[Federal Register Volume 85, Number 176 (Thursday, September 10, 2020)]
[Proposed Rules]
[Pages 55786-55801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16052]


 ========================================================================
 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. 85, No. 176 / Thursday, September 10, 2020 / 
Proposed Rules  

[[Page 55786]]



FARM CREDIT ADMINISTRATION

12 CFR Parts 614, 615, 620 and 628

RIN 3052-AD27


Regulatory Capital Rules: Tier 1/Tier 2 Framework

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA or we) seeks comments on 
this proposed rule that would amend regulatory capital requirements for 
Farm Credit System (System) institutions and clarify certain provisions 
in the Tier 1/Tier 2 Framework final rule that became effective in 
2017. This proposed rule would incorporate, and further clarify, the 
guidance provided in FCA Bookletter--BL-068--Tier 1/Tier 2 Capital 
Framework Guidance. The proposal would also eliminate regulatory 
capital requirements for the Farm Credit Services Leasing Corporation, 
simplify the Safe Harbor Deemed Prior Approval calculation, revise the 
board resolution requirement for certain equities to be included in 
tier 1 or tier 2 capital, and amend the lending and leasing limit base 
to use total capital instead of permanent capital and eliminate the 
exceptional treatment of certain purchased stock. To maintain 
comparability in our regulatory capital requirements, we propose to 
amend certain definitions pertaining to qualified financial contracts 
in conformity with changes adopted by the Federal banking regulatory 
agencies.

DATES: Please send us your comments on or before November 9, 2020.

ADDRESSES: For accuracy and efficiency reasons, please submit comments 
by email or through FCA's website. We do not accept comments submitted 
by facsimile (fax), as faxes are difficult for us to process in 
compliance with section 508 of the Rehabilitation Act of 1973. Please 
do not submit your comment multiple times via different methods. You 
may submit comments by any of the following methods:
     Email: Send us an email at [email protected].
     FCA website: http://www.fca.gov. Click inside the ``I want 
to . . .'' field near the top of the page; select ``comment on a 
pending regulation'' from the dropdown menu; and click ``Go.'' This 
takes you to an electronic public comment form.
     Mail: Jeremy R. Edelstein, Associate Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
    You may review copies of all comments we receive at our office in 
McLean, Virginia or on our website at http://www.fca.gov. Once you are 
on the website, click inside the ``I want to . . .'' field near the top 
of the page; select ``find comments on a pending regulation'' from the 
dropdown menu; and click ``Go.'' This will take you to the Comment 
Letters page where you can select the regulation for which you would 
like to read the public comments.
    We will show your comments as submitted, including any supporting 
data provided, but for technical reasons we may omit items such as 
logos and special characters. Identifying information that you provide, 
such as phone numbers and addresses, will be publicly available. 
However, we will attempt to remove email addresses to help reduce 
internet spam.

FOR FURTHER INFORMATION CONTACT: Jeremy R. Edelstein, Associate 
Director or Clayton D. Milburn, Senior Financial Analyst, Finance and 
Capital Markets Team, Office of Regulatory Policy, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4414, TTY (703) 883-
4056; or
    Mary Alice Donner, Senior Counsel or Jennifer A. Cohn, Senior 
Counsel, Office of General Counsel, Farm Credit Administration, McLean, 
VA 22102-5090, (703) 883-4020, TTY (703) 883-4056.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Objectives of Proposed Rule
    B. Background
II. Proposed Revisions to the Capital Rule
    A. Substantive Revisions to the Capital Rule
    1. Safe Harbor Deemed Prior Approval
    2. Capital Bylaw or Board Resolution to Include Equities in Tier 
1 and Tier 2 Capital
    3. Common Cooperative Equity Issuance Date
    4. Farm Credit Leasing Services Corporation
    5. Lending and Leasing Limit Base Calculation
    6. Qualified Financial Contract (QFC) Related Definitions
    7. Common Equity Tier 1 Capital Eligibility Requirements
    B. Clarifying and Other Revisions to the Capital Rule
    1. Capitalization Bylaw Adjustment
    2. Annual Report to Shareholder Corrections
    3. Appropriate Risk-Weighting of Cash
    4. Securitization Formulas
    5. Unallocated Retained Earnings and Equivalents Deductions and 
Adjustments
    6. Service Corporation Deductions and Adjustments
    7. Adjustments for Accruing Patronage and Dividends
    8. Bank Disclosures
    9. Retirement of Statutory Borrower Stock
    C. General Discussion
    1. Continuously Redeemable Preferred Stock (H Stock)
    2. Farm Credit Council Letter
    3. Permanent Capital
III. Abbreviations
IV. Regulatory Flexibility Act

I. Introduction

A. Objectives of Proposed Rule

    The FCA's objectives in proposing this rule are to:
     Provide technical corrections, amendments and 
clarification to certain provisions in the Tier 1/Tier 2 Capital 
Framework; and
     Ensure the System's capital requirements maintain 
comparability with the standardized approach that the Federal banking 
regulatory agencies have adopted.

B. Background

    In 1916, Congress created the System to provide permanent, stable, 
affordable, and reliable sources of credit and related services to 
American agricultural and aquatic producers.\1\ The System consists of 
3 Farm Credit Banks, 1

[[Page 55787]]

agricultural credit bank, 67 agricultural credit associations, 1 
Federal land credit association, service corporations, and the Federal 
Farm Credit Banks Funding Corporation (Funding Corporation). Farm 
Credit banks (which include both the Farm Credit Banks and the 
agricultural credit bank) issue System-wide consolidated debt 
obligations in the capital markets through the Funding Corporation, 
which enable associations to provide short-, intermediate-, and long-
term credit and related services to farmers, ranchers, producers and 
harvesters of aquatic products, rural residents for housing, and farm-
related service businesses.\2\ The System's enabling statute is the 
Farm Credit Act of 1971, as amended (Act).\3\
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    \1\ The Federal Agricultural Mortgage Corporation (Farmer Mac), 
which is also a System institution, has authority to operate 
secondary markets for agricultural real estate mortgage loans, rural 
housing mortgage loans, and rural utility cooperative loans. The FCA 
has a separate set of capital regulations that apply to Farmer Mac. 
This rulemaking does not affect Farmer Mac, and the use of the term 
``System institution'' in this preamble and proposed rule does not 
include Farmer Mac.
    \2\ The agricultural credit bank lends to, and provides other 
financial services to farmer-owned cooperatives, rural utilities 
(electric and telephone), and rural water and waste water disposal 
systems. It also finances U.S. agricultural exports and imports, and 
provides international banking services to cooperatives and other 
eligible borrowers. The agricultural credit bank operates a Farm 
Credit Bank subsidiary.
    \3\ 12 U.S.C. 2001-2279cc. The Act is available at www.fca.gov 
under ``Laws and regulations,'' and ``Statutes.''
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    FCA's Tier 1/Tier 2 Capital Framework final regulation (Capital 
Rule) was published in the Federal Register in July 2016.\4\ The 
objectives of the Capital Rule were:
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    \4\ 81 FR 49720 (July 28, 2016).
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     To modernize capital requirements while ensuring that 
institutions continue to hold enough regulatory capital to fulfill 
their mission as a Government-sponsored enterprise (GSE);
     To ensure that the System's capital requirements are 
comparable to the Basel III framework and the standardized approach 
that the Federal banking regulatory agencies have adopted, but also to 
ensure that the rules take into account the cooperative structure and 
the organization of the System;
     To make System regulatory capital requirements more 
transparent; and
     To meet the requirements of section 939A of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank 
Act).\5\
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    \5\ Public Law 111-203, 124 Stat. 1376 (2010).
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    To date, the FCA believes the Capital Rule has met, and continues 
to meet, these stated objectives.\6\
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    \6\ For a more comprehensive discussion of this rulemaking, 
including a comprehensive discussion of all System capital 
requirements, see 81 FR 49720 and Parts 615 and 628 of FCA 
Regulations.
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    On December 22, 2016, the FCA Board adopted FCA Bookletter--BL-
068--Tier 1/Tier 2 Capital Framework Guidance (Capital BL).\7\ The 
Capital BL provided additional guidance to ensure System institutions 
had the necessary information to correctly implement the requirements 
of the Capital Rule. The Capital BL included clarification and 
technical fixes on 18 separate items. Furthermore, the Capital BL 
stated: ``We intend to incorporate some of these items into the 
regulation in a future rulemaking project.'' \8\ This proposed rule 
would incorporate some of that guidance, with adjustments as discussed 
below,\9\ into the capital regulation. Additionally, the proposed rule 
would:
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    \7\ A copy of the Capital BL can be found at www.fca.gov, under 
``Laws & Regulations'' and ``Bookletters.''
    \8\ Id.
    \9\ FCA made adjustments to some of the guidance provided in the 
Capital BL to address concerns identified through ongoing monitoring 
and examination of the requirements of the Capital Rule.
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     Eliminate the stand alone capital requirements for Farm 
Credit Leasing Services Corporation (Farm Credit Leasing);
     Change the computation of the lending and leasing limit 
base in Sec.  614.4351, by using total capital instead of permanent 
capital in the calculation; \10\
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    \10\ Total capital is defined at Sec.  628.2. Permanent capital 
is defined at Sec.  615.5201.
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     Simplify ''Safe Harbor'' provisions that determine when 
System institutions have ``deemed prior approval'' from FCA to 
distribute cash payments;
     Revise and clarify certain criteria that capital 
instruments must meet to be included in common equity tier 1 (CET1) and 
tier 2 capital;
     Provide further clarification on when the ``holding 
period'' starts for including certain Common Cooperative Equities in 
CET1 or tier 2 capital; and
     Amend the requirement to adopt an annual board resolution 
with respect to prior approval requirements and the minimum redemption 
and revolvement periods for certain equities included in CET1 or tier 2 
capital.
    Finally, we propose to amend the definitions of ``Collateral 
agreement,'' ``Eligible margin loan,'' ``Qualifying master netting 
agreement (QMNA),'' and ``Repo-style transaction'' to incorporate 
amendments made to these definitions in the capital rules of the 
Federal banking regulatory agencies.\11\
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    \11\ The Federal banking regulatory agencies are the Office of 
the Comptroller of the Currency (OCC), the Board of Governors of the 
Federal Reserve System (FRB), and the Federal Deposit Insurance 
Corporation (FDIC).
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    The above amendments, as well as technical changes and other 
guidance on FCA's expectations for certain provisions of the Capital 
Rule, are described in greater detail below. FCA believes the 
additional proposed changes will address issues and concerns identified 
since the Capital Rule's effective date of January 1, 2017, while 
maintaining and supporting the objectives of the Capital Rule.
    We welcome comments on every aspect of this proposed regulation, 
but there are certain areas described below where we are specifically 
seeking comment.

