[Federal Register Volume 66, Number 181 (Tuesday, September 18, 2001)]
[Proposed Rules]
[Pages 48098-48102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23208]


 ========================================================================
 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. 66, No. 181 / Tuesday, September 18, 2001 / 
Proposed Rules  

[[Page 48098]]



FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB98


Loan Policies and Operations; Loans to Designated Parties

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA or we) is reproposing 
amendments to its regulations for the approval of loans to designated 
parties. The term ``designated parties'' includes Farm Credit System 
(FCS or System) ``insiders'' most likely to have a conflict of interest 
and those FCA and Farm Credit System Insurance Corporation (FCSIC) 
employees who may legally borrow from the System. The reproposed rule 
would require the lender's board, or its delegated committee, to 
approve all loans to a designated party that exceed the greater of 
$150,000 or 0.5 percent of permanent capital (not to exceed $250,000). 
The reproposed rule would also eliminate the System banks' approval 
requirement and include an option allowing an association to enter into 
an agreement with its affiliated bank to permit the bank to perform the 
designated party loan approval.

DATES: Please send your comments to us by October 18, 2001.

ADDRESSES: We encourage you to send comments by electronic mail to 
``[email protected]'' or by accessing the Pending Regulations section of 
our Web site at ``www.fca.gov.'' You may also send comments to Thomas 
G. McKenzie, Director, Regulation and Policy Division, Office of Policy 
and Analysis, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, Virginia 22102-5090 or by fax 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:
Tong-Ching Chang, Policy Analyst, Office of Policy and Analysis, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 
883-4444,
      or
Alison C. Samarias, Attorney Advisor, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The objectives of our reproposed amendment are to:
     Provide greater flexibility for banks and associations to 
approve loans to designated parties, including System ``insiders'' most 
likely to have a conflict of interest and those FCA and FCSIC employees 
who may legally borrow from the System;
     Increase accountability of association boards when making 
decisions on loans to designated parties;
     Require the board of each System institution to adopt 
policies and procedures to prevent undue influence when making loans to 
designated parties and ensure that designated parties do not receive 
loans on more favorable terms than other borrowers;
     Reduce unnecessary burden on System banks by removing the 
requirement that System banks approve all designated party loans made 
by their related associations; \1\ and
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    \1\ Associations may enter into agreements with their funding 
banks to permit the bank to perform the approvals.
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     Make our regulations easier to understand and use.

II. Background

    Sections 614.4450, 614.4460, and 614.4470 of FCA regulations 
require a funding bank to approve all loans that it and its related 
associations make to designated parties. On August 18, 1998, we 
published a notice inviting public comment to identify existing 
regulations and policies that imposed unnecessary burdens on System 
institutions. See 63 FR 44176, August 18, 1998. Among other things, you 
\2\ asked that we update Sec. 614.4460 to remove the obsolete term 
``district boards'' \3\ and repeal Sec. 614.4470, which requires banks 
to approve all loans that their affiliated associations make to 
designated parties.
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    \2\ As part of our objective to use plain language in our 
regulations, we use the word ``you'' to refer to Farm Credit System 
banks and associations in this preamble and the reproposed 
regulation.
    \3\ The district boards were abolished by the Agricultural 
Credit Technical Corrections Act of 1988, Pub. L. No. 100-399, 102 
Stat. 1003 (Aug. 17, 1988).
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III. Direct Final Rule and Its Withdrawal

    On August 9, 1999, we published a direct final rule with 
opportunity to comment. See 64 FR 43046, August 9, 1999. The direct 
final rule would have, in relevant part, allowed System banks or 
associations to make loans to designated parties with the approval of 
their respective boards of directors. One association provided a 
significant adverse comment on the revision. Four other associations 
also provided comments on the revision. Because of these comments, we 
withdrew the portion of the direct final rule with respect to loans to 
designated parties on October 14, 1999 (64 FR 55621).

