Title: FINAL RULE AND AFFIRMATION OF INTERIM RULE--Organization; Conservatorships and Receiverships--12 CFR Part 611
Issue Date: 01/12/1989
Agency: FCA
Federal Register Cite: 54 FR 1146
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Part 611

Organization; Conservatorships and Receiverships


ACTION: Final rule and affirmation of interim rule.

SUMMARY: The Farm Credit Administration (FCA) Board adopts in final form amendments to the regulations relating to conservatorships and receiverships, but does not respond to the portion of the proposed amendment to 611.1156(b)(1) relating to the definition of insolvency. The final rule implements provisions of the Farm Credit Act of 1971, as amended by the Agricultural Credit Act of 1987 (Pub. L. 100-233), by permitting the FCA to confirm that insolvency exists through means other than examination; by deleting regulations providing specific direction to the receiver of an association in selling loans; by providing for the protection of equities owned by Farm Credit System (System) borrowers during a receivership; by permitting a System bank or association in receivership to issue preferred stock to the Farm Credit System Financial Assistance Corporation; by making technical changes to eliminate confusion regarding the implementation of joint and several liability on Systemwide and consolidated obligations; and by requiring that certain powers be exercised by the FCA Board as opposed to the FCA or the Chairman of the FCA Board. Comments from the public have been considered and clarifying changes have been made to the proposed rule.

DATE: This regulation shall become effective upon the expiration of 30 days after this publication during which either or both Houses of Congress are in session. Notice of the effective date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Eldon Stoehr, Regional Director, Northeast Region, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090 (703) 883-4251, TDD (703) 883-4444
or
Joanne P. Ongman, Attorney, Office of General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090 (703) 883-4020, TDD (703) 883-4444

SUPPLEMENTARY INFORMATION: On May 12, 1988 (53 FR 16934) and October 31, 1988 (53 FR 43897), the FCA published for public comment proposed regulations relating to conservatorships and receiverships set forth in 12 CFR Part 611. The comment period for these proposed regulations closed on June 13, 1988, and November 21, 1988, respectively. Additionally, on May 24, 1988, the FCA published certain aspects of the amendments proposed on May 12, 1988, as interim regulations. 53 FR 18810. This action was taken to clarify the legal requirements applicable to receiverships and conservatorships because two System institutions had recently been placed in receivership by the FCA Board. The comment period on the interim regulations closed on June 23, 1988. In this document, the FCA Board responds to the comments received on these proposed and interim regulations and adopts the interim regulations as final regulations without change.

The amendments proposed on May 12, 1988, included revisions to conform 12 CFR Part 611 to the requirements of the Agricultural Credit Act of 1987 (1987 Act) by providing for the protection of equities owned by System borrowers during a receivership; by permitting a System bank or association in receivership to issue preferred stock to the Farm Credit System Financial Assistance Corporation; by making technical changes to eliminate confusion regarding the implementation of joint and several liability on Systemwide and consolidated obligations; and by requiring that certain powers be exercised by the FCA Board as opposed to the FCA or the Chairman of the FCA Board. The FCA received comments on these proposed amendments and the related interim regulations from the Farm Credit Corporation of America (FCCA). The Farm Credit Bank of Baltimore (FCBB) also submitted a comment in which it generally concurred with the FCCA's comments.

Both the FCCA and the FCBB concurred with the change to 611.1174(c) published in the proposed and interim regulations which deleted provisions relating to the assignment of joint and several liability. While generally concurring with the other amendments proposed on May 12, 1988, the FCCA commented that proposed 611.1156(a) "* * * exceeds statutory authority in suggesting that an Assistance Board request to FCA 'to initiate action to appoint a receiver' must be conditioned upon an FCA determination that grounds for appointment exist." In response to this comment, the FCA Board has revised 611.1156(a) to clarify that the Farm Credit System Assistance Board (Assistance Board) could make such a request prior to an FCA determination that grounds exist for the appointment of a receiver. The FCCA also inquired whether the sale of loan assets by receivers of System institutions would be subject to the borrower rights provisions of the Farm Credit Act of 1971, as amended (Act), and the regulations promulgated pursuant to these provisions. This question is discussed in the preamble to recently promulgated borrower rights regulations. 53 FR 35434 (September 14, 1988).

Additionally, the FCCA requested the FCA to publish for comment proposed regulations dealing with the authority of bank receivers to sell loan assets to non-System lenders. The FCA has addressed this concern in further amendments to 12 CFR Part 611 published on October 31, 1988. These proposed amendments related to the sale and transfer of loans of a System institution in receivership and the definition of insolvency stated in 611.1156(b)(1). The proposed revisions to 611.1156(b)(1), contained in the implementing regulations for 4.12(b)(1) of the Act, would also permit the FCA to confirm that an institution is insolvent through means other than examination. The FCA received comments on these additional amendments from the FCCA. The FCBB, the Farm Credit Bank of Louisville and the Louisville Bank for Cooperatives submitted comments in which they concurred with the FCCA's comments.