II. Proposed Revisions to the Capital Rule

A. Substantive Revisions to the Capital Rule

    The amendments to the Capital Rule proposed and discussed in this 
section are substantive issues that go beyond technical corrections or 
incorporation of issues discussed in the Capital BL.
1. Safe Harbor Deemed Prior Approval
    The proposal amends the ``Safe Harbor Deemed Prior Approval'' 
provisions under which System institutions are deemed to have prior 
approval from FCA to distribute cash payments as long as certain 
conditions are met. Existing Sec.  628.20(f) requires System 
institutions to obtain prior approval from FCA before making any 
distributions of capital included in tier 1 or tier 2 capital.\12\ 
Under the ``safe harbor'' provision in paragraphs (f)(5) and (6) of 
existing Sec.  628.20, cash dividends, cash patronage, and cash 
redemptions or revolvements of common cooperative equities are deemed 
to have FCA prior approval, provided that:
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    \12\ Section 628.20(f) outlines the requirements for FCA prior 
approval of capital redemptions and dividends.
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    (i) The equities meet applicable minimum holding period 
requirements;
    (ii) After such cash payments, the dollar amount of CET1 capital 
equals or exceeds the dollar amount of CET1 capital on the same date in 
the previous calendar year; and
    (iii) The institution continues to comply with all regulatory 
capital requirements and supervisory or enforcement actions.
    Under the existing ''safe harbor,'' after the cash payment the 
dollar amount of CET1 capital must not decline compared to the dollar 
amount of CET1 capital on the same date in the previous calendar 
year.\13\ FCA considers the date of the cash payment to be the date on 
which the institution's board passes a binding resolution declaring an 
amount it will make as a cashdividend or

[[Page 55788]]

patronage refund \14\ (declaration date). We consider this declaration 
date to be the date in which the cash payment is made because it 
results in a binding legal obligation to pay a dividend or patronage 
refund to the institution's member-borrowers, the patronage amount is 
calculable within a short-time frame, and it is paid within 8.5 months 
of the close of the taxable year.
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    \13\ Section 628.20(f)(5)(ii).
    \14\ This can either be a specified dollar amount or must 
include language whereby an amount could be calculated.
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    In practice, it is difficult for FCA to monitor and enforce the 
existing requirement to use the same date in the previous calendar year 
because System institutions report regulatory capital quarterly, not 
daily or monthly. Institutions can and do declare dividends or make 
patronage payments on any date during a calendar quarter. We propose to 
replace the requirement to use the exact calendar date on which the 
cash payment is made with a requirement to use the date of the quarter-
end in which the System institution's board declares its dividend or 
patronage.
    Under the proposal, a System institution has ``deemed- prior 
approval'' from FCA if, after making the cash payment, the dollar 
amount of the CET1 capital at the quarter-end after the declaration 
date, equals or exceeds the dollar amount of CET1 capital on the same 
quarter-end in the previous calendar year. The following is an example 
of our proposed deemed prior approval: A System institution's board 
declares a cash patronage on December 16, 2020. To use the ``Safe 
Harbor Deemed Prior Approval,'' the institution would need to ensure 
that after such payment, its dollar amount of CET1 capital on December 
31, 2020, equals or exceeds the dollar amount of CET1 capital on 
December 31, 2019. As another example, a System institution's board 
declares a cash patronage on January 15, 2021. To use the ``Safe Harbor 
Deemed Prior Approval,'' the institution would need to ensure that 
after such payment, its dollar amount of CET1 capital on March 31, 
2021, equals or exceeds the dollar amount of CET1 capital on March 31, 
2020.\15\ System institutions that declare patronage early in a quarter 
need to ensure that they have developed and implemented appropriate 
processes and controls to ensure compliance with these provisions.
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    \15\ In both these examples, to use the ``Safe Harbor Deemed 
Prior Approval,'' the System institution would also need to ensure 
that after such cash payment, it continues to comply with all 
regulatory capital requirements and supervisory or enforcement 
actions. These examples assume a cash patronage payment and not the 
redemption or revolvement of common cooperative equities (CCEs). 
CCEs must be held for the minimum required holding period described 
in Sec.  628.20(f)(5)(i) for redemption to qualify for deemed prior 
approval under the ``Safe Harbor.''
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    We believe that this proposed amendment to the ``Safe Harbor Deemed 
Prior Approval'' would not increase or decrease the amount of cash 
patronage System institutions can pay when compared to the existing 
provision. As stated in the preamble to the final Tier 1/Tier 2 Capital 
Framework regulation, we expect institution boards to give significant 
thought to capital distribution decisions and how they impact the 
overall capitalization of their institution, especially a cash payment 
that exceeds net income over the past 12 months. Ordinarily, cash 
payments or redemptions (revolvements) are made at very predictable 
intervals, and we have not identified any situations where institutions 
are likely to need to make unplanned, significant capital 
distributions.\16\
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    \16\ See 81 FR 49735 (July 28, 2016).
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2. Capital Bylaw or Board Resolution To Include Equities in Tier 1 and 
Tier 2 Capital
    The proposal would amend the requirement in Sec.  615.5200(d) that 
a System institution board adopt a redemption and revolvement 
resolution that it must re-affirm in its capital plan each year. It 
would also add a sentence to Sec.  615.5200(b) with respect to capital 
adequacy plans.
    Currently, to include otherwise eligible purchased or allocated 
equities in CET1 capital,\17\ a System institution must commit to 
obtaining prior approval from FCA under Sec.  628.20(f) before 
redeeming or revolving the equities less than 7 years after issuance or 
allocation. For tier 2 purchased or allocated equities, the institution 
must make a commitment not to call, redeem, or revolve the equities 
less than 5 years after issuance or allocation without FCA approval. 
Finally, boards must commit to obtaining prior approval from FCA before 
taking other specified actions that could impact the institution's 
capital quantity or quality.\18\ A System institution's board must 
affirm these commitments by either adopting a capitalization bylaw or a 
resolution that must be re-affirmed by the board annually.
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    \17\ Otherwise eligible purchased or allocated equities would be 
equities that meet the criteria under Sec.  628.20(b)(1) for 
inclusion in CET1 capital, such as allocated equities that will not 
be redeemed or revolved for at least 7 years.
    \18\ Existing Sec.  615.5200(d)(3) requires boards to obtain 
prior approval before redesignating unallocated retained earning 
(URE) equivalents as redeemable equities; removing equities from 
regulatory capital (other than through repurchase, cancellation, 
redemption, or liquidation); or redesignating equities from one 
regulatory capital component to another. Section 615.5200(d)(4) 
requires that URE equivalents will not be revolved, except under 
very limited circumstances.
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    The proposal would move the existing requirements in Sec.  
615.5200(d) to a new section, Sec.  628.21. Under proposed Sec.  
628.21, a System institution's board must either adopt a capitalization 
bylaw or adopt a binding resolution to obtain the FCA prior approval 
that Sec.  628.20(f) requires. Under the proposed rule, to reduce 
burden, an institution's board would no longer need to re-affirm this 
resolution annually; instead, the System institution would be required 
to expressly acknowledge the continuing and binding effect of these 
resolutions annually in their capital adequacy plan. Proposed Sec.  
615.5200(b) would add to the existing provisions a requirement that the 
capital adequacy plan must expressly acknowledge the continuing and 
binding effect of the board resolutions.\19\ Once the board adopts this 
resolution, it would remain binding going forward. Modifying or 
eliminating this binding resolution may impact an institution's ability 
to include allocated or purchased equities in tier 1 or tier 2 capital, 
if the change is not consistent with the requirements of proposed Sec.  
628.21 and Sec.  628.20(b)(1)(xiv), (c)(1)(xiv), and (d)(1)(xi).
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    \19\ Specifically, Sec.  615.5200(b) would be amended to require 
that the plan shall expressly acknowledge the continuing and binding 
effect of all board resolutions adopted in accordance with sections 
628.20(b)(1)(xiv), 628.20(c)(1)(xiv), 628.20(d)(1)(xi), and 628.21. 
Conforming changes are being proposed to those sections to refer to 
new Sec.  628.21 instead of Sec.  615.5200(d).
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    The capital adequacy plan acknowledgment would, at a minimum, 
outline the existence of such a resolution and assure that any equities 
issued, allocated, redeemed or revolved shall be done so in accordance 
with the resolution. Consistent with the existing rule, any issuance or 
allocation of equities that a System institution intends to include in 
tier 1 or tier 2 capital, must be designated either CET1, AT1, or tier 
2 at time of issuance or allocation.\20\ We note that, in these 
proposed changes, our intent that institutions must establish the 
permanence of their regulatory capital designations is unchanged, but 
the means by which institutions do so should be less burdensome.
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    \20\ Under existing Sec.  615.5200(d)(3)(iii), which is proposed 
to be redesignated as Sec.  628.21(c)(3), a System institution 
cannot redesignate equities included in one component of regulatory 
capital for inclusion in another without FCA prior approval. 
Accordingly, the regulatory capital classification (i.e., CET1, AT1, 
or tier 2) must be designated at issuance.

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[[Page 55789]]

3. Common Cooperative Equity Issuance Date
    The proposal adds a new definition to part 628 to provide 
clarification and certainty to System institutions on the start of the 
holding period to include certain common cooperative equities in CET1 
or tier 2 capital and redeem them under the ``Safe Harbor Deemed Prior 
Approval''. Proposed Sec.  628.21(e) states that the minimum redemption 
and revolvement period for purchased and allocated equities starts on 
the common cooperative equity issuance date, as defined in Sec.  628.2.
    As discussed above, to include otherwise eligible purchased or 
allocated equities in CET1 or tier 2 capital, a System institution must 
commit to obtaining prior approval from FCA under Sec.  628.20(f) 
before redeeming or revolving the equities in less than 7 or 5 years, 
respectively, after issuance or allocation. In December 2016, FCA 
provided guidance to the System on when the holding period starts for 
purchased and allocated equities, as follows:

    The minimum holding period starts on the issuance date, which is 
the date the institution segregates its ``new'' allocated equities 
(qualified and nonqualified) from its URE. This generally occurs 
after the board adopts a resolution to make a patronage distribution 
in cash and equity, and the institution makes accounting entries 
that move the dollar amounts from URE to an appropriate payable 
account and allocated equity.\21\
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    \21\ See Capital BL, item 7.

