockholder voting in the 
reproposed rule.
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    \9\ The FCB of Texas is scheduled to transfer its direct lending 
authority to the FLBA by October 1, 2000.
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    A bank and two associations asked for clarification on bank and 
association board voting. They asked which bank boards would vote in 
connection with the PCAs that were reassigned in New Mexico. We clarify 
that the board of directors of the FCB of Wichita will vote on the 
question as it affects the PCA of Southern New Mexico, which is 
affiliated with it. The FCB of Texas will vote on the question as it 
affects the two associations it funds, the PCA of New Mexico and the 
PCA of Eastern New Mexico.
    The commenters also asked whether each of the boards of directors 
of the PCAs that were reassigned in New Mexico would vote on 
competitive charters with respect to the other New Mexico PCAs. We 
clarify that the boards of directors of the PCAs in New Mexico will 
vote on the question only with respect to their own institution.
    Finally, the FCB of Texas asserted that conducting stockholder 
votes before the boards of directors' votes could waste resources and 
promote unnecessary conflict between stockholders and the boards of 
directors. The commenters also noted that typically a matter is 
presented to stockholders only after the board of directors has 
considered the issue and recommends approval. The commenters maintain 
that if the boards of directors vote first and disapprove the question, 
there would be no need for a stockholder vote.
    We believe there are compelling reasons for the association 
stockholders to vote first. It is the stockholders/borrowers who will 
be most affected by the outcome of the national charter votes. We 
believe that the bank boards (and, in New Mexico, the PCA boards) 
should have the benefit of knowing the views of the association 
stockholders before making their own decision.
    We also disagree that this order of voting promotes confusion and 
unnecessary conflict between stockholders and their boards of 
directors. In the former Jackson district, the Act does not provide for 
the approval of the association boards of directors. \10\ Nonetheless, 
the voting procedure allows the associations' board and management to 
make a recommendation to the stockholders and provide reasons for their 
recommendations. Thus, we do not believe this process will confuse the 
stockholders about their boards' position on the issue.
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    \10\ We believe the commenters' concern about a possible 
conflict between association stockholders and a bank's board of 
directors is misplaced. These two groups are members of different 
organizations that may have different interests.
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D. Section 611.1153--Information Statement

    The FCB of Texas commented the FCA lacks the authority to dictate 
the form and substance of the Information Statement. The commenters 
assert that nothing in the Act grants the FCA the power to prescribe or 
even influence the material in an information statement transmitted to 
stockholders. The commenters also assert that the FCA has no authority 
to make any changes in the content of the Information Statement. The 
commenters agree that all information contained in the Information 
Statement should be accurate and complete, but they are concerned that 
we are attempting to control the contents of their communications with 
stockholders.
    The FCA has authority in the Act to regulate and review information 
provided by institutions to stockholders in several areas. For example, 
section 5.17(a)(8) authorizes us to regulate information on the 
financial condition and operations of the institutions, and section 
7.11 authorizes us to approve the disclosures to stockholders for 
certain corporate actions including mergers, transfers of lending 
authority and terminations. We have implemented these statutory 
provisions by rule. These areas highlight the need for FCA review of 
and involvement in the disclosure provided to stockholders to ensure 
stockholders receive complete and accurate information. We also have 
broad authority to prescribe regulations necessary and appropriate to 
implement the Act. Using that authority, we have

[[Page 58490]]

