Title: INTERIM RULE WITH REQUEST FOR COMMENTS--Disclosure to Shareholders--12 CFR Part 620
Issue Date: 02/05/1988
Agency: FCA
Federal Register Cite: 53 FR 3334
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Part 620

Disclosure to Shareholders


ACTION: Interim rule with request for comments.

SUMMARY: The Farm Credit Administration (FCA) adopts an interim rule amending Part 620 relating to disclosure of the condition and classification of loans (problem loans) to senior officers and directors and their immediate families and affiliated organizations. The interim rule implements a provision of the Agricultural Credit Act of 1987 (Pub. L. 100-233), which amends section 5.17(a)(9) of the Farm Credit Act of 1971, 12 U.S.C. 2252(a)(9), by placing limitations on the disclosure the FCA can require in shareholder reports of problem loans to senior officers and directors and their immediate families. The new statute requires the amendment to be implemented within 30 days of enactment (January 6, 1988). To comply with the statute the FCA adopts an interim rule, effective one week from publication. The FCA invites comment on the amendment.

DATES: The interim rule shall become effective February 12, 1988. Comments must be received on or before March 7, 1988.

ADDRESSES: Comments may be mailed or delivered (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:

Dorothy J. Acosta, Senior Attorney, Office of the General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, (703) 883-4020
or
James Thies, Assistant Chief, Financial Analysis and Standards Division, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, (703) 883-4483, TDD (703) 883-4444.

TEXT: SUPPLEMENTARY INFORMATION: On April 7, 1987, the FCA held a public hearing in response to concern expressed by institutions in the Farm Credit System (System) with provisions of the FCA's regulations that required disclosure in shareholder reports of problem loans from the reporting institution to its senior officers, directors and their immediate families and affiliated organizations (12 CFR Part 620). In response to the testimony presented at that hearing, the FCA proposed amendments to Part 620 and 621 (52 FR 30374, August 14, 1987). The comment period closed October 15, 1987. During the comment period bills were introduced and considered in the United States Congress that, among other things, would limit disclosure that the FCA can require of problem loans to directors and their immediate families in a manner different from that which had been proposed on August 14, 1987. The limiting provision was enacted into law on January 6, 1988, as an amendment to section 5.17(a)(9) of the Farm Credit Act of 1971. (Section 424 of the Agricultural Credit Act of 1987, Pub. L. 100-233.)

Because the amendments to 620.3(j) (2) and (3) proposed on August 14, 1987 relating to problem loans to senior officers and directors are inconsistent with the new statutory limitations, the FCA has withdrawn the proposed amendments (see Final Rule published elsewhere in today's Federal Register) and now adopts an interim rule implementing the new statutory limitation. This