    The proposed definition of ``common cooperative equity issuance 
date'' is similar to the guidance previously provided by FCA; however, 
as proposed the issuance date would be the quarter-end in which the 
board has declared a patronage refund and the applicable accounting 
treatment has taken place. As an example, a System institution board 
adopts a resolution to make a patronage distribution in cash and equity 
on December 15, 2020.\22\ On January 2, 2021, it makes a general ledger 
entry that moves the dollar amounts from URE to an appropriate payable 
account and allocated equity. The general ledger entry is made 
effective December 31, 2020 and is reflected in the yearend 2020 
financial statements. On April 5, 2021, dollar amounts are assigned to 
each borrower. In this example, the ``Common cooperative equity 
issuance date'' would be December 31, 2020. If the System institution 
includes the equities in CET1 capital, they would need to hold the 
equities for at least 7 years from December 31, 2020 (i.e., December 
31, 2027) to meet the minimum holding period requirement.
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    \22\ As discussed elsewhere in this preamble, the board 
declaration must include an amount it will pay in patronage or must 
include language whereas an amount could be calculated because it 
provides evidence of the board's intent to obligate the institution 
to pay a specific patronage amount to its member-borrowers.
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    The holding period start date for purchased stock is slightly 
different from the holding period start date for allocated equities. 
Members purchase stock as a requirement of membership to borrow from 
the institution and the institution's bylaws allow for such issuance. 
Purchased stock would not result in a reallocation or reassignment of 
URE, but would result in new equity for the System institution. 
Accordingly, the holding period on purchased stock would be the 
quarter-end in which the System institution recognizes the stock on its 
financial statement.
    We note that section 628.20(b)(1)(xiv)(B) allows for the statutory 
minimum borrower stock requirement to count as CET1 capital without any 
minimum holding period.\23\ The statutory minimum borrower stock 
requirement under section 4.3A of the Act, is $1,000 or 2 percent of 
the loan amount, whichever is less.
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    \23\ As discussed in greater detail under section 7--Common 
Equity Tier 1 Capital Eligibility Requirements, statutory minimum 
borrower stock ``funded'' through the creation of a non-interest-
bearing account receivable is not eligible for inclusion in CET1 or 
tier 2 capital.
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    FCA believes this new approach to recognizing the start of the 
holding period, when combined with other proposed ``Safe Harbor'' 
related changes, results in a simplified ``Safe Harbor'' framework. 
More specifically, using the quarter-end date for the start of the 
holding period aligns with the proposed changes to the ``Safe Harbor 
Deemed Prior Approval,'' which we discuss above. As proposed, the 
``Safe Harbor'' also would use a date that is the quarter-end after a 
board has declared a patronage payment. Furthermore, we believe using a 
quarter-end date reduces the burden for System institutions to track 
and monitor the amount of time equities have been outstanding. It also 
improves FCA's ability to monitor and enforce the ''Safe Harbor'' 
requirements.
    Question 1: The FCA seeks comments on whether the new definition of 
``Common cooperative equity issuance date'' creates a burden for System 
institutions due to the changes in established controls and processes 
that may be required. Please provide support for your position.
4. Farm Credit Leasing Services Corporation
    The proposal removes Farm Credit Leasing from the list of 
institutions defined as System institutions in Sec. Sec.  615.5201 and 
628.2.\24\ Under the proposal, Farm Credit Leasing as a stand-alone 
entity would no longer be required to meet minimum capital and related 
regulatory requirements under part 615, subpart H, and part 628 of our 
regulations because of its current ownership status, as discussed 
below. If this ownership status were to change in the future, we would 
reassess the need for Farm Credit Leasing to independently meet capital 
requirements.\25\
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    \24\ Farm Credit Leasing is a service corporation chartered 
under section 4.25 of the Act. A service corporation is a System 
institution established by System banks or associations and 
chartered by FCA, and it is subject to FCA regulation and 
examination. See title IV, subpart E of the Act.
    \25\ The definitions of ``System institution'' allows us to 
include any FCA-chartered institution that we determine should be 
included, even if it is not specifically referenced.
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    Farm Credit Leasing was previously owned by a group of System 
institutions but is now a wholly owned subsidiary of CoBank.\26\ It is 
a business unit of the bank; profits and losses of the entity are 
accrued to the bank; and its assets and liabilities are consolidated 
with the bank's for financial and regulatory reporting purposes. 
CoBank's consolidation of Farm Credit Leasing ensures that minimum 
capital is appropriately held against Farm Credit Leasing's assets. The 
proposal would reduce the regulatory burden created by separately 
applying the minimum capital requirements and relevant capital 
regulations to Farm Credit Leasing on a stand-alone basis. The proposed 
change is not intended to reduce the amount of capital that must be 
held against Farm Credit Leasing and CoBank's combined assets.
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    \26\ In 1983, several System banks acquired an existing non-
System corporation in the lease financing business that became Farm 
Credit Leasing. Farm Credit Leasing offers leasing services and 
related products to agribusiness, agricultural producers, rural 
infrastructure companies, and other related partners. As the System 
consolidated, the number of bank owners of Farm Credit Leasing 
declined. In 2004, CoBank acquired all Farm Credit Leasing stock 
outstanding, making it a wholly-owned subsidiary of the bank.
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    Question 2: The FCA seeks comment on the appropriateness of 
removing the specific reference to Farm Credit Leasing from these 
provisions.
5. Lending and Leasing Limit Base Calculation
    The proposal would amend Sec.  614.4351 to change the composition 
and calculation of each System bank

[[Page 55790]]

and association's lending and leasing limit base. The existing lending 
and leasing limit base is equal to the amount of a System institution's 
permanent capital as adjusted for the calculation of the permanent 
capital ratio in accordance with Sec.  615.5207, and with two 
additional adjustments in Sec.  614.4351(a) that apply only to the 
lending limit base. Section 614.4351(a)(1) provides that a System 
institution may count in its lending limit base any stock it purchases 
from another System institution in connection with the sale of a loan 
participation interest, and the other institution must exclude such 
stock from its lending limit base. Section 614.4351(a)(2) provides that 
any otherwise eligible third-party capital instruments may be included 
in the lending limit base of a System institution, irrespective of the 
limits on third-party capital for the tier 1/tier 2 capital ratios as 
outlined under Sec.  628.23.
    We propose two amendments to Sec.  614.4351. First, instead of 
using permanent capital to calculate the lending limit base, 
institutions would use total capital as defined and adjusted in 
Sec. Sec.  628.20 through 628.22 but including any otherwise eligible 
third-party capital that would be excluded under Sec.  628.23. Second, 
we would eliminate the exceptional treatment of stock purchased in 
connection with a loan participation in Sec.  614.4351(a)(1).
    Our proposal to eliminate the existing exceptional treatment of 
stock purchased in connection with loan participations would align the 
lending and leasing limit base with the Capital Rule's treatment of 
investments in other System institutions. The Capital Rule requires 
institutions to deduct their investments in another System institution 
because it is the issuing institution, not the investing institution, 
that has discretion whether or not to retire the investment. FCA 
believes that equities should be counted in the regulatory capital and 
the lending and leasing limit base of the institution that has control 
of the equities. This is a more accurate reflection of where the 
capital is available to absorb losses.
    Our proposal would preserve the existing provision in Sec.  
614.4351(a)(2) which allows the inclusion of all otherwise qualifying 
third-party capital in the lending limit base, irrespective of limits 
on the inclusion of such instruments in regulatory capital under Sec.  
628.23. The requirements of Sec.  628.23 recognize and emphasize the 
cooperative principles upon which System institutions operate by 
limiting the amount of non-cooperative equities that may be included in 
regulatory capital. Accordingly, we propose to continue to permit 
institutions to include all otherwise qualifying third-party capital in 
their lending limit base.
    Our proposed changes to the calculation would result in modest 
changes in System institutions' lending limits.\27\ Using total capital 
as the base instead of permanent capital would increase the lending and 
leasing limit for most System institutions due primarily to the 
inclusion of at least a portion of the allowance for loan losses in 
total capital.\28\ A small number of System institutions would see 
their lending limit decline due to various factors.\29\ If both 
amendments are adopted, we estimate that about 16 institutions' lending 
limits would modestly decrease.\30\ We note that most institutions have 
adopted policies that set significantly lower lending limits than the 
current regulation allows.
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    \27\ Under Sec.  614.4360(b)(2), loans funded pursuant to a 
commitment that was within the lending and leasing limit at the time 
the commitment was made would not violate the lending and leasing 
limit if the limit subsequently declines.
    \28\ Under Sec.  628.20(d)(3), tier 2 capital (a component of 
total capital) includes the allowance for loan losses up to 1.25 
percent of the institution's total risk-weighted assets not 
including any amount of the allowance.
    \29\ As of September 30, 2019, the vast majority of System 
institutions (banks and associations) would see their lending limit 
increase by 2.8 percent on average, with increases ranging from 0.5 
percent to 8.3 percent. Two system institutions would see an average 
decrease of 2.2 percent.
    \30\ Including both the switch from permanent capital and the 
elimination of the loan participation-related treatment under Sec.  
614.4351(a)(1), 56 institutions would see their lending limit 
increase by 3.0 percent on average. The decrease at the remaining 
institutions would average 1.6 percent.
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    We adopted the Capital Rule to improve the quality and quantity of 
a System institution's capital, consistent with the objectives of the 
Basel III framework and the standardized approach of the Federal 
banking regulatory agencies (U.S. Rule). Accordingly, since 2017, FCA 
has focused on regulatory tier 1 and tier 2 capital when evaluating the 
safe and sound operation of a System institution rather than on 
permanent capital.\31\ Similarly, we believe it is more appropriate to 
base the lending and leasing limit on the regulatory total capital of 
the institution and not on permanent capital.
---------------------------------------------------------------------------

    \31\ Section 301 of the Agricultural Credit Act of 1987 directed 
the FCA to adopt risk-based permanent capital regulations for System 
institutions.
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    Question 3: The FCA seeks comment on the proposed change to the 
lending base, and the continued appropriateness of the adjustment 
required in Sec.  614.4351(a)(1), and whether its removal would have 
any significant adverse impacts on any System institution.
6. Qualified Financial Contract (QFC) Related Definitions
    We are proposing to amend the definitions of ``Collateral 
agreement,'' ``Eligible margin loan,'' ``Qualifying master netting 
agreement (QMNA),'' and ``Repo-style transaction'' to incorporate 
amendments made to these definitions in the capital rules of the 
Federal banking regulatory agencies. Furthermore, the proposed 
amendment to the definition of ``QMNA'' will harmonize it with the 
amended definition of ``Eligible master netting agreement (EMNA)'' in 
FCA's Margin and Capital Requirements for Covered Swap Entities 
regulation (Swap Margin Rule).\32\
---------------------------------------------------------------------------

    \32\ See 83 FR 50805 (October 10, 2018).
---------------------------------------------------------------------------

    As part of the broader regulatory reform effort following the 
financial crisis, to increase the resolvability and resiliency of U.S. 
global systemically important banking institutions (GSIBs), the Federal 
banking regulatory agencies adopted final rules that establish 
restrictions on, and requirements for, certain financial contracts of 
GSIBs and their subsidiaries (QFC Rules).\33\ Generally, these QFC 
Rules require covered qualified financial contracts \34\ of covered 
entities (GSIBs and U.S. operations of foreign GSIBs) to contain 
contractual provisions that opt into the ``temporary stay-and-transfer 
treatment'' of the Federal Deposit Insurance Act (FDI Act) \35\ and 
Title II of the Dodd-Frank Act, thereby reducing the risk that

[[Page 55791]]

the stay-and-transfer treatment would be challenged by a covered 
entity's counterparty or a court in a foreign jurisdiction. The stay-
and-transfer treatment provides that the rights of a failed insured 
depository institution's or financial company's counterparties to 
terminate, liquidate, or net certain qualified financial contracts upon 
the appointment of the FDIC as receiver are temporarily stayed to allow 
for the transfer of the failed entities' qualified financial contracts 
to a solvent party.\36\
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    \33\ See 82 FR 56630 (November 29, 2017) (OCC); 82 FR 50228 
(October 30, 2017) (FDIC); and 82 FR 42882 (September 12, 2017) 
(FRB).
    \34\ Qualified financial contracts generally include financial 
contracts for a derivative contract, repurchase agreement, reverse 
purchase agreement, and securities lending and borrowing agreement. 
When an entity goes into resolution under the U.S. Bankruptcy Code, 
attempts by the debtor entity's creditors to enforce their debt 
through any means other than participation in the bankruptcy 
proceeding, such as seizing collateral, are generally blocked by the 
imposition of an automatic stay (See 82 FR 42882, 42886 (September 
12, 2017) citing 11 U.S.C. 362). However, the U.S. Bankruptcy Code 
generally exempts QFC counterparties of the debtor from the 
automatic stay through ``safe harbor'' provisions (See 11 U.S.C. 
362(b)(6), (7), (17), (27), 362(o), 555, 556, 559, 560, 561. The 
U.S. Bankruptcy Code specifies the types of parties to which the 
safe harbor provisions apply). Under these provisions, any rights 
that a QFC counterparty has to terminate the contract, set off 
obligations, and liquidate collateral in response to a direct 
default are not subject to the stay and may be exercised against the 
debtor immediately upon default. We note that the Bankruptcy Code 
does not use the term ``qualified financial contracts,'' but the set 
of transactions covered by its safe harbor provisions closely tracks 
the set of transactions that fall within the definition of 
``qualified financial contract'' used in Title II of the Dodd-Frank 
Act.
    \35\ 12 U.S.C. 1811 et. seq.
    \36\ 12 U.S.C. 1821(e)(10)(B), 5390(c)(10)(B).
---------------------------------------------------------------------------