previously adopted rules to implement other corporate actions, such as 
transfers of lending authority and mergers, consolidations, and charter 
amendments of associations. These rules include detailed requirements 
for our review and approval of the information provided to 
stockholders. We used these regulations as a guideline for developing 
the model Information Statement. We believe that regulating the 
disclosure given to stockholders for significant chartering actions is 
critical to carrying out our statutory authority.
    Our authority to change the content of the Information Statement is 
consistent with our authority to review and approve it and to adopt 
regulations prescribing its content. Notwithstanding our authority to 
do so, we recognize that making changes to the Information Statement 
would be a step beyond the past procedures we have adopted. Based on 
the points raised by the commenters, we do not believe it is necessary 
to include this provision in the reproposed rule.
    As a general matter, we want to assure the commenters that our 
intent is not to influence a vote of the stockholders of the 
associations. We want only to ensure that the stockholders receive 
accurate and complete information on the consequences of competitive 
charters in the covered areas. We also believe that our involvement in 
the disclosure process is necessary to ensure that the stockholders 
receive balanced information. We point out that the association boards 
of directors are free to recommend approval or disapproval to their 
stockholders and provide detailed reasons for their recommendations. 
Finally, we are not requiring the institutions to adopt the model 
Information Statement word-for-word. Although we believe the model 
Information Statement is balanced and provides complete information to 
stockholders, institutions may modify the wording, as long as the 
information presented is complete, balanced, and not misleading.
    The FCB of Texas commented that the FCA has no authority to include 
a statement of the FCA Board in the Information Statement. The 
commenters believe that this is inconsistent with the FCA's role as an 
arms-length regulator. The commenters further state that inclusion of a 
FCA Board statement would be an attempt to manipulate the business 
decisions of the institutions. We believe that we have authority to 
require a statement of our views on the charter amendments to be 
included in the Information Statement. We do, however, understand the 
commenters' concerns. Our goal in proposing to include our views in the 
Information Statement was to ensure fair and balanced disclosure. Based 
on the commenters' concerns, however, we have reconsidered whether 
including the FCA Board's views is necessary. Because we will review 
and approve the Information Statement, and because we are providing a 
model Information Statement, we do not believe that including our views 
is necessary.
    Finally, we clarify for the commenters that all equity holders will 
receive the Information Statement to keep them informed of the issues 
affecting their institution. Only voting stockholders, according to the 
institution's bylaws, would vote on the question.

E. Section 611.1154--Timeframe for the Vote

    The FCB of Texas commented that the proposed regulations provided 
extremely short time limits for conducting the vote. For example, they 
believe that 10 days for stockholders to review the Information 
Statement is inadequate. They noted the proposed timeframe does not 
provide an opportunity for information meetings with stockholders to 
discuss the potential benefits and drawbacks of this initiative. 
Finally, the commenters suggest they will need a minimum of 6 months 
for the entire process, including preparation of the Information 
Statement.
    We understand that the stockholders will be voting on a significant 
issue. As a result, we have revised the timeframes for preparing the 
Information Statement and conducting the stockholders' and boards of 
directors' votes. The reproposed regulation requires the stockholders' 
votes be completed by July 16, 2001, and the boards of directors' votes 
be completed by July 31, 2001. The extended timeframes should also 
allow more time for the institutions to prepare the Information 
Statement as well as greater time for stockholders to review and 
discuss the question. In order to ensure that the votes are conducted 
by July 31, 2001, however, the reproposed regulations require that the 
covered associations submit the Information Statement to us for review 
by May 1, 2001. It is also important to note that while we granted 
covered associations the flexibility to determine the time available 
for stockholder review, the reproposed regulations continue to require 
that stockholders be given at least 10 days. Finally, the reproposal 
extends the time for our review of the Information Statement from 10 to 
15 business days.

F. Miscellaneous Sections

    We received no comments on Secs. 611.1155 through 611.1158; thus we 
are making no changes to this section in the reproposed rule.
    Proposed Sec. 611.1159 would prohibit an officer, director, 
employee, or agent of an institution from making any representation 
that would appear to be a statement of the FCA on the merits of the 
question. The FCB of Texas commented that this section would violate 
the First Amendment of the Constitution because it ``chills free 
speech.'' Further, they believe that as written, the prohibition is too 
vague. We respond by revising Sec. 611.1159 to more clearly communicate 
our intention. The reproposed rule prohibits any officer, director, 
employee, or agent of an institution from making any untrue or 
misleading statement to stockholders in connection with a vote on the 
question. This prohibition is standard in disclosures to stockholders 
for most corporate activities involving stockholder votes, and it is 
not intended to restrict free speech. Instead, it is intended to ensure 
that stockholders are not misled.
    We received numerous comments on proposed Sec. 611.1160, which 
provided for us to conduct a stockholder vote on the question if an 
institution failed to do so. The commenters questioned whether FCA has 
the authority to conduct a vote of stockholders. We continue to believe 
that we have the authority to implement the 1992 amendments by 
conducting a vote of stockholders if necessary. After carefully 
considering the comments, however, we do not believe that this 
provision is necessary. Instead, we will rely on our enforcement 
authorities to ensure the votes are conducted. Thus, we are not 
including Sec. 611.1160 in the reproposed rule.

