Title: FINAL RULE--Assessment and Apportionment of Administrative Expenses; General Provisions--12 CFR Parts 607 and 618
Issue Date: 02/23/1993
Agency: FCA
Federal Register Cite: 58 FR 10939
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 607 and 618

RIN 3052-AB19

Assessment and Apportionment of Administrative Expenses; General Provisions


ACTION: Final rule.

[*10939]

SUMMARY: The FCA, by the FCA Board, adopts new regulations at 12 CFR part 607 that prescribe the method by which the assessments that are required to pay the FCA's annual administrative expenses are apportioned among and paid by Farm Credit System (System) institutions and other entities that are required to pay such expenses. The regulations supersede existing assessment regulations at 12 CFR 618.8230, which are rescinded.

These regulations are based in large part on the consensus recommendations of the FCA Assessment Regulations Negotiated Rulemaking Committee (Committee), which was established by the FCA to help develop the assessment regulations.

EFFECTIVE DATE: The regulations shall become effective upon the expiration of 30 days after 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: Robert S. Child, Policy Analyst, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4189, TDD (703) 883-4444, or William L. Larsen, Senior Attorney, Regulatory Operations Division, Office of General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Assessment Regulations

The operating expenses of the FCA in administering the Farm Credit Act of 1971, 12 U.S.C. 2001-2279bb-6 (Act) are paid by the institutions it regulates and examines. Section 5.15 of the Act establishes the process by which System institutions are assessed for their share of FCA administrative expenses. Prior to the beginning of every fiscal year, the FCA must determine the cost of administering the Act for the succeeding year as well as the amount of assessments needed to pay such expenses and maintain a necessary reserve. On the basis of the assessment determination, the FCA must apportion the assessment among System institutions in a manner "determined to be equitable" by the FCA. 12 U.S.C. 2250(a)(2)(A). The FCA then assesses and collects the allocations on a periodic basis during the fiscal year. Regulations implementing section 5.15 of the Act currently are found in § 618.8230 of this chapter.

The current FCA assessment process was developed before Congress enacted the Agricultural Credit Act of 1987. Public Law 100-233, (1987 Act). The structural and regulatory changes brought about by the 1987 Act led the FCA to evaluate its current assessment process to determine whether it remained valid and fair. On the basis of this evaluation, the FCA concluded that the current assessment formula needed to be revised. In April, 1991, the FCA published a Notice of Proposed Rulemaking that proposed to establish an asset-based formula for assessments of System institutions. 56 FR 13424, April 2, 1991. The comments received indicated a concern that the proposed asset-based formula would create inequities due to the method by which assets of banks and associations would be counted for assessment purposes. Further, some commentors strongly urged that alternative assessment procedures be explored before adoption of an asset-based formula.

B. The Negotiated Rulemaking

After considering various alternatives for public participation in a further exploration of assessment allocation procedures, the FCA concluded that negotiated rulemaking might provide a creative means to achieve an equitable assessment formula. In accordance with the Negotiated Rulemaking Act of 1990, 5 U.S.C. 581-590, the FCA published notice of its intent to establish a negotiated rulemaking committee to develop and negotiate proposed amendments to its assessment regulations. 57 FR 19405, May 6, 1992. To meet the statutory and practical requirements of negotiated rulemaking, the FCA attempted to select a group of System institutions that would be as balanced and representative as possible. The FCA issued an advisory committee charter to the Committee on June 5, 1992.

The Committee met four times during June and July, 1992. Committee procedures complied with the Negotiated Rulemaking Act, supra, and the Federal Advisory Committee Act, 5 U.S.C. app. 2. All meetings were open to the public and meeting minutes were recorded. At the conclusion of negotiations, the Committee submitted a report to the FCA containing the consensus recommendations and views of the Committee regarding proposed amendments to the assessment regulations.

C. The Proposed Assessment Regulations

The FCA found that the consensus recommendations of the Committee regarding proposed assessment regulations were consistent with the FCA's legal obligations under the Act. On October 15, 1992, as sanctioned by the Negotiated Rulemaking Act, supra, the FCA issued proposed assessment regulations based in large part on the consensus recommendations of the Committee. 57 FR 47288.