IV. Previously Published Proposed Rule

    We revised the provisions on loans to designated parties withdrawn 
from the direct final rule and published the changes in a proposed rule 
on March 17, 2000 (65 FR 14491).
    The proposed rule updated the definition of ``designated parties'' 
to include other legal entities and employees of FCA and FCSIC who are 
allowed to borrow from you.\4\ The proposed rule also would have 
required you to adopt a policy addressing the approval of loans to 
designated parties. We would have required your policy to describe 
procedures for loans to designated parties. Depending on the size of 
the loan, you could have chosen one of three approval options for 
making loans to designated parties.
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    \4\ Most FCA and FCSIC employees are prohibited from borrowing 
from you under 5 CFR Parts 4101 and 4001. For example, FCA and FCSIC 
Board members, examiners, procurement personnel, and all employees 
over a certain civil service grade level cannot legally borrow from 
System institutions.
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    The first option would have allowed your board of directors (or a 
committee of your board) to approve all loans made to designated 
parties. The second option would have maintained the existing practice 
of allowing the funding bank to approve loans made by its associations. 
Finally, the third option would have permitted your board of directors 
to

[[Page 48099]]

delegate approval of loans to designated parties of $25,000 or less to 
your management with post review by your board.

V. Comments on the March 2000 Proposed Rule

    We received seven comment letters on the proposed rule (one each 
from the Farm Credit Council (Council), two banks, and four 
associations). A majority of the commenters stated that the proposed 
rule was more restrictive and burdensome than the existing regulations, 
would have increased costs, and would not have achieved its stated 
objectives.\5\ Three commenters were opposed to certain provisions as 
proposed. The commenters also asked us to clarify certain provisions 
and offered suggestions to improve the regulations. The following 
summarizes the comments received.
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    \5\ The stated objectives of the proposed rule were to: (1) 
Provide greater flexibility for banks and associations to approve 
loans to designated parties; (2) keep adequate controls on loans 
that banks and associations make to designated parties; and (3) make 
our regulations easier to understand and use.
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A. Board Approval

    The commenters generally viewed the board approval requirement, 
combined with the other two approval options, as impractical because 
the boards would have had to approve practically all loans to 
designated parties. Two commenters indicated that the proposed rule 
might have encouraged association boards to send all loan approvals for 
designated parties to their funding banks to avoid their boards' 
involvement in the burdensome loan approval process. Thus, associations 
might never assume the responsibility of approving their own loans to 
designated parties.
    Two commenters expressed concerns that the board approval 
requirement would discourage the best qualified farmers and ranchers 
from serving on System boards and cause them to take their personal 
business elsewhere. One commenter stated that board members would not 
be comfortable knowing financial information of their fellow board 
members and would not want their own financial information divulged to 
their peers. Another commenter stated that the institutions do not 
share detailed information about designated parties in the boardroom 
because directors are often competitors. Commenters also stated that 
directors lack the necessary expertise to make credit decisions on 
complex loans and that requiring board actions on loans to designated 
parties would delay loan decisions, increase costs, and contribute to 
making FCS institutions noncompetitive.
    Response: Directors are ultimately responsible for all credit 
decisions their institutions make and are in the best position to 
approve loans to designated parties. Nevertheless, we agree with some 
of the commenters' concerns and have modified the board approval 
requirements in the reproposed rule.
    The reproposed rule would permit your board to delegate approval of 
loans to designated parties to a committee comprised of at least three 
individuals, as long as directors constitute the majority of the 
committee. Requiring a majority of directors on the committee would 
maintain the board's accountability to ensure that decisions on loans 
to designated parties are not made under undue influence. The 
reproposed rule would also permit management to serve on the committee 
to provide directors with the credit expertise needed to approve loans 
to designated parties in a timely manner.