The FCA did not receive any comments on the proposed amendment dealing with the authority of bank receivers to sell loan assets to non-System lenders. While the FCCA concurred with the proposed amendment to 611.1156(b)(1) permitting the FCA to confirm that insolvency exists through means other than examination, the FCCA objected to the proposed revision to 611.1156(b)(1) insofar as it defines insolvency as existing when a System institution is about to exhaust its permanent capital, and treats eligible borrower stock as a liability instead of as equity. In response to these concerns, the FCA Board now adopts only the amendment to 611.1156(b)(1) permitting the FCA to confirm that insolvency exists through means other than examination and does not yet respond to the portion of the proposed rule relating to the definition of insolvency.

List of Subjects in 12 CFR Part 611

Agriculture, Banks, Banking, Organization and functions (Government agencies), Rural areas.

For the reasons stated in the preamble, Part 611 of Chapter VI, Title 12 of the Code of Federal Regulations is amended to read as follows:

PART 611 -- ORGANIZATION

1. The authority citation for Part 611 continues to read as set forth below and all other authority citations throughout Part 611 are removed.

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 5.0, 5.9, 5.10, 5.17, 7.0-7.13; 12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2221, 2243, 2244, 2252, 2279a-2279f-1; secs. 411 and 412 of Pub. L. 100-233.

Subpart K -- Appointment of Conservators and Receivers

611.1155 [Amended]

2. Section 611.1155 is amended by adding the word "Board" after "Farm Credit Administration" in the first sentence.

3. Section 611.1156 is amended by revising paragraphs (a) and (b)(1); by adding the word "Board" after "Farm Credit Administration" each place it appears in paragraphs (b)(4) and (b)(5); and by adding a new paragraph (b)(6) to read as follows:

611.1156 Grounds for appointment of conservators and receivers.

(a) Upon a determination by the Farm Credit Administration Board of the existence of one or more of the factors set forth in paragraph (b) of this section, with respect to any bank, association, or other institution of the System, the Farm Credit Administration Board may, at its discretion, appoint a conservator or receiver for such institution. Further, the Farm Credit System Financial Assistance Board may request the Farm Credit Administration Board to appoint a receiver and, if one or more of the conditions set forth in paragraph (b) of this section are met, as determined by the Farm Credit Administration, may direct the Farm Credit Administration Board to appoint a conservator.

(b) * * *

(1) The institution is insolvent. For purposes of this paragraph, "insolvent" means that the FCA has confirmed that the assets of the institution are less than its obligations to its creditors and others, including its members.

* * * * *

(6) The institution is unable to make a timely payment of principal or interest on any insured obligation (as defined in section 5.51(3) of the Act) issued by the institution individually, or on which it is primarily liable.

611.1157 [Amended]

4. Section 611.1157(a) is amended by removing the words "Chairman of the" in the first sentence and adding the word "Board" after "Farm Credit Administration" the second, third, fourth, and fifth place it appears; paragraph (b) of 611.1157 is amended by removing the words "Chairman of the" in the first sentence and adding the word "Board" after "Farm Credit Administration" the second place it appears.

611.1158 [Amended]

5. Section 611.1158 is amended by adding the word "Board" after "Farm Credit Administration" each place it appears.

Subpart L -- Liquidation of Associations

611.1160 [Amended]

6. Section 611.1160(a) is amended by adding the word "Board" after "Farm Credit Administration" and removing the word "Chairman" and adding in its place the word "Board"; paragraph (b) is amended by adding the word "Board" after "Farm Credit Administration"; paragraph (e) is amended by adding the word "Board" after "Farm Credit Administration" the second place it appears and by removing the word "Chairman" and adding in its place the "Board"; paragraph (f) and (g) are amended by removing the word "Chairman" and adding in its place the word "Board" each place it appears.

611.1161 [Amended]

7. Section 611.1161 is amended by adding the word "Board" after "Farm Credit Administration" first place it appears in the introductory paragraph; paragraph (s) is amended by adding the word "Board" after "Farm Credit Administration".

8. Section 611.1162(b) is amended by adding the word "Board" after "Farm Credit Administration"; and by adding new paragraphs (c) and (d) to read as follows:

611.1162 Preservation of equity.

* * * * *

(c) Notwithstanding paragraphs (a) and (b) of this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

(d) Nothing above shall affect the authority of an association in receivership to issue preferred stock in accordance with Title VI of the Act.

611.1165 [Removed and reserved]

9. Section 611.1165 removed and reserved.

611.1166, 611.1167 and 611.1168 [Redesignated as 611.1167 611.168 and 611.1169]

10. Sections 611.1166, 611.1167, and 611.1168 are redesignated as 611.1167, 611.1168, and 611.1169, and a new 611.1166 is added to read as follows:

611.1166 Uninsured accounts.

Upon placing an institution in liquidation, the receiver shall immediately notify every borrower who has an uninsured account (voluntary or involuntary) that the funds will be applied against the outstanding indebtedness of any loans of such borrower unless, within 15 days of such notice, the borrower directs the receiver to otherwise apply such funds in the manner provided for in existing loan documents.

