Title: PROPOSED RULE--Organization; Conservatorships and Receiverships--12 CFR Part 611
Issue Date: 10/31/1988
Agency: FCA
Federal Register Cite: 53 FR 43897
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FARM CREDIT ADMINISTRATION

12 CFR Part 611

Organization; Conservatorships and Receiverships


ACTION: Proposed rule.

SUMMARY: The Farm Credit Administration (FCA) Board proposes for public comment revisions to its regulations governing receiverships and conservatorships that relate to the sale and transfer of loans of an institution in receivership and the definition of insolvency. The FCA Board proposes to delete 611.1165, which provides direction to the receiver of an association in selling loans. The general authority of the receiver to sell assets of an association is already stated in existing 611.1161(1). This authority also applies to receivers of banks in liquidation pursuant to 611.1171, which incorporates 611.1161 by reference. Insolvency is currently defined in 611.1156(b)(1). Because the Agricultural Credit Act of 1987 (the 1987 Act) designates a class of stock as "eligible borrower stock," the FCA Board proposes to amend 611.1156(b)(1) to redefine insolvency as the point at which FCA has confirmed that the institution's permanent capital as defined in section 4.3A(a)(1) of the Farm Credit Act of 1971 (Act) has been exhausted or reasonable cause exists to believe that permanent capital is about to be exhausted. This change would also permit FCA to confirm insolvency through means other than examination.

DATE: Comments must be received by November 21, 1988.

ADDRESSES: Submit any comments in writing (in triplicate) to Anne E. Dewey, General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 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:

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

SUPPLEMENTARY INFORMATION: On May 12, 1988 the FCA published for public comment proposed amendments to 12 CFR Part 611, Subparts K, L, M, and N (53 FR 16934). In response, the Farm Credit Corporation of America (FCCA) submitted comments stating that while current 611.1165 addresses the sale and transfer of loans of an association in receivership, no corresponding provision exists in Subpart M, dealing with liquidation of banks. The FCCA therefore requested FCA to issue proposed regulations addressing the sale of loans of a bank in receivership to expressly authorize the sale of these loans to non-Farm Credit System lenders. This comment was concurred with by the Farm Credit Bank of Baltimore.

In addressing this comment, the FCA Board proposes to amend 12 CFR Part 611, Subpart L by deleting 611.1165, Sale and Transfer of Loans to clarify the authority of a receiver to sell assets. The general authority of the receiver to sell assets of an association is already stated in existing 611.1161(1). This authority applies to receivers of banks in liquidation pursuant to 611.1171, which incorporates 611.1161 by reference. Receivers for both associations and banks in receivership are therefore already empowered to sell assets to any willing buyer. Section 611.1165 provides direction to the receiver of an association in selling loans, which could be a barrier to the receiver in obtaining the highest return on the sale of assets for the benefit of creditors and stockholders.

Additionally, section 101 of the 1987 Act added section 4.9A to the Act. New section 4.9A designates a class of stock as eligible borrower stock for which holders are guaranteed par value upon its retirement, even when the book value is less than par. Conversely, section 4.3A(a)(1) of the Act, added by section 301 of the 1987 Act, defines permanent capital as all stock with the exception of eligible borrower stock and stock that may be retired upon repayment of the loan or at the option or request of the holder, thereby providing that permanent stock is at risk. Therefore, consistent with the intent of Congress to have permanent capital at risk, the FCA Board proposes to amend 611.1156(b)(1) to redefine insolvency as the point at which FCA has confirmed that the institution's permanent capital as defined in section 4.3A(a)(1) has been exhausted or reasonable cause exists to believe that permanent capital is about to be exhausted. This definition is intended to clearly establish that permanent stock of institutions is at risk, while retaining the flexibility to appoint a receiver before permanent capital is absolutely exhausted. This proposed amendment would also permit the FCA to confirm insolvency through means other than examination.

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 proposed to be amended to read 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; 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

2. Section 611.1156 is amended by revising paragraph (b)(1) as follows:

611.1156 Grounds for Appointment of Conservators and Receivers.

* * * * *

(b) * * *

(1) The institution is insolvent. "Insolvency" is defined as the point at which the FCA has confirmed that permanent capital as defined in section 4.3A(a)(1) of the Act has been exhausted, or reasonable cause exists to believe that permanent capital is about to be exhausted.

* * * * *

Subpart L -- Liquidation of Associations

611.1165 [Removed and Reserved.]

3. Section 611.1165 is removed and reserved.

Date: October 26, 1988.

David A. Hill,

Secretary, Farm Credit Administration Board.

[FR Doc. 88-25126 Filed 10-28-88; 8:45 am]
BILLING CODE 6705-01-M