Title: PROPOSED RULE--Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations--12 CFR Part 615
Issue Date: 06/23/1993
Agency: FCA
Federal Register Cite: 58 FR 34004
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Part 615

[RIN 3052-AB44]

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations


ACTION: Proposed rule.

[*34004]

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board (Board), proposes for public comment amendments to part 615 relating to the components of permanent capital for Farm Credit System (Farm Credit or System) banks and associations. These proposed regulations implement amendments to the Farm Credit Act of 1971 (1971 Act), made by the Farm Credit Banks and Associations Safety and Soundness Act of 1992 (1992 Act). The effect of the proposed regulations is to establish requirements for the agreement between a Farm Credit Bank (FCB) and its related direct lender associations specifying where the earnings held by the FCB and allocated to associations may be counted as permanent capital, specify how these earnings would be counted in the absence of an agreement, provide a date certain for the exclusion from capital of payments by Farm Credit institutions to the Farm Credit System Financial Assistance Corporation (FAC) made in connection with the repayment of Treasury-paid interest, and make other conforming changes to implement the statutory amendments.

DATES: Comments must be received by July 22, 1993.

ADDRESSES: Comments should be submitted in writing, in triplicate, to Patricia W. DiMuzio, Division Director, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090. Copies of all communications received will be available for examination by interested [*34005] parties in the Office of Examination, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT: Robert S. Child, Policy Analyst, Office of Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 883-4444, or Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: Section 4.3(a) of the 1971 Act requires the FCA to cause System institutions to achieve and maintain adequate capital by establishing minimum levels of permanent capital for System institutions. On September 28, 1988, the Board adopted final regulations amending 12 CFR part 615 that, among other things, established such minimum permanent capital standards. See 53 FR 39229 (October 6, 1988).

Section 615.5210 of those regulations sets forth the method for the computation of the permanent capital ratio. Paragraph (d)(2) provides that, until the end of 1997, an FCB and the direct lender associations in its district may adopt a districtwide plan specifying a percentage allocation of an association's investment in the bank between the bank and the association for the sole purpose of computing the permanent capital ratio. The regulation establishes what the minimum percentage allocation to the bank will be in the years 1993 through 1997. After 1997, all of the association's investment in the bank is considered to be capital of the bank in the permanent capital ratio computation.

On August 13, 1992, the FCA Board suspended those provisions of 615.5210(d)(2) pertaining to the percentage allocation. See 57 FR 38250 (August 24, 1992). The suspension became effective on October 7, 1992. On October 28, 1992, the 1992 Act was enacted. Section 101 of the 1992 Act amended the definition of "permanent capital" in section 4.3A(a)(1)(B) of the 1971 Act to provide that "earnings allocated in any form by a System bank to any association or other recipient and retained by the bank, shall be considered, in whole or in part, permanent capital of the bank or of any such association or other recipient as provided under an agreement between the bank and each such association or other recipient." A further amendment to the statutory definition of permanent capital added subparagraph (E) in section 4.3A(a)(1), which authorizes the FCA to define as permanent capital "any debt or equity instruments or other accounts that the [FCA] determines appropriate to be considered permanent capital."

Section 301 of the 1992 Act added section 6.9(e)(3)(D) to the 1971 Act to require each bank to enter into or continue an agreement with the FAC under which the bank will make annual annuity-type payments to the FAC in connection with the Capital Preservation Agreements. Subparagraph (D)(ii) provides that the agreement "shall not require payments to be made to the extent that making a particular payment or part of a payment would cause the bank to fail to satisfy applicable regulatory permanent capital requirements, but shall provide for recalculation of subsequent payments accordingly."

Section 304 of the 1992 Act amended section 6.26(c)(5) of the 1971 Act to require banks to make annual annuity-type payments to the FAC in connection with the FAC's repayment of Treasury-paid interest. An FCB may (and must, if necessary to enable the bank to satisfy its obligations) pass on to its related associations all or part of the assessments "either directly, or indirectly through loan pricing or otherwise," based on the proportionate average accruing retail loan volumes for the preceding year. Subparagraph (G) of that section provides that, until the date that is 5 years prior to the date on which the FAC is required to repay the Secretary of the Treasury for Treasury-paid interest, i.e., until September 27, 2005, all assessments paid by banks to the FAC for the purpose of repaying the Treasury-paid interest, and any part of the obligation to pay future assessments that is recognized as an expense on the books of any System bank or association, shall be included in the capital of the bank or association for purposes of determining its compliance with regulatory capital requirements. Furthermore, 100 percent of the expenses paid or booked will be treated as capital from now until September 27, 2000. In the subsequent 2 years, 60 percent and 30 percent, respectively, will be included; after September 27, 2002, no part of such payments or future payments will be included in capital.