The FCA received three comment letters on its proposed assessment regulations. Comments came from the Farm Credit Council (FCC), the Farm Credit Bank of Texas (Texas FCB), and the Federal Agricultural Mortgage Corporation (FAMC).

In response to public comment and based on its further consideration of the assessment process, the FCA has adopted several minor changes in the rules as proposed. Discussion of these changes and of pertinent public comment follows. [*10940]

II. Analysis of Changes and Comments by Section

A. Section 607.3 Assessment of Banks, Associations, and Designated Other System Entities

Section 607.3 contains the assessment formula developed by consensus of the Committee. In its comment letter, the FCC noted its approval of the negotiated rulemaking process and its agreement with the basic assessment formula proposal, describing it as "an equitable solution to a complicated and potentially controversial matter." The FCC suggested three minor changes to proposed § 607.3.

With regard to § 607.3(a), the FCC commented that provision should be made for situations when an assessment may not be needed to maintain a necessary reserve pursuant to section 5.15 of the Act, or when the FCA may determine to reduce its necessary reserve. In response to this concern, the FCA is amending §§ 607.3(a) and 607.4(a)(1) to clarify that the FCA will only assess such an amount as may be required to maintain the reserve it determines to be "necessary" under section 5.15(a)(1)(B) of the Act. Adjustments in assessments due to changes in the necessary reserve are provided for in §§ 607.3(d), 607.4(a)(2), and 607.10.

Proposed § 607.3(b)(2)(iii) provided that where banks, associations, and designated other System entities are formed through merger or consolidation and the combined entity has not been examined prior to its initial assessment, such institution shall be assigned the "highest" composite CAMEL (capital, asset quality, management, earnings, and liquidity) rating received by any of the predecessor merged or consolidated institutions in their most recent examinations prior to the merger or consolidation. The FCC pointed out that use of the term "highest" could lead to confusion, since the best CAMEL ratings are actually lower numbers. To cure this ambiguity, the FCA has substituted the term "best."

The FCC also suggested that the reference to the $20,000 minimum assessment in § 607.3(b)(3) be changed to minimum "annual" assessment to avoid confusion regarding the frequency of the minimum assessment. The FCA finds such a change unnecessary because the term "assessment" is defined in § 607.2(a) as the "annual amount to be paid by each System institution to the FCA in accordance with section 5.15 of the Act." (emphasis added.)

The Texas FCB also commented on the $20,000 minimum assessment required by § 607.3(b)(3). The Texas FCB urged the FCA to reduce the minimum assessment to avoid an unfair impact on small institutions. Alternatively, the Texas FCB suggested that § 607.5(b) be revised to permit the institutions in each Farm Credit district to choose to be assessed by district rather than individually and permit the district's Farm Credit bank to reallocate the assessment to its affiliated associations.

The FCA notes that a representative of the Texas FCB was a member of the Committee, which unanimously adopted the $20,000 minimum only after thorough consideration of the concept of a minimum assessment and extensive debate on both higher and lower minimums. Moreover, the Committee rejected the concept of assessing System institutions by district rather than individually. The FCA agrees with the consensus recommendation of the Committee that all banks, associations, and designated other System entities should pay some minimum assessment, regardless of risk-adjusted asset base, to reflect a share of FCA regulatory costs and as a necessary cost of doing business as a federally chartered System financial institution. Consequently, § 607.3(b)(3) is adopted as proposed. The FCA will monitor the impact of the $20,000 minimum assessment and make adjustments in the future if necessary.

B. Section 607.4(b) Assessment of the Federal Agricultural Mortgage Corporation

As noted in the proposal, the Committee did not attempt to develop the method of assessment for FAMC. Under section 5.15(a) of the Act, the assessment of FAMC is separate from the rest of the System. Thus FAMC's assessment is separately covered in § 607.4(b). This section provides that FAMC is to be assessed for the estimated cost of the FCA's regulation, supervision, and examination of FAMC. FAMC is not subject to an assessment for the FCA's necessary reserve under section 5.15(a)(1)(B) of the Act. However, the FCA will include in its estimate of regulatory expenses sufficient funds to provide for anticipated increases in activity and significant developments in order to cover its expenses for the examination and supervision of FAMC during a fiscal year.

