Title: PROPOSED RULE--Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations--12 CFR Part 615
Issue Date: 05/12/1988
Federal Register Cite: 53 FR 16963
FARM CREDIT ADMINISTRATION
12 CFR Part 615
Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations
ACTION: Proposed rule.
SUMMARY: The Farm Credit Administration Board (Board) proposes amendments to Subparts A, B, C, and O of Part 615, which govern the funding of Farm Credit System (System) institutions by means of issuance of securities. The proposed amendments are necessary to conform the current regulations with certain amendments to the Farm Credit Act of 1971 (Act), made by the Agricultural Credit Act of 1987 (1987 Act), Pub. L. 100-233, which was enacted on January 6, 1988. The 1987 Act anticipates that certain powers previously exercised by the System finance committees will be transferred to the Federal Farm Credit Banks Funding Corporation upon the election of its new board of directors. The proposed regulations also contain conforming changes to reflect certain statutory reorganization requirements for System institutions. The Board determined that this amendment to the regulations should be proposed for public comment.
DATE: Written comments are due on or before June 13, 1988.
ADDRESS: Submit any comments in writing (in triplicate) to Anne E. Dewey, General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090. Copies of all communications received will be available for examination by interested parties in the Office of General Counsel, Farm Credit Administration.
FOR FURTHER INFORMATION CONTACT:
Alan Glenn, Special Examination Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4225, TDD (703) 883-4444,
James M. Morris, Attorney, Office of General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444.
TEXT: SUPPLEMENTARY INFORMATION: The proposed amendments are necessary to conform the current regulations with certain amendments to the Farm Credit Act of 1971 (Act), made by the Agricultural Credit Act of 1987 (1987 Act) Pub. L. 100-233, which was enacted on January 6, 1988.
Subpart A of Part 615 contains regulations that define the funding activities of the System and the role of the Federal Farm Credit Banks Funding Corporation (Funding Corporation). Sections 615.5000 and 615.5010 are amended to delete references to the finance committees or their subcommittees and replace them with references to the Funding Corporation, which, under the 1987 Act amendments, has statutory authority to, acting for the banks, approve the amount, maturities, rates of interest, and participations by the several banks in each issue of joint, consolidated, or Systemwide obligations.
References to the role of district boards of directors are also deleted from § 615.5010 to reflect the elimination of such boards by the 1987 Act. Reference to "supervision" in § 615.5010 is deleted and replaced by the word "regulation" to more closely reflect the language contained in section 1.2 of the Act.
Section 615.5030, which sets forth authority of System institutions to borrow from commercial banks is amended by adding a new § 615.5030(b), which provides that the Farm Credit System Financial Assistance Corporation (Financial Assistance Corporation) may borrow from commercial banks with the approval of the Farm Credit Administration as provided in section 6.24(a)(11) of the Act.
Subpart B of Part 615 contains regulations concerning the collateral required for issuance of obligations by System institutions. Section 615.5050(a) is amended by deleting reference to "long term" in describing maturities of notes, bonds, debentures, and similar obligations requiring collateralization consistent with section 4.3(c) of the Act. Sections 615.5050 and 615.5060 are amended to reflect the mergers required by the 1987 Act.
Section 615.5050 is amended to limit the collateral value of any loan to the maximum amount authorized by the Act or Part 614 of these regulations.
Section 615.5060(b) is deleted. The bonds issued under the superseded Federal Farm Loan Acts, which required separate accounting for collateral purposes, have been retired.
Subpart C of Part 615 contains regulations governing the issuance of notes, bonds, debentures, and similar obligations by System institutions. Subpart C is revised to reflect the new responsibilities of the Funding Corporation which were previously exercised by the finance committees. Section 615.5100 authorizes the System banks to issue individual, consolidated and Systemwide obligations. The requirement that each issuance be authorized by resolution of each issuing bank is now placed in § 615.5101(b). In addition to prescribing the content of the resolution of the issuer's board of directors, § 615.5101 is revised to set forth required Farm Credit Administration approval, Farm Credit Administration consultation with the Secretary of the Treasury, required consultation by System representatives with the Secretary of the Treasury and a cross-reference to the requirements of Subpart B of Part 615 concerning collateral for the issuance of obligations.