To implement these statutory changes, the Board proposes the following amendments to the regulations:

A. Allocation Agreement

Under the amendments made by 1992 Act, FCBs and direct lender associations may continue to utilize the allocation agreements permitted by existing regulations, but they also have some flexibility to make other arrangements. In addition, the 1992 Act authorizes Federal land bank associations, as well as direct lender associations, to enter into agreements with the FCB.

1. Individual association agreements. Whereas the existing regulation requires the allocation plan to be on a districtwide basis, the 1992 Act authorizes each individual association to enter into an agreement with its affiliated bank. This means that the terms and conditions of the agreements to which the FCB is a party, particularly the term specifying a percentage allocation, may vary from association to association. For this reason, 615.5210(e)(2)(ii)(D) of the proposed regulations provides that each agreement must be disclosed to all affiliated associations that are not parties to the agreement. The Board believes that such disclosure among all of these associations will result in an equitable treatment of all parties to the agreements.

The Board notes that neither the 1992 Act nor the proposed regulations would prohibit an FCB and its affiliated associations from entering into or continuing a districtwide agreement.

2. Application of agreement to allocated equities only. The allocation agreements permitted by the 1992 Act pertain to allocated earnings, not purchased equities. Therefore, 615.5210(e)(2)(i) of the proposed regulation continues the existing requirement that all equities of an FCB that have been purchased by other Farm Credit institutions must be counted as capital by the FCB.

3. Term of agreement. The proposed regulation would permit agreements for a period of 1 or more years, to be entered into at least 30 days prior to, and commencing on the first day of, the second quarter of the bank's fiscal year. If no agreement is signed at least 30 days prior to the expiration of an existing agreement, and if neither party notifies the FCA of its objection, the existing allocation agreement would be automatically extended for 1 additional year. If one party does notify the FCA of its objection, the agreement would not be extended. Should this occur, the allocation would be determined according to the formula as discussed below.

4. Amendments. An agreement may not be amended more frequently than annually, unless the prior written approval of the FCA is received. The Board anticipates that it would grant such approval only under extraordinary circumstances, such as a reorganization or merger of the institutions involved. However, as described more fully below, the parties may be required to [*34006] amend their percentage allocation in order to enable a bank to make a payment to the FAC in connection with the Capital Preservation Agreements.

5. Absence of agreement. While the Board contemplates that FCBs and direct lender associations will enter into allocation agreements, some institutions may be unable to reach agreement. The existing regulation provides that, in the absence of an allocation agreement, 20 percent of the allocated investment shall be counted as permanent capital for the purpose of computing the permanent capital ratio of the FCB and the remaining 80 percent is counted as permanent capital of the association. This provision was originally intended to be in effect only from 1988 until the end of 1992. It is the Board's view that this allocation for nonagreeing associations is appropriate as a temporary arrangement, but that a permanent provision should be more flexible. Therefore, the Board proposes to replace the existing percentage allocation with a formula whose primary objective is to enable each institution to meet its minimum permanent capital requirement to the extent possible.

The proposed formula would first allot the allocated investment based on what each institution needs to bring its permanent capital ratio to 7 percent. Any remaining amount of allocated investment would then be equally divided between the bank and the association. However, in the event that it is not possible to bring the permanent capital ratios of the FCB and each nonagreeing association up to at least 7 percent, the bank would have priority in achieving the minimum capital requirement based on a pro rata allotment from nonagreeing associations.

In the absence of an agreement, there are good reasons for allocating the investment so that the bank reaches its minimum capital requirement. First, a failure of the FCB to meet its minimum permanent capital requirement could have a potential adverse impact on funding costs for the entire System. Second, ensuring service continuity within a district is important. There is no reason to disrupt the operations of an entire district when a limited number of associations fail to agree on an allotment formula and have an equity position below the regulatory minimum. Third, the failure of a FCB to meet minimum capital requirements could have an adverse impact on the operations of any agent Federal land bank association (FLBA) in the district. The prohibition on retirement of the FCB stock in such circumstances would mean that no pass-through stock purchased in connection with a loan made through an FLBA could be retired; consequently, the FLBA would probably be unable to retire a borrower's FLBA stock. Finally, there could also be an adverse impact on all the associations in the district if the FCB's permanent capital ratio dropped below 7 percent because the banks' Contractual Interbank Performance Agreement could require the FCB to make penalty payments to the FAC that may never be reimbursed. Thus, it is in the best interest of the System to have the capital allocated to the bank to the extent necessary to enable it to meet its minimum permanent capital requirements.