The FCA received extensive comments from FAMC regarding this section of the proposed assessment regulations. FAMC's comments may be summarized as follows:

(1) FAMC's participation in the development of the proposed regulation was inequitably and unreasonably limited.

(2) The FCA's authority to assess FAMC is limited to costs incurred by the agency for regulatory activities conducted under section 8.11 of the Act.

(3) The assessment provision for FAMC is vague and arbitrarily expansive.

(4) FAMC's assessment provision should be clear, specific, and conformed to statutory limitations.

The FCA does not agree that FAMC's participation in this rulemaking has been inequitably and unreasonably limited. FAMC has exercised its right under the Administrative Procedure Act, 5 U.S.C. 551, 553, to comment on the assessment regulations as initially proposed in April, 1991, and as proposed in October, 1992, subsequent to the negotiated rulemaking. Second, the Negotiated Rulemaking Act grants the FCA discretion in matters of committee selection for negotiated rulemaking. 5 U.S.C. 581, 584-585, 590. The principal focus of the Committee was on development of an equitable assessment formula for banks and associations. The FCA denied FAMC's petition to participate on the Committee because FAMC did not represent an interest that would be "significantly affected" by the formula used to apportion assessments among banks and associations. 5 U.S.C. 585. FAMC's participation on the Committee might have been appropriate had the Committee considered FAMC assessment methodology. However, as emphasized in the propose
d rules, the Committee did not deliberate or make recommendations concerning FAMC's assessment. See 57 FR 47288, 47290-91, supra.

FAMC asserts in its second general comment that FCA assessment authority over FAMC is strictly limited by section 8.11(d) of the Act, which authorizes the FCA to assess FAMC for its costs in carrying out its statutory duty to regulate FAMC, including "the cost of any examination." 12 U.S.C. 2279aa-11(d). The FCA sees nothing in § 607.4(b) that is inconsistent with the responsibilities and authorities set forth in sections 5.15 and 8.11 of the Act. To the contrary, the FCA views the section 8.11 language not as a limitation, but rather as a statutory requirement that the FCA assess FAMC for any regulatory activities attributable to FAMC. Furthermore, the FCA sees no inconsistency because it understands "regulatory activities" in the broad sense of all of its oversight responsibilities for FAMC. [*10941]

Read with section 5.15 of the Act, section 8.11 requires the FCA to assess FAMC for all costs associated with examining, supervising, and regulating FAMC. These same statutory terms are adopted in § 607.4(b). Regulatory activities required by sections of the Act other than section 8.11, such as the requirement of section 8.32 that the FCA develop a risk-based capital test for FAMC, are encompassed by the FCA's section 8.11 authority to provide for the general supervision of the safe and sound performance of FAMC, as well as the FCA's general rulemaking power in section 8.11(a)(1)(B)(ii).

FAMC's third comment asserts that § 607.4(b) is vague and that the FCA is arbitrarily expanding the legal limits of its assessment authority over FAMC. Similarly, in its final general comment, FAMC requests greater specificity in § 607.4(b), as well as definitions of "supervision," "examination," and other terms as they relate to FAMC.

As discussed above, the FCA has used terms employed in the Act for the regulatory language of § 607.4(b), with the intent of assessing FAMC for the estimated expenses of all FCA activities related to FAMC that are required by the Act. The FCA sees no need to define, for purposes of § 607.4(b), such terms as examination and supervision. The FCA will interpret the terms of § 607.4(b) consistently with Congressional intent to ensure that FAMC is held responsible only for FCA administrative expenses fairly attributable to it and, correspondingly, that System institutions are held responsible only for FCA administrative expenses fairly attributable to them. See 12 U.S.C. 2279aa-1(a)(3).

Some of FAMC's comments requesting more specificity in the assessment regulations are more appropriately directed toward the FCA's budget/appropriations process, which, of course, is subject to the annual Congressional limitation on FCA administrative expenses. To the extent that FAMC's concerns relate to the reconciliation of the annual assessment, which, pursuant to section 5.15 of the Act, is an estimated amount based on the FCA's reasonable expectations of the cost of regulating FAMC, and the actual cost of regulation, the FCA notes that FAMC will receive an annual report of assessments and expenses pursuant to § 607.11. The report of assessments and expenses is designed to reconcile annual assessments with the FCA's administrative expenses under the Act.

