Title: PROPOSED RULE--Organization--12 CFR Part 611
Issue Date: 03/12/1990
Federal Register Cite: 55 FR 9138
FARM CREDIT ADMINISTRATION
12 CFR Part 611
55 FR 9138
DATE: Monday, March 12, 1990
ACTION: Proposed rule.
SUMMARY: The Farm Credit Administration (FCA) proposes to amend part 611 to address the organization of service corporations under § 4.25 to exercise authority granted under title VIII of the Farm Credit Act of 1971, as amended (Act), to act as certified agricultural mortgage marketing facilities (title VIII service corporations). The amendment would authorize all institutions of the Farm Credit System (System) except the Federal Agricultural Mortgage Corporation (Farmer Mac) to organize title VIII service corporations and would exempt such corporations from the requirement of existing regulations that the stock of service corporations be owned only by System banks. The amendment would also permit persons (individuals and legal entities) other than System institutions to own stock in such organizations provided 80 percent of all classes of equity is held by System institutions (other than Farmer Mac).
DATES: Written comments must be received on or before March 31, 1990.
ADDRESSES: 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:
John C. Moore, Deputy Chief, Financial Analysis and Standards Division, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090, (703) 883-4498, TDD (703) 883-4444
Dorothy J. Acosta, Senior Attorney, Office of General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090, (703) 883-4020; TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION: The Agricultural Credit Act of 1987 (1987 Act) established the Federal Agricultural Mortgage Corporation (Farmer Mac) to guarantee securities issued by agricultural mortgage marketing facilities that pool and securitize agricultural real estate and rural home loans under a new title VIII of the Farm Credit Act of 1971, as amended (Act). Section 8.5(e) of the Act authorizes Farm Credit institutions other than Farmer Mac, notwithstanding any other provision of the Act, to establish and operate as an affiliate an agricultural mortgage marketing facility (pooler) if it obtains certification from Farmer Mac. It is clear from the 1987 Act and its legislative history that System institutions are empowered to participate fully in the secondary market for agricultural real estate and rural home loans under title VIII. Consequently, § 8.5(e) of the Act is read by the FCA to amend inconsistent provisions of the Act, such as § 4.25 to the extent necessary to permit the chartering of such an entity with such powers as are necessary to conduct an effective pooling operation.
Section 4.25 of the Act authorizes the banks of the Farm Credit System to organize a corporation for the purpose of performing functions and services for or on behalf of the organizing banks that the banks may perform pursuant to the Act. Such a corporation, like the organizing banks, is designated a Federal instrumentality. Since § 8.5(e) authorizes all Farm Credit institutions other than Farmer Mac to establish a pooler affiliate, and since § 4.25 is the exclusive mechanism for chartering System affiliates, § 4.25 is considered to be amended by § 8.5(e) to the extent necessary to permit the chartering of a pooler affiliate by any institution empowered to do so by § 8.5(e), including institutions other than banks. Moreover, such a statutory amendment overrides any inconsistent FCA regulations.
Although the Act itself contains no restriction on who may own stock in a service corporation, FCA regulations governing the organization of service corporations (set forth in subpart I of part 611) restrict ownership in service corporations organized under § 4.25 to banks of the Farm Credit System. The FCA board proposes to add a new section to subpart I that would allow any Farm Credit institution(s) (other than Farmer Mac) to organize a pooler and to own stock in a System pooler. The proposed amendment would also permit minority ownership by persons other than System institutions provided that 80 percent of all classes of equity of the corporation is at all time held by Farm Credit institutions. The term "person" is defined in the proposed regulation as an individual or a legal entity organized under the laws of the United States or any State or territory thereof.
The FCA believes the ability to issue stock to non-System institutions is in keeping with the Congressional grant of authority to Farm Credit institutions to participate in the secondary market for agricultural loans as a pooler. Neither title VIII nor its legislative history suggests that the authority of Farm Credit institutions to participate as a pooler is granted subject to legislative restrictions to which other poolers would not be subject. The legislative history of the Agricultural Credit Technical Corrections Act of 1988 confirmed that purchases of non-System loans were within the contemplation of Congress in enacting title VIII. See 134 Cong. Rec. S10819 (daily ed. Aug. 3, 1988) (statement of Senator Lugar). The FCA believes it appropriate to allow System poolers the flexibility to offer stock ownership to persons other than System institutions as an added incentive for non-System institutions to participate with it as loan originators, in order to attract sufficient loan volume for a cost-effective pooling operation. Also, the ability to issue stock to non-System institutions would facilitate joint ventures for the purpose of sharing of specialized expertise and technical capacity with non-System institutions, as well as provide an additional source of capital.
Although the FCA believes that it is important to allow System poolers the flexibility to issue stock to non-System institutions, the Board believes that it is equally important to retain control of any service corporation organized under § 4.25 in System institutions. Since any pooler organized under § 4.25 is a System institution deriving its authorities from other System institutions, the FCA Board believes that it is important, at a minimum, to ensure that non-System institutions cannot block significant corporate actions requiring a 2/3 shareholder vote in which important interests of the System are at stake. The FCA believes that the control requirement should be high enough to take into account that not all System institutions will agree on all issues and still ensure that a single non-System shareholder owning more voting stock than any single System institution could not exercise its considerable influence to the detriment of the System as a whole. Accordingly, the proposed regulation would require that at least 80 percent of the equities, voting and nonvoting, of the corporation be held by Farm Credit institutions at all times.
List of Subjects in 12 CFR Part 611
Agriculture, Banks, Banking, Conflict of interest, Rural areas.
For the reasons stated in the preamble, part 611 of chapter VI, title 12 of the Code of Federal Regulations is proposed to be amended as follows:
PART 611 -- ORGANIZATION
1. The authority citation for part 611 is revised to read as follows:
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, 8.5(e); 12 U.S.C. 2011, 2021, 2071, 2096, 2121, 2142, 2183, 2203, 2221, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e); secs. 411 and 412 of Pub. L. 100-233.
Subpart I -- Service Corporations
2. Subpart I is amended by adding a new § 611.1137 to read as follows:
§ 611.1137 Title VIII service corporations
(a) Service corporations may be organized by any Farm Credit institution(s) other than the Federal Agricultural Mortgage Corporation for the purpose of exercising the authorities granted under title VIII of the Act to act as agricultural mortgage marketing facilities. The requirements of § § 611.1135 and 611.1136 apply as if such organizing institutions were banks, except for good cause, as determined by the Farm Credit Administration. Such service corporations may issue stock to Farm Credit institutions other than the Federal Agricultural Mortgage Corporation and to persons that are not Farm Credit System institutions, provided at least 80 percent of the voting stock is at all times held by Farm Credit institutions other than the Federal Agricultural Mortgage Corporation.
(b) For the purposes of this regulation, "person" means an individual or a legal entity organized under the laws of the United States or any State or territory thereof.
Dated: March 7, 1990.
Charles R. Row,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 90-5576 Filed 3-9-90; 8:45 am]
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