Section 615.5102, prescribes that the Funding Corporation shall have the responsibility, acting for the banks, for determining the amount, maturities, rates of interest, terms and conditions of participation by the System banks in conjunction with each issue. The Funding Corporation is also given responsibility for developing funding guidelines, priorities and objectives in conjunction with the asset/liability management policies of the banks.
Section 615.5103, which required the finance committees devise debt maturity guidelines, funding priorities, and objectives, is deleted, since these guidelines, priorities, and objectives have in practice been replaced by the asset/liability management policies referred to by § 615.5102(b).
Subpart O of Part 615 contains regulations governing the form in which Farm Credit securities may be issued. Section 615.5450 provides for the issuance of consolidated bonds, consolidated Systemwide notes, and consolidated Systemwide bonds in book-entry form. The consolidated bonds of the 12 Federal intermediate credit banks and the 13 banks for cooperatives dated before January 1, 1978 are no longer outstanding so the reference to these bonds is deleted from § 615.5450 (b) and (c).
Section 615.5450 also reflects the repeal of the authority of the Finance Committee and the new authority given to the Funding Corporation to determine whether bonds should be issued in definitive form. Section 615.5460 is amended to reflect the mergers of banks authorized by the Agricultural Credit Act in 1987.
Section 615.5497 concerning loss from payment of spurious consolidated bonds is deleted because the bonds discussed therein are no longer outstanding.
List of Subjects in 12 CFR Part 615
Accounting, Agriculture, Banks, Banking, Government securities, Investments, Rural areas.
For the reasons stated in the preamble, Part 615 of Chapter VI, Title 12 of the Code of Federal Regulations is proposed to be amended as follows:
PART 615 -- FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
1. The authority citation for Part 615 is revised to read as follows:
Authority: 12 U.S.C. 2154, 2160, 2202(b), 2243, 2252, 2278b-6; Sec. 301(a) of Pub. L. 100-233.
Subpart A -- Funding
2. Sections 615.5000, 615.5010, and 615.5030 of Part 615 are revised to read as follows:
§ 615.5000 General responsibilities.
(a) The System banks, acting through the Federal Farm Credit Banks Funding Corporation (Funding Corporation), have the primary responsibility for obtaining funds for the lending operations of the System institutions.
(b) The System's funding operations have a significant impact upon the investment community, the general public, and the national economy in both the volume and the manner by which funds are raised. The Farm Credit Administration supervises compliance with the statutory collateral requirements for the debt obligations issued. The Chairman of the Farm Credit Administration, under policies adopted by the Board, consults with the Secretary of the Treasury concerning the System's funding activities, pursuant to section 5.10 of the Act.
§ 615.5010 Funding Corporation.
(a) The Funding Corporation is authorized to issue, market, and handle System obligations and, handle, upon request of the banks, interbank or intersystem flows of funds and investment portfolios. The Funding Corporation shall maintain accurate and timely records. The System banks shall provide for the sale of obligations through the Funding Corporation by negotiation, offer, bid, syndicate sale, and for the delivery of such obligations by book entry, wire transfer, or such other means as may be appropriate.
(b) The interaction of the System with the financial community shall be conducted principally through the Funding Corporation. The Funding Corporation shall be subject to regulation and examination by the Farm Credit Administration.
§ 615.5030 Borrowings from commercial banks.
(a) The System bank boards, by resolution, shall authorize all commercial bank borrowings.
(b) The Financial Assistance Corporation may borrow from commercial banks only with the approval of the Farm Credit Administration.
3. Subpart B of Part 615 is revised to read as follows:
Subpart B -- Collateral.
615.5050 Collateral requirements.
615.5060 Special collateral requirement.
615.5090 Reduction in carrying value of collateral.
Subpart B -- Collateral
§ 615.5050 Collateral requirements.