G. Other Comments

    A bank and two associations commented that they could not evaluate 
the issues that this proposal raised with regard to cross-title lending 
authority. The commenters noted that they would reserve further 
comments on this issue until they received more information on this 
process. As previously noted, we plan to provide guidance on cross-
title authority issues at a later date.
    One association commented that imposing voting requirements on 
associations in some states without imposing the same requirements on 
associations in all states may violate the due process clause of the 
Fifth Amendment. We note that we are merely implementing the statutory

[[Page 58491]]

voting requirements that Congress enacted in the 1992 amendments.

List of Subjects in 12 CFR Part 611

    Accounting, Agriculture, Banks and banking, Rural areas.

    For the reasons stated in the preamble, we are reproposing 
amendments to part 611 of chapter VI, title 12 of the Code of Federal 
Regulations as follows:

PART 611--ORGANIZATION

    1. The authority citation for part 611 continues to read as 
follows:

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 
4.20, 4.21, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act 
(12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2208, 
2209, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and 
412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of 
Pub. L. 100-399, 102 Stat. 989, 1003, and 1004.

    2. Add subpart J to read as follows:
Subpart J--Stockholder Vote on Like Lending Authority
Sec.
611.1150   What definitions are used in this subpart?
611.1151   What must your stockholders decide?
611.1152   What votes must be conducted by bank and certain 
association boards of directors?
611.1153   What must the Information Statement contain?
611.1154   What is the timeframe for this vote?
611.1155   How are the votes tabulated?
611.1156   Who is notified of the results of the stockholder vote?
611.1157   How many votes are needed for passage of the questions?
611.1158   What notifications must be made?
611.1159   Are there additional requirements?
Appendix A to Subpart J--Model Information Statement

Subpart J--Stockholder Vote on Like Lending Authority


Sec. 611.1150  What definitions are used in this subpart?

    (a) Days means calendar days unless otherwise noted.
    (b) You or covered associations means the associations subject to 
section 5.17(a)(2)(B), (a)(2)(C), (a)(13) and (a)(14) of the Farm 
Credit Act of 1971, as amended, specifically First South Production 
Credit Association; Louisiana Federal Land Bank Association, FLCA; 
Federal Land Bank Association of North Alabama, FLCA; Federal Land Bank 
Association of South Alabama, FLCA; Federal Land Bank Association of 
North Mississippi, FLCA; Production Credit Association of Southern New 
Mexico; Production Credit Association of Eastern New Mexico; Production 
Credit Association of New Mexico; and the FLBA of South Mississippi 
provided that it is chartered as a Federal land credit association.
    (c) We or us means the Farm Credit Administration.


Sec. 611.1151  What must your stockholders decide?

    (a) You must conduct a vote of your voting stockholders, voting in 
person or by proxy, at a duly authorized meeting, on this question:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
   Question: Should the Farm Credit Administration issue a charter or
charter amendment that would allow any Farm Credit System association to
exercise lending authority in the territory now served by X Association?
------------------------------------------------------------------------
Approval: Voting to approve means that   Disapproval: Voting to
 any other association will be able to    disapprove means that no other
 make loans in the territory now served   association will be able to
 by X Association, but only if X          [make long-term mortgage loans
 Association has the opportunity to       or make short- and
 make loans in the territory served by    intermediate-term loans as
 the other association.                   appropriate] in the territory
                                          now served by X Association.
------------------------------------------------------------------------
New Mexico PCAs must include the following: Currently, more than one PCA
     serves your territory. This competition will not be eliminated
                        regardless of your vote.
------------------------------------------------------------------------

    (b) Before the vote on the question, you must prepare an 
Information Statement, obtain Farm Credit Administration approval of 
it, and distribute it to your stockholders.