The FCC also commented on the FAMC assessment provision, noting its concern that FAMC be assessed for "indirect expenses," which are defined in § 607.2(g) as expenses of the FCA that are not attributable to the performance of examinations. The FCA fully intends that FAMC will be assessed for the cost of all FCA activities connected to the regulation of FAMC as authorized by section 8.11 of the Act, including not only examination, but other authorized activities such as supervision, enforcement activities, and prescription of rules and regulations, as well as for appropriate administrative support and overhead expenses. These authorized regulatory activities and expenses fall into the category of "indirect expenses," as defined in § 607.2(g). For clarification, the FCA has added a reference to such administrative and overhead expenses in § 607.4(b).

C. Section 607.7 Late-payment Charges on Assessments

The FCC commented that the reference in proposed § 607.7(a) to "institution" should be modified by the word "System" to be consistent with the definition in § 607.2(k). The FCA adopts this suggestion.

D. Section 607.8 Reimbursements for Services to Non-System Entities

Pursuant to 12 U.S.C. 3025, the FCA is authorized and directed to examine and audit the National Consumer Cooperative Bank, doing business as the National Cooperative Bank (NCB), and receive reimbursement from the NCB for such examinations and audits. Due to the close structural relationship between the NCB and the NCB Development Corporation (NCBDC) provided for in 12 U.S.C. 3051, the FCA also examines the NCBDC as part of its examination of the NCB. The FCA currently bills the NCBDC separately for the expenses associated with its examination by the FCA.

Section 607.2 defines the NCB and the NCBDC as "non-System entities." Proposed § 607.8 provided that reimbursable billings for FCA examination of non-System entities would be based on direct expenses incurred plus a portion of indirect expenses allocated on the basis of direct expenses incurred as a percentage of total direct expenses of the FCA. Upon further consideration of the reimbursement authorization provided in 12 U.S.C. 3051, and to ensure that non-System entities are not assessed for expenses unrelated to FCA activities pertaining to such entities, the FCA has modified § 607.8 to provide for reimbursement of direct expenses plus an amount for those FCA indirect expenses reasonably related to FCA services rendered to the non-System entity. The FCA does not anticipate that this change will have any substantial effect on the assessments of either non-System entities or System institutions.

The FCC sought affirmation that non-System entities are responsible for indirect FCA expenses attributable to them even if there are no direct FCA expenses with respect to such entities. Currently, the FCA examines the NCB and the NCBDC on an annual basis. As a practical matter, therefore, the FCA does not anticipate that the situation raised in the FCC's comment letter is likely to occur.

E. Section 607.10 Adjustments for Overpayment or Underpayment of Assessments

Section 607.10 provides that credits for overpayment and charges for underpayment of assessments shall be applied to the next applicable assessment payment due date during the current or subsequent fiscal year. The FCC urged the FCA to clarify proposed § 607.10 to provide that adjustments would be made based on actual expenditures of the agency. In response to this concern, the FCA is amending § 607.10 to state that credits for overpayments or charges for underpayments shall be based on FCA administrative operating expenses incurred in the applicable fiscal year and on funds required to be maintained pursuant to section 5.15 of the Act.

F. Section 607.11 Report of Assessments and Expenses

Proposed § 607.11 would have required the FCA, by January 15 of each calendar year, to provide each assessed System institution with a statement of assessments and expenses for the preceding fiscal year showing total assessments and other income received as applied to expenses incurred by major budget category and amounts set aside for necessary reserves. The FCA noted in its proposal that this section is intended to enhance the information currently available to System institutions pursuant to § 618.8230 of this chapter, which is being replaced by new part 607.

The FCC expressed a concern that the use of the term "statement" in this section implied that the FCA would provide only a simple mathematical statement of assessments and expenses without narrative discussion and explanation. The intent of the FCA in this section, as noted above, is to provide System institutions with useful information on assessments and expenses. To this end, the FCA expects to work with System institutions to develop an effective format for annual assessments and expenses information. [*10942] In addition, to further reinforce consistency with former § 618.8230(b) of this chapter, the FCA has changed the assessments and expenses information reference in § 607.11 from "statement" to "report."