(a) Each bank shall have on hand at the time of issuance of any notes, bonds, debentures, or similar obligations, and at all times thereafter maintain, free from any lien or other pledge, assets consisting of notes and other obligations representing loans made under the authority of the Act, or real or personal property acquired in connection with loans made under this Act, other bank assets (including marketable securities) approved by the Farm Credit Administration, cash, or cash equivalents in an aggregate amount equal to the sum of consolidated and Systemwide bonds, Farm Credit investment bonds, consolidated Systemwide notes, other notes and similar obligations, and all other known and recorded liabilities outstanding for which the bank is primarily liable.
(b) The collateral value of eligible investments (as defined in § 615.5140) shall be the lower of cost or market value.
(c)(1) Except as provided in this subsection, the collateral value of notes and other obligations representing loans made under the authority of any Farm Credit Act shall be the unpaid principal of loans (except as provided for in § 615.5090), excluding undisbursed loan funds held by the bank or the association and funds held for account of borrowers and purchasers.
(2) The collateral value of loans in process of liquidation, foreclosures, judgments, property acquired in the liquidation of loans, and real estate sales contracts shall be the lesser of recovery value or investment value.
(3) The collateral value of loans which have been restructured by any action, such as an extension, deferment, or partial release, shall be the new unpaid balance of the loan.
(4) Collateral shall not include the amount of any loan that exceeds the maximum amount authorized under the Act or Part 614 of these regulations.
(d) Each bank shall have procedures which will ensure that the bank is in compliance with the statutory requirements for maintenance of collateral. Such procedures shall include provisions for:
(1) Adequate safekeeping facilities;
(2) Methods to determine that debt instruments meet all requirements of law and regulations;
(3) A certified report by a bank officer at each regular meeting of the board of directors. The report should certify to the eligibility and the adequacy of collateral. Items to be reported will include but not be limited to the total amount of eligible collateral, amount of ineligible loans, amount of deductions, and the amount of excess collateral; and
(4) Written procedures and practices to ensure that there will be a high degree of accuracy in protecting and accounting for the collateral.
§ 615.5060 Special collateral requirement.
(a) If the chief counsel for a System bank or association has determined, in writing, that bank procedures provide sufficient safeguards to assure that a real estate mortgage loan made by the bank will be secured by a first lien or its equivalent on interest in the primary real estate security, an attorney lien certification need not be obtained at the time a note is accepted for collateral. However, the note shall be withdrawn from collateral upon the expiration of 1 year from the date of loan closing, unless before the end of each period, an attorney has certified that the interest of the bank in the primary real estate security for the loan is a first lien on the borrower's interest or its equivalent from a security standpoint.
(b) A loan participation agreement to which a System bank or association is a participant and involving a loan originated by another lender shall constitute an obligation meeting the collateral requirements of § 615.5050(a).
§ 615.5090 Reduction of carrying value of collateral.
When the bank or Farm Credit Administration determines that a loan did not conform to the requirements of the law or regulations at the time the loan was closed, such loan shall be withdrawn from collateral until the cause of ineligibility is remedied. When a loan has been classified as a loss loan, the bank shall adjust the collateral value of the loan accordingly.
Subpart C -- Issuance of Bonds, Notes, Debentures, and Similar Obligations
4. Sections 615.5100, 615.5101, and 615.5102 are revised to read as follows:
§ 615.5100 Authority to issue.
The Act authorizes each bank of the System, subject to the collateral requirements of section 4.3(c) of the Act, to issue:
(a) Notes, bonds, debentures, or other similar obligations, to members of the general public;
(b) Consolidated obligations, together with any or all banks organized and operating under the same title of the Act, to members of the general public;
(c) Systemwide obligations, together with other banks of the System, to members of the general public; and
(d) Investment bonds to the authorized purchasers subject to the limitations contained in the regulations set forth in Subpart D.
§ 615.5101 Requirements for issuance.
Each issuance of debt obligations shall meet the following requirements:
(a) Each obligation except investment bonds shall be issued through the Federal Farm Credit Banks Funding Corporation as agent for System banks.