    As a result of the QFC Rules, the Federal banking regulatory 
agencies amended the definition of QMNA in their capital rules to 
prevent the QFC Rules from having a disruptive effect on the netting 
sets of their supervised institutions. The amended definition of QMNA 
is substantially similar to the previous definition and continues to 
recognize that default rights may be stayed if the financial company is 
in resolution under the Dodd-Frank Act or FDI Act, a substantially 
similar law applicable to GSEs, or a substantially similar foreign law, 
or where the agreement is subject by its terms to any of those 
laws.\37\ However, the amended definition includes additional language 
permitting a master netting agreement to meet the definition of QMNA to 
the extent necessary to comply with the requirements of the QFC Rules 
even if the agreement limits the right to accelerate, terminate, and 
close-out on a net basis all transactions under the agreement and to 
liquidate or set-off collateral promptly upon an event of default of a 
counterparty. We are proposing a parallel change.
---------------------------------------------------------------------------

    \37\ Importantly, the Agriculture Improvement Act of 2018 
amended section 5.61 of the Act to give the Farm Credit System 
Insurance Corporation receivership authorities parallel to those of 
the Federal banking regulatory agencies. Public Law 115-334, 132 
Stat 4490 (2018).
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    Additionally, the Federal banking regulatory agencies amended the 
definitions of ``Collateral agreement,'' ``Eligible margin loan,'' and 
``Repo-style transaction'' to ensure that their supervised institutions 
can continue to recognize the risk-mitigating effects of financial 
collateral received in a secured lending transaction, repo-style 
transaction, or eligible margin loan.\38\ The amendments to these 
definitions include conforming changes to provide that a counterparty's 
default rights may be limited as required by the QFC Rules.
---------------------------------------------------------------------------

    \38\ See 82 FR 50228 (October 30, 2017) for further discussion.
---------------------------------------------------------------------------

    In order to remain consistent, to the extent practical, with the 
capital rules of the Federal banking regulatory agencies, as well as 
aligning the definition of ``Qualifying master netting agreement'' with 
the recent amendments to the definition of ``Eligible master netting 
agreement'' in FCA's Swap Margin Rule, we propose to adopt parallel 
amendments to the definitions of ``Collateral agreement,'' ``Eligible 
margin loan,'' ``Qualifying master netting agreement,'' and ``Repo-
style transaction.'' While the QFC rules primarily apply to GSIBs 
supervised by one of the Federal banking regulatory agencies, a System 
institution, as a counterparty to a GSIB, may need to ensure its 
qualified financial contracts include this new language recognizing the 
close-out restrictions imposed by the QFC Rules.
    Without the proposed definitional changes, System institutions 
could potentially see higher capital charges imposed on certain 
counterparty exposures. The current definitions in our Capital Rule do 
not recognize the close-out restrictions on certain qualified financial 
contracts newly imposed by the QFC Rules. If a System institution 
incorporates these new close-out restrictions in contracts with an 
entity subject to the QFC Rules (i.e., GSIBs), the contract may not 
meet the existing definition of ``Collateral agreement,'' ``Eligible 
margin loan,'' ``Qualifying master netting agreement,'' and ``Repo-
style transaction'' in FCA's Capital Rule. As a result, a System 
institution may lose its ability to net offsetting exposures or 
recognize the risk-mitigating effects of financial collateral, thus 
resulting in a higher capital requirement for the System institution. 
Moreover, a System institution engaging in a derivative transaction 
that is subject to an EMNA, as defined in the Swap Margin Rule,\39\ 
would lose the ability to net offsetting exposures for capital 
purposes. The proposed changes to the definitions of these terms would 
avoid these issues.
---------------------------------------------------------------------------

    \39\ See 83 FR 50805 (October 10, 2018).
---------------------------------------------------------------------------

    The changes to these definitions do not result in System 
institutions waiving or eliminating their ability to exercise their 
rights against a defaulting party. Rather, consistent with other GSIB 
counterparties, the System institution would not be able to immediately 
exercise its rights against a defaulting party until the FDIC begins an 
orderly resolution of the counterparty. If a System institution is not 
transacting with an entity subject to the QFC Rules, these new 
restrictions would not be applicable.
    Question 4: To what extent would the QFC Rules impact System 
institutions as counterparties to GSIBs or to U.S. operations of 
foreign GSIBs? For example, if FCA did not amend these definitions, 
what would be the result?
7. Common Equity Tier 1 Capital Eligibility Requirements
    As discussed above, one of FCA's objectives in the Capital Rule is 
to ensure that the System's capital requirements are comparable to the 
Basel III framework and the U.S. Rule, taking into account the 
cooperative structure of the System.\40\ The Basel III framework 
specified the criteria that capital instruments must meet in order to 
be included in the different capital measures. Among these criteria is 
the requirement that an instrument be directly issued and paid-in.\41\ 
We are proposing to add the term ``paid-in'' to the eligibility 
criteria for CET1 capital in Sec.  628.20(b)(1)(i), consistent with the 
criteria set forth in the Basel III framework and the U.S Rule.\42\ 
Basel III defines paid-in capital as capital that (1) has been received 
with finality by the institution, (2) is reliably valued, (3) is fully 
under the institution's control, and (4) does not directly or 
indirectly expose the institution to the credit risk of the 
investor.\43\
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    \40\ See 81 FR 49720 (July 28, 2016).
    \41\ See BCBS, Basel III: A Global Regulatory Framework for More 
Resilient Banks and Banking Systems, December 2010 (as revised June 
2011).
    \42\ See 12 CFR 217.20(b)(1)(i) (FRB); 12 CFR 324.20(b)(1)(i) 
(FDIC); 12 CFR 3.20(b)(1)(i) (OCC).
    \43\ See BCBS, Basel III Definition of capital--Frequently Asked 
Questions, September 2017 (update of FAQs published in December 
2011).
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    When we promulgated the Capital Rule, we did not require CET1 
instruments to be paid-in because we had interpreted the term to 
exclude allocated equities. Allocated equities are the earnings of a 
System institution that the institution has converted to stock or to 
similar stock-like equities and allocated to member-borrowers.\44\ Farm 
Credit banks routinely allocate equities to their affiliated 
associations and (in CoBank's case) to retail borrowers, and many of 
the associations routinely allocate equities to their retail borrowers. 
We have reexamined the attributes of allocated equities and determined 
that they fully meet the definition of paid-in capital: The allocated 
equities are received with finality by the allocating System 
institution when earned and issued; their value is reliably established 
as the dollar value of institution net assets allocated; they are fully 
under the institution's control because they can be revolved only at 
the discretion of the System institution, with the prior

[[Page 55792]]

approval of the FCA; \45\ and the loss-absorbing capacity of the 
allocated equities is not dependent on the creditworthiness of the 
member-borrower. We do not expect the proposed clarification to have 
any impact on System institution practices with respect to allocated 
equities.
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    \44\ For a detailed discussion on allocated equities and its 
stock-like characteristics, see 81 FR 49727 (July 28, 2016).
    \45\ See Sec. Sec.  628.20(b)(1)(iii) and (d)(x).
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    FCA views the statutorily required borrower stock financed by the 
System institution as part of an overall loan commitment as meeting the 
Basel III criteria for paid-instruments.\46\ However, borrower stock is 
not suitable for inclusion in CET1 if it is funded using non-interest-
bearing account receivables.\47\
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    \46\ For example, System institutions usually increase a 
borrower's loan commitment by $1,000 in order to cover the stock or 
participation certificate purchase. While the loan commitment will 
increase by $1,000, those funds are not disbursed to the borrower 
and are retained by the institution to cover the purchase. We note 
that under FCA Regulation Sec.  628.20(b)(1)(x), statutory borrower 
stock required under section 4.3A of the Act is not considered to be 
``directly or indirectly'' funded as long as: (A) The purpose of the 
loan is not the purchase of capital instruments of the System 
institution providing the loan, and (B) the purchase of acquisition 
of one or more member equities of the institution is necessary in 
order for the beneficiary of the loan to become a member of the 
institution. This approach follows the approach of the European 
Banking Authority regarding the standards for CET1 instruments for 
cooperatives. See 79 FR 52824 (September 4, 2014) for additional 
discussion.
    \47\ ``Stock'' funded in this manner has not been received with 
finality by the System institution and exposes the System 
institution to the credit risk of the borrower. On December 27, 
2019, the FCA Board used its reservation of authority in Sec.  
628.1(d)(2)(i) to determine that borrower stock funded through the 
creation of a non-interest-bearing account receivable in the 
borrower's name has characteristics and terms that diminish its 
ability to absorb losses and is not suitable for inclusion in CET1 
or tier 2 capital.
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    We also propose a conforming change in Sec.  628.20(d)(1)(i) to 
clarify that all instruments included in tier 2 capital must be issued 
and paid-in.
    In addition, we are proposing minor changes to Sec.  
628.20(b)(1)(i) and (b)(1)(ii) to align the language more closely to 
the language in the U.S. Rule and at the same time to emphasize a 
difference from the U.S. Rule. Specifically, the U.S. Rule requires 
CET1 instruments to entitle the holder to a claim on residual assets 
(after all senior claims have been satisfied) that is proportional to 
the holder's share of issued capital. Our rule does not require the 
equity holder's claim to be proportional. This is because, unlike 
commercial banks and mutual associations that do not allocate equities, 
System institutions may have liquidation bylaws that prioritize 
residual payments among different classes of common cooperative 
equityholders if there are assets remaining after all classes have 
received par or face value of their equities. We believe these changes 
to Sec.  628.20(b)(1) are not substantive.