Sec. 611.1152  What votes must be conducted by bank and certain 
association boards of directors?

    (a) Not later than 12 days following the notice from the 
independent third party required by Sec. 611.1156(a), the board of 
directors of the Farm Credit Bank of Texas, AgFirst Farm Credit Bank, 
and the Farm Credit Bank of Wichita must vote on the question in 
paragraph (a) of Sec. 611.1151 with regard to their affiliated 
associations and report the results to us.
    (b) Not later than 12 days following the notice from the 
independent third party required by Sec. 611.1156(a), the boards of 
directors of the Production Credit Association of Southern New Mexico, 
the Production Credit Association of Eastern New Mexico, and the 
Production Credit Association of New Mexico must vote on the question 
in paragraph (a) of Sec. 611.1151 and report the results to us.
    (c) The votes referenced in paragraphs (a) and (b) of this section 
must take place no later than July 31, 2001.


Sec. 611.1153  What must the Information Statement contain?

    (a) The Information Statement must include the question in 
Sec. 611.1151(a) and must substantially conform to the model 
Information Statement provided as an appendix to this subpart. The 
Information Statement must also include a:
    (1) Notice of meeting;
    (2) Proxy ballot and instructions;
    (3) Brief summary of the question;
    (4) Discussion of the advantages and disadvantages of approving the 
question; and
    (5) Association board statement or recommendation (optional).
    (b) We may also require additional information in the Information 
Statement to ensure stockholders have accurate and adequate 
information.


Sec. 611.1154  What is the timeframe for this vote?

    (a) You must submit the Information Statement to us no later than 
May 1, 2001, but you may submit it earlier. You may send the 
Information Statement to us by regular mail, facsimile, electronic 
transmission, overnight mail, or other similar delivery method.
    (b) Not later than 15 business days after receipt of the 
Information Statement, we will review the Information Statement and 
notify you of our approval or denial. We may require you to change the 
Information Statement to ensure that it provides accurate and complete 
information to stockholders on the question.
    (c) You must ensure your stockholders have a minimum of 10 days to 
review the Information Statement before the meeting at which the 
stockholders will vote on the question in Sec. 611.1151.
    (d) A meeting of the stockholders to vote on the question in 
Sec. 611.1151 must take place no later than July 16, 2001.

[[Page 58492]]

Sec. 611.1155  How are the votes tabulated?

    The votes will be tabulated by an independent third party within 2 
business days of the stockholder meeting.


Sec. 611.1156  Who is notified of the results of the stockholder vote?

    (a) On the day the votes are tabulated, the independent third party 
must report the results to you, the appropriate bank(s), and us.
    (b) Within 10 days of the stockholder meeting, the independent 
third party must provide the Farm Credit Administration with a 
certified copy of the stockholders' vote on the question.


Sec. 611.1157  How many votes are needed for passage of the questions?

    The votes in Secs. 611.1151 and 611.1152 will be determined by the 
majority of those voting, in person or by proxy as appropriate, at a 
duly authorized meeting in accordance with the associations' or banks' 
quorum requirements.


Sec. 611.1158  What notifications must be made?

    (a) You must notify the stockholders of the results of the votes 
referenced in Secs. 611.1151 and 611.1152 within 10 business days.
    (b) The board of directors of the Farm Credit Bank of Texas, the 
Farm Credit Bank of Wichita, and the AgFirst Farm Credit Bank must 
notify each of the covered associations with which they have a funding 
relationship of the results of the vote in Sec. 611.1152(a) within 2 
business days.


Sec. 611.1159  Are there additional requirements?

    No bank or association director, officer, employee, or agent may 
make any untrue or misleading statement to a stockholder of the 
association in connection with a vote on the question in Sec. 611.1151.

Appendix A to Subpart J--Model Information Statement

Table of Contents

A-1  Notice of Stockholders' Meeting of X Association
A-2  Proxy Instructions and Ballot
A-3  Proxy Form
A-4  Ballot (For Use as Proxy Ballot or Voting in Person) X 
Association
A-5  Brief Summary of the Question
A-6  Advantages and Disadvantages of Approving the Question
A-7  X Association Board Statement (Optional)

    Note: Appendix A Contains a Model Information Statement to Aid 
in Compliance With Subpart J of Part 611.