B. Bank Approval

    As an option to System associations, the March 2000 proposed rule 
continued the existing practice that a funding bank could approve all 
loans its associations make to designated parties. One bank commented 
that the Farm Credit Act of 1971, as amended (Act), does not require 
banks to approve loans made by related associations. The bank and 
Council suggested that the funding banks should have discretion to 
voluntarily accept the responsibility of approving loans to designated 
parties for their associations.
    Commenters generally objected to our previously proposed $25,000 
management delegation limit because the threshold was too low. 
Commenters asserted that associations would always want their funding 
banks to approve associations' loans to designated parties. As a 
result, associations could abdicate their responsibility and remove 
themselves from the loan approval process and the banks would have had 
no relief from the existing regulation. In contrast, one commenter 
stated that allowing banks to cease approving loans to designated 
parties made by their associations would increase costs, delay loan 
decisions, and degrade customer service.
    Response: We agree with the Council and bank's comment that the 
boards of associations generally should be responsible for approving 
their own loans and that banks should approve loans made by their 
associations only if the banks agree. The reproposed rule would change 
the existing regulatory requirement so that a System bank may approve 
all or any portion of the loans made by related associations to 
designated parties at the option of both the bank and its related 
associations. The reproposed rule would require any loans to designated 
parties approved by the funding bank for its related associations to be 
reviewed by the association boards at the first board meeting following 
the loan approval.

C. Management Delegation and Threshold

    A majority of the commenters believed that a management delegation 
threshold of $25,000 would have provided little relief to System boards 
of directors. A bank noted that the existing regulations permit a bank 
board to delegate the loan approval authority to bank management 
without any limitation on the amount. Two commenters suggested that we 
delete the dollar limit and allow the respective boards to set adequate 
controls over such approval authority. Two others suggested we increase 
the delegation limit from $25,000 to $250,000.
    Response: Loans to designated parties is one area that requires 
higher scrutiny and attention by the board of any financial lending 
institution. Because directors oversee management's performance, 
management may not be able to exercise independent, objective credit 
decisions on loans to directors or other superiors. Establishing 
thresholds for management delegation would limit the degree of risk 
exposure and inhibit improper lending to designated parties.
    However, upon further investigation and comparison to similar 
limits imposed by other financial regulators, we agree with the 
commenters that a $25,000 threshold for management delegation would 
have provided little relief to your boards. The reproposed rule would 
increase the regulatory threshold for board approval to any loan that, 
when aggregated with all other loans to a designated party, exceeds the 
greater of $150,000 or 0.5 percent of your permanent capital (not to 
exceed $250,000).
    We developed the board approval requirement based on our review of 
the number and size of the System's designated party loans and an 
approach similar to that used by the Office of the Comptroller of the 
Currency (OCC) and the Federal Reserve System (FED) on insider lending 
for commercial banks. See 12 CFR parts 31 and 215, respectively. 
However, we noted that the regulatory threshold for approval does not 
limit an institution board from setting a lower threshold within its 
policies and procedures. In some

[[Page 48100]]

circumstances, a lower threshold may be entirely appropriate.

D. Definitions in the Proposed Rule

    1. Designated Parties. Two commenters pointed out that the 
previously proposed definition of ``designated parties'' was not 
compatible with existing Sec. 614.4460(f). A bank commented that the 
definition did not consider regional and local cooperative 
relationships.
    Response: We evaluated the bank's comment and believe the comment 
has merit. We revised the definition of ``designated parties'' to 
govern parties most likely to have a ``conflict of interest.'' The 
reproposed definition of ``designated parties'' would include insiders 
(e.g., directors, officers, employees and their immediate family 
members) of your institution. However, it also would add clarifying 
language concerning any borrower who is an ``entity controlled by'' 
those insiders. The reproposed rule would define the term ``control'' 
based on a percentage (i.e., 5 percent) of ownership or voting power in 
a legal entity. We believe the new definition will address the concerns 
expressed about loans made to entities, such as cooperatives, where a 
System director, officer, or employee does not exercise control over 
the entity obtaining the loan or the loan proceeds.
    2. Loans. A bank asked that we clarify whether the definition of 
loans covers various loan-servicing actions, such as waivers or 
extensions.
    Response: The definition contained in the reproposed rule would 
include any loan-servicing actions that increase the lender's exposure 
to credit risk.