List of Subjects

12 CFR Part 607

Accounting, Agriculture, Archives and records, Banks, Banking, Claims, Credit, Finance, Government securities.

12 CFR Part 618

Agriculture, Archives and records, Banks, Banking, Insurance, Reporting and recordkeeping requirements, Rural areas, Technical assistance.

For the reasons stated in the preamble, chapter VI, title 12 of the Code of Federal Regulations is amended by adding part 607 to subchapter A and amending part 618 as follows:

PART 607 -- ASSESSMENT AND APPORTIONMENT OF ADMINISTRATIVE EXPENSES

Sec.

607.1 Purpose and scope.

607.2 Definitions.

607.3 Assessment of banks, associations, and designated other System entities.

607.4 Assessment of other System entities.

607.5 Notice of assessment.

607.6 Payment of assessment.

607.7 Late-payment charges on assessments.

607.8 Reimbursements for services to non-System entities.

607.9 Reimbursable billings.

607.10 Adjustments for overpayment or underpayment of assessments.

607.11 Report of assessments and expenses.

Authority: Secs. 5.15, 5.17 of the Farm Credit Act; 12 U.S.C. 2250, 2252, 3025.

§ 607.1 Purpose and scope.

The regulations in part 607 implement the provisions of section 5.15 of the Farm Credit Act of 1971, 12 U.S.C. 2001 et seq. (Act) relating to Farm Credit Administration (FCA) assessments. The regulations prescribe the procedures for the equitable apportionment of FCA annual administrative expenses and necessary reserves among Farm Credit System (System) institutions. Pursuant to section 5.15(a) of the Act, the regulations also provide for the separate assessment of the FCA's costs of supervising and examining the Federal Agricultural Mortgage Corporation (FAMC). The regulations further provide for the reimbursement of expenses incurred in performing statutorily required examinations of non-System entities.

§ 607.2 Definitions.

For the purpose of this part, the following definitions shall apply:

(a) Assessment means the annual amount to be paid by each System institution to the Farm Credit Administration in accordance with section 5.15 of the Act.

(b) Average risk-adjusted asset base means the average of the risk-adjusted asset base (as determined in accordance with § 615.5210(e) of this chapter) of banks, associations, and designated other System entities, calculated as follows:

(1) For banks, associations, and designated other System entities with four quarters of risk-adjusted assets as of June 30 of each year, the sum of the average daily risk-adjusted assets as of the last day of the quarter as reported on each quarterly Call Report Schedule RC-G to the FCA for the most recent four quarters immediately preceding each September 15, divided by four;

(2) Except as provided in paragraphs (b)(3) and (b)(4) of this section, for banks, associations, and designated other System entities with less than four quarters of risk-adjusted assets as of June 30 of each year, the sum of the average daily risk-adjusted assets as of the last day of the quarter reported on each quarterly Call Report Schedule RC-G to the FCA for the quarters in which it was in existence immediately preceding September 15, divided by the number of quarters for which the Call Report Schedule RC-G was received;

(3) For banks, associations, and designated other System entities that were formed through mergers, consolidations, or transfers of direct lending authority, and have less than four quarters of risk-adjusted assets as of June 30, the sum of the average daily risk-adjusted assets as of the last day of the quarter for the most recent four quarters immediately preceding September 15 as reported on each quarterly Call Report Schedule RC-G filed by the newly chartered institution and the institutions that were merged or consolidated or that received direct lending authority, divided by four;

(4) For banks, associations, and designated other System entities chartered during the period July 1 through September 30 of each year that were not formed by the merger or consolidation of existing System institutions or the transfer of direct lending authority from another System institution, the total of the average daily risk-adjusted assets as of the last day of the quarter as reported on Call Report Schedule RC-G for the quarter ending September 30.

(c) Composite CAMEL rating means the composite numerical assessment of the financial condition of an institution assigned to the institution by the FCA based on its most recent examination of the institution. "CAMEL" is an acronym for capital, asset quality, management, earnings, and liquidity. The CAMEL factors are generally considered to be important indicators of an institution's financial health. Institutions are rated on each of the factors during an examination. CAMEL ratings range from 1-5, with a lower number indicating better financial condition than a higher number.