B. Clarifying and Other Revisions to the Capital Rule

    The proposed amendments to the Capital Rule discussed in this 
section incorporate issues discussed in the Capital BL, with 
appropriate adjustments. In addition, we propose to make other changes 
to the Capital Rule that clarify Agency position.
1. Capitalization Bylaw Adjustment
    Section 615.5220(a)(6) requires System institutions to include in 
their capitalization bylaws a provision stating that equities other 
than those protected under section 4.9A of the Act are retireable at 
the sole discretion of the board, provided minimum capital adequacy 
standards established in subpart H of this part (615) and part 628 of 
this chapter are met. We propose to amend this section by replacing the 
reference to parts 615 and 628 with a general reference to FCA 
regulations. A general reference to FCA's capital adequacy standards 
would satisfy the requirement to reference parts 615 and 628 and would 
incorporate all capital requirements of the FCA, as well as any future 
capital requirements that could potentially be adopted under a new or 
different part.
    If a System institution has already amended its capitalization 
bylaws to include a reference to both part 615 and 628, it would not 
need to amend its capitalization bylaws to replace those references 
with a general reference to capital adequacy standards established by 
FCA. As discussed above, a reference to both part 615 and part 628 
would satisfy the proposed requirement for an institution's 
capitalization bylaws to include a general reference to capital 
adequacy standards established by FCA. However, if the bylaws reference 
only part 615 subpart H, or reference only part 628, this would not 
satisfy the requirement we are proposing. In these instances, a System 
institution would have to amend its capitalization bylaws to include a 
general reference to capital adequacy standards established by FCA.
    System institution changes to its bylaws to conform to this 
regulatory requirement should not change any substantive rights of the 
System institution or its member-borrowers. If the change is non-
substantive and does not alter, reduce, or increase the rights of any 
member-borrowers, a System institution's board may choose to make a 
conforming change to their capitalization bylaws to include a general 
reference to regulatory capital adequacy standards without a vote by 
its member-borrowers, assuming such bylaws allow for technical 
amendments without a shareholder vote.
2. Annual Report to Shareholder Corrections
    In existing Sec.  620.5, which lists the required contents of a 
System institution's annual report, we propose technical revisions to 
ensure institutions report financial data as we intended. System 
associations must report their tier 1 leverage ratio in each annual 
report for each of the last 5 fiscal years. This requirement was 
inadvertently placed in paragraph (f)(4)(iv) of Sec.  620.5. We propose 
to move the requirement from Sec.  620.5(f)(4)(iv) and place it in 
proposed Sec.  620.5(f)(3)(v), as originally intended.
    In addition, we propose to amend the requirement in Sec.  
620.5(f)(4) that System institutions report core surplus, total 
surplus, and the net collateral ratio (banks only) in a comparative 
columnar form for each fiscal year ending in 2012 through 2016. System 
institutions must currently report these ratios in each annual report 
through 2021, in addition to reporting the capital ratios required 
under Sec.  620(f)(2) and (3), resulting in System institutions 
reporting capital ratios beyond the 5-year requirement established in 
Sec.  620.5(f). Accordingly, we propose to revise Sec.  620.5(f)(4) to 
require these disclosures in each annual report through 2021 but only 
as long as these ratios are part of the previous 5 fiscal years for 
which disclosures are required. For example, the fiscal year ending 
2020 annual report to shareholders would report the permanent capital 
ratio, CET1 capital ratio, tier 1 capital ratio, total capital ratio, 
and tier 1 leverage ratio for the fiscal years ending in 2017-2020, and 
the core surplus ratio, total surplus, ratio, and net collateral ratio 
for the fiscal year ending in 2016 only.
3. Appropriate Risk-Weighting of Cash
    Existing Sec.  628.32(l)(1) states, among other things, that a 
System institution must assign a 0-percent risk-weight to cash held in 
accounts at a depository institution. This provision may create 
confusion about the proper risk-weight for deposits that exceed the 
limit of FDIC deposit insurance coverage (currently set at $250,000). 
Accordingly, we propose to delete this provision. It is unnecessary to 
address in Sec.  628.32(l)(1) the risk-weight assigned to cash held in 
depository institution accounts, because other provisions more 
accurately address this risk-weight. Specifically, Sec.  
628.32(a)(1)(i)(B) requires

[[Page 55793]]

a System institution to assign a 0-percent risk-weight to the portion 
of an exposure that is directly and unconditionally guaranteed by the 
U.S. Government, its central bank, or a U.S. Government agency, 
including a deposit or other exposure or the portion of a deposit or 
other exposure that is insured or otherwise unconditionally guaranteed 
by the FDIC or National Credit Union Administration. Section 
628.32(d)(1) requires a System institution to assign a 20-percent risk-
weight to exposures to U.S. depository institutions and credit unions 
that are not assigned a 0-percent risk-weight under Sec.  
628.20(a)(1)(i)(B). We confirm that the 20-percent risk-weight applies, 
for example, to a System institution's deposit with an FDIC-insured 
bank of funds in excess of the deposit insurance coverage of $250,000.
    Existing Sec.  628.32(l)(1) also states that System institutions 
must assign a 0-percent risk-weight to cash held in accounts at a 
Federal Reserve Bank. We propose to remove this provision because it is 
redundant. Section 628.32(a)(1)(i)(A) assigns a 0-percent risk-weight 
to an exposure to the central bank of the United States government, 
which includes Federal Reserve Banks.
    Finally, we propose to revise Sec.  628.32(l)(1) to add a provision 
generally assigning a 0-percent risk-weight to gold bullion held in the 
System institution's own vaults. The existing provision already 
generally assigns a 0-percent risk-weight to gold bullion held in the 
vaults of a depository institution.
4. Securitization Formulas
    The proposed rule would correct 3 formulas used in the simplified 
supervisory formula approach (SSFA) equation under Sec.  628.43(d) and 
one formula used in the simple risk-weight approach (SRWA) under Sec.  
628.52. These formulas were printed incorrectly in the Federal Register 
version of the Tier 1/Tier 2 Capital Framework final rule. We 
previously provided the correct formulas in our Capital BL. These are 
technical corrections to ensure these approaches are calculated 
correctly.
5. Unallocated Retained Earnings and Equivalents Deductions and 
Adjustments
    The proposed rule would clarify the calculation of the requirement 
described in Sec.  628.10 that at least 1.5 percent of the 4 percent 
tier 1 leverage ratio minimum must consist of URE and URE equivalents 
(UREE). The Capital Rule did not specify how to calculate this 
requirement. In our Capital BL, we provided guidance to System 
institutions on the deductions to make when calculating this minimum 
URE and UREE requirement.\48\ We stated: ``When calculating the URE and 
URE equivalents requirement for the leverage ratio, a System 
institution must deduct from the numerator an amount equal to all the 
deductions required under Sec.  628.22(a). All deductions made to the 
denominator when calculating the tier 1 leverage ratio must be made to 
the denominator when calculating the URE and URE equivalents 
requirement.'' \49\
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    \48\ See Capital BL, item 4.
    \49\ Section 628.10(c)(4) requires the amounts deducted under 
Sec. Sec.  628.22(a) and (c) and 628.23 to be deducted from tier 1 
capital when calculating the tier 1 leverage ratio. However, the 
deductions under Sec. Sec.  628.22(c) and 628.23 were not applied to 
the numerator when calculating the URE and UREE requirement as they 
do not increase the URE of a System institution.
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    We propose to add the Capital BL guidance to Sec.  628.10. We also 
propose to require System institutions to deduct purchased equity 
investments that are required to be deducted under the corresponding 
deduction approach in Sec.  628.22(c). The URE and UREE measure, 
because it is a component of the tier 1 leverage ratio, should have 
similar deductions.\50\ While the URE and UREE measure represents only 
a part of the numerator of the tier 1 leverage ratio, our previous 
guidance to deduct such amounts only from Sec.  628.22(a) resulted in 
the majority of System institution's URE and UREE measures being higher 
than the tier 1 leverage ratio, which was not our intention. We believe 
our proposed deduction of purchased stock under Sec.  628.22(c) will 
have a minimal impact on System institutions and will not result in any 
System institution's URE and UREE measure falling below the regulatory 
minimum.\51\ In addition, when calculating the URE and UREE measure, 
System institutions must continue to use the same denominator as the 
tier 1 leverage ratio. The denominator is equal to the institution's 
average total consolidated assets as reported on the institution's Call 
Report minus amounts deducted from tier 1 capital under Sec. Sec.  
628.22(a), and (c) and 628.23.\52\
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    \50\ We do not find it necessary to require the deductions under 
Sec.  628.23 as third-party stock is not a component of URE, UREE, 
or CET1 capital.
    \51\ As of September 30, 2019, the inclusion of deductions under 
Sec.  628.22(c) in the computation of the URE and UREE measure would 
have decreased the ratio at System institutions by 1 percent on 
average. With computations including the deductions under Sec.  
628.22(c), all institutions remain well above the regulatory 
minimum.
    \52\ As of the date of this proposal, this would be total 
average assets for leverage ratio on schedule RC-R.5, line 1.d.
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    Question 5: The FCA seeks comment on the appropriate deductions and 
adjustments that should be made to URE and URE equivalents in 
determining compliance with Sec.  628.10(b)(4).
6. Service Corporation Deductions and Adjustments
    The proposed rule would expand the requirement under existing Sec.  
628.22(a)(6) for a System institution to deduct any allocated equity 
investment in another System institution, which is defined in part 628 
to mean each System bank or association,\53\ by requiring a System 
institution also to deduct any allocated equity investment in a System 
service corporation.
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    \53\ ``System institution'' is defined in existing Sec.  628.2 
as ``a System bank, an association of the Farm Credit System, . . . 
and any other institution chartered by the FCA that the FCA 
determines should be considered a System institution for the 
purposes of this part.'' The FCA has not made any determinations to 
include other institutions in this definition.
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    Although we do not know of any allocation of equities by a service 
corporation to another institution in the System, a service 
corporation's bylaws may permit it to allocate equities to another 
System institution. The allocated equity is retained, controlled, and 
at risk at the service corporation. Therefore, consistent with FCA's 
stated position that equities should be counted in the regulatory 
capital of the System institution that has control of the equities 
rather than at the System institution that does not control them, these 
allocated equities should be counted at the service corporation as 
applicable, and deducted from the regulatory capital of the recipient 
System institution.
    Question 6: The FCA seeks comment on whether any System institution 
has received an allocated equity investment from a service corporation.
7. Adjustments for Accruing Patronage and Dividends
    We propose to amend the regulatory capital adjustment and deduction 
requirements under Sec.  628.22 by including in proposed Sec.  
628.22(b) the existing requirement to reverse any accruals of patronage 
or dividend payables or receivables that occur prior to a board 
declaration resolution.\54\ Under GAAP, institutions that make 
patronage and dividend payments that can be reasonably estimated on a 
regular and routine basis may accrue those payments as payables. 
Similarly, institutions that receive patronage and dividend payments 
that can be reasonably estimated on regular and

[[Page 55794]]

routine basis may accrue those payments as receivables. Many System 
institutions accrue these payables or receivables on their balance 
sheet prior to the board adopting a declaration resolution. For 
regulatory capital purposes only, these institutions must adjust their 
unallocated retained earnings as follows:
---------------------------------------------------------------------------

    \54\ See existing Call Report instructions for Schedule RC-R.4, 
Line item 3 at https://www.fca.gov/bank-oversight/fcs-call-reports.
---------------------------------------------------------------------------