VI. The Reproposed Rule

    After a careful review of all comments received, we made several 
substantive changes to the proposed rule to repeal the existing 
Secs. 614.4450, 614.4460, and 614.4470 and replace them with new 
Secs. 614.4450 and 614.4460 in the reproposed rule.
    The reproposed rule would repeal existing Sec. 614.4450, which 
provides ``the authority for loan approval is vested in the Farm Credit 
banks and associations.'' More specific regulations providing for 
System lending authorities make this provision unnecessary.\6\ This 
reproposed rule also would delete all references to district boards.
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    \6\ See 12 CFR Part 614, Subpart A--Lending Authorities.
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    We believe each direct lender institution should be responsible for 
decisions made on its loans, including loans to designated parties. 
Because the Act does not require System banks to approve loans made by 
associations, the reproposed rule would revise the bank approval 
requirement found in existing Sec. 614.4470. As an alternative, 
however, a bank may approve loans to designated parties made by its 
related associations based on the mutual agreement of the bank and its 
associations. If no such agreement exists, the board of each 
association, or a committee of at least three individuals, a majority 
of whom are directors, will be responsible for approving the 
association's loans to designated parties. The reproposed rule also 
changes the level of designated party loans requiring approval by the 
board. Loans to designated parties that do not exceed the greater of 
$150,000 or 0.5 percent of your permanent capital (not to exceed 
$250,000) may be approved in accordance with your policies and 
procedures for loans to designated parties, which is a significant 
increase from the proposed rule.
    Thus, the reproposed rule provides your board with several options 
for approving loans to designated parties. First, your board may 
approve all your loans to designated parties. Second, a committee of at 
least three individuals, a majority of whom are directors, may approve 
all your loans to designated parties. Third, your board may also 
delegate approval of loans to designated parties that fall below the 
regulatory threshold to appropriate staff as established by your 
policies and procedures. Finally, your board may enter into an 
agreement with your affiliated bank to permit the bank to approve your 
loans to designated parties. In addition, rather than adopting a single 
option for approvals, your board may adopt a policy that combines the 
above options.
    A discussion of significant provisions of the reproposed rule 
follows.

A. Section 614.4450--Definitions

    The term ``designated party or parties'' as defined in reproposed 
Sec. 614.4450(b) would include your directors, officers, employees, and 
their immediate family members. The definition also includes any entity 
that borrows from you and is an ``entity controlled by'' any of your 
directors, officers, employees, or their immediate family members.
    Under reproposed Sec. 614.4450, director, officer, employee, 
entity, and person have the same meaning as in Sec. 612.2130 of this 
chapter. The term ``immediate family member'' defined in reproposed 
Sec. 614.4450(e) includes the spouse, children, or the parents of an 
individual.
    Under reproposed Sec. 614.4450(c), an ``entity controlled by'' an 
individual is an entity in which the individual, directly or 
indirectly, or acting through or in concert with one or more persons:
    (1) Owns 5 percent or more of the equity; or
    (2) Owns, controls, or has the power to vote 5 percent or more of 
any class of voting securities.
    The term ``entity controlled by'' used in reproposed 
Sec. 614.4450(c) is similar, but not identical, to the definition of 
``entity controlled by'' in FCA's conflict of interest rule in 
Sec. 612.2130(c). ``Entity controlled by'' in reproposed 
Sec. 614.4450(c) excludes paragraph (c)(3) of Sec. 612.2130, i.e., 
individuals with a controlling influence over the management of the 
entity.
    Unless the 5-percent equity ownership or voting power requirement 
is satisfied, a director or officer of any cooperative or other legal 
entity is not deemed to have control over the entity by virtue of their 
position alone. For example, directors or officers of an entity who 
also sit on your board but do not own 5 percent or more of the entity's 
equity or voting power would not be subject to the requirements of this 
reproposed rule when the entity borrows from you.

