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Informational Memorandum
Subject:Revised Related Services Informational Memorandum
Date of Memorandum:06/10/2004
Expiration Date:
Office:OPA
Signed By:Dunn, Michael
FCA Contact Person:Dunn, William
Contact Phone:703-883-4489
List of Attachments:

June 10, 2004



To: Chairman, Board of Directors
Chief Executive Officer
All Farm Credit Banks

From: Michael V. Dunn, Director
Office of Policy and Analysis

Subject: Revised Related Services List


The Farm Credit Administration (FCA) Board has determined that Farm Credit Banks (FCBs) are authorized to offer, as related services, certain financial risk management services (Services). Previously, only Title III institutions were authorized to offer Services to customers. We have revised the description of Services under the heading “Financial Risk Management for Customers” in the attached list of related services.

Agricultural Credit Banks (ACBs), Banks for Cooperatives (BCs), and FCBs are authorized to offer: interest rate swaps, caps, collars, and floors; forward rate agreements; and exchange-traded and over-the-counter interest rate options on eligible interest rate futures contracts. These products may be offered as part of a loan package or as stand-alone hedging tools provided the following conditions are met:

(1) Interest rate swaps should be included with the borrower's total debt when calculating lending limits under 12 CFR, Part 614, Subpart J. For swaps where the bank keeps an offsetting position, it must include the credit risk of the swaps with the borrower's total debt when calculating lending limits. Credit limits for each counter-party should be determined by reviewing the potential magnitude of adverse payment increases over the life of the swap.

(2) Financial risk management programs are subject to annual audits by a Certified Public Accountant.

ACBs, BCs, and FCBs may offer the Services described under the heading “Financial Risk Management for Customers” (or any other service on the related services list) by notifying, in writing, the FCA Office of Examination field office responsible for examining that institution at least 10 business days prior to offering the service as required by 12 CFR 618.8010(c)(3). If an institution wishes to offer a related service that is not on the related services list, the institution must submit the proposed service for FCA approval as required by 12 CFR 618.8010(b)(1) prior to offering the service.

Please contact William Dunn at (703) 883-4489 or by email at dunnw@fca.gov if you have questions.

Attachment

RELATED SERVICES LIST

Farm Credit Administration June 2004
Authorized InstitutionsType of Service
Description
Special Conditions
ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA, SCEstate Planning ServiceProviding information and assistance concerning development of estate plans. Does not include providing legal counsel or advice or executing the estate planning documents.
ACB, FCB, BC, ACA, PCA, FLBA, FLCA, SCFee Appraisal ServiceProviding real and personal property appraisals and evaluations. (Note: appraisals done in conjunction with making or servicing System loans are not considered related services for the purpose of this regulation.)
ACB, FCB, BC, ACA, PCA, FLBA, FLCA, SCRecordkeeping ServiceProviding recordkeeping systems tailored to recipients' needs. Includes AgriFax®, and clerking services associated with the auction of farm-related personal property.
ACB, FCB, BC, ACA, PCA, FLBA, FLCA, SCTax Planning and PreparationPreparing tax returns and assisting recipients in understanding tax implications of alternative management decisions and strategies.
ACB (Title 1 and II), FCB, ACA, PCA, FLBA, FLCA, SCFarm Business ConsultingAssisting with business planning for on-farm or aquatic operations. Includes such activities as assisting individuals in defining business goals, identifying management problems, and formulating or analyzing alternative strategies for achieving goals. Institution personnel may not be involved in making management decisions.Institutions must have procedures in place to eliminate or, where appropriate, effectively manage conflicts of interest between the credit and business consulting functions.
ACB (Title III), BC, SCCooperative Business ConsultingProviding consulting services to cooperatives or other eligible recipients to assist management and directors in making business decisions. May include educational seminars, development of computer services, business analysis, feasibility studies, and activity coordination (e.g., coordination of activities on mergers or formation of joint ventures). Institution personnel may not be involved in making management decisions.Institutions must have procedures in place to eliminate or, where appropriate, effectively manage conflicts of interest between the credit and business consulting functions.
ACB (Title III), BCForeign Currency ExchangeProviding foreign currency exchange services necessary to individual transactions that may be financed under Title III, section 3.7(b) of the Farm Credit Act of 1971, as amended.Subject to the criteria under 12 CFR 614.4900.
ACB,
BC,
FCB
Financial Risk Management for CustomersProviding risk management products that enable customers to hedge interest rate risk inherent in their balance sheets. Limited to the following derivative products:
  • Interest rate swaps, caps, collars and floors;
  • Forward rate agreements; and
  • Exchange-traded and over-the-counter interest rate options on eligible interest rate futures contracts.
(Products may be offered as part of loan packages or as stand-alone hedging tools.)
(1) Interest rate swaps should be included with the borrower's total debt when calculating lending limits under 12 CFR Part 614, Subpart J. For swaps where the bank keeps an offsetting position, it must include the credit risk of the swaps with the borrower's total debt when calculating lending limits. Credit limits for each counter-party should be determined by reviewing the potential magnitude of adverse payment increases over the life of the swap.
(2) Financial risk management programs are subject to annual audits by a Certified Public Accountant.
Insurance Services
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Credit Life Insurance, Mortgage Life Insurance, or Mortgage Accidental Death Insurance Coverage that pays off or reduces an outstanding loan or mortgage in the event of the insured's death.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Term Life Insurance Group or individual term life insurance coverage that is renewable at the end of the term.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Credit Disability and Accident Insurance or Mortgage Disability Insurance Insurance that provides for loan or mortgage payments, or some degree of income protection, if the insured is disabled.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Hospital Income Insurance. Insurance that provides a specified amount of income while the insured is hospitalized. A form of credit disability insurance, and subject to the debtor-creditor requirement.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Multiple-Peril Crop Insurance (including insurance provided by the Federal Crop Insurance Corporation) Insurance covering hazards incident to the growing and storage of crops.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Crop Hail Insurance. Insurance providing protection against damage or loss of crops due to hail or certain other named perils.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Hay (or Other Crop) Fire InsuranceInsurance that covers loss of hay or other crops due to fire.
    ACB (Title I and II), FCB, ACA, PCA, FLBA, FLCA
    Title Insurance. Insurance against loss or damage resulting from defects or failure of title or from the enforcement of liens existing against title at the time of the insurance.