The Board recognizes that the inability of an association to meet its minimum permanent capital ratio could adversely affect the operations of that association, by for example, preventing the association from redeeming its stock, which could result in some borrower flight. Nonetheless, it is the Board's view that the potential detrimental effects on the district as a whole are greater when the FCB fails to meet its minimum permanent capital requirement than when individual associations fall below the minimum requirement. n1 Consequently, it is appropriate to prefer the FCB over individual associations when there is not enough capital for the FCB and all nonagreeing associations to have permanent capital ratios of at least 7 percent

n1 The Board notes that a large majority of associations currently meet the 7-percent capital requirement even when an amount of capital equal to their investment in the bank is excluded. Such associations are less likely to be affected than other associations by a formula that ultimately favors the bank.

The proposed formula would operate as outlined in the following steps:

Step 1. The permanent capital ratio of the FCB would be calculated, including all of the allocated investments it may count as capital under existing allocation agreements but excluding the allocated investments of all nonagreeing associations. The permanent capital ratio of each nonagreeing association would be calculated excluding any of its allocated investment.

Step 2. If, under these calculations, the FCB's permanent capital ratio is 7 percent or above, the allocated investment of each nonagreeing association whose ratio is 7 percent or above would be evenly split between the FCB and the association. The allocated investment of each nonagreeing association whose ratio is below 7 percent would be attributed to the association until the association's ratio reaches 7 percent or all of the investment is attributed to the association, whichever occurs first, and any remaining investment would be evenly split between the FCB and the association.

Step 3. If the FCB's permanent capital ratio is below 7 percent when calculated according to step 1, a proportionate amount of each nonagreeing association's allocated investment would be attributed to the FCB sufficient to raise the FCB's capital ratio to 7 percent. n2 Then, with respect to each nonagreeing association, a sufficient amount of the allocated investment not yet attributed, if any, would be attributed to the association to raise the association's capital ratio to 7 percent or until all the remaining allocated investment is attributed, whichever occurs first. If there is any remaining allocated investment after the FCB and the nonagreeing association have each met the minimum capital requirements, such remainder would be divided evenly between the FCB and association for capital computation purposes.

n2 The total amount required for the FCB to reach the minimum capital ratio would be computed, as well as the percentage that amount represents of the total allocated investments of all nonagreeing associations. That percentage of each nonagreeing association's allocated investment would be attributed to the FCB.

The Board wishes to emphasize that the proposed allocation formula would be applied only to associations that have not entered into allocation agreements with the FCB. The formula has no direct impact on associations that have entered into agreements with the FCB and does not affect the allocations set forth in those agreements.

The Board also considered other formulas for determining where capital would be counted in the absence of an allocation agreement. One formula would, in effect, equalize the capital ratios of the FCB and the nonagreeing associations to the extent possible; the advantage of this option would be that it favors neither the bank nor the associations. Another formula would, like the formula in the proposed regulation, first provide that the FCB meets its minimum capital requirements when possible, but would also ensure that the largest possible number of nonagreeing associations meet their minimum capital requirements. In other words, this formula would potentially require a proportionately larger allotment to the FCB from well-capitalized associations than from poorly capitalized associations in order to enable such associations to keep their [*34007] permanent capital ratios above 7 percent.

In selecting the proposed formula, the Board has attempted to balance the various interests of the institutions involved, as well as the district as a whole, without making the allocation process too unwieldy. However, the Board recognizes that any means of determining where capital will be counted in the absence of an agreement may have the effect of providing incentives to one party or the other to enter into an agreement or to reject an agreement. Therefore, the Board specifically seeks comment on the proposed formula for the allocation and also seeks suggestions regarding other ways to allocate the capital in the absence of an agreement, such as, for example, using the alternative formulas described in the previous paragraph; mandating that the FCA shall make the decision as to where capital would be counted; or using a straight percentage allocation that would achieve the Board's objectives consistent with the Act. Should suggestions be made about other methods of allocation, the Board requests that the commentor provide any necessary procedural details.