B. Section 614.4460--Loans to Designated Parties

    Your board of directors is ultimately accountable for all decisions 
made by your institution. After careful consideration of the comments 
received; however, we revised the board approval requirement to provide 
your board with greater flexibility in approving loans to designated 
parties.
    The reproposed level of approval is a result of our review of loans 
made to designated parties in a sample group of recently examined 
associations and one bank. We found that the number of loans to 
designated parties is relatively few, but the average loan size is 
generally greater than the average of all loans held by the 
institution. We also evaluated the approval requirements imposed by 
other financial regulators for insider loans. After considering 
cooperative principles and various comments on the System's unique 
cooperative relationships, we increased the level of approval for 
System institutions' designated party loans.
    We developed the board approval requirement contained in the 
reproposed rule based on our review of the number and size of System 
institutions' designated party loans and an approach similar to that 
used by the OCC and the FED for ``insider lending.'' The board approval 
requirement would

[[Page 48101]]

ensure that System institutions' boards of directors have adequate 
involvement in approving their institutions' designated party loans. We 
believe board involvement is an essential ingredient of oversight for 
this critical area of lending. Board involvement is necessary to avoid 
the possibility of inappropriate or undue influence on loans to 
insiders or other designated parties.
    Reproposed Sec. 614.4460(a) would require your board to adopt and 
implement policies and procedures for approving loans to designated 
parties. Your board must establish appropriate control procedures to 
ensure that loans to designated parties are not made on terms that are 
more favorable than those afforded to other borrowers under the same 
circumstances. Your policies and procedures must not be less stringent 
than the loan underwriting standards that you adopted under 
Sec. 614.4150.
    Reproposed Sec. 614.4460(b) would require your board, or a 
committee of at least three individuals, a majority of whom are 
directors, to approve all loans to designated parties that, in the 
aggregate, exceed the greater of $150,000 or 0.5 percent of your 
permanent capital (not to exceed $250,000). Permanent capital as 
calculated for the most recent calendar quarter will be used for your 
determination of the board approval requirement. Your board may 
delegate approval authority for all other designated party loans in 
accordance with your policies and procedures. Therefore, institution 
boards may delegate approval authority for designated party loans as 
follows:
     $150,000 or less--your board may delegate approval 
authority on all loans of $150,000 or less.
     $150,001 to $250,000--your board may delegate approval 
authority on loans in an amount not exceeding 0.5 percent of your 
permanent capital up to a limit of $250,000.
     $250,001 and greater--your board may not delegate approval 
of loans that exceed $250,000.
    Any individual approving designated party loans must be in a 
position to exercise independent, objective decisions on the approvals. 
For example, to prevent undue influence and an actual conflict of 
interest or the appearance of a conflict of interest as described in 
Sec. 612.2130(b) of this chapter, your policies and procedures could 
specify that loans to directors, officers, their immediate family 
members, and entities controlled by any of your directors or executive 
officers should be approved by a committee rather than an individual. 
The committee could consist of management alone, directors, or a 
combination of both as specified in your policies and procedures for 
loans to designated parties. Similarly, your policies could provide 
that only individuals with greater authority in the organization than 
the designated party borrower should approve loans to any other 
designated parties. We will evaluate the appropriateness and 
effectiveness of your policies and procedures during our normal 
examination process.
    Reproposed Sec. 614.4460(c) would prohibit designated parties from 
participating, directly or indirectly, in the deliberations on or the 
determination to make any loan in which the designated party has an 
interest as described in Sec. 612.2140(a) of this chapter. Also, all 
members of the board approval committee must act in accordance with the 
requirements of 12 CFR part 612--Standards of Conduct.
    Reproposed Sec. 614.4460(d) provides that an association may enter 
into an agreement with its affiliated bank to authorize the affiliated 
bank to perform any approvals required by reproposed Sec. 614.4460. 
Therefore, System banks and associations have an option to continue the 
existing practice when mutually acceptable terms and conditions for 
approval are established.
    In reproposed Sec. 614.4460(e), we require all loans to designated 
parties not approved by the full board, including all loans approved by 
the funding bank, to be reported to your board no later than the first 
board meeting following approval. We believe this is an essential 
component of proper control and oversight for all loans made to 
designated parties. A review by your board will help ensure loans made 
to designated parties are made without undue influence.