(d) Delinquent amount means an amount owed to the FCA that has not been paid by the date specified in the FCA's Notice of Assessment or billing.

(e) Designated other System entities means other System entities designated by the FCA in § 607.3(c) to be assessed on the same basis as banks and associations under § 607.3.

(f) Direct expenses means the expenses of the FCA attributable to the performance of examinations.

(g) Indirect expenses means all FCA expenses that are not attributable to the performance of examinations.

(h) Non-System entities means the National Consumer Cooperative Bank, the National Cooperative Bank Development Corporation, and any other entity that is required to be examined, supervised, or otherwise regulated by the FCA that is not a System institution.

(i) Notice of Assessment means a written notice to each System institution showing the total amount assessed and owing, the fiscal year covered by the assessment, the amounts of installment payments, and the due dates for such payments. For banks, associations, and designated other System entities, the Notice of Assessment shall also include an individualized assessment table showing the assessment under § 607.3(b)(2), where applicable.

(j) Other System entities means any service corporation chartered under section 4.25 of the Act, the Farm Credit System Financial Assistance Corporation, FAMC, the Federal Farm Credit Banks Funding Corporation, the Farm Credit Finance Corporation of Puerto Rico, and any other entity statutorily designated as a System institution that is not a bank or association.

(k) System institutions means banks, associations, and other System entities. [*10943]

§ 607.3 Assessment of banks, associations, and designated other System entities.

(a) Banks, associations, and other System entities designated in paragraph (c) of this section will be assessed annually pursuant to this section for funds to cover a portion of the FCA's administrative expenses and for such funds as may be required to maintain a necessary reserve. The total amount of the annual assessment of banks, associations, and designated other System entities shall be based on the FCA budget for each fiscal year plus such amount as may be required to maintain a necessary reserve, excluding amounts to be assessed against other System entities and reimbursements received from non-System entities.

(b) The assessment shall be apportioned among the banks, associations, and designated other System entities as follows:

(1) Thirty (30) percent of the assessment under this section shall be apportioned to each bank, association, and designated other System entity on the basis of each institution's pro rata share of the total average risk-adjusted asset base.

(2) Seventy (70) percent of the assessment under this section shall be apportioned to each bank, association, and designated other System entity based upon the amounts of the institution's average risk-adjusted assets that fall within the graduated risk-adjusted asset tiers contained in the following table. An institution's total assessment under this paragraph is the sum of the amounts assessed for risk-adjusted assets falling into each applicable tier, subject to adjustment for its CAMEL rating as required in paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The same assessment rate (designated as X 1 or a declining percentage of X 1 in the following table) will be applied to each dollar value of risk-adjusted assets falling within each tier, increased where applicable, by the amounts prescribed in paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The actual assessment rate under this paragraph shall be determined annually based on relative average risk-adjusted asset bases, the CAMEL ratings of individual institutions, and the FCA budget as adjusted pursuant to paragraph (a) of this section, but the relationship between the rates applied to each tier shall remain constant as set forth in the following table.
Average risk-adjusted asset size range (in millions)
Assessment rate
Over
To
$ 0 .............................................................
25 .............................................................
50 .............................................................
100 .............................................................
500 .............................................................
1,000 .............................................................
7,000 .............................................................
10,000 .............................................................
$25
50
100
500
1,000
7,000
10,000
...................................................................
X 1
.85X 1
.75X 1
.60X 1
.50X 1
.35X1
.20X 1
.10X 1

Example: XYZ association has a CAMEL rating of 2 and average risk-adjusted assets of $500.4 million. The value of X 1 has been determined to be .000917, based on an FCA budget of $40.29 million.

X 1 =.000917 therefore $25,000,000 X .0917% = $22,925

.85X 1 =.000780 therefore $25,000,000 X .0780% = 19,500

.75X 1 =.000688 therefore $50,000,000 X .0688% = 34,400

.60X 1 =.000550 therefore $400,000,000 X .0550% = 220,000

.50X 1 =.000458 therefore $400,000 X .0458% = 183

Total Assessment under § 607.3(b)(2) = 297,008

(i) If the FCA assigns a bank, association, or designated other System entity a composite CAMEL rating of 3 following its most recent examination of the institution prior to the date of assessment, the assessment provided for in paragraph (b)(2) of this section shall be increased by 20 percent.