6. Assessments paid to the FAC in connection with the Capital Preservation Agreements. The 1992 Act permits an FCB to skip a payment to the FAC in connection with the FAC's payment of the Capital Preservation Agreements if the payment would cause the bank to fail to meet its minimum permanent capital standards. If a payment is not made, there must be a recalculation of subsequent payments to make up for it. While the Board does not think it likely, an agreement could allot such a large percentage of the associations' investments to the associations that the bank would be unable to make-or would be able to avoid making-the annual payment to the FAC. Consequently, 615.5210(e)(2)(ii)(G) of the proposed regulations provides that the bank and the association must re-allot the investment to enable the FCB to pay the assessment, provided that the association would still be able to meet its own minimum capital standards. The FCA Board may, at the request of one of the parties, waive this requirement. The FCA Board specifically seeks comments on this proposal.

7. Other recipients. The amendment to the definition of "permanent capital" refers to earnings allocated by a "System bank" to associations and "other recipients." Since FCBs allocate earnings to other financing institutions (OFIs), FCBs are now permitted to enter into agreements with affiliated OFIs specifying which institution counts the investment as permanent capital. Furthermore, the reference to "other recipients" could include not just OFI relationships, but also certain relationships between System institutions. The statutory term "System bank" could include a bank for cooperatives(BC) as well as an FCB, and the term "other recipient" could, arguably, include another System institution that is not an association. Thus, the new statutory language covers a situation where an FCB or a BC has a stock investment in another FCB or another BC.

Therefore, proposed 615.5210(e)(3) provides that, when a System bank and an "other recipient" enter into an allocation agreement, the provisions that apply to an FCB/association agreement are also applicable to such agreement. However, in the absence of an agreement, 100 percent of the allocated investment would be included in the capital of the allocating bank.

B. Payments to the FAC

1. Assessments paid to the FAC in connection with the Capital Preservation Agreements. This is discussed under item 6 above.

2. Assessments paid or booked as expenses in connection with Treasury-paid interest. As described above, all assessments paid or booked to repay the FAC for Treasury-paid interest may be fully included as capital by banks or associations (where the bank has "passed through" the assessment) until September 2000, and part of the assessments are included in capital until 2002. Part or all of the assessments may be passed on by FCBs to their affiliated associations, either directly or indirectly (through loan-pricing or otherwise). If a bank passes on the cost of the assessment directly to an association, the portion of the bank's assessment that may be included in the association's capital (and that may not be included in the bank's capital) will be the amount paid by the association. The Board notes that, if the cost of the bank's assessment is passed on to the association indirectly, this amount must be reported in the Call Reports of both the bank and the association.

C. Definition of Permanent Capital

The Board proposes to revise the definition of permanent capital in existing 615.5201(h) to implement the changes to the statutory definition of permanent capital made by the 1992 Act. As stated above, the FCA now has authority to define as permanent capital any debt or equity instruments or other accounts that it determines are appropriate to be considered as permanent capital. At this time, the Board does not believe that any debt or equity presently issued and outstanding, other than that already considered to be permanent capital, has the requisite "permanence" to be considered as permanent capital. However, it has provided in the proposed regulation that, if the FCA deems such inclusion appropriate on a case-by-case basis, financial assistance that may be provided in the future by the Farm Credit System Insurance Corporation (FCSIC), pursuant to the FCSIC's authority under section 5.61(a)(1) of the Act, will be considered to be permanent capital.

Furthermore, the Board is considering specifying by regulation that subordinated debt or other securities issued by a Farm Credit institution to the FCSIC will be considered to be permanent capital. The Board solicits comments on the appropriateness of designating these securities as permanent capital and, if so, what types of requirements and limitations might also be appropriate. The Board also seeks comments on whether there are other debt or equity instruments or other accounts, other than those issued to the FCSIC, that could appropriately be defined by regulation to be permanent capital.

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 to read as follows:

PART 615-FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS

1. The authority citation for part 615 continues to read as follows:

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 6.26 of the Farm Credit Act; 12 U.S.C. 2013, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2160, 2202b, 2211, 2243, 2252, 2278b, 2278b-6; sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart H-Capital Adequacy

2. Section 615.5201 is amended by redesignating paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), and (l) as paragraphs (b), (c), (d), (e), (f), (g), (i), (j), (k), (l), (m), and (n) consecutively; adding new paragraphs (a) and (h); and [*34008] revising newly designated (j) to read as follows:

615.5201 -- Definitions.