A-1--Notice of Stockholders' Meeting of X Association

    1. A meeting of the stockholders of X Association will be held 
at (location) located at (address), on (date), beginning at (time).
    2. At this meeting, you will be asked to vote on the following 
question:
    Should the Farm Credit Administration issue a charter or charter 
amendment that would allow any Farm Credit System association to 
exercise lending authority in the territory now served by X 
Association?
    Approval. Voting to approve means that any other association 
will be able to make loans in the territory now served by X 
Association, but only if X Association has the opportunity to make 
loans in the territory served by the other association.
    Disapproval. Voting to disapprove means that no other 
association will be able to [make long-term mortgage loans or make 
short- and intermediate-term loans as appropriate] in the territory 
now served by X Association.
    (New Mexico PCAs must include the following: Currently, more 
than one PCA serves your territory. This competition will not be 
eliminated regardless of your vote.)
    3. The Farm Credit Administration (FCA) Board has received 
applications from direct lender associations for national (also 
referred to as nationwide) charters. National charters would enable 
other Farm Credit System (System) lenders to make loans in the 
territory now served by your Association. As a result, you could 
have greater choice of System lenders in your area.
    4. The Farm Credit Act of 1971, as amended (Act), requires 
approval by the voting stockholders of your Association before the 
FCA can issue a charter or amend a charter that would allow any 
System lender to make loans, of the same type as those that your 
Association can make, in the geographic territory now served by your 
Association. For the question to be approved, a majority of the 
voting stockholders of X Association voting, in person or by proxy, 
at a duly authorized meeting of such stockholders, must vote to 
approve the question. The Act requires other approvals before 
nationwide charters can be issued in the territory served by X 
Association. Also, approval of the question is conditional upon X 
Association being able to lend in the other associations' 
territories. These approvals are explained in the brief summary of 
the question (Appendix A-5).
    5. Attached is a packet of information related to the question. 
The packet includes a brief summary of the question; advantages/
disadvantages of allowing other System associations to exercise 
lending authority for eligible customers in the geographic 
territory; and a Board of Directors' Statement (optional).
    6. Information on balloting and proxies is included under 
Appendix A-2, including the deadline of (date) for receipt of the 
proxy forms by your Association. If you have any questions about the 
Information Statement or the question, you may discuss them at the 
stockholders' meeting on (date). Your board of directors urges you 
to vote in person or by proxy at the stockholders' meeting.
    7. If you are a nonvoting stockholder or holder of participation 
certificates, you cannot vote on the question. However, we sent you 
this Information Statement to keep you informed of the possible 
changes affecting your Association.
    Enclosures.

----------------------------------------------------------------------
Name
(Signature of appropriate association official(s))

A-2--Proxy Instructions and Ballot

    If you are entitled to vote and are unable to attend the meeting 
in person, you may appoint a proxy to vote as you direct. The 
following are instructions for completing the Proxy Ballot and Proxy 
Form:
    1. Complete the Proxy Ballot.
    a. Mark either ``APPROVE'' or ``DISAPPROVE'' in the appropriate 
box on the Ballot. Unmarked Proxy Ballots will be voted to approve 
the question.
    b. Enclose Proxy Ballot in the Ballot Envelope provided. Seal 
the envelope.
    2. Complete the Proxy Form.
    a. If you prefer, you may name as your proxy someone other than 
the directors named on the Proxy Form by writing in the name of the 
person in the blank space provided. Please note that for your vote 
to count, the person you name as proxy must be a voting stockholder 
of the association and must be present at the stockholders' meeting.
    b. Date and sign the Proxy Form in the space indicated.
    3. Enclose your signed and dated Proxy Form and sealed Ballot 
Envelope in the business reply envelope provided. Mail to your 
Association in the pre-addressed return envelope provided.
    For your vote to count, your Proxy Ballot and Proxy Form must be 
received in the association office no later than (time) on (date) or 
delivered to an election official before balloting at the 
stockholders' meeting. You have the right to cancel your proxy at 
any time prior to the beginning of balloting at the stockholders' 
meeting.