(ii) If the FCA assigns a bank, association, or designated other System entity a composite CAMEL rating of 4 or 5 following its most recent examination of the institution prior to the date of assessment, the assessment provided for in paragraph (b)(2) of this section shall be increased by 40 percent.

(iii) Banks, associations, and designated other System entities that were formed through mergers or consolidations and have not been examined before their initial assessment under this section shall be deemed to have a composite CAMEL rating equivalent to the best composite CAMEL rating assigned to the merged or consolidated institutions in the FCA's most recent examination of the individual institutions prior to the date of merger or consolidation. Newly chartered institutions not formed through mergers or consolidations that have not been examined before their initial assessment under this section shall be deemed to have a composite CAMEL rating of 2.

(3) Each bank, association, and designated other System entity shall pay a minimum assessment of $20,000 regardless of the result of the application of the assessment formula established by paragraphs (b)(1) and (b)(2) of this section. If such a minimum assessment is apportioned to an institution, that institution's average risk-adjusted asset base shall be deducted from the total average risk-adjusted asset base, and $20,000 shall be deducted from the total assessment amount for purposes of determining the assessments of banks, associations, and designated other System entities paying more than the $20,000 minimum assessment.

(c) Other System entities designated to be assessed in accordance with this section are:

The Farm Credit Services Leasing Corporation.

(d) Assessments may be adjusted periodically to reflect:

(1) Changes in the FCA budget and necessary reserve; and

(2) Any overpayment or underpayment by a bank, association, or designated other System entity in the prior fiscal year.

§ 607.4 Assessment of other System entities.

(a)(1) Unless otherwise designated to be assessed under § 607.3, and with the exception of FAMC as provided in paragraph (b) of this section, other System entities will be assessed for estimated direct expenses plus an allocated portion of FCA indirect expenses and such amount as may be required to maintain a necessary reserve. The estimate for direct expenses shall take into account the direct expenses incurred in the most recent examination of the entity preceding each September 15 and expected increases or decreases in examination work for the next fiscal year. A proportional amount of FCA indirect expenses will be allocated to each entity based on the estimated direct expenses related to the particular entity as a percentage of the total budgeted direct expenses of the agency (excluding direct expenses under paragraph (b) of this section) for the fiscal year covered by the assessment.

(2) Assessments of other System entities under paragraph (a)(1) of this section may be adjusted periodically to reflect:

(i) Changes in the FCA budget and necessary reserve; and

(ii) Any overpayment or underpayment by such other System entity in the prior fiscal year.

(b) Assessment of Federal Agricultural Mortgage Corporation. The FCA shall assess FAMC for the estimated cost of FCA's regulation, supervision, and examination of FAMC, including [*10944] reasonably related administrative and overhead expenses. FAMC's assessment may be adjusted periodically to reflect changes in the FCA budget and to reconcile differences between FAMC's assessment and FCA's actual expenditures for regulation of FAMC in the prior fiscal year.

§ 607.5 Notice of assessment.

(a) Except as provided in paragraph (b) of this section, prior to September 15 of each year, the FCA shall determine the amount of assessment to be collected from each System institution for the next fiscal year under §§ 607.3 and 607.4 and shall provide each System institution with a Notice of Assessment. The total amount assessed each System institution in the Notice of Assessment shall be an obligation of each institution on October 1 of each fiscal year. The total amount assessed each System institution shall be payable not less often than quarterly in equal installments during each fiscal year, subject to adjustment pursuant to §§ 607.3(d), 607.4(a)(2), 607.4(b), and 607.10.

(b) For banks, associations and designated other System entities chartered during the period July 1 through September 30 of each year, the FCA shall, prior to December 15, determine the amount of assessment to be collected from each such institution for the remainder of the fiscal year and provide the institution with a Notice of Assessment. The total amount of the assessment becomes an obligation of the institution on January 1 and shall be payable in equal installments, subject to adjustment pursuant to §§ 607.3(d) and 607.10, not less often than quarterly for the remainder of the fiscal year. The first installment shall be due on January 1. This paragraph shall not apply to banks, associations, and designated other System entities formed by merger, consolidation, or transfer of direct lending authority.

