[Federal Register Volume 88, Number 225 (Friday, November 24, 2023)]
[Rules and Regulations]
[Pages 82238-82246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25652]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 619 and 627
RIN 3052-AD48
Conservators and Receivers
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, our) is adopting a
final rule that updates, restructures, and reorganizes our regulations
that govern the appointment of the Farm Credit System Insurance
Corporation (FCSIC) as the conservator or receiver of Farm Credit
System (FCS or System) banks, associations, service corporations, and
the Federal Farm Credit Banks Funding Corporation (Funding
Corporation). The final rule also ensures FCA conservatorship and
receivership regulations are consistent with the Agricultural
Improvement Act of 2018 (2018 Farm Bill), which strengthens, updates,
and clarifies FCSIC's powers as the conservator or receiver of these
FCS institutions. Additionally, the final rule consolidates and
reorganizes our conservatorship and receivership regulations, so they
are easier to understand and use. We also made conforming amendments to
definitional regulations to clarify that bridge System banks, while
subject to FCA supervision and oversight, are not subject to FCA
regulations that apply to other System institutions. We revised these
definitions because several provisions of the Farm Credit Act expressly
exempt bridge banks from certain legal requirements that apply to
viable and solvent System banks.
DATES: This final rule will be effective 30 days after publication in
the Federal Register during which either or both Houses of Congress are
in session. We will publish a document announcing the effective date in
the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Technical information: Jason Moore, Associate Director, Office of
Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090,
(703) 883-4414, TTY (703) 883-4056; or
Legal Information: Karen Hunter, Attorney Advisor, or Richard A.
Katz, Senior Counsel, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4056.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this final rule are to:
Consolidate, reorganize, and update our regulations
governing FCA's
[[Page 82239]]
appointment of FCSIC as the conservator or receiver of any System bank,
association, service corporation, or the Funding Corporation.
Ensure our conservatorship and receivership regulations in
part 627 are consistent with section 5412 of the 2018 Farm Bill,\1\
which added section 5.61C to the Farm Credit Act of 1971, as amended
(Act).
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\1\ Public Law 115-334, 132 Stat. 4490 (Dec. 20, 2018).
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Restructure and reorganize part 627 so it is easier for
FCA examiners, FCS institutions and other interested parties to
understand and use, and to make conforming or technical revisions to
other FCA regulations.
Make conforming amendments to two definitions in part 619
to exempt bridge System banks, which are created pursuant to section
5.61C(h) of the Act, from FCA regulations and other laws that apply to
healthy and ongoing FCS banks, associations, and service corporations.
II. Background
Section 4.12 of the Act governs the dissolution of Farm Credit
institutions through voluntary and involuntary liquidation, mergers,
and receiverships or conservatorships.\2\ Pursuant to section 4.12(b),
FCA has the ``exclusive power and jurisdiction'' to appoint a
conservator or receiver for any System institution \3\ when any of six
specific conditions exist that indicates an institution is insolvent or
unviable.\4\ Over the last thirty years, FCA's regulations in Part 627
regarding conservators, receivers, and voluntary liquidations have
implemented the provisions in section 4.12 of the Act.
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\2\ Section 4.12 of the Act governs both the voluntary and
involuntary dissolution of System institutions. Subpart D of part
627 addresses the voluntary liquidation of System banks,
associations, service corporations, and the Funding Corporation.
However, the voluntary liquidation of these System institutions is
outside the scope of this rulemaking.
\3\ In contrast to all other FCS institutions, section 8.41
governs the conservatorship, liquidation, and receivership of Farmer
Mac. Under section 8.41(c)(1)(A) of the Act, FCA is allowed, but not
required, to appoint FCSIC as the conservator or receiver of Farmer
Mac. Regulations in part 650, subpart B, govern the conservatorship
or receivership of Farmer Mac. For these reasons, this rulemaking
does not apply to the conservatorship or receivership of Farmer Mac.
\4\ These conditions include: (1) insolvency, in that the assets
of the institution are less than its obligations to its creditors
and others, including its members; (2) substantial dissipation of
assets or earnings due to any violation of law, rules, or
regulations, or to any unsafe or unsound practice; (3) an unsafe or
unsound condition to transact business; (4) willful violation of a
cease and desist order that has become final; (5) concealment of
books, papers, records, or assets of the institution or refusal to
submit books, papers, records or other material relating to the
affairs of the institution for inspection to any examiner or to any
lawful agent of FCA; (6) the institution in unable to timely pay
principal or interest on any insured obligation issued by the
institution.
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The main reason for this rulemaking is the 2018 Farm Bill added a
new section 5.61C to the Act, which strengthens, clarifies, and updates
the powers and duties of FCSIC in its capacity as the appointed
conservator or receiver of any FCS institution. Section 5.61C enhances
FCSIC's authority to: (1) operate any FCS institution in
conservatorship or receivership and perform all its functions; (2)
handle all claims by various parties against such institution; and (3)
enforce contracts on the institution's behalf. This enhanced statutory
conservatorship and receivership authority is comparable to the
authority of the Federal Deposit Insurance Corporation (FDIC), National
Credit Union Administration (NCUA), and Federal Housing Finance Agency
(FHFA) regarding the institutions they oversee.\5\
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\5\ Additionally, the legislative history to the 2018 Farm Bill
further reveals Congress intended FCSIC's authorities ``to be
functionally equivalent to the parallel authorities of the [FDIC].''
See Conf. Report No. 115-1072, 115th Cong., 2nd Sess., (Dec. 10,
2018) p. 648.
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The Farm Bill also introduced the concept of bridge System banks as
a means for FCSIC to resolve or liquidate failing or failed System
banks. Section 5.61C(h) authorizes FCA to charter bridge System banks
at FCSIC's request for one or more distressed System banks and dissolve
them once such failing or failed banks are resolved.\6\ The statutory
provisions governing all aspects of bridge System banks from their
creation to their termination and dissolution are comprehensive, clear,
and prescriptive.\7\
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\6\ According to section 5.61C(h)(2)(A) of the Act, FCA may
charter a bridge System bank only if it determines that: (1) the
amount which is reasonably necessary to operate the bridge System
bank will not exceed the amount which is reasonably necessary to
save the cost of liquidating 1 or more System banks in default or
danger of default; (2) chartering a bridge System bank is essential
to continue providing adequate farm credit services in communities
where such System bank(s) in default or danger of default provides
such farm credit services; or (3) the continued operation of such
System bank(s) in default or danger of default with respect to which
the bridge System bank is chartered is in the best interest of the
FCS or the public.