A-3--Proxy Form

    I, __________, as holder of stock and authorized to vote such 
stock in X Association, cancel any previous proxies and appoint 
(Name), Director, X Association, as my proxy, or I appoint 
__________, as my proxy to attend the association stockholders' 
meeting on (date), and any continuation or adjournment of the 
meeting, to vote for me on the question, and to act for me with the 
same effect as if I were personally present.
    I understand that I may cancel this proxy and the authority it 
represents at any time prior to balloting at the stockholders' 
meeting. Unless cancelled, this proxy will expire upon the official 
announcement of the results of the vote on the question. I also 
understand that, if necessary, the person I name as my proxy can 
substitute someone else as my proxy and can later cancel that 
substitution.

Date:------------------------------------------------------------------
----------------------------------------------------------------------
Signature*
----------------------------------------------------------------------
Representative Title**

    *Please sign exactly as your name appears on the above label.

[[Page 58493]]

    **When signing as an executor, administrator, trustee, or 
guardian on behalf of a corporation or partnership, please sign your 
name on the first line and indicate your full representative title 
on the second line.

A-4--Ballot (For Use as Proxy Ballot or Voting in Person) X 
Association

    Question: Should the Farm Credit Administration issue a charter 
or charter amendment that would allow any Farm Credit System 
association to exercise lending authority in the territory now 
served by X Association?
    I direct that my Ballot be voted as follows:
    ________ Approval. Voting to approve means that any other 
association will be able to make loans in the territory now served 
by X Association, but only if X Association has the opportunity to 
make loans in the territory served by the other association.
    ________ Disapproval. Voting to disapprove means that no other 
association will be able to [make long-term mortgage loans or make 
short- and intermediate-term loans as appropriate] in the territory 
now served by X Association.
    (New Mexico PCAs must include the following: Currently, more 
than one PCA serves your territory. This competition will not be 
eliminated regardless of your vote.)
    If I do not direct how this ballot shall be voted, I intend it 
to be cast to APPROVE the question.

    Note: For your vote to count, your Proxy Ballot and Proxy Form 
must be received in the association office no later than (time) on 
(date) or delivered to an election official prior to balloting at 
the stockholders' meeting. You have the right to cancel your proxy 
at any time prior to the beginning of balloting at the stockholders' 
meeting.

A-5--Brief Summary of the Question

    1. In a July 14, 1998, Philosophy Statement, the FCA Board 
expressed its view that competition is beneficial for customers and 
will help ensure the Farm Credit System will continue to meet the 
current and future needs of rural America. To facilitate competition 
and improve services for all farmers, ranchers, and other eligible 
customers, the FCA Board indicated its support for several measures 
including the removal of geographical restrictions of System 
entities.
    2. The FCA Board has received applications for national charters 
from System direct lender associations. Before the FCA can grant 
applications for full nationwide charters, however, the Agency must 
carry out two requirements of the Act that call for stockholder 
voting in certain areas of the country. Congress required 
stockholder voting in the geographic area in which the Federal 
Intermediate Credit Bank (FICB) of Jackson or its successor (AgFirst 
Farm Credit Bank) is chartered to provide short- and intermediate-
term credit and the Farm Credit Bank of Texas is chartered to 
provide long-term credit. Congress also required the consent of 
stockholders of three production credit associations in New Mexico 
pursuant to section 433 of the Agricultural Credit Act of 1987.
    3. Your Association serves the [counties/states of xxx], and 
(insert either (1) has territory that is within the geographic area 
of the successor to the former FICB of Jackson or (2) reaffiliated 
under section 433.] As a result, you are being asked whether you 
approve the FCA's issuance of charters to associations that would 
allow them to make similar loans to you and other eligible customers 
in the territory of your Association.
    4. Approval of the question does not, however, guarantee that 
other associations may be chartered to lend in your Association's 
territory. Associations other than those in the area served by the 
former Jackson FICB and the PCAs in New Mexico may apply for 
nationwide charters if they choose to do so. Similarly, your 
Association may be able to obtain a charter for all areas outside of 
those covered by the Act.
    5. In addition, amending the charters of other associations in 
the territory served by the former Jackson FICB and the PCAs in New 
Mexico is conditional upon those associations also voting to approve 
the question. If you vote to approve the question, you are approving 
the question only for those associations that will allow your 
Association to lend in their territories. Similarly, your 
Association's ability to provide credit in the territories served by 
other associations in the areas covered by the Act will depend upon 
whether your Association's stockholders approve the same question 
you have before you.
    6. Following the stockholder vote on the question, the board of 
directors of the [insert appropriate bank] [and insert associations 
if this Information Statement refers to section 5.17(a)(13) and 
(a)(14)] will also vote on the question. The question must be 
approved by a majority of the stockholders voting and a majority of 
the board of directors of the banks [and associations, if 
appropriate] before another System lender may be chartered to make 
similar loans in the territory of your Association. If approved by 
all parties involved, the FCA may grant requests from other FCS 
associations to serve the territory currently served by your 
Association.

