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Type: Statute
Statute: 1971 ACT AS AMENDED
Title: Title VI Assistance to Farm Credit System
Part:
Subtitle: Subtitle B-Financial Assistance Corporation
Chapter Name:
U.S. Code Citation: 12 U.S.C. 2278b-6


12 U.S.C. 2278b-6 SEC. 6.26. DEBT OBLIGATIONS.
(a) ISSUANCE. During the period beginning 61 days after the date of the enactment of this title and ending September 30, 1992, the Financial Assistance Corporation, subject to the approval of the Assistance Board, may issue uncollateralized bonds, notes, debentures, and similar obligations, guaranteed as to the timely payment of principal and interest by the Secretary of the Treasury as set forth in subsection (d) of this section, with semiannual interest coupon payments and a maturity period of 15 years
(1) in an aggregate amount not to exceed $2,800,000,000; and
(2) beginning January 1, 1989, in an additional amount, not to exceed $1,200,000,000, if
(A) debt obligations have been issued by the Corporation to the full extent authorized under paragraph (1);
(B) the Assistance Board determines that such additional funds are needed to carry out this title; and
(C) at least 90 days before the issuance of any debt obligations under this paragraph, the Assistance Board submits a report to Congress that sets forth the determination of the Assistance Board that such additional debt obligations should be issued, and that contains a detailed evaluation supporting the determination.
(b) CONDITIONS. The debt obligations shall be in such forms and denominations, bear such rates of interest, be subject to such conditions, be issued in such manner, and be sold at such prices as may be prescribed by the Financial Assistance Corporation.
(c) INTEREST PAYMENTS.
(1) PAYMENT OF INTEREST DURING FIRST 5-YEAR PERIOD. During each year of the first 5-year period of the 10-year period beginning on the date of issuance of each obligation under subsection (a) of this section, the Financial Assistance Corporation shall pay, without recourse to System institutions, other than that described in paragraph (5), all of the interest due on such obligation.
(2) PAYMENT OF INTEREST DURING SECOND 5-YEAR PERIOD.
(A) IN GENERAL. During each year of the second 5-year period of the 10-year period beginning on the date of issuance of each obligation under subsection (a) of this section, the Financial Assistance Corporation shall pay all of the interest due on such obligation.
(B) PAYMENT BY SYSTEM BANKS TO FINANCIAL ASSISTANCE CORPORATION. During each year of the second 5-year period, System banks shall pay to the Financial Assistance Corporation 50 percent of the interest due on the obligations, except that System banks shall pay an additional 10 percent of the interest expense for each 1 percent that the unallocated retained earnings of the System (as determined under generally accepted accounting principles) exceed 5 percent of net assets (total assets less allowance for loan losses) based on a year-end financial statement for the preceding year.
(C) ALLOCATION. During each year of the second 5-year period, each System bank shall pay to the Financial Assistance Corporation a proportion, as calculated by the Financial Assistance Corporation, of the interest due from System banks under this paragraph equal to
(i) the amount of the average accruing retail loan volume of the bank and its affiliated associations for the preceding year; divided by
(ii) the total average accruing retail loan volume of all such banks and their affiliated associations for the preceding year.
(3) PAYMENTS BY TREASURY. The Secretary of the Treasury, in accordance with section 6.28, shall pay to the Financial Assistance Corporation, in a timely manner, the balance of each interest payment not made by the System banks.
(4) PAYMENT OF INTEREST AFTER FIRST 10-YEAR PERIOD. During each year of the third 5-year period of the 15-year period beginning on the date of the issuance of each obligation under subsection (a) of this section, the Financial Assistance Corporation shall pay all of the interest due on such obligation. During each year of such 5-year period, System banks shall pay the entire amount of interest due on the obligation allocated in the same manner as under paragraph (2)(C). Such payments shall be made to the Financial Assistance Corporation at such times as the Financial Assistance Corporation shall determine.
(5) REPAYMENT OF TREASURY-PAID INTEREST.
(A) IN GENERAL. On the maturity date of the last-maturing debt obligation issued under subsection (a), the Financial Assistance Corporation shall repay to the Secretary of the Treasury the total amount of any annual interest charges on the debt obligations that Farm Credit System institutions (other than the Financial Assistance Corporation) have not previously paid, and the Financial Assistance Corporation shall not be required to pay any additional interest charges on the payments.