     If a System institution accrues a patronage or dividend 
receivable prior to the date of the board declaration resolution by the 
paying institution, then it must subtract this accrual from its URE.
     If a System institution accrues a patronage or dividend 
payable to either another institution or a borrower prior to the date 
of its board declaration resolution, then it must add it back to URE.
    If the System institution chooses not to accrue a payable or 
receivable until it is declared by the board, then no adjustments to 
regulatory capital are necessary. Any adjustment to accruals made 
pursuant to this provision is applicable only to regulatory capital 
measures as reported to FCA.
8. Bank Disclosures
    The proposed rule would amend Sec.  628.63(b)(4) by requiring banks 
to disclose a reconciliation of their regulatory capital elements as 
they relate to their balance sheets in any audited consolidated 
financial statements. We propose to add the word ``applicable'' before 
``audited'' to clarify that this reconciliation requirement applies 
only to current period financial statements that are audited. There is 
no requirement to reconcile with audited financial statements from 
previous quarters. Specifically, if a System bank audits only its year-
end financial statements, and not its quarterly financial statements 
(as is the general practice of System banks), this requirement would 
apply only to the bank's annual report to shareholders. The 
reconciliation applies to quarterly shareholder reports only if the 
reports are audited.
    We also propose to require System banks to disclose the 
reconciliation of regulatory capital elements using both point-in-time 
and three-month average daily balance regulatory capital values. 
Section 628.10(a) requires a System institution to compute its 
regulatory capital ratios using average daily balances for the most 
recent 3 months. Existing Sec.  628.63(b)(4) does not specify whether 
to complete the reconciliation using point-in-time or average daily 
balance regulatory capital values.
    FCA has long required institutions to compute their capital ratios 
using three-month average daily balances; so we believe it is 
appropriate that the reconciliation to any applicable audited 
consolidated financial statements also use the three-month average 
daily balances. One of the primary purposes of this requirement is to 
address the disconnect between the numbers used for the calculation of 
regulatory capital and the numbers used in published financial 
statements. Because FCA measures and monitors regulatory capital using 
average daily balances, we believe the reconciliation using average 
daily balances is the most accurate and beneficial way to disclose 
differences between regulatory capital and audited consolidated 
financial statements.
    We believe it is also appropriate to include the reconciliation 
using point-in-time values. The audited consolidated financial 
statement uses point-in-time values; therefore, also completing the 
reconciliation using point-in-time values allows for a comparison 
between GAAP and regulatory capital using point-in-time numbers. 
Disclosing the reconciliation using both average daily and point-in-
time values provides investors and stockholders with the most accurate, 
complete, and transparent means to understanding differences between 
regulatory capital and GAAP capital.
    In addition, we propose to further clarify System disclosures as 
follows: Existing Sec.  620.3 requires disclosures by institutions and 
by employees, officers, directors, and institution director nominees to 
be ``complete.'' Section 628.62(a) requires disclosures from System 
banks as outlined in Sec.  628.63. Section 628.62(c) permits a System 
bank, in certain situations, not to disclose certain information that 
it would otherwise be required to disclose under Sec.  628.63 and to 
instead disclose more limited information.
    Specifically, Sec.  628.62(c) permits a System bank not to disclose 
specific proprietary or confidential commercial or financial 
information that it would otherwise be required to disclose if it 
concludes that such disclosures would compromise its position, as long 
as it discloses more general information about the subject matter, 
together with the fact that, and the reasons why, the specific items of 
information are not being disclosed.
    To clarify that Sec.  620.3 does not require the disclosure of 
information that banks may properly not disclose under Sec.  628.62(c), 
we propose to revise Sec.  620.3 to state that unless otherwise 
determined by FCA, the use of the authorized limited disclosure does 
not create an incomplete disclosure. We also propose to revise Sec.  
620.3 to permit the modification of the required statement that the 
information provided is true, accurate, and complete to explain that 
the completeness of the disclosure was determined in consideration of 
Sec.  628.62(c).
    We are also proposing a technical edit to remove and reserve Sec.  
628.63(b)(3) because it is no longer applicable.
    Question 7: The FCA seeks comment on the appropriateness and 
usefulness to internal and/or external stakeholders of completing the 
reconciliation using both point-in-time and average daily balance 
values?
9. Retirement of Statutory Borrower Stock
    Existing Sec.  628.20(b)(1)(xiv)(B) allows System institutions to 
redeem the minimum statutory borrower stock described in Sec.  
628.20(b)(1)(x) without prior FCA approval and without satisfying the 
minimum holding period for common cooperative equities included in CET1 
capital. We propose to add a provision expressly stating that an 
institution may redeem such statutory borrower stock only provided 
that, after such redemption, the institution continues to comply with 
all minimum regulatory capital requirements.
    Although the existing rule is silent on whether the institution 
must maintain compliance with the regulatory capital standards, 
institutions have been required to do so by the Act and FCA regulations 
since 1988. Section 4.3A(c)(1)(I) of the Act and Sec.  615.5220(a)(6) 
condition the retirement of stock on the institution meeting the 
minimum capital adequacy standards established by FCA. The proposed 
amendment to Sec.  628.(b)(1)(xiv)(B) would eliminate any possible 
misinterpretation that an institution could retire the statutory 
borrower stock if the institution were not meeting its regulatory 
capital requirements both before and after the retirement.
    Although we are not proposing additional changes to the treatment 
of statutory borrower stock, we provide the following additional 
clarifications:
     For any statutory borrower stock that exceeds $1,000 or 2 
percent of the loan amount, whichever is less, the minimum holding 
periods apply (7 years for CET1 and 5 years for Tier 2) if an 
institution plans to include the additional stock in tier 1 or tier 2 
capital.
     The minimum statutory borrower stock includible in CET1 is 
the outstanding balance of the statutory minimum borrower stock. If a 
loan is for $50,000 or more, the amount includible in CET1 capital 
without a minimum

[[Page 55795]]

holding period is no more than $1,000 until such stock is retired. If a 
loan is for less than $50,000 at origination, the amount includible in 
CET1 capital is 2 percent of the originated loan amount until such 
stock is retired. If a revolving line of credit is originated for 
$50,000 or more and the amount of borrower stock is retired as the loan 
pays down, the amount of stock remaining on the calculation date, up to 
$1,000, is the amount includible in CET1 without a minimum holding 
period. If a revolving line of credit is originated for less than 
$50,000 and the amount of borrower stock is retired as the loan pays 
down, the amount of stock remaining on the calculation date, up to 2 
percent of the originated loan amount, is the amount includible in CET1 
without a minimum holding period.

C. General Discussion

    FCA is using this notice of proposed rulemaking to provide further 
clarification and guidance to the System on continuously redeemable 
preferred stock and to respond to a letter received from the Farm 
Credit Council. We also seek comment on potential changes that may be 
made to FCA's existing permanent capital regulations.
1. Continuously Redeemable Preferred Stock (H Stock)
    Some System associations have issued continuously redeemable 
perpetual preferred stock (typically called Harvest Stock or H Stock) 
to their member-borrowers to invest and participate in their 
cooperative beyond the minimum borrower stock purchase. H Stock is an 
at-risk investment, issued without a stated maturity and retireable 
only at the discretion of the institution's board. A feature of the 
stock is the institution's intent to redeem it upon the request of the 
holder as long as the institution is in compliance with its regulatory 
capital requirements. Because of this feature, FCA considers the stock 
to be continuously redeemable. Some of the institutions also lower the 
operational hurdles to redemption by delegating the board's authority 
to retire all member-borrower stock to management provided certain 
board-approved minimum regulatory capital ratios are maintained. FCA 
has determined that holders reasonably expect the institution to redeem 
the stock shortly after they make a request and, therefore, the stock 
does not meet the requirements of Sec.  628.20(b)(1)(iv), Sec.  
628.20(c)(1)(xiv)(A) or Sec.  628.20(d)(1)(xi)(A) for inclusion in tier 
1 or tier 2 capital. Even after the stock has been outstanding for 5 
years or more, the continued policy of the institutions to redeem this 
stock upon request and the continued expectations of holders disqualify 
the stock for inclusion in tier 1 or tier 2 capital.
2. Farm Credit Council Letter
    In addition, FCA has received a letter from the Farm Credit Council 
on behalf of System banks and associations (System Letter) \55\ 
recommending changes to the risk-weighting of investments by System 
institutions in service corporations and unincorporated business 
entities (UBEs).
---------------------------------------------------------------------------

    \55\ Letter dated November 22, 2016, from Charles Dana, General 
Counsel, Farm Credit Council to Gary K. Van Meter, Director, Office 
of Regulatory Policy. The Farm Credit Council is a trade association 
representing the interests of System banks and associations. This 
letter was received after the final Capital Rule had been adopted by 
the FCA Board and communicates a request to change certain 
provisions of the final Capital Rule, as discussed in this section.
---------------------------------------------------------------------------

    The System Letter requests that a System institution's investment 
in a service corporation be risk-weighted at 100 percent instead of 
being deducted from CET1 capital. The stated basis for such treatment 
is that investments in service corporations are approved by their 
respective owners that closely control their activities, and the 
service corporations do not possess lending authorities (i.e., they do 
not assume exposure to credit risks).
    The System Letter also recommended directing System institutions to 
either risk-weight or deduct their investments in UBEs, depending on 
the specific nature of the UBE.\56\ The letter suggests that 
institutions with an equity investment in AgDirect, LLP should deduct 
the investment from regulatory capital.
---------------------------------------------------------------------------

    \56\ Under the existing rules, equity investments in UBEs are 
generally included in risk-weighted assets in accordance with Sec.  
628.52.
---------------------------------------------------------------------------

    We have considered the request and have decided not to propose that 
institutions risk-weight equity investments in service corporations 
instead of deducting such investments. FCA continues to believe that 
such capital investments are committed to support risks at the service 
corporation level and that such capital investments must be available 
to meet any capital needs of the service corporation.\57\
---------------------------------------------------------------------------

    \57\ See 63 FR 39222 (July 22, 1998).
---------------------------------------------------------------------------

    With respect to the treatment of UBEs, FCA may consider the 
appropriate regulatory capital treatment of the UBE and apply such 
treatment on a case-by-case determination, as appropriate.
    FCA clarifies that the Farm Credit System Association Captive 
Insurance Company (Captive Insurance Company) is not a System 
institution as defined in Sec.  628.2. Accordingly, any System 
institution with an equity investment in the Captive Insurance Company 
must risk-weight that equity investment.
3. Permanent Capital
    In 1988, Congress added a definition of ``permanent capital'' to 
the Act and required the FCA to adopt risk-based permanent capital 
standards for System institutions. The FCA adopted permanent capital 
regulations in 1988.\58\
---------------------------------------------------------------------------

    \58\ See 53 FR 39229 (October 6, 1988).
---------------------------------------------------------------------------

    The Act defines permanent capital to include current earnings, 
unallocated and allocated earnings,\59\ stock (other than stock 
retireable on repayment of the holder's loan or at the discretion of 
the holder, and certain stock issued before October 1988), surplus less 
allowance for loan losses, and other debt or equity instruments that 
the FCA determines appropriate to be considered permanent capital. 
Allocated equities shared by a bank and each affiliated association--
that is, equities that a bank has allocated to an affiliated 
association--appear on the books of both institutions but can be 
counted in only one institution's permanent capital pursuant to a 
capital allotment agreement between the two institutions.
---------------------------------------------------------------------------

    \59\ In this preamble, ``unallocated and allocated earnings'' 
would be equivalent to ``unallocated retained earnings and allocated 
equities.'' Additionally, ``surplus'' would be ``unallocated 
retained earnings.''
---------------------------------------------------------------------------

    By adopting and implementing the Tier 1/Tier 2 Capital Framework, 
FCA has shifted its focus from permanent capital to total capital (tier 
1 and tier 2). Because the Act defines permanent capital, FCA must 
require reporting and monitoring of permanent capital. Moreover, FCA 
has limited authority to change the components of permanent capital. 
However, the FCA has full authority to implement appropriate deductions 
to permanent capital in the numerator and set the risk-weights used in 
risk-adjusted assets in the denominator of the permanent capital ratio. 
FCA seeks to reduce the burden associated with permanent capital, and 
we seek comment on the best way to do so consistent with statutory 
mandates. We note that H Stock, in its current form, is included in 
permanent capital and FCA does not seek to exclude H Stock from 
permanent capital.
    Question 8: What, if any, changes to the permanent capital 
regulations (Sec. Sec.  615.5201, 615.5206, 615.5207, and 615.5208) 
should be made to increase their clarity and understanding?
    Question 9: Is calculating permanent capital burdensome for System 
institutions? If so, are there any changes FCA could make to this 
calculation that would reduce this burden, considering that the 
definition of permanent capital

[[Page 55796]]

in the Act precludes us from changing the components of permanent 
capital?
    Question 10: Should FCA more closely align the permanent capital 
calculation with the total capital (tier 1 and tier 2) calculations? If 
so, how could FCA accomplish this, considering that for permanent 
capital, the Act specifies deductions related to bank and association 
allotment agreements?