\7\ Section 5.61(h) of the Act lists all the aspects of bridge
System banks from cradle to grave. See also footnote 7 of the
proposed conservators and receivers' rule at 87 FR 19398 (Apr. 4,
2022).
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This final rule completes our second rulemaking since 2021 to
revise our regulations in part 627 to implement changes section 5412 of
the 2018 Farm Bill made to the Act. In March 2021, we issued a direct
final rule that rescinded ten regulations in Part 627 that the 2018
Farm Bill superseded and rendered obsolete because they were no longer
consistent with FCSIC's new statutory authority over the priority of
claims and other aspects relating to the administration and management
of conservatorships and receiverships.\8\
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\8\ See 86 FR 15081 (Mar. 22, 2021). The rule became effective
on May 13, 2021. See FR 27510 (May 21, 2021).
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In this most recent phase of this rulemaking, we published a
proposed rule on April 4, 2022 \9\ that would update, restructure, and
consolidate FCA regulations at part 627 governing the appointment and
role of FCSIC as the conservator or receiver of an FCS institution,
other than Farmer Mac. More specifically, we proposed combining the
four remaining conservatorship regulations into a single regulation and
consolidating the three receivership regulations we retained into a
separate regulation.
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\9\ See 87 FR 19397 (Apr. 4, 2022).
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FCA also proposed to reverse the chronological order of the
existing regulations by presenting the conservatorship regulation first
and the receivership regulation second.\10\ FCA also proposed to
simplify the numbering system for the regulations in part 627 such that
they will have no more than a two-digit number after the decimal point,
which is consistent with the way FCA has numbered regulations in recent
years. The proposed rule also: (1) reorganized the definitions in
alphabetical order, (2) deleted references to the defunct Farm Credit
System Financial Assistance Corporation, and (3) updated the reference
to FCSIC in our conservatorship and receivership regulations to be
consistent with all other FCA regulations. We also proposed conforming
changes to other FCA regulations to be consistent with the changes made
to part 627.
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\10\ As explained in the preamble to the proposed rule, this is
a logical change because (1) it follows the order of section 4.12 of
the Act and (2) an institution in a conservatorship can be placed
into receivership if its condition worsens. See 87 FR 19399 (Apr. 4,
2022).
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In response to the proposed rule, we received one substantive
comment from an individual who supported the proposed rule.
III. Final Rule
After careful consideration, FCA is finalizing the proposed rule
without material change.\11\ We received no
[[Page 82240]]
comments that opposed the proposed rule or asked us to change it. As
noted earlier, the purpose of this rulemaking is to update, clarify,
restructure, and reorganize our conservators and receivers regulations
to be consistent with changes the 2018 Farm Bill made to the Act. More
specifically, the 2018 Farm Bill realigned and clarified the roles of
FCA and FCSIC pertaining to the conservatorship and receivership of
failing and failed FCS institutions, and it gave FCSIC enhanced powers
as the conservator or receiver of System institutions. Accordingly, we
restructured and reorganized our regulations in part 627 to implement
FCA's specific statutory authorities governing conservatorships and
receiverships while deferring to FCSIC as to how it will carry out its
own authorities.\12\
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\11\ However, we made a few minor, non-substantive revisions to
the text of specific regulatory provisions to improve their clarity,
flow, and readability. We removed ``that are'' before ``identified
in section 1.2 of the Act, and ``it'' before ``excludes bridge
System banks'' in Sec. 619.9146 because these words are superfluous
and unnecessary. In Sec. 627.3(a), we substituted ``FCA'' for
``it'' immediately after the word ``if.'' This revision clarifies an
ambiguity in the text of the proposed rule by clearly identifying
FCA as the party that determines if one or more of the grounds in
627.3(b) exists for placing a System institution in conservatorship
or receivership. We omitted the word ``that'' in three out of four
places it appeared in Sec. Sec. 627.10(c)(1) and (c)(2), and
627.20(d)(1) because this term is not needed to support the
grammatical structure of these respective sentences.
\12\ See 87 FR 19397, supra at 19399.
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The final rule also achieves FCA's goal of making these regulations
more user-friendly. Restructuring, consolidating, renumbering,
eliminating redundancies, and simplifying the wording of these
regulations improves their clarity and readability. As a result, FCA
examiners, System institutions and borrowers, and other members of the
public who may be affected by the conservatorship or receivership of an
FCS institution will find it easier to understand, use, and rely on
these regulations.
We now discuss the specific provisions of the final rule and how
they alter many of the regulations in part 627 that were previously in
effect. This analytical discussion primarily focuses on substantive
changes to these regulations. We have already explained minor, non-
substantive regulatory revisions (such as a simplified numbering
system, and stylistic wording changes) both above and in the preamble
to the proposed rule and, therefore, we do not describe them in great
detail here.
We discuss the specific provisions of the final rule in the same
chronological order they appear in the regulations in part 627.
Conforming amendments to certain definitions in part 619 appear last in
this analysis.
A. Subpart A--General Provisions
As before, subpart A continues to house the general regulatory
provisions that apply to the other subparts of part 627. The final rule
retains the four regulations in subpart A but renumbered them for the
reasons discussed above.
1. Applicability--Sec. 627.1
Final and redesignated Sec. 627.1 states the ``provisions in this
part apply to conservatorships, receiverships, and voluntary
liquidations of System institutions chartered under titles I, II, III,
IV, and VII of the Act.'' The only substantive difference between final
Sec. 627.1 and its predecessor, former Sec. 627.2700, is the addition
of specific references to other titles of the Act. This change
clarifies that the regulations in part 627 do not apply to Farmer Mac.
Instead, as noted earlier, the regulations in Subpart B of part 650
govern the conservatorship, receivership, or voluntary liquidation of
Farmer Mac.
2. Definitions--Sec. 627.2
The definitions that apply to part 627 are located in final and
redesignated Sec. 627.2. Final Sec. 627.2 lists the definitions
alphabetically, without paragraph designations, which is consistent
with FCA's recent practice in rulemakings. The most significant changes
in final and redesignated Sec. 627.2 are to the definition of ``Farm
Credit institution(s) or institution(s).'' First, we removed the
reference to the now-defunct Farm Credit System Financial Assistance
Corporation from this definition.\13\ Second, we added a final sentence
to the provision specifically stating these terms do not include bridge
System banks chartered by FCA in accordance with section 5.61C(h)(2) of
the Act.
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\13\ Section 5411(39) of the 2018 Farm Bill repealed title VI of
the Act. Subpart B of former title VI of the Act established the
Farm Credit System Financial Assistance Corporation. See Public Law
115-334, supra at 4683.
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3. Grounds for Appointing FCSIC as Conservator or Receiver
Final and redesignated Sec. 627.3 specifies the grounds for FCA
appointing FCSIC as conservator or receiver of a System institution
pursuant to sections 4.12(b) and 5.61C(l) of the Act. Essentially,
final Sec. 627.3(a) allows FCA, in its discretion, to appoint FCSIC as
the conservator or receiver of an FCS institution if FCA determines
that one or more of the grounds in the Sec. 627.3(b) exist. As before,
paragraph (b) of this regulation identifies six grounds for FCA to
appoint FCSIC as the conservator or receiver of a System institution,
which derive from section 4.12(b) of the Act. The most substantive
change we made to this regulation is an added sentence at the end of
final and redesignated Sec. 627.3(a) that implements new section
5.61C(l)(1) of the Act, which requires FCA, to the extent practicable,
to consult with FCSIC before taking a pre-resolution action that could
result in a conservatorship or receivership of a distressed FCS
institution.\14\ As explained in detail in the preamble to the proposed
rule, the other changes to this regulation are non-substantive,
technical, grammatical, and stylistic revisions that improve its
clarity and readability.\15\
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\14\ Section 5.61C(l) of the Act establishes a reciprocal
requirement on FCSIC. According to section 5.61C(l)(2) of the Act,
FCSIC ``acting in the capacity of the Corporation as a conservator
or receiver, shall consult with the [FCA] prior to taking any
significant action impacting System institutions or service to
System borrowers.''
\15\ Id at 19399-400.
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4. Action for the Removal of the Conservator or Receiver--Sec. 627.4
Final and redesignated Sec. 627.4, which replaces former Sec.
627.2715, allows an FCS institution placed into conservatorship or
receivership to initiate an action for removal of the conservator or
receiver. This regulation implements provisions in section 4.12(b) of
the Act that authorizes an FCS institution, within 30 days after FCA
appoints FCSIC as its conservator or receiver, to bring an action in
certain United States district courts to remove the conservator or
receiver. Once an institution is placed in conservatorship or
receivership, all powers, rights, and privileges of its board of
directors, management, and employees transfer to FCSIC and the charter
of an institution in receivership is cancelled.
Final and redesignated Sec. 627.4 creates an exception for an
institution's board of directors to meet after the appointment of a
conservator or receiver and initiate an action for removal. Under this
regulation, only an institution's board of directors has the power to
authorize an action to remove the conservator or receiver.
The revisions to this regulation are non-substantive. We improved
its clarity by rewriting it in the active voice, and by adding cross-
references to this regulation in Sec. 627.10 and Sec. 627.20.
B. Subpart B--Conservator and Conservatorships
As revised, subpart B of part 627 addresses FCA's authority under
section 4.12(b) of the Act to appoint FCSIC as the conservator of
distressed FCS
[[Page 82241]]
institutions. As discussed above, we relocated our conservatorship
regulations from subpart C to subpart B and combined the four remaining
regulations into a single conservatorship regulation. Yet, final Sec.
627.10 is not substantively different from the four regulations it
replaces because both the former and new regulations effectively carry
out FCA's statutory powers and responsibilities concerning the
conservatorship of FCS institutions.
The role of a conservator is to continue the ongoing operations of
an institution while taking measures to preserve its assets and restore
its financial viability so it can resume its normal business activities
when it emerges from conservatorship. The purpose of a conservatorship
is to resuscitate a trouble institution, not to liquidate it. In this
context, our revised conservatorship regulation continues to implement
FCA's authority to: (1) appoint FCSIC as the conservator of a System
institution; (2) transfer the day-to-day operations of the institution
to FCSIC, in its capacity as the conservator, (3) examine the
institution in conservatorship; (4) require audits and published
financial reports for any FCS institution in conservatorship, and
(5)terminate the conservatorship by either discharging FCSIC as
conservator or by placing the institution into receivership.
Final and redesignated Sec. 627.10(a), which replaces former Sec.
627.2775, governs FCA's appointment of FCSIC as conservator of a
failing FCS institution. According to new Sec. 627.10(a)(1), the FCA
Board may exercise its authority under 4.12(b) of the Act and Sec.
627.3 to appoint FCSIC as conservator of an FCS institution once it
finds one or more grounds identified in Sec. 627.3(b) exist. This
provision also authorizes the FCA Board to appoint FCSIC as the
conservator of a System institution ex parte and without notice. The
substance of final Sec. 627.10(a)(1) is the same as its predecessor,
Sec. 627.2775(a). However, we changed the order and flow of this
regulatory provision. As rewritten, the rule now requires us to first
find legal grounds exist for appointing the conservator before we can
do so ex parte and without notice. This revision makes the regulation
more logical and easier to read and understand.
Final and redesignated Sec. 627.10(a)(2) requires the FCA
Chairman, upon the appointment of the conservator, to immediately
notify the affected institution and if it is an association, its
funding bank. It also requires FCA to publish a notice in the Federal
Register whenever it appoints FCSIC as the conservator of a System
institution. The only substantive change to this provision is that we
deleted the provision in former Sec. 627.2775(b) that required FCSIC
to notify all holders of the institution's voting stock and
participation certificates, by First-Class mail about the establishment
of the conservatorship, and its effects on the: (1) institution's
operations, and (2) borrowers' loans and equity holdings. As explained
earlier, new section 5.61C of the Act strengthened FCSIC's powers as
the conservator of FCS institutions and, therefore, FCA regulations
will not instruct FCSIC how to administer conservatorships unless a
specific statutory provision explicitly requires us to do so.
Notification to shareholders of System institutions about how a
conservatorship will affect them is now within FCSIC's jurisdiction.
Final Sec. 627.10(a)(2) also incorporates two non-substantive,
stylistic changes we proposed to update the language and improve the
readability of this provision.\16\
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\16\ First, we changed ``district bank'' to ``funding bank.''
Second, the provision about publishing the notice in the Federal
Register became a separate sentence. Id. at 19400-401.
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Final and redesignated Sec. 627.10(b)addresses FCA's role,
responsibilities, powers, and prerogatives once it places an FCS
institution into conservatorship. It incorporates various provisions in
its predecessor regulations, Sec. Sec. 627.2775 and 627.2785.
Final Sec. 627.10(b)(1), which is a restatement of former Sec.
627.2775(c), reaffirms that once the FCA Board issues an order placing
an FCS institution into conservatorship, all rights, privileges, and
powers of its members, board of directors, and employees are
transferred to and vested exclusively in FCSIC as conservator. The FCA
added a passage at the end of Sec. 627.10(b)(1) that states, ``the
board of directors of the institution retains authority to initiate an
action in Federal court to remove the conservator pursuant to Sec.
627.4.'' This new passage adds a cross-reference to Sec. 627.4, which
replaces the more ambiguous ``notwithstanding'' clause in former Sec.
627.2715.
The next four paragraphs of final Sec. 627.10(b) derive from
various provisions of former Sec. 627.2785. It establishes
requirements for the examination, auditing, and financial reporting of
a System institution in conservatorship. Final Sec. 627.10(b)(2),
which restates the first sentence of former Sec. 627.2785(b), affirms
FCA's authority to examine FCS institutions in conservatorship in
accordance with section 5.19 of the Act. The second sentence of former
Sec. 627.2785(b), which requires a certified public accountant audit a
System institution in conservatorship pursuant to part 621, now becomes
a separate regulatory provision, and is redesignated as final Sec.
627.10(b)(3). Final Sec. Sec. 627.10(b)(4) and (b)(5) govern financial
reporting by a System institution in conservatorship to FCA and its
shareholders, respectively. Former Sec. 627.2785(c), which this
rulemaking redesignates as Sec. 627.10(b)(4), requires each System
institution in conservatorship to file financial reports required by
part 621. More specifically Sec. 621.14 requires each System
institution to certify that: (1) its financial reports have been
prepared in accordance with applicable regulations and instructions,
and (2) its financial reports are a true and accurate representation of
the institution's financial condition and performance. Also, Sec.
621.14 requires an officer of the institution to certify these
financial reports. Since FCSIC replaces the management of a System
institution in conservatorship, FCSIC is required by both the former
and new regulation to certify the reports of financial condition the
institution submits to FCA. Similarly, final Sec. 627.10(b)(5), which
replaces former Sec. 627.2785(d), requires System institutions in
conservatorship to prepare and publish financial reports for their
shareholders in accordance with part 620. Under this regulation, FCSIC,
as conservator, must sign and certify such disclosures to the
institution's shareholders. As explained in the preamble to the
proposed rule, several stylistic revisions to redesignated Sec. Sec.
627.10(b)(2) through (b)(5) shortened these four provisions, simplified
their language, and improved their readability and clarity without
altering their substantive meaning.\17\
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\17\ Id. at 19401.
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The final rule repeals the provision in former Sec. 627.2785(a)
that required the conservator to: (1) take an inventory of the assets
and liabilities of the institution from the date FCA placed it into
conservatorship; and (2) file a copy of the inventory with FCA.
Conducting an inventory of the assets and liabilities of an FCS
institution in conservatorship falls within FCSIC's new powers and
duties under section 5.61C(b) of the Act. As explained in the proposed
rule, FCA continues to have the right to obtain a copy of the inventory
because a System institution in conservatorship is still chartered as
an ongoing FCS institution, and it remains subject to FCA examination,
supervision, and regulation. FCA has authority under the
[[Page 82242]]
2018 Farm Bill to receive a copy of the conservator's inventory of the
institution's assets and liabilities. However, requiring FCSIC, by
regulation, to conduct the inventory and share a copy of it with us is
not necessary under the new legislation.
Final and redesignated Sec. 627.10(c) governs the termination of a
conservatorship. A conservatorship ends in one of two ways. In the
first situation, the conservatorship corrects and resolves the problems
or conditions that led to the conservatorship of the institution, and
FCA determines the institution is able to resume normal operations
under new management. Alternatively, the institution's conditions
continue to deteriorate, and FCA decides to place it into receivership.
In this situation, FCA will appoint FCSIC as the institution's
receiver, and FCSIC will determine the best course of action for
liquidating and resolving the institution.
These two scenarios are set forth in final Sec. 627.10(c)(1) and
Sec. 627.10(c)(2), respectively. More specifically, the FCA Board may
terminate the conservatorship under final Sec. 627.10(c)(1) by
determining the institution is in a position to resume normal
management. In this situation, our Board will instruct FCSIC to turn
the institution's operations over to new management FCA designates.
Once new management is in place, FCA discharges FCSIC as conservator.
In the alternative, the conservatorship will end when FCA places the
institution in receivership and appoints FCSIC as receiver under Sec.
627.10(c)(2). Both provisions of final Sec. 627.10(c) are a
restatement of the last two sentences of former Sec. 627.2770(a).
The final rule rescinds former Sec. 627.2790, which previously
required FCSIC to submit a report to FCA on its conservatorship
activities before its discharge as conservator of an institution.
Filing a report with the FCA is not a statutory requirement for
terminating a conservatorship. FCA and FCSIC will jointly determine
what documentation is appropriate to share when conservatorship
terminates.
C. Subpart C--Receivers and Receiverships
The final rule also consolidates the three remaining receivership
regulations, former Sec. Sec. 627.2720, 627.2735, and 627.2765 into a
single regulation, which we redesignated as Sec. 627.20. As noted
above, we reorganized part 627 by transferring our receivership
regulations from subpart B to subpart C, where it now follows our
conservatorship regulations. To a large extent, final and redesignated
Sec. 627.20 follows the same format and structure as the revised
conservatorship regulation. Yet, a receivership is fundamentally
different from a conservatorship because it liquidates and resolves a
failing institution rather than correcting its problems. For this
reason, there are some key distinctions between our conservatorship and
receivership regulations. As a result, the changes to our receivership
regulations are more extensive and substantive than those to our
conservatorship regulations.
Final Sec. 627.20(a) addresses FCA's appointment of FCSIC as the
receiver of an FCS institution. More specifically, Sec. 627.20(a)(1)
states the FCA Board ``may exercise its authority under section 4.12(b)
of the Act and Sec. 627.3 to appoint FCSIC as the receiver of an FCS
institution upon finding that one or more of the grounds identified in
Sec. 627.3(b) exist.'' This regulatory provision also authorizes the
FCA Board to appoint FCSIC as the receiver of any System institution ex
parte and without notice.
In this context, final Sec. 627.20(a)(1) has the same substantive
requirements as its predecessor, former Sec. 627.2720(a).
Additionally, Sec. 627.20(a)(1) is virtually identical to the
corresponding provision in the final conservatorship regulation, Sec.
627.10(a)(1). We made the same technical and stylistic changes to both
provisions because the same reasoning applies to the appointment of
both conservators and receivers. As explained above in the preamble
discussion to the final conservatorship regulation, legal grounds must
exist for FCA to appoint FCSIC as the conservator or receiver of an FCS
institution before we can do so ex parte and without notice.
Upon appointment of FCSIC as receiver, final Sec. 627.20(a)(2)
requires the FCA Chairman to immediately notify the affected
institution and its funding bank if it is an association. It also
requires FCA to publish a notice in the Federal Register whenever it
appoints FCSIC as the receiver of a System institution. Again, the
technical changes to final Sec. 627.20(a)(2) mirror changes to the
corresponding provision of the conservatorship regulation. The same
explanation and rationale provided in this preamble explaining these
changes to the conservatorship regulation apply to the receivership
rule, as well.
Final and redesignated Sec. 627.20(b), which replaces former Sec.
627.2720(d), continues to require the funding bank, in the event of the
voluntary or involuntary liquidation of an affiliated association, to
take appropriate measures to minimize the adverse effect of the
liquidation on borrowers whose loans are purchased by, or otherwise
transferred to another System institution. The only revisions to this
provision are a few minor word changes. As explained earlier, our
current rulemaking does not substantively amend our voluntary
liquidation regulations in subpart D of part 627. For this reason,
final Sec. 627.20(b) continues to apply to both voluntary liquidations
and receiverships for the time being.
Former Sec. 627.2720(e), which the final rule redesignates as
Sec. 627.20(c), addresses how receivership changes the status of a
failed System institution. Final Sec. 627.20(c)(1) continues to state
that once the FCA Board issues an order placing an FCS institution into
receivership, ``all rights, privileges, and powers of its members,
board of directors, and employees are transferred to and vested
exclusively in FCSIC as receiver.'' We have added a new provision at
the end of Sec. 627.20(c)(1) that carves out an exception that enables
the institution's board to initiate an action in Federal court to
remove the receiver pursuant to Sec. 627.4. We have already explained
the reasons for these changes twice above.
Final and redesignated Sec. 627.20(c)(2) revises the last sentence
of former Sec. 627.2729(e). This provision governs the cancelation of
a System institution's charter when FCA appoints FCSIC as its receiver.
Under the former rule, FCA could cancel a System institution's charter
either when it appoints FCSIC as receiver, or at any time
thereafter.\18\ In contrast to former Sec. 627.2720(e), final Sec.
627.20(c)(2) requires cancelation of the charter when FCSIC is
appointed as the receiver of a System institution. Canceling the
charter means an institution is out of business and undergoing
liquidation and resolution. A `live' corporate charter is inconsistent
with FCSIC's rights, powers, and duties as receiver under section 5.61C
of the Act, as added by Congress in 2018. As long as the charter
remains in effect, the institution is not defunct as a matter of law,
and FCSIC's authority and ability to resolve the estate by disposing of
its assets and liabilities can more easily be challenged by creditors,
shareholder-members, and other parties, contrary to Congressional
intent to provide for an
[[Page 82243]]
orderly liquidation process comparable to that of other federally
chartered financial institutions.\19\
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\18\ In 1992, we added the provision to former Sec. 627.2720(e)
that allowed us to cancel the charter at a later time in response to
a comment from a System trade association. At that time, FCA opted
for the flexibility to consider when to cancel an institution's
charter on a case-by-case basis, although the preamble to the former
regulation expressed FCA's expectation that it would ordinarily
cancel the charter when it appointed FCSIC as the institution's
receiver. See 57 FR 46482 (Oct. 9, 1992).
\19\ Federal statutes comparable to section 4.12(b) of the Act
permit commercial banks, credit unions, and Federal Home Loan Banks
to challenge in Federal court, decisions by the three Federal
banking regulatory agencies, the NCUA, and FHFA to appoint receivers
and seek their removal. These agencies cancel the charters of
institutions they supervise at the time they place them into
receivership to ensure an orderly liquidation and resolution.
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Final and redesignated Sec. 627.20(d) implements section 4.37 of
the Act, which addresses the treatment of uninsured voluntary and
involuntary accounts of a System institution in receivership.\20\ This
regulation provides that once the FCA Board has placed a System
institution into receivership, FCSIC, in accordance with section 4.37
of the Act, will, as soon as practicable, notify every borrower who
holds an uninsured voluntary or involuntary account, as described in
Sec. 624.4175, at such institution that: (1) such accounts ceased
earning interest from the date the receivership commenced; and (2)
FCSIC, as receiver, will immediately apply the funds in a borrower's
account(s) as payment against the outstanding balance of the borrower's
loan(s). The final rule rescinds a provision in the former regulation,
Sec. 627.2735(e), that allowed a borrower, within 15 days of receiving
this notice, to direct FCSIC to apply the funds in the account for some
other purpose specified in the loan documents. We are repealing this
provision because these accounts are uninsured and unsecured, and
section 4.37 of the Act explicitly states these funds must be applied
to reduce the outstanding balance of the borrower's loans.\21\ All
other changes to this regulation are not substantive, and they are
designed to improve its readability and clarity.
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\20\ Section 4.37 of the Act requires money of a borrower held
in an uninsured voluntary or involuntary account at a System
institution must be immediately applied as payment against the
borrower's outstanding loans if the institution is placed in
liquidation. This statutory provision also requires FCA to enact
regulations that: (1) define the term ``uninsured voluntary or
involuntary account''; and (2) effectively carry out section 4.37 of
the Act.
\21\ Section 4.37 of the Act requires FCA to enact regulations
about how uninsured voluntary and involuntary accounts at System
institutions are to be resolved by FCSIC. For this reason, final
Sec. 627.20(d) specifies how FCSIC will address the resolution of
these specific liabilities of a System institution in receivership.
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The final rule also rescinds former Sec. 627.2735(b), which
requires FCSIC to provide notice to stockholders of an FCS institution
in receivership regarding the value they will receive for their stock
upon its liquidations. No regulation is needed to implement statutory
provisions that protect borrower stock at System institutions in
liquidation. Section 4.9A(c) of the Act, which requires FCSIC to retire
borrower stock at par at a System institution in receivership, provides
clear and unambiguous guidance to FCSIC.
Finally, redesignated Sec. 627.20(e) amends and restates former
Sec. 627.2765, which governs the final discharge and release of the
receiver. According to this regulation, the receivership terminates
once FCSIC makes a final distribution of the liquidated institution's
assets. At that time, final Sec. 627.20(e) specifies the FCA Board
will completely and finally release and discharge the receiver. This
rulemaking repealed a provision in former Sec. 627.2765 that required
our Board to cancel the institution's charter at this time if it had
not done so previously. We rescinded this provision because, as
discussed earlier, Sec. 627.20(c)(2) requires FCA to cancel the
charter when the FCA Board places the institution in receivership.
D. Conforming Amendments
The final rule makes conforming amendments to other regulations in
parts 619 and 627.
1. Definitions in Part 619
Our regulations in part 619 define terms that apply to all
regulations unless a provision in a part, subpart, or section
specifically states a different definition applies. This final rule
amends the definition of ``Farm Credit bank'' in Sec. 619.9240 and
``Farm Credit institutions'' in Sec. 619.9146, so both terms
explicitly exclude bridge System banks FCA charters at FCSIC's request
under section 5.61C(h)(2) of the Act. Bridge System banks are vehicles
to resolve System institutions in liquidation. These conforming
amendments to Sec. Sec. 619.9140 and 619.9146 exempt bridge System
banks from FCA regulations that govern the activities and operations of
healthy, ongoing FCS institutions. Thus, FCA regulations governing the
organization and governance, capitalization, funding, and other
activities of other System institutions would not apply to bridge
System banks unless we enact a regulation that states otherwise.
Additionally, we deleted the reference to the Funding Corporation
from the definition of ``Farm Credit institution'' in Sec. 619.9146.
The reason for this revision is section 5411(2) of the 2018 Farm Bill
amended section 1.2(a)of the Act to expressly identify the Funding
Corporation as a System institution. As a result, referencing the
Funding Corporation in this regulation is now duplicative and
unnecessary.
2. Voluntary Liquidation Regulation in Subpart D of Part 627
As noted earlier, FCA is not revising its voluntary liquidation
regulations in Subpart D at this time. However, the final rule made
non-substantive conforming changes we proposed to ensure these
regulations in subpart D are consistent with amendments to the
conservatorship and receivership regulations in part 627. First, we
redesignated the two regulations in subpart D, Sec. Sec. 627.2795 and
627.2797 as Sec. Sec. 627.40 and 627.41 respectively, so they conform
to the numbering changes we made to subparts A, B, and C of part 627.
Second, we changed the reference to ``subpart B'' in redesignated Sec.
627.40(a) to subpart C because, as discussed above, the final rule
relocates our new receivership regulation to subpart C. Finally, we
deleted the passage at the end of the final sentence in former Sec.
627.2797(a), which states, ``except that if the Farm Credit institution
is placed in receivership, the provisions of Sec. 627.2730 shall
govern further disposition of the equities of the Farm Credit
institution.'' We deleted this passage because the direct final rule we
enacted in 2021 repealed Sec. 627.2730.
IV. Bridge System Banks and Voluntary Liquidations
A. Bridge System Banks
Bridge System banks are one of the new tools the 2018 Farm Bill
gave FCSIC, in its capacity as receiver, for resolving or liquidating
failing or failed System banks. Section 5.61C(h) of the Act authorizes
FCA to charter bridge System banks at FCSIC's request and dissolve them
once a failing or failed Farm Credit bank is resolved.\22\
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\22\ See supra note 6. See also 87 FR supra at 19398, footnote
6.
---------------------------------------------------------------------------
The statutory provisions governing the creation, operation,
capitalization, and termination and dissolution of bridge System banks
are comprehensive, unambiguous, and prescriptive.\23\ For that reason,
new regulations are not necessary to implement FCA's statutory
authority pertaining to bridge System banks. To date, FCA has not
proposed regulations for bridge System banks and instead will rely on
its chartering and supervisory powers, as well as coordination with
FCSIC, to fulfill FCA's responsibilities and obligations under section
5.61C(h) of the Act. We note section 5.61C(h) grants FCSIC authority to
organize, control, manage, and operate bridge System banks. Other
[[Page 82244]]
Federal regulators of financial institutions, including the Comptroller
of the Currency, the NCUA, and the FHFA, have not enacted regulations
to implement similar statutory provisions.
---------------------------------------------------------------------------
\23\ See supra note 7. Detailed information concerning bridge
System banks for cradle to grave is in available in the preamble to
the proposed rule. Id. at footnote 7.
---------------------------------------------------------------------------
Section 5.61C(h) of the Act also establishes the statutory
framework for creating a healthy and viable successor bank to a bridge
System bank once the receivership ends.\24\ However, replacing the
bridge System bank with successor FCS banks raises novel issues of
first impression for both FCA and FCSIC. As noted in the preamble to
the proposed rule, both agencies are exploring and consulting about
this issue. FCA may propose new regulations in the future to implement
section 5.61C(h)(9) and (h)(10) concerning the processes and procedures
for replacing a bridge System bank with a solvent, and viable Farm
Credit bank.
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\24\ Id. at 10398.
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B. Voluntary Liquidations
As discussed above, the FCA has not substantively amended its
regulations in subpart D of part 627 governing the voluntary
liquidation of System institutions other than Farmer Mac. These
regulations have been in effect since 1998, and FCA is reviewing them
to determine whether revisions are needed.\25\
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\25\ See 63 FR 5726 (Feb. 4, 1998).
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IV. Regulatory Analysis
A. Regulatory Flexibility Act and Major Rule Conclusion
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies the final 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.
B. Congressional Review Act
[To be determined.]
List of Subjects
12 CFR Part 619
Agriculture, Banks, Banking, and Rural areas.
12 CFR Part 627
Agriculture, Banks, Banking, Claims, Rural areas.
For the reasons stated in the preamble, parts 619 and 627 of
chapter VI, title 12 of the Code of Federal Regulations are amended as
follows:
PART 619--DEFINITIONS
0
1. The authority citation for part 619 is revised to read as follows:
Authority: Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4, 2.11, 2.12, 3.1,
3.2, 4.9, 5.9, 5.17, 5.19, 5.61C, 7.0, 7.1, 7.6, 7.8 and 7.12 of the
Farm Credit Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073, 2075, 2092,
2093, 2122, 2123, 2160, 2243, 2252, 2254, 2279a, 2279a-1, 2279b,
2279c-1, 2279f); sec 514 of Pub. L. 102-552. 106 Stat. 4102.
0
2. Revise Sec. 619.9140 to read as follows:
Sec. 619.9140 Farm Credit bank(s).
Except as otherwise defined, the term Farm Credit bank(s) includes
Farm Credit Banks, agricultural credit banks, and banks for
cooperatives, but excludes bridge System banks chartered by the Farm
Credit Administration Board pursuant to section 5.61C(h)(2) of the Act.
0
3. Revise Sec. 619.9146 to read as follows:
Sec. 619.9146 Farm Credit institutions.
Except as otherwise defined, the term Farm Credit institutions
refers to all institutions identified in section 1.2 of the Act and are
chartered and regulated by the Farm Credit Administration but excludes
bridge System banks chartered by the Farm Credit Administration Board
pursuant to section 5.61C(h)(2) of the Act.
PART 627--TITLE IV CONSERVATORS, RECEIVERS, BRIDGE SYSTEM BANKS,
AND VOLUNTARY LIQUIDATIONS
0
4. The authority citation for part 627 is revised to read as follows:
Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58, 5.61, 5.61C
of the Farm Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a,
2277a-7.
0
5. The heading for part 627 is revised to read as set forth above.
2277a-10, 2277a-10c.).
0
6. Subparts A, B, and C are revised to read as follows:
Subpart A--General Provisions
Sec.
627.1 Applicability.
627.2 Definitions.
627.3 Grounds for appointing a conservator or receiver.
627.4 Action for removal of a conservator or receiver.
Subpart B--Conservator and Conservatorships
627.10 FCSIC as conservator.
Subpart C--Receiver and Receiverships
627.20 FCSIC as receiver.
Subpart A--General Provisions
Sec. 627.1 Applicability.
The provisions of this part apply to conservatorships,
receiverships, and voluntary liquidations of System institutions
chartered under titles I, II, III, IV, and VII of the Act.
Sec. 627.2 Definitions.
For the purposes of this part, the following definitions apply:
Act means the Farm Credit Act of 1971, as amended.
Conservator means the Farm Credit System Insurance Corporation
acting in its capacity as the conservator of a Farm Credit institution.
Farm Credit institution(s) or institution(s) means all Farm Credit
banks, associations, service corporations chartered under title IV of
the Act, and the Federal Farm Credit Banks Funding Corporation. These
two terms do not include any bridge System bank chartered by FCA, in
accordance with section 5.61C(h)(2) of the Act.
FCSIC means the Farm Credit System Insurance Corporation.
Receiver means FCSIC acting in its capacity as the receiver of a
Farm Credit institution.
Sec. 627.3 Grounds for appointing FCSIC as conservator or receiver.
(a) FCA may, in its discretion, appoint a conservator or receiver
of a Farm Credit institution if FCA determines that one or more of the
grounds in paragraph (b) of this section exists. FCA must appoint FCSIC
as conservator or receiver of a Farm Credit institution. To the extent
practicable, FCA will consult with FCSIC before taking a pre-resolution
action that may result in a conservatorship or receivership of a Farm
Credit institution.
(b) The grounds for appointing FCSIC as a conservator or receiver
of a System institution are:
(1) The institution is insolvent because the value of its assets is
less than its obligations to creditors and others, including its
members. For the purpose of determining insolvency, ``obligations to
members'' does not include stock or allocated equites held by current
or former borrowers.
(2) There has been a substantial dissipation of assets or earnings
of the institution due to the violation of any law, rule, or
regulation, or one or more unsafe or unsound practice(s).
[[Page 82245]]
(3) The institution is in an unsafe or unsound condition to
transact business, including having insufficient capital levels or
otherwise. For the purpose of this part, ``unsafe or unsound
condition'' includes, but is not limited to, the following conditions:
(i) For associations, a default by the association of one or more
terms of its general financing agreement with its funding bank that the
Farm Credit Administration determines to be a material default;
(ii) For all institutions, permanent capital of less than one-half
the minimum required level for the institution; or
(iii) For associations, stock impairment.
(4) The institution has committed a willful violation of a final
cease and desist order issued by the Farm Credit Administration Board.
(5) The institution is concealing its books, papers, records, or
assets, or is refusing to submit its books, papers, records, assets, or
other material relating to the affairs of the institution for
inspection to any examiner or to any lawful agent of the Farm Credit
Administration Board.
(6) A Farm Credit bank is unable to make a timely payment of
principal or interest on any insured obligation(s) defined in section
5.51(3) of the Act issued by the bank individually, or on which it is
primarily liable.
Sec. 627.4 Action for the removal of the conservator or receiver.
Within 30 days after the Farm Credit Administration Board appoints
FCSIC as the conservator or receiver of a Farm Credit institution,
pursuant to Sec. 627.3, the institution may bring an action in the
United States District Court for the judicial district in which its
home office is located, or the United States District Court for the
District of Columbia, for an order requiring the Farm Credit
Administration Board to remove such conservator or receiver and, if the
charter has been canceled, to rescind the cancellation of the charter.
The institution's board of directors is empowered to meet subsequent to
the appointment of a conservator or receiver and authorize the filing
of an action in Federal court to remove the conservator or receiver.
Only the institution's board of directors has the power to authorize an
action to remove the conservator or receiver.
Subpart B--Conservator and Conservatorships
Sec. 627.10 FCSIC as Conservator.
(a) Appointment. (1) The Farm Credit Administration Board may
exercise its authority under section 4.12(b) of the Act and Sec. 627.3
to appoint FCSIC as the conservator of a Farm Credit institution upon
finding that one or more of the grounds identified in Sec. 627.3(b)
exists. The Farm Credit Administration Board may appoint, ex parte and
without notice, FCSIC as conservator for any Farm Credit institution.
(2) Upon appointing FCSIC as the conservator of an institution, the
Chairman of the Farm Credit Administration shall immediately notify
such institution and, in the case of an association, its funding bank.
The Farm Credit Administration will immediately publish notice of the
appointment of the conservator in the Federal Register.
(b) Conservatorship. (1) Once the Farm Credit Administration Board
issues the order placing a Farm Credit institution in conservatorship,
all rights, privileges, and powers of its members, board of directors,
officers, and employees, are transferred to and vested exclusively in
FCSIC as conservator, except that the board of directors of the
institution retains authority to initiate an action in a Federal
district court to remove the conservator pursuant to Sec. 627.4.
(2) The Farm Credit Administration will continue to examine Farm
Credit institutions in conservatorship in accordance with section 5.19
of the Act.
(3) A qualified public accountant must audit a Farm Credit
institution in conservatorship in accordance with part 621 of this
chapter.
(4) Pursuant to the requirements of part 621 of this chapter, each
institution in conservatorship must prepare and file with the Farm
Credit Administration financial reports, certified by FCSIC, as
required by Sec. 621.14.
(5) Each institution in conservatorship must prepare and issue
published financial reports in accordance with the requirements of part
620 of this chapter. FCSIC, as the conservator of the institution, will
provide the signatures and certifications required by Sec. 620.3.
(c) Termination of the conservatorship. (1) Whenever the Farm
Credit Administration Board determines the problem(s) or condition(s)
that led to the conservatorship have been corrected and resolved, and
the institution is in a position to resume normal operations, it may
terminate the conservatorship and direct FCSIC to turn over the
institution's operations to such management that FCA designates. Once
new management is in place, the conservatorship terminates and FCA
discharges FCSIC as conservator; or
(2) Whenever the Farm Credit Administration Board determines the
institution should be placed in receivership, the Farm Credit
Administration Board will appoint FCSIC as the receiver of such
institution.
Subpart C--Receiver and Receiverships
Sec. 627.20 FCSIC as receiver.
(a) Appointment. (1) The Farm Credit Administration Board may
exercise its authority under section 4.12(b) of the Act and Sec. 627.3
to appoint FCSIC as the receiver of a Farm Credit institution upon
finding that one or more of the grounds identified in Sec. 627.3(b)
exists. The Farm Credit Administration Board may appoint, ex parte and
without notice, FCSIC as receiver for any Farm Credit institution.
(2) Upon appointing FCSIC as the receiver of an institution, the
Chairman of the Farm Credit Administration shall immediately notify
such institution and, in the case of an association, its funding bank.
The Farm Credit Administration will immediately publish notice of the
appointment of the receiver in the Federal Register.
(b) Funding bank role for association in liquidation. In the event
of the voluntary or involuntary liquidation of an association, the
funding bank must institute appropriate measures to minimize the
adverse effect of the liquidation on those borrowers whose loans are
purchased by, or otherwise transferred to another System institution.
(c) Receivership. (1) Once the Farm Credit Administration Board
issues the order placing a Farm Credit institution in receivership, all
rights, privileges, and powers of its members, the board of directors,
officers, and employees, are transferred to and vested exclusively in
FCSIC as receiver, except that the institution's board of directors
retains authority to initiate an action in a Federal district court to
remove the receiver pursuant to Sec. 627.4.
(2) The Farm Credit Administration Board simultaneously will cancel
the charter of the institution when it appoints FCSIC as receiver.
(d) Uninsured accounts. Once the Farm Credit Administration Board
has placed an institution into receivership, FCSIC, in accordance with
section 4.37 of the Act will, as soon as practicable, notify every
borrower who holds an uninsured voluntary or involuntary account, as
described in Sec. 614.4175 of this subchapter, at the institution
that:
(1) Such accounts ceased earning interest from the date the Farm
Credit Administration Board placed the institution into receivership;
and
[[Page 82246]]
(2) FCSIC, as receiver, will immediately apply the funds in a
borrower's uninsured account(s) as payment against the outstanding
balance of the borrower's loan(s).
(e) Final discharge and release of the receiver. The receivership
terminates after FCSIC makes a final distribution of the assets of the
liquidated institution. Then, the Farm Credit Administration Board will
completely and finally release and discharge the receiver.
Subpart D--Voluntary Liquidation
Sec. 627.2795 [Redesignated as Sec. 627.40]
0
7. Redesignate Sec. 627.2795 as Sec. 627.40.
Sec. 627.40 [Amended]
0
8. In newly redesignated Sec. 627.40, in paragraph (a), remove
``subpart B'' and add ``subpart C'' in its place.
Sec. 627.2797 [Redesignated as Sec. 627.41]
0
9. Redesignate Sec. 627.2797 as Sec. 627.41.
0
10. In newly redesignated Sec. 627.41, revise the last sentence in
paragraph (a) to read as follows:
Sec. 627.41 Preservation of equity.
(a) * * * In the event the resolution to liquidate is approved by
the stockholders of the Farm Credit institution and the liquidation
plan is approved by the Farm Credit Administration Board, the
liquidation plan shall govern disposition of the equities of the Farm
Credit institution.
* * * * *
Dated: November 15, 2023.
Ashley Waldron,
Secretary, Farm Credit Administration Board.
[FR Doc. 2023-25652 Filed 11-22-23; 8:45 am]
BILLING CODE 6705-01-P