(b) Each debt obligation shall be authorized by resolution of the board(s) of directors of the issuer(s). Each participating bank shall provide, in its authorizing resolution, for its primary liability on the portion of any consolidated or Systemwide obligation issued on its behalf and be jointly and severally liable for the payment of any additional sums as called upon by the Farm Credit Administration, in accordance with section 4.4 of the Act, in the event any bank primarily liable therefore is unable to pay.
(c) Each issuance of debt obligations shall meet the collateral requirements set forth in Subpart B.
(d) Each issuance of debt obligations shall be approved by the Farm Credit Administration in accordance with § 615.5102.
(e)(1) Consultation with the Secretary of the Treasury required by 31 U.S.C. 9108 shall be conducted by System representatives and shall have occurred prior to each debt issuance.
(2) Under policies adopted by the Board of the Farm Credit Administration, the Chairman will consult with the Secretary of the Treasury on a regular basis concerning the exercise by the System of the powers conferred under section 4.2 of the Act, as amended.
§ 615.5102 Issuance of debt obligations through the funding corporation.
(a) The amount, maturities, rates of interest, terms and conditions of participation by the System banks in each issue shall be determined by the Funding Corporation acting for the banks of the System established pursuant to section 4.9 of the Act, subject to the approval of the Farm Credit Administration in accordance with this section.
(b) The Funding Corporation shall plan and develop funding guidelines, priorities, and objectives based upon the asset/liability management policies of the System institutions and the requirements of the market. The guidelines, priorities, and objectives shall be designed to ensure that the debt marketing responsibilities of the Funding Corporation will continue to provide flexibility for the banks and are fiscally sound.
(c) For all debt issuances conducted by the Funding Corporation, the specific prior approval of the Farm Credit Administration must be obtained prior to the distribution and sale of the obligation pursuant to section 4.9 of the Act.
5. Section 615.5105 is amended by revising paragraph (b) to read as follows:
§ 615.5105 Consolidated systemwide notes.
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(b) Prices shall be on a discount yield basis or as determined by the Funding Corporation.
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Subpart 0 -- Issuance of Farm Credit Securities
6. Section 615.5450 is revised to read as follows:
§ 615.5450 Book entry and definitive notes and bonds.
(a) The System banks operating under the same title of the Act may issue consolidated bonds, dated on or after January 1, 1978, in bookentry form, in denominations of $1,000 or multiples thereof. There are still outstanding consolidated bonds of the Federal land banks dated before January 1, 1978, in definitive form in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, and $500,000.
(b) The System banks may issue consolidated Systemwide notes in book-entry form, in denominations of $5,000, $10,000, $50,000, $100,000, $500,000, $1,000,000, and $5,000,000.
(c) The System banks may issue consolidated Systemwide bonds in book-entry form, in denominations of $1,000 or multiples thereof for issues with an original maturity over 1 year and 1 month and $5,000 or multiples thereof for issues with an original maturity of under 1 year and 1 month.
(d) Consolidated and consolidated Systemwide bonds and discount notes may be issued in definitive form as determined to be appropriate by the Funding Corporation and as approved by the Chairman of the Farm Credit Administration.
§ § 615.5451 -- 615.5453 [Removed and Reserved]
7. Sections 615.5451 through 615.5453 are removed and reserved.
8. Section 615.5460 is amended by revising paragraphs (b) and (c) to read as follows:
§ 615.5460 Definition of terms for book-entry issuance of Farm Credit securities.
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(b) "Banks of the Farm Credit System" means all of the Farm Credit Banks or all of the banks for cooperatives, or all of the banks of the System.
(c) "Farm Credit securities" means consolidated notes, bonds, debentures, or other similar obligations of the System banks and Systemwide notes, bonds, debentures, or similar obligations issued under the Farm Credit Act of 1971, or laws repealed thereby, the completion and delivery of which is or has been undertaken by a Reserve Bank as agent of the banks of the System.
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§ 615.5497 [Removed and Reserved]
6. Section 615.5497 is removed and reserved.
Date: May 4, 1988.
David A. Hill,
Secretary, Farm Credit Administration Board.
[FR Doc. 88-10189 Filed 5-11-88; 8:45 am]
BILLING CODE 6705-01-M