A-6--Advantages and Disadvantages of Approving the Question

    There are advantages and disadvantages of your approval of the 
question. The following is a brief discussion of the principal 
advantages and disadvantages to the stockholders of your 
Association. This discussion does not claim to provide a complete 
analysis of all the expected outcomes of approval of the question. 
In addition, there can be no assurance that any expected advantage 
or disadvantage below will take place in whole or part. The 
realization of any advantages and disadvantages depends on how each 
association implements its nationwide charter. You should also 
consider that the advantages and disadvantages affect not only you 
but also all other eligible System customers and potential 
customers.

Advantages

    1. Allowing other System associations to make loans in the 
territory of your Association may provide System customers in the 
[insert geographic area] with more choices for credit. You may have 
a greater choice of financial services because System lenders offer 
different loan products, interest rates, and repayment options. If 
the question is approved, you may have the freedom to select the 
System lender of your choice.
    2. Competition for loans within a geographic area may also 
provide associations the opportunity and incentive to become more 
efficient and more competitive. This competition is likely to lower 
the cost of credit and improve the quality of service for you and 
other customers.
    3. System lenders across the country may be better able to 
develop niche products and thus offer specialized lending services 
to customers in the territory of your Association and across the 
country. You may be able to obtain your main source of operational 
funding from one lender and specialized services from another. E-
commerce services may be enhanced after territorial restrictions are 
removed.
    4. National charters may also help System lenders compete more 
effectively with non-System lenders who are not restricted by 
geographical constraints. System lenders will be able to provide 
seamless credit to agricultural producers across the United States. 
Removing geographical boundaries may also allow System lenders to 
diversify the geographic and commodity mix in their loan portfolios, 
thereby providing opportunities to improve their long-term safety 
and soundness.
    5. Finally, approval of this question may heighten awareness of 
each System lender's public policy mission for service within its 
original chartered territory. The FCA will continue to ensure that 
each System association fulfills its responsibility to make services 
available to all eligible customers within its current chartered 
territory.

Disadvantages

    1. As System lenders compete for customers, some associations 
may become less viable if added competitive pressures reduce profit 
margins. In addition, if the challenges associated with greater 
competition are not met, the capital investment of stockholders may 
be at a higher risk. There are 155 associations that may request 
nationwide charters as of September 1, 2000. As a result, the 
management of your Association may be under increased pressure to 
provide efficient and cost effective services.
    2. In the long run, some associations may be forced to cut back 
or eliminate certain services. Also, associations entering new 
geographic areas may primarily focus on larger or more profitable 
borrowers while less attention may be given to the more marginal 
borrowers in the associations' new and existing chartered 
territories.
    3. Some associations may not be competitive in their present 
form and may have to merge or take other corporate restructuring 
actions to remain viable.

A-7--X Association Board Statement (Optional)

    The Association board of directors may state its views and 
recommendation on the question and elaborate on the reasons for its 
recommendation.


[[Page 58494]]


    Dated: September 26, 2000.
Kelly Mikel Williams,
Secretary, Farm Credit Administration Board.

[FR Doc. 00-25071 Filed 9-28-00; 8:45 am]
BILLING CODE 6705-01-P