* * * * *

(a) Allocated investment means earnings allocated by a System bank to an association or other recipient and retained by the bank.

* * * * *

(h) Nonagreeing association means an association that has not entered into an allocation agreement with a Farm Credit Bank pursuant to 615.5210(e).

* * * * *

(j) Permanent capital means-

(1) Current year retained earnings;

(2) Allocated and unallocated earnings (which, in the case of earnings allocated in any form by a System bank to any association or other recipient and retained by the bank, shall be considered, in whole or in part, permanent capital of the bank or of any such association or other recipient as provided under an agreement between the bank and each such association or other recipient);

(3) All surplus;

(4) Stock issued by a System institution, except-

(i) Stock that may be retired by the holder of the stock on repayment of the holder's loan, or otherwise at the option or request of the holder;

(ii) Stock that is protected under section 4.9A of the Act or is otherwise not at risk;

(iii) Preferred stock issued to the Farm Credit System Financial Assistance Corporation to the extent it is issued to offset an impairment of equities protected under section 4.9A of the Act;

(iv) Farm Credit Bank equities required to be purchased by Federal land bank associations in connection with stock issued to borrowers that is protected under section 4.9A of the Act;

(v) Capital subject to revolvement, unless:

(A) The bylaws of the institution clearly provide that there is no express or implied right for such capital to be retired at the end of the revolvement cycle or at any other time; and

(B) The institution clearly states in the notice of allocation that such capital may only be retired at the sole discretion of the board in accordance with statutory and regulatory requirements and that no express or implied right to have such capital retired at the end of the revolvement cycle or at any other time is thereby granted;

(5) Payments to, or obligations to pay, the Farm Credit System Financial Assistance Corporation to the extent permitted by section 6.26(c)(5)(G) of the Act and 615.5210(d); and

(6) Financial assistance provided by the Farm Credit System Insurance Corporation that the Farm Credit Administration determines appropriate to be considered permanent capital.

* * * * *

3. Section 615.5210 is amended by redesignating paragraphs (d) and (e) as paragraphs (e) and (f); adding a new paragraph (d); and revising newly designated paragraphs (e)(2) and (e)(3) to read as follows:

615.5210 -- Computation of the permanent capital ratio.

* * * * *

(d) Until September 27, 2002, payments of assessments to the Farm Credit System Financial Assistance Corporation, and any part of the obligation to pay future assessments to the Farm Credit System Financial Assistance Corporation that is recognized as an expense on the books of a bank or association, shall be included in the capital of such bank or association for the purposes of determining its compliance with regulatory capital requirements, to the extent allowed by section 6.26(c)(5)(G) of the Act. If the bank indirectly passes on all or part of the payments to its affiliated associations pursuant to section 6.26(c)(5)(D) of the Act, such amounts shall be included in the capital of the associations and shall not be included in the capital of the bank. After September 27, 2002, no payments of assessments or obligations to pay future assessments may be included in the capital of the bank or association.

(e) * * *

(2) Where a Farm Credit Bank is owned by one or more Farm Credit System institutions, the double counting of capital shall be eliminated in the following manner:

(i) All equities of a Farm Credit Bank that have been purchased by other Farm Credit institutions shall be considered to be permanent capital of the bank.

(ii) Each Farm Credit Bank and each of its affiliated associations may enter into an agreement that specifies, for the purpose of computing permanent capital only, a percentage allotment of the association's allocated investment between the bank and the association. The following conditions shall apply:

(A) The agreement shall be for a term of 1 or more years and shall become effective on the first day of the second quarter of the bank's fiscal year.

(B) The agreement shall be entered into at least 30 days prior to the beginning of the second quarter of the bank's fiscal year.

(C) The agreement may be amended according to its terms, but no more frequently than annually without the prior written approval of the Farm Credit Administration.

(D) A certified copy of the agreement, and any amendments thereto, shall be forwarded to the office of the Farm Credit Administration responsible for examining the institution within 3 days of adoption of the agreement or any amendments by the Farm Credit Bank and the association. A copy shall also be sent within 3 days of adoption to the bank's other affiliated associations.