III. Abbreviations

BCBS Basel Committee on Banking Supervision
CFR Code of Federal Regulations
CFTC Commodity Futures Trading Commission
EMNA Eligible Master Netting Agreement
FCA Farm Credit Administration
FDIC Federal Deposit Insurance Corporation
FDI Act Federal Deposit Insurance Corporation Improvement Act of 
1991
FFIEC Federal Financial Institutions Examination Council
FR Federal Register
GAAP Generally Accepted Accounting Principles (U.S.)
GSE Government-Sponsored Enterprise
GSIB Global Systemically Important Bank
OCC Office of the Comptroller of the Currency
QFC Qualified Financial Contract
QMNA Qualified Master Netting Agreement
SEC Securities and Exchange Commission
SFA Supervisory Formula Approach
SRWA Simple Risk-Weight Approach
SSFA Simplified Supervisory Formula Approach
UBE Unincorporated Business Entity
URE Unallocated Retained Earnings
UREE Unallocated Retained Earnings Equivalents
U.S.C. United States Code

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that this proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities. 
Therefore, Farm Credit System institutions are not ``small entities'' 
as defined in the Regulatory Flexibility Act.

Lists of Subjects

12 CFR Part 614

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

12 CFR Part 615

    Accounting, Agriculture, Banks, Banking, Government securities, 
Investments, Rural areas.

12 CFR Part 620

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

12 CFR Part 628

    Accounting, Agriculture, Banks, Banking, Capital, Government 
securities, Investments, Rural areas.

    For the reasons stated in the preamble, the Farm Credit 
Administration proposes to amend parts 614, 615, 620 and 628 of chapter 
VI, title 12 of the Code of Federal Regulations as follows:

PART 614--LOAN POLICIES AND OPERATIONS

0
1. The authority citation for part 614 is revised to read as follows:

    Authority:  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, 4.13B, 4.14, 4.14A, 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, 2201, 2202, 2202a, 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, as amended by 
section 405 of Pub. L. 100-399, 102 Stat. 1000 (12 U.S.C. 2121 
note); 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

0
2. Amend Sec.  614.4351 by:
0
a. Revising paragraph (a);
0
b. Removing and reserving paragraph (a)(1); and
0
c. Revising paragraph (a)(2).
    The revisions read as follows:


Sec.  614.4351  Computation of lending and leasing limit base.

    (a) Lending and leasing limit base. An institution's lending and 
leasing limit base is composed of the total capital (Tier 1 and Tier 2) 
of the institution, as defined in Sec.  628.2 of this chapter, with 
adjustments applicable to the institution provided for in Sec.  628.22 
of this chapter, and with the following further adjustments:
    (1) [Reserved]
    (2) Eligible third-party capital that is required to be excluded 
from total capital under Sec.  628.23 of this chapter may be included 
in the lending limit base.
* * * * *

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

0
3. The authority citation for part 615 is revised to read as follows:

    Authority:  Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 
2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 
5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 
2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 
2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-
12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608 (12 U.S.C. 
2154 note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15 
U.S.C. 78o-7 note).

0
4. Amend Sec.  615.5200 by replacing the existing language with the 
following language:


Sec.  615.5200  Capital planning.

    (a) The Board of Directors of each System institution shall 
determine the amount of regulatory capital needed to assure the System 
institution's continued financial viability and to provide for growth 
necessary to meet the needs of its borrowers. The minimum capital 
standards specified in this part and part 628 of this chapter are not 
meant to be adopted as the optimal capital level in the System 
institution's capital adequacy plan. Rather, the standards are intended 
to serve as minimum levels of capital that each System institution must 
maintain to protect against the credit and other general risks inherent 
in its operations.
    (b) Each Board of Directors shall establish, adopt, and maintain a 
formal written capital adequacy plan as a part of the financial plan 
required by Sec.  618.8440 of this chapter. The plan shall include the 
capital targets that are necessary to achieve the System institution's 
capital adequacy goals as well as the minimum permanent capital, common 
equity tier 1 (CET1) capital, tier 1 capital, total capital, and tier 1 
leverage ratios (including the unallocated retained earnings (URE) and 
URE equivalents minimum) standards. The plan shall expressly 
acknowledge the continuing and binding effect of all board resolutions 
adopted in accordance with Sec. Sec.  628.20(b)(1)(xiv), (c)(1)(xiv), 
(d)(1)(xi), and 628.21. The plan shall address any projected dividend 
payments, patronage payments, equity retirements, or other action that 
may decrease the System institution's capital or the components thereof 
for which minimum amounts are required by this part and part 628 of 
this chapter. The plan shall set forth the circumstances and minimum 
timeframes in which

[[Page 55797]]

equities may be redeemed or revolved consistent with the System 
institution's applicable bylaws or board of directors' resolutions.
    (c) In addition to factors that must be considered in meeting the 
minimum standards, the board of directors shall also consider at least 
the following factors in developing the capital adequacy plan:
    (1) Capability of management and the board of directors (the 
assessment of which may be a part of the assessments required in 
paragraphs (b)(2)(ii) and (b)(7)(i) of Sec.  618.8440 of this chapter);
    (2) Quality of operating policies, procedures, and internal 
controls;
    (3) Quality and quantity of earnings;
    (4) Asset quality and the adequacy of the allowance for losses to 
absorb potential loss within the loan and lease portfolios;
    (5) Sufficiency of liquid funds;
    (6) Needs of a System institution's customer base; and
    (7) Any other risk-oriented activities, such as funding and 
interest rate risks, potential obligations under joint and several 
liability, contingent and off-balance-sheet liabilities or other 
conditions warranting additional capital.
0
5. Amend Sec.  615.5201 by revising the definition of ``System 
institution'' to read as follows:


Sec.  615.5201  Definitions.

* * * * *
    System institution means a System bank, an association of the Farm 
Credit System, and their successors, and any other institution 
chartered by the FCA that the FCA determines should be considered a 
System institution for the purposes of this subpart.
0
6. Amend Sec.  615.5220 by revising paragraph (a)(6) to read as 
follows:


Sec.  615.5220  Capitalization bylaws.

    (a) * * *
    (6) The manner in which equities will be retired, including a 
provision stating that equities other than those protected under 
section 4.9A of the Act are retireable at the sole discretion of the 
board, provided minimum capital adequacy standards established by the 
Farm Credit Administration, and the capital requirements established by 
the board of directors of the System institution, are met;
* * * * *

PART 620--DISCLOSURE TO SHAREHOLDERS

0
7. The authority citation for part 620 continues to read as follows:

    Authority:  Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm 
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 424 
of Pub. L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-
552, 106 Stat. 4102.

0
8. Amend Sec.  620.3 byadding in paragraphs (a) and (c)(3) a new last 
sentence to read as follows.


Sec.  620.3   Accuracy of reports and assessment of internal control 
over financial reporting.

    (a) * * * Unless otherwise determined by FCA, the appropriate use 
of the limited disclosure authorized by Sec.  628.62(c) does not create 
an incomplete disclosure.
* * * * *
    (c) * * *
    (3) * * * If the report contains the limited disclosure authorized 
by Sec.  628.62(c), the statement may be modified to explain that the 
completeness of the report was determined in consideration of Sec.  
628.62(c).
* * * * *
0
9. Amend Sec.  620.5 by:
0
a. Adding paragraph(f)(3)(v);
0
b. Revising (f)(4).
    The addition and revision read as follows:


Sec.  620.5  Contents of the annual report to shareholders.

* * * * *
    (f) * * *
    (3) * * *
    (v) Tier 1 leverage ratio.
    (4) The following ratios shall be disclosed in comparative columnar 
form in each annual report through fiscal year end 2021, only as long 
as these ratios are part of the previous 5 fiscal years of financial 
data required under Sec.  620.5(2) and (3):
    (i) Core surplus ratio.
    (ii) Total surplus ratio.
    (iii) For banks only, net collateral ratio.
* * * * *

PART 628--CAPITAL ADEQUACY OF SYSTEM INSTITUTIONS

0
10. The authority citation for part 628 is revised to read as follows:

    Authority:  Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 
2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 
5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12 
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 
2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 
2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-
12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608 (12 U.S.C. 
2154 note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15 
U.S.C. 78o-7 note).

0
11. Amend Sec.  628.2 by:
0
a. Revising the definition of ``Collateral agreement'';
0
b. Adding in alphabetical order a definition for ``Common cooperative 
equity issuance date'';
0
c. Revising the definition of ``Eligible margin loan'';
0
d. Revising the definition of ``Qualifying master netting agreement'';
0
e. Revising the definition of ``Repo-style transaction'';
0
f. Revising the definition of ``System institution''.
    The revisions and addition read as follows:


Sec.  628.2  Definitions

* * * * *
    Collateral agreement means a legal contract that specifies the time 
when, and circumstances under which, a counterparty is required to 
pledge collateral to a System institution for a single financial 
contract or for all financial contracts in a netting set and confers 
upon the System institution a perfected, first-priority security 
interest (notwithstanding the prior security interest of any custodial 
agent), or the legal equivalent thereof, in the collateral posted by 
the counterparty under the agreement. This security interest must 
provide the System institution with a right to close-out the financial 
positions and liquidate the collateral upon an event of default of, or 
failure to perform by, the counterparty under the collateral agreement. 
A contract would not satisfy this requirement if the System 
institution's exercise of rights under the agreement may be stayed or 
avoided:
    (1) Under applicable law in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (1)(i) in order to facilitate the orderly 
resolution of the defaulting counterparty;
    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (1)(i) of this 
definition; or
    (2) Other than to the extent necessary for the counterparty to 
comply with the requirements of part 47, Subpart I of part 252 or part 
382 of Title 12, as applicable.
* * * * *
    Common cooperative equity issuance date means the date in which the 
holding period for purchased stock (excluding statutory minimum 
borrower stock and third-party stock) and allocated equities start:
    (1)For allocated equities, the quarter-ending in which:

[[Page 55798]]

    (i) The System institution's Board of Directors has passed a 
resolution declaring a patronage refund; and
    (ii) The System institution has completed the applicable accounting 
treatment by segregating the new allocated equities from its 
unallocated retained earnings.
    (iii) For purchased stock (excluding statutory minimum borrower 
stock and third-party stock), the quarter-ending in which the stock is 
acquired by the holder and recognized on the institution's balance 
sheet.
* * * * *
    Eligible margin loan means:
    (1) An extension of credit where:
    (i) The extension of credit is collateralized exclusively by liquid 
and readily marketable debt or equity securities, or gold;
    (ii) The collateral is marked-to-fair value daily, and the 
transaction is subject to daily margin maintenance requirements; and
    (iii) The extension of credit is conducted under an agreement that 
provides the System institution the right to accelerate and terminate 
the extension of credit and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
insolvency, liquidation, conservatorship, or similar proceeding, of the 
counterparty, provided that, in any such case:
    (A) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (1) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs,\60\ or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (1)(iii)(A)(1) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \60\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code 
(11 U.S.C. 555), qualified financial contracts under section 
11(e)(8) of the Federal Deposit Insurance Act, or netting contracts 
between or among financial institutions under sections 401-407 of 
the Federal Deposit Insurance Corporation Improvement Act or the 
Federal Reserve Board's Regulation EE (12 CFR part 231).
---------------------------------------------------------------------------