11. Newly redesignated 611.1167(a)(4) is amended by adding the word "Board" after "Farm Credit Administration" and by adding a new paragraph (d) to read as follows:

611.1167 Priority of claims.

* * * * *

(d) Notwithstanding this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

12. Newly redesignated 611.1168(a) is amended by adding the word "Board" after "Farm Credit Administration"; and by revising paragraph (b) to read as follows:

611.1168 Inventory, examination, audit and reports to stockholders.

* * * * *

(b) The association in receivership shall be examined on an annual basis by the Farm Credit Administration. The association shall be audited by a certified public accountant approved by the Farm Credit Administration at such times as the Farm Credit Administration determines. The cost of such examination and audit, as determined by the Farm Credit Administration, shall be paid from the assets of the association in receivership.

* * * * *

611.1169 [Amended]

13. Newly redesignated 611.1169 is amended by removing the words "Chairman of the" in the first sentence; by adding the word "Board" after "Farm Credit Administration" the first and second place it appears; and by removing the words "pursuant to 617.7090 of this chapter" in the third sentence.

Subpart M -- Liquidation of Banks

14. Section 611.1170 is amended in paragraphs (a) and (b) by adding the word "Board" after "Farm Credit Administration"; and in paragraphs (a), (e), (f), and (g) by removing the word "Chairman" and adding in its place the word "Board" each place it appears.

15. Section 611. 1170 is amended by revising paragraph (h) to read as follows:

611.1170 Appointment of receiver.

* * * * *

(h) For purposes of this subpart the term "bank" will include all banks, service corporations chartered under Title IV of the Act, the Federal Agricultural Mortgage Corporation, the Federal Farm Credit Banks Funding Corporation, and the Farm Credit System Financial Assistance Corporation.

16. Section 611. 1172 is amended by adding "Board" after "Farm Credit Administration" in paragraph (b) and by adding new paragraphs (c) and (d) to read as follows:

611.1172 Preservation of equity.

* * * * *

(c) Notwithstanding paragraphs (a) and (b) of this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

(d) Nothing in this section shall affect the authority of a bank in receivership to issue preferred stock in accordance with Title VI of the Act.

17. Section 611. 1174 is amended by removing paragraph (c); by redesignating paragraphs (d), (e), and (f) as paragraphs (c), (d), and (e), respectively; newly redesignated paragraph (d) is amended by removing the references to "(d)" and adding in their place, "(c)"; by revising newly redesignated paragraph (c)(5); and by adding new paragraph (f) to read as follows:

611.1174 Creditors' claims and priority of claims.

* * * * *

(c) * * *

(5) All claims of holders of consolidated and Systemwide bonds and claims of the other System banks arising from their payments pursuant to section 4.4 of the Act.

* * * * *

(f) Notwithstanding this section, eligible borrower stock shall be retired in accordance with section 4.9A of that Act.

18. Section 611.1175 is amended by revising paragraph (b) to read as follows:

611.1175 Inventory, examination, audit, and reports to stockholders.

* * * * *

(b) The bank in receivership shall be examined on an annual basis by the Farm Credit Administration. The bank shall be audited by a certified public accountant approved by the Farm Credit Administration at such times as the Farm Credit Administration determines. The cost of such examination and audit, as determined by the Farm Credit Administration, shall be paid from the assets of the bank in receivership.

* * * * *

611.1176 [Amended]

19. Section 611.1176 is amended by removing the word "Chairman" and adding in its place, the word "Board" in the first sentence; by adding the word "Board" after "Farm Credit Administration" the second place it appears; and by removing the words "pursuant to 617.7090 of this chapter" in the third sentence.

Subpart N -- Conservators and Conservatorships of Banks and Associations

20. Section 611.1180 is amended in paragraph (a) by adding the word "Board" after "Farm Credit Administration"; and in paragraphs (d) and (e) by removing the word "Chairman" and adding in its place the word "Board"; and paragraph (f) is revised to read as follows:

611.1180 Appointment of a conservator.

* * * * *

(f) For purposes of this subpart "System institution" will mean all banks, associations, service corporations chartered under Title IV of the Act, the Federal Agricultural Mortgage Corporation, the Farm Credit Banks Funding Corporation, and the Farm Credit System Financial Assistance Corporation.

611.1181 [Amended]

21. Section 611.1181 is amended in paragraphs (b) and (c)(1) by adding the word "Board" after "Farm Credit Administration".

22. Section 611.1182 is amended in paragraph (a) by adding the word "Board" after "Farm Credit Administration" the first place it occurs and by revising paragraph (b) to read as follows:

611.1182 Inventory, examination, audit, and reports to stockholders.

* * * * *

(b) The institution in conservatorship shall be examined by the Farm Credit Administration on an annual basis. The institution shall also be audited by a certified public accountant approved by the Farm Credit Administration at such times as the Farm Credit Administration may determine. The cost of such examination and audit, as determined by the Farm Credit Administration, shall be paid from the assets of the institution in conservatorship unless otherwise ordered by the Farm Credit Administration.

* * * * *

Date: January 6, 1989.

David A. Hill,

Secretary, Farm Credit Administration Board.

[FR Doc. 89-778 Filed 1-11-89; 8:45 am]
BILLING CODE 6701-05-M