(E) If the bank and the association have not entered into a new agreement at least 30 days prior to the expiration of an existing agreement, the existing agreement shall automatically be extended for another fiscal year, unless either party notifies the Farm Credit Administration of its objection to the extension prior to the beginning of such fiscal year.

(F) In the absence of an agreement between a Farm Credit Bank and one or more associations, or in the event that an agreement expires and at least one party objects to the continuation of the terms of its agreement, the following formula shall be applied with respect to the allocated investments held by those associations with which there is no agreement (nonagreeing associations), and shall not be applied to the allocated investments held by those associations with which the bank has an agreement (agreeing associations):

(1) The permanent capital ratio of the Farm Credit Bank shall be computed excluding the allocated investment from nonagreeing associations but including any allocated investments of agreeing associations that are attributed to the bank under such allocation agreements. The permanent capital ratio of each nonagreeing association shall be computed excluding its allocated investment in the bank.

(2) If the permanent capital ratio for the Farm Credit Bank calculated in accordance with paragraph (e)(2)(ii)(F)(1) of this section is 7 percent or above, the allocated investment of each nonagreeing association whose permanent capital ratio calculated in accordance with paragraph (e)(2)(ii)(F)(1) of this section is 7 percent or above shall be attributed 50 percent to the bank and 50 percent to the association.

(3) If the permanent capital of the Farm Credit Bank calculated in accordance with paragraph (e)(2)(ii)(F)(1) of this section is 7 percent or above, the allocated investment of each nonagreeing association that is below 7 percent shall be attributed to [*34009] the association until the association's capital ratio reaches 7 percent or until all of the investment is attributed to the association, whichever occurs first. Any remaining unattributed allocated investment shall be attributed 50 percent to the Farm Credit Bank and 50 percent to the association.

(4) If the permanent capital of the Farm Credit Bank calculated in accordance with paragraph (e)(2)(ii)(F)(1) of this section is less than 7 percent, the amount of additional capital needed by the bank to reach a permanent capital ratio of 7 percent shall be determined, and an amount of the allocated investment of each nonagreeing association shall be attributed to the Farm Credit Bank as follows:

(i) If the total of the allocated investments of all nonagreeing associations is greater than the additional capital needed by the bank, the allocated investment of each nonagreeing association shall be multiplied by a fraction whose numerator is the amount of capital needed by the bank and whose denominator is the total amount of allocated investments of the nonagreeing associations, and such amount shall be attributed to the bank. A sufficient amount of unattributed allocated investment shall then be attributed to each nonagreeing association to increase its permanent capital ratio to 7 percent, or until all such investment is attributed to the association, whichever occurs first. Any remaining unattributed allocated investment shall be attributed 50 percent to the bank and 50 percent to the nonagreeing association.

(ii) If the additional capital needed by the bank is greater than the total of the allocated investments of the nonagreeing associations, all of the remaining allocated investments of the nonagreeing associations shall be attributed to the bank.

(G) If a payment or part of a payment to the Farm Credit System Financial Assistance Corporation pursuant to section 6.9(e)(3)(D)(ii) of the Act would cause a Farm Credit Bank to fall below its minimum permanent capital requirement, the bank and one or more associations shall amend their agreement to increase the allotment of the association's investment to the bank sufficiently to enable the bank to make the payment to the Farm Credit System Financial Assistance Corporation, provided that the association would continue to meet its minimum permanent capital requirement. In the absence of an allocation agreement, the Farm Credit Administration shall require a revision of the percentage allotment sufficient to enable the bank to make the payment to the Farm Credit System Financial Assistance Corporation, provided that the association would continue to meet its minimum permanent capital requirement. The Farm Credit Administration Board may, at the request of one or more of the institutions affected, waive the requirements of paragraph (e)(2)(ii)(G) of this section if the Board deems it is in the overall best interest of the institutions affected.

(3) A bank and a recipient, other than a direct lender association, of allocated earnings from such bank, may enter into an agreement specifying a percentage allotment of the recipient's allocated earnings in the bank between the bank and the recipient. Such agreement shall comply with the provisions of paragraph (e)(2) of this section, except that, in the absence of an agreement, the allocated investment shall be allotted 100 percent to the allocating bank and 0 percent to the recipient. All equities of a bank that are purchased by a recipient shall be considered as permanent capital of the allocating bank.

* * * * *

Dated: June 15, 1993.

Curtis Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 93-14494 Filed 06-22-93; 8:45 am]

BILLING CODE 6705-01-P