(c) In the event of the proposed cancellation of the charter of a System institution, the unpaid installments of the total amount of the institution's assessment shall be provided for prior to the cancellation of the charter.

§ 607.6 Payment of assessment.

(a) System institutions shall pay the amounts due as scheduled in the FCA Notice of Assessment. Payment shall be made by electronic funds transfer (EFT) for credit to the FCA's account in the Department of the Treasury, by check to the FCA for deposit, or by such other means as the FCA may authorize.

(b) Payments made by EFT that are not received by the close of business on the due date shall be considered delinquent in accordance with § 607.7.

(c) Payments made by check that are not received by the FCA before the close of business on the third workday preceding the due date shall be considered delinquent in accordance with § 607.7.

§ 607.7 Late-payment charges on assessments.

(a) If any portion of a scheduled installment of a System institution's total assessment or the reimbursement billed to a non-System entity is not paid by the due date, the overdue amount shall be considered delinquent.

(b) Delinquent amounts shall be charged late-payment interest at the United States Treasury Department's current value of funds rate published in the Federal Register. Late payment interest shall be expressed as an annual rate of interest and shall accrue on a daily basis starting on the due date of the delinquent amount and continuing through the date payment is received by the FCA.

(c) The FCA shall waive the collection of interest on the delinquent amounts if such amounts are paid within 30 days of the date interest begins to accrue. The FCA may waive interest due on delinquent amounts upon finding no fault with the performance of the remitter.

(d) The FCA shall charge an amount necessary to cover the administrative costs incurred as a result of collection of any delinquent amount.

(e) The FCA shall charge a penalty of 6 percent per annum on any portion of a delinquent amount that is more than 90 days past due. Such penalty shall accrue from the date the amount became delinquent.

§ 607.8 Reimbursements for services to non-System entities.

Non-System entities shall be assessed for direct expenses plus an amount for FCA indirect expenses reasonably related to the services rendered to the non-System entity. Such related indirect expenses shall be calculated as a percentage of the FCA's overall indirect expenses based on the extent of FCA activities with respect to the non-System entity during the period since the entity's most recent assessment.

§ 607.9 Reimbursable billings.

The FCA shall bill the amounts due for services to non-System entities each year subsequent to the issuance of their respective Reports of Examination. Amounts billed are due in full within 30 days from the date billed. If the billed amount or any portion thereof remains unpaid at close of business on the due date, such amount or portion shall be considered delinquent in accordance with § 607.7.

§ 607.10 Adjustments for overpayment or underpayment of assessments.

Where adjustments for overpayment or underpayment of assessments are made pursuant to §§ 607.3(d), 607.4(a)(2), and 607.4(b), credits for overpayments or charges for underpayments shall be based on FCA administrative operating expenses incurred in the applicable fiscal year and on funds required to be maintained pursuant to section 5.15 of the Act. Such credits or charges shall be applied to the next applicable assessment payment due during the current or subsequent fiscal year. Where such adjustments are made, the FCA shall provide the institution with a statement of adjustment at least 15 days prior to the date when the institution's next assessment payment is due. Adjustments in assessments shall be made in principal amount only. Overdue amounts under § 607.7 are not underpayments for assessment adjustment purposes.

§ 607.11 Report of assessments and expenses.

By January 15 of each calendar year, the FCA shall provide each assessed System institution with a report of assessments and expenses for the preceding fiscal year showing total assessments and other income received as applied to expenses incurred by major budget category and amounts set aside for a necessary reserve.

PART 618 -- GENERAL PROVISIONS

1. The authority citation for part 618 is revised to read as follows:

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7, 4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act; 12 U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183, 2200, 2211, 2218, 2243, 2244, 2252.

Subpart F -- Miscellaneous Provisions

§ 618.8230 [Removed and Reserved]

2. Subpart F is amended by removing and reserving § 618.8230.

Dated: February 17, 1993.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.
[FR Doc. 93-4165 Filed 2-22-93; 8:45 am]
BILLING CODE 6705-01-P