    (2) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (1)(iii)(A)(1) of 
this definition; and
    (B) The agreement may limit the right to accelerate, terminate, and 
close-out on a net basis all transactions under the agreement and to 
liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, subpart I of part 252 or part 382 of 
Title 12, as applicable.
    (2) In order to recognize an exposure as an eligible margin loan 
for purposes of this subpart, a System institution must comply with the 
requirements of Sec.  628.3(b) with respect to that exposure.
* * * * *
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the System institution the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case:
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a System institution 
must comply with the requirements of Sec.  628.3(d) with respect to 
that agreement.
* * * * *
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the System institution 
acts as agent for a customer and indemnifies the customer against loss, 
provided that:
    (1) The transaction is based solely on liquid and readily 
marketable securities, cash, or gold;
    (2) The transaction is marked-to-fair value daily and subject to 
daily margin maintenance requirements;
    (3)(i) The transaction is a ``securities contract'' or ``repurchase 
agreement'' under section 555 or 559, respectively, of the Bankruptcy 
Code (11 U.S.C. 555 or 559), a qualified financial contract under 
section 11(e)(8) of the Federal Deposit Insurance Act, or a netting 
contract between or among financial institutions under sections 401-407 
of the Federal Deposit Insurance Corporation Improvement Act or the 
Federal Reserve's Regulation EE (12 CFR part 231); or
    (ii) If the transaction does not meet the criteria set forth in 
paragraph (3)(i) of this definition, then either:
    (A) The transaction is executed under an agreement that provides 
the System institution the right to accelerate, terminate, and close-
out the transaction on a net basis and to liquidate or set-off 
collateral promptly upon an event of default, including upon an event 
of receivership, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case:
    (1) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (3)(ii)(A)(1)(i) in order to facilitate 
the orderly resolution of the defaulting counterparty;
    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the

[[Page 55799]]

laws referenced in paragraph (3)(ii)(A)(1)(i) of this definition; and
    (2) The agreement may limit the right to accelerate, terminate, and 
close-out on a net basis all transactions under the agreement and to 
liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable; or
    (B) The transaction is:
    (1) Either overnight or unconditionally cancelable at any time by 
the System institution; and
    (2) Executed under an agreement that provides the System 
institution the right to accelerate, terminate, and close-out the 
transaction on a net basis and to liquidate or set-off collateral 
promptly upon an event of counterparty default; and
    (4) In order to recognize an exposure as a repo-style transaction 
for purposes of this subpart, a System institution must comply with the 
requirements of Sec.  628.3(e) of this part with respect to that 
exposure.
* * * * *
    System institution means a System bank, an association of the Farm 
Credit System, and their successors, and any other institution 
chartered by the FCA that the FCA determines should be considered a 
System institution for the purposes of this subpart.
* * * * *
0
12. Amend Sec.  628.10 by revising paragraph (c)(4) to read as follows:


Sec.  628.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) Tier 1 leverage ratio. (i) A System institution's leverage 
ratio is the ratio of the institution's tier 1 capital to the 
institution's average total consolidated assets as reported on the 
institution's Call Report minus amounts deducted from tier 1 capital 
under Sec. Sec.  628.22(a) and (c) and 628.23.
    (ii) To calculate the measure of URE and URE equivalents described 
in Sec.  628.10(b)(4), a System institution must deduct from URE and 
URE equivalents an amount equal to all the deductions required under 
Sec.  628.22(a) and (c), and must use the denominator of the tier 1 
leverage ratio.
* * * * *
0
13. Amend Sec.  628.20 by revising paragraphs (b)(1)(i) through (ii), 
(xiv), (c)(1)(xiv), (d)(1)(i), (1)(xi), and (f)(5)(ii).
    The revisions read as follows:


Sec.  628.20  Capital components and eligibility criteria for tier 1 
and tier 2 capital instruments.

* * * * *
    (b) * * *
    (1) * * *
    (i) The instrument is paid-in, issued directly by the System 
institution, and represents the most subordinated claim in a 
receivership, insolvency, liquidation, or similar proceeding of the 
System institution;
    (ii) The holder of the instrument is entitled to a claim on the 
residual assets of the System institution after all senior claims have 
been satisfied in a receivership, insolvency, liquidation, or similar 
proceeding;
* * * * *
    (xiv) The System institution's capitalization bylaws, or a 
resolution adopted by its board of directors under Sec.  628.21, 
provides that the institution:
    (A) Establishes a minimum redemption or revolvement period of 7 
years for equities included in CET1; and
    (B) Shall not redeem, revolve, cancel, or remove any equities 
included in CET1 without prior approval of the FCA under Sec.  
628.20(f), except that the minimum statutory borrower stock described 
in paragraph (b)(1)(x) of this section may be redeemed without a 
minimum period outstanding after issuance and without the prior 
approval of the FCA, as long as after the redemption, the System 
institution continues to comply with all minimum regulatory capital 
requirements.
* * * * *
    (c) * * *
    (1) * * *
    (xiv) The System institution's capitalization bylaws, or a 
resolution adopted by its board of directors under Sec.  628.21, 
provides that the institution:
    (A) Establishes a minimum redemption or no-call period of 5 years 
for equities included in additional tier 1; and
    (B) Shall not redeem, revolve, cancel, or remove any equities 
included in additional tier 1 capital without prior approval of the FCA 
under Sec.  628.20(f).
* * * * *
    (d) * * *
    (1) * * *
    (i) The instrument is issued and paid-in;
* * * * *
    (xi) The System institution's capitalization bylaws, or a 
resolution adopted by its board of directors under Sec.  628.21, 
provides that the institution:
    (A) Establishes a minimum call, redemption or revolvement period of 
5 years for equities included in tier 2 capital; and
    (B) Shall not call, redeem, revolve, cancel, or remove any equities 
included in tier 2 capital without prior approval of the FCA under 
Sec.  628.20(f).
* * * * *
    (f) * * *
    (5) * * *
    (ii) After such cash payments have been declared and defined by 
resolution of the board, the dollar amount of the System institution's 
CET1 capital at quarter-end equals or exceeds the dollar amount of CET1 
capital on the same quarter-end in the previous calendar year; and
* * * * *
0
14. Add new Sec.  628.21 to read as follows:


Sec.  628.21  Capital bylaw or board resolution to include equities in 
tier 1 and tier 2 capital.

    In order to include otherwise eligible purchased and allocated 
equities in tier 1 capital and tier 2 capital, the System institution 
must adopt a capitalization bylaw, or its board of directors must adopt 
a binding resolution, which resolution must be acknowledged by the 
board on an annual basis in the capital adequacy plan described in 
Sec.  615.5200, in which the institution undertakes the following, as 
applicable:
    (a) The institution shall obtain prior FCA approval under Sec.  
628.20(f) before:
    (1) Redeeming or revolving the equities included in common equity 
tier 1 (CET1) capital;
    (2) Redeeming or calling the equities included in additional tier 1 
capital; and
    (3) Redeeming, revolving, or calling instruments included in tier 2 
capital other than limited life preferred stock or subordinated debt on 
the maturity date.
    (b) The equities shall have a minimum redemption or revolvement 
period as follows:
    (1) 7 years for equities included in CET1 capital, except that the 
minimum statutory borrower stock described in Sec.  628.20(b)(1)(x) may 
be redeemed without a minimum holding period and that equities 
designated as unallocated retained earnings (URE) equivalents cannot be 
revolved without submitting a written request to the FCA for prior 
approval;
    (2) A minimum no-call, repurchase, or redemption period of 5 years 
for additional tier 1 capital; and
    (3) A minimum no-call, repurchase, redemption, or revolvement 
period of 5 years for tier 2 capital.
    (c) The institution shall submit to FCA a written request for prior 
approval before:
    (1) Redesignating URE equivalents as equities that the institution 
may

[[Page 55800]]

exercise its discretion to redeem other than upon dissolution or 
liquidation;
    (2) Removing equities or other instruments from CET1, additional 
tier 1, or tier 2 capital other than through repurchase, cancellation, 
redemption or revolvement; and
    (3) Redesignating equities included in one component of regulatory 
capital (CET1 capital, additional tier 1 capital, or tier 2 capital) 
for inclusion in another component of regulatory capital.
    (d) The institution shall not exercise its discretion to revolve 
URE equivalents except upon dissolution or liquidation and shall not 
offset URE equivalents against a loan in default except as required 
under final order of a court of competent jurisdiction or if required 
under Sec.  615.5290 in connection with a restructuring under part 617 
of this chapter.
    (e) The minimum redemption and revolvement period (holding period) 
for purchased and allocated equities starts on the common cooperative 
equity issuance date, as defined in Sec.  628.2.
0
15. Amend Sec.  628.22 by revising paragraphs (a)(6) and (b) to read as 
follows:


Sec.  628.22  Regulatory capital adjustments and deductions.

* * * * *
    (a) * * *
    (6) The System institution's allocated equity investment in another 
System institution or service corporation; and
* * * * *
    (b) Regulatory adjustments to common equity tier 1 capital. (1) Any 
accrual of a patronage or dividend payable or receivable recognized in 
the financial statements prior to a related board declaration 
resolution must be reversed to or from unallocated retained earnings 
for purposes of calculating common equity tier 1 capital.
* * * * *
0
16. Amend Sec.  628.32 by revising paragraph (l)(1) to read as follows:


Sec.  628.32  General risk weights.

* * * * *
    (l) Other assets. (1) A System institution must assign a 0-percent 
risk weight to cash owned and held in all offices of the System 
institution or in transit; to gold bullion held in the System 
institution's own vaults or held in a depository institution's vaults 
on an allocated basis, to the extent the gold bullion assets are offset 
by gold bullion liabilities; and to exposures that arise from the 
settlement of cash transactions (such as equities, fixed income, spot 
foreign exchange (FX) and spot commodities) with a central counterparty 
where there is no assumption of ongoing counterparty credit risk by the 
central counterparty after settlement of the trade.
* * * * *
0
17. Amend Sec.  628.43 by revising paragraphs (d)(1) and(2) to read as 
follows:


Sec.  628.43  Simplified supervisory formula approach (SSFA) and the 
gross-up approach.

* * * * *
    (d) * * *
    (1) The System institution must define the following parameters:

KA = (1-W) x KG + (0.5 x W)
    (2) Then the System institution must calculate KSSFA according to 
the following equation:
[GRAPHIC] [TIFF OMITTED] TP10SE20.044

* * * * *
0
18. Amend Sec.  628.52 by revising paragraph (c)(2)(ii) to read as 
follows:


Sec.  628.52  Simple risk-weight approach (SRWA).

* * * * *
    (c) * * *
    (2) * * *
    (ii) Under the variability-reduction method of measuring 
effectiveness:
[GRAPHIC] [TIFF OMITTED] TP10SE20.045

Where:

Xt = At-Bt;
At = the value at time t of one exposure in a hedge pair; and

[[Page 55801]]

Bt = the value at time t of the other exposure in a hedge pair.
* * * * *
0
19. Amend Sec.  628.63 by:
0
a. Removing and reserving paragraph (b)(3);
0
b. Revising paragraph (b)(4).
    The revision reads as follows:


Sec.  628.63  Disclosures.

* * * * *
    (b) * * *
    (3) [Reserved]
    (4) A reconciliation of regulatory capital elements using both 
month-end and average daily balances as they relate to its balance 
sheet in any applicable audited consolidated financial statements.
* * * * *

    Dated: July 21, 2020.
Dale Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2020-16052 Filed 9-9-20; 8:45 am]
BILLING CODE 6705-01-P