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, we propose to amend part 
614 of chapter VI, title 12 of the Code of Federal Regulations 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.

    2. Revise subpart M to read as follows:

Subpart M--Approval of Loans to Designated Parties

Sec.
614.4450  Definitions applicable to subpart M.
614.4460  Loans to designated parties.


Sec. 614.4450  Definitions applicable to subpart M.

    (a) You means a Farm Credit bank or association.
    (b) Designated party or parties means:
    (1) Farm Credit Administration employees allowed to borrow from you 
under 5 CFR 4101.104;
    (2) Farm Credit System Insurance Corporation employees allowed to 
borrow from you under 5 CFR 4001.104;
    (3) Your directors, officers, or employees;
    (4) An immediate family member of your directors, officers, or 
employees;
    (5) An entity controlled by your directors, officers, or employees 
or their immediate family members;
    (6) Any of the parties in paragraphs (b)(3), (b)(4), or (b)(5) of 
this section who have a relationship to a bank or association under a 
joint management agreement with you;
    (7) Directors, officers, or employees of your funding bank if you 
are an association; and
    (8) Other borrowers if any of the designated parties identified in 
this paragraph are:
    (i) Recipients of the proceeds of a loan made by you;
    (ii) Stockholders or other equity owners of a borrower that has a 
material interest in the proceeds of or collateral for a loan made by 
you; or
    (iii) Endorsers, guarantors or comakers on a loan made by you.
    (c) Entity controlled by means an entity in which an individual 
identified in paragraph (b)(3) or (b)(4) of this section, directly or 
indirectly, or acting through or in concert with one or more persons:
    (1) Owns 5 percent or more of the equity; or
    (2) Owns, controls, or has the power to vote 5 percent or more of 
any class of voting securities.

[[Page 48102]]

    (d) Director, officer, employee, entity, and person have the same 
meaning as in Sec. 612.2130 of this chapter.
    (e) Immediate family member means the spouse of an individual, the 
children of an individual, or the parents of an individual.
    (f) Loan or loans means the total of all loans, leases and other 
extensions of credit, including undisbursed commitments, from you to 
any designated party.
    (g) Permanent capital means your permanent capital as calculated 
for the most recent calendar quarter.


Sec. 614.4460  Loans to designated parties.

    (a) You must adopt and implement policies and procedures for 
approving loans to designated parties. Your policies must include 
appropriate controls to ensure that loans to designated parties will 
not be made on terms or conditions that are more favorable than those 
afforded to other borrowers under the same circumstances. Your policies 
and procedures must not be less stringent than the loan underwriting 
standards that you adopted under Sec. 614.4150.
    (b) All loans to any designated party that exceed the greater of 
$150,000 or 0.5 percent of your permanent capital (not to exceed 
$250,000) must be approved by your board of directors or by a committee 
of at least three individuals, a majority of whom are directors.
    (c) A designated party must not participate, directly or 
indirectly, in deliberations on or the determination to make any loan 
in which the designated party has an interest as described in 
Sec. 612.2140(a) of this chapter.
    (d) Notwithstanding any provision in this section, an association 
may enter into an agreement with its affiliated bank to permit the 
affiliated bank to perform any approvals required by this section.
    (e) All loans to designated parties not approved by your full board 
must be reported to your board no later than the first board meeting 
following approval.

    Dated: September 11, 2001.
Kelly Mikel Williams,
Secretary, Farm Credit Administration Board.
[FR Doc. 01-23208 Filed 9-17-01; 8:45 am]
BILLING CODE 6705-01-P