(B) ASSESSMENT. In order to provide for the orderly funding by the banks of the System of the repayment by the Financial Assistance Corporation to the Secretary of the Treasury, the Financial Assistance Corporation shall assess each System bank, on or about December 31 of each year beginning in 1992, and each System bank shall promptly pay to the Financial Assistance Corporation, an annual annuity type payment in an amount designed to accumulate, in total, including earnings thereon, the amount of the bank's ultimate obligation (as determined by the Corporation on a fair and equitable basis), and no greater than .0006 nor less than .0004 times the bank's and its affiliated association's average accruing retail loan volume for the preceding year, subject to
(i) upward or downward adjustment, as appropriate, by the Financial Assistance Corporation during each of the last 5 years prior to the date the Financial Assistance Corporation is obligated to make the repayment, in order to ensure that the Financial Assistance Corporation will have the amount of funds needed to make the repayment on the due date; and
(ii) reduction or termination in any year when the funds paid to the Financial Assistance Corporation, including any anticipated future earnings on the funds, are sufficient to make the repayment on the due date.
(C) INVESTMENT OF FUNDS. The Financial Assistance Corporation shall invest funds derived from the investment in eligible investments as defined in section 6.25(a)(1). The funds and the earnings on the funds shall be available only for the repayment to the Secretary of the Treasury provided for in subparagraph (A).
(D) PASS THROUGH. A bank may (and, to the extent necessary to satisfy its obligations, shall) pass on (either directly, or indirectly through loan pricing or otherwise) all or part of the assessments to its affiliated direct lender associations based on proportionate average accruing retail loan volumes for the preceding year, but the bank shall remain primarily liable for the amounts.
(E) LIABILITY.
(i) BANKS TERMINATING SYSTEM STATUS OR IN LIQUIDATION. Any bank terminating System status pursuant to section 7.10 shall be required, under regulations of the Farm Credit Administration, to pay to the Financial Assistance Corporation the estimated present value of all future such assessments against the bank had the bank remained in the System. A liability to the Financial Assistance Corporation in this amount (calculated as if the bank had left the System on the date the bank was placed in liquidation) shall be recognized as a claim in favor of the Financial Assistance Corporation against the estate of any bank undergoing liquidation.
(ii) NO ANTICIPATORY REDUCTIONS IN OTHER OBLIGATIONS. The obligations of other banks shall not be reduced in anticipation of any recoveries under this subparagraph from banks leaving the System or in liquidation.
(iii) REFUND OF RECOVERIES. The Financial Assistance Corporation shall apply the recoveries, when received, and all earnings on the recoveries, to reduce the other banks' payment obligations, or, to the extent the recoveries are received after the other banks have met their entire payment obligation, shall refund the recoveries, when received, to the other banks in proportion to the other banks' payments.
(F) ASSOCIATIONS TERMINATING SYSTEM STATUS OR IN LIQUIDATION. Any association terminating System status pursuant to section 7.10 shall be required, under regulations of the Farm Credit Administration, to pay to its supervising bank a share, based on the association's retail loan volume relative to the retail loan volume of the bank and its affiliated associations had the association remained in the System, of the estimated present value of all future such assessments against the bank. A liability to the bank in this amount (calculated as if the association had left the System on the date it was placed in liquidation) shall be recognized as a claim in favor of the bank against the estate of any association undergoing liquidation.
(G) CAPITAL REQUIREMENTS.
(i) IN GENERAL. Until the date that is 5 years prior to the date on which the Financial Assistance Corporation is required to repay the Secretary of the Treasury pursuant to subparagraph (A), all assessments paid by banks to the Financial Assistance Corporation pursuant to subparagraph (B), and any part of the obligation to pay future assessments to the Financial Assistance Corporation under subparagraph (B) that is recognized as an expense on the books of any System bank or association, shall nonetheless be included in the capital of the bank or association for purposes of determining its compliance with regulatory capital requirements.
(ii) DURING THE FINAL 5 YEARS PRIOR TO REPAYMENT. During the
(I) period beginning 5 years, and ending 4 years, prior to the date on which the Financial Assistance Corporation is required to repay the Secretary of the Treasury pursuant to subparagraph (A), 60 percent;
(II) period beginning 4 years, and ending 3 years, prior to the date on which the Financial Assistance Corporation is required to repay the Secretary of the Treasury pursuant to subparagraph (A), 30 percent; and (d) REFINANCING AND PAYMENT OF PRINCIPAL; DEFAULTS.
(1) IN GENERAL.
(A) TIME OF REPAYMENT. On maturity of an obligation issued under subsection (a) of this section, the obligation shall be repaid by the Financial Assistance Corporation.
(B) PAYMENTS BY INSTITUTIONS.
(i) IN GENERAL. Except as provided in subparagraph (C), in order to enable the Financial Assistance Corporation to repay the obligation referred to in subparagraph (A), each institution that issued preferred stock under section 6.27(a) with respect to the obligation (or the successor to the institution) shall pay to the Financial Assistance Corporation, before the maturity date of the obligation, an amount equal to the par value of the stock outstanding for the institution.
(ii) ANNUAL APPROPRIATION. Except as provided in clause (iii), each year beginning in 1992, as soon as practicable following the end of the prior year, each such institution (except institutions in receivership and institutions that have previously redeemed their preferred stock) shall appropriate from its earnings in the prior year to an appropriated unallocated surplus account with respect to preferred stock, the sum of
(I) the greater of (II) any amount that had been appropriated to the account in a previous year but had thereafter been offset by losses.
(iii) LIMITATION. An annual appropriation shall not be made to the extent that the appropriation would exceed the institution's net income (as determined pursuant to generally accepted accounting principles) in that year or to the extent that the appropriation would cause the institution's preferred stock to be impaired.
(iv) USE. The amount in the appropriated unallocated surplus account shall be unavailable to pay dividends or other allocations or distributions to shareholders or holders of participation certificates. The account shall be senior to all other unallocated surplus accounts but junior to all preferred and common stock for purposes of the application of operating losses.
(v) PREFERRED STOCK. The appropriations of surplus by an institution shall not affect the treatment of its preferred stock (and of the appropriated unallocated surplus) as equity for purposes of regulatory permanent capital requirements.
(C) SYSTEMWIDE REPAYMENT.
(i) IN GENERAL. In order to enable the Financial Assistance Corporation to repay the obligations issued to provide assistance under subsections (c) and (e) of section 410 of the Agricultural Credit Act of 1987 (12 U.S.C. 2011 note) and section 4.9A(c) of this Act, or issued to provide funds to cover the expenses of the Assistance Board or the Financial Assistance Corporation under sections 6.7(a) and 6.24, respectively, of this Act, each System bank shall pay to the Financial Assistance Corporation a proportion, as calculated by the Financial Assistance Corporation, of the obligation equal to
(I) the average accruing retail loan volume of the bank and its affiliated associations for the preceding 15 years; divided by
(II) the average accruing retail loan volume of all such banks and their affiliated associations for the same period.
(ii) EXPENSE ITEM. The annual increase in the present value of the estimated obligation of each bank to the Financial Assistance Corporation under this subparagraph shall be recorded each year as an expense item, in accordance with generally accepted accounting principles, on the books of the bank.
(iii) PASS THROUGH. A bank may (and, to the extent necessary to satisfy it obligations, shall) pass on (either directly, or indirectly through loan pricing or otherwise) all or part of the amount necessary to satisfy the payment requirement to its affiliated direct lender associations based on proportionate average accruing retail loan volumes for the preceding 15 years, except that the bank shall remain primarily liable for the amount.
(iv) BANKS LEAVING SYSTEM. Any bank leaving the Farm Credit System pursuant to section 7.10 shall be required, under regulations of the Farm Credit Administration, to pay to the Financial Assistance Corporation the estimated present value of the payment required under this subparagraph had the bank remained in the System. A liability to the Financial Assistance Corporation in this amount (calculated as if the bank had left the System on the date it was placed in liquidation) shall be recognized as a claim in favor of the Financial Assistance Corporation against the estate of any bank undergoing liquidation. The obligations of other banks shall not be reduced in anticipation of any such recoveries from banks leaving the System or in liquidation, but the Financial Assistance Corporation shall apply the recoveries, when received, and all earnings on the recoveries, to reduce the other banks payment obligations, or, to the extent the recoveries are received after the other banks have met their entire payment obligation, shall refund the recoveries, when received, to the other banks in proportion to the other banks' payments.
(v) ASSOCIATIONS TERMINATING SYSTEM STATUS OR IN LIQUIDATION. Any association leaving the Farm Credit System pursuant to section 7.10 shall be required, under regulations of the Farm Credit Administration, to pay to its supervising bank a share, based on the association's retail loan volume relative to the retail loan volume of the bank and its affiliated associations had the association remained in the System, of the present value of the future payment obligation of its supervising bank. A liability to the bank in this amount (calculated as if the association had left the System on the date it was placed in liquidation) shall be recognized as a claim in favor of the bank against the estate of any association undergoing liquidation.
(D) FUNDS FOR PAYMENTS. Payments under subparagraphs (B) and (C) shall be made by each such institution from the funds of the institution or from funds raised by the institution through the issuance of debt obligations, which may be issued without a collateral requirement and without any guarantee by the Secretary of the Treasury.
(2) REFINANCED OBLIGATIONS. The refinanced obligations issued under paragraph (1) shall be solely the obligations of the institutions refinancing such, and sections 4.3 and 4.4 shall not apply to such obligations.
(3) DEFAULTS.
(A) CERTAIN PRINCIPAL AND INTEREST OBLIGATIONS.
(i) PAYMENT BY CORPORATION. If a System bank defaults on the payment of interest due under subsection (c) of this section during the first 15 years after an obligation is issued under subsection (a) on the payment of principal or interest due under subparagraphs (B) and (C) of section 6.9(e)(3), on the payment of principal due under paragraph (1)(C), or on the payment of an assessment due under subsection (c)(5)(B), of this section, the Financial Assistance Corporation shall pay the amount due by the System bank out of the Trust Fund, and shall recover the amount due from the defaulting System bank, and such amount shall be paid to the Trust Fund.
(ii) PAYMENT BY INSURANCE FUND. If the Financial Assistance Corporation has not recovered the full amount due from a defaulting bank by the end of the 12-month period beginning on the date of default, any uncollected amount shall be paid to the Trust Fund from the Insurance Fund established under section 5.60, to the full extent of funds available in the Insurance Fund as of the date the Financial Assistance Corporation notified the Farm Credit System Insurance Corporation of amounts due under this section.
(iii) PAYMENT BY REMAINING INSTITUTIONS. To the extent that the payment from the Insurance Fund is insufficient to reimburse the Trust Fund, the remaining balance shall be allocated to other System banks in accordance with the allocation mechanism applicable under this Act to the particular defaulted obligation.
(B) PRINCIPAL OF BONDS ISSUED TO FUND PURCHASE OF PREFERRED STOCK.
(i) EVALUATION. Not later than 90 days before the maturity of any obligation issued under subsection (a) of this section, the Farm Credit Administration shall complete an evaluation of the general financial condition of each System institution that issued preferred stock under section 6.27(a) with respect to such obligation to determine whether such System institution will be able to redeem such stock at par value on the maturity of the obligation, and remain a viable institution capable of providing credit to eligible borrowers at equitable and competitive interest rates.
(ii) AVAILABILITY OF EVALUATION. A copy of the evaluation required under clause (i) shall be furnished to the Secretary of the Treasury and the appropriate committees of Congress.
(iii) REDEMPTION BY INSTITUTION; PURCHASE BY SECRETARY OF THE TREASURY. If the Farm Credit Administration determines, in consultation with the Secretary of the Treasury, on the basis of the evaluation required under clause (i), that the redemption of such stock at par value would impair the other stock or equities of such institution or render such institution incapable of meeting its capital adequacy standards, the institution shall be prohibited from redeeming the preferred stock it issued under section 6.27 with respect to the maturing obligation. If the Farm Credit Administration determines, in consultation with the Secretary of the Treasury, on the basis of the evaluation required under clause (i), that such institution will be able to redeem, in a timely manner and at par value, the preferred stock it issued under section 6.27 with respect to the maturing obligation, and remain a viable and competitive institution, such institution shall have the option of redeeming or not redeeming such stock. If such institution is prohibited from redeeming or elects not to redeem such stock, the Financial Assistance Corporation shall withdraw funds from the Trust Fund in an amount equal to the par value of the preferred stock issued by such institution under section 6.27 so as to enable the Financial Assistance Corporation to pay the principal of the maturing obligation. Simultaneously with such withdrawal of funds from the Trust Fund, the Financial Assistance Corporation shall transfer to the Insurance Fund an equal amount, at par value, of preferred stock of such institution. To the extent that the Trust Fund is insufficient to enable the Financial Assistance Corporation to pay the full principal of the maturing obligation, the Insurance Fund shall be used by the Farm Credit System Insurance Corporation to purchase, at par value, the preferred stock issued by such institution under section 6.27(a) to enable the Financial Assistance Corporation to pay the principal of the maturing obligation. To the extent that the Insurance Fund is insufficient to enable the Financial Assistance Corporation to pay the full principal of the maturing obligation, the Secretary of the Treasury shall purchase, at par value, the remaining quantity of the preferred stock issued by such institution to enable the Financial Assistance Corporation to make such full payment. For that purpose, the Secretary of Treasury may use, as a public debt transaction, the proceeds from the sale of any securities issued under chapter 31 of Title 31, United States Code. The purposes for which such securities may be issued under such chapter are extended to include such purchases of stock. Any preferred stock transferred to, or purchased by the Farm Credit System Insurance Corporation under this clause shall be retired by the issuing institution at such times and under such terms and conditions as are agreed to between the Insurance Corporation and such institution.
(C) RECOURSE BY OTHER SYSTEM BANKS. A defaulting bank shall be liable to the remaining System banks for any amount paid by the remaining banks under this paragraph.
(4) PAYMENT BY UNITED STATES.
(A) INABILITY TO PAY. Notwithstanding any other provision of this Act, if the Financial Assistance Corporation is unable to pay the principal or interest of any obligation issued under subsection (a) or section 6.9(e)(3)(A) of this section, the Secretary of the Treasury shall pay to the Financial Assistance Corporation the amount due which shall be used by the Financial Assistance Corporation to pay the obligation.
(B) RECOVERY.
(i) CERTAIN PRINCIPAL AND INTEREST OBLIGATIONS. In each instance in which the Secretary of the Treasury is required to make a payment under subparagraph (A) to the Financial Assistance Corporation as a result of a default made by a System bank on interest due from such System bank under subsection (c) on the payment of principal or interest due under subparagraphs (B) and (C) of section 6.9(e)(3), on the payment of principal due under paragraph (1)(C), or on the payment of an assessment due under subsection (c)(5)(B), of this section, the Secretary of the Treasury shall recover the amount of the payments the Secretary made, with respect to each defaulting bank, from such defaulting bank. If the Secretary has not recovered the full amount due from the defaulting bank by the end of the 12-month period beginning on the date of payment by the Secretary, the uncollected amount shall be paid to the Secretary from the Insurance Fund established under section 5.60.
(ii) PRINCIPAL OF BONDS ISSUED TO FUND PURCHASE OF PREFERRED STOCK. In each instance in which the Secretary of the Treasury is required under paragraph (3)(B)(iii) to purchase preferred stock issued by a System institution under section 6.27(a), the Farm Credit System Insurance Corporation shall use funds deposited in the Insurance Fund to repurchase, at par value, from the Secretary of the Treasury such stock required to be purchased under paragraph (3)(B)(iii) as funds become available for such repurchase.
(iii) PRIORITY. Notwithstanding any other provision of this Act except for section 5.60(c)(2)(B), during any year in which payments are due to the Secretary of the Treasury from the Insurance Fund under clause (i), or preferred stock held by the Secretary is due to be repurchased by the Insurance Fund under clause (ii), the funds in such Fund, and all funds deposited in such Fund during such year, shall be used first for the purposes specified in clauses (i) and (ii).
(e) ADMINISTRATION.
(1) DEFINITION OF RETAIL LOAN VOLUME. As used in this section, the term "retail loan volume" means all loans (as defined in accordance with generally accepted accounting principles) by a System bank or association, excluding loans by such a bank or association to another System institution.
(2) CALCULATION OF AVERAGE ANNUAL LOAN VOLUMES. For purposes of this section and section 6.9, average annual loan volumes shall be calculated using month-end balances.
(3) EXCLUSION OF BANKS UNDERGOING LIQUIDATION. For purposes of this section and section 6.9, the term "bank" shall not include a bank that had entered liquidation prior to the date of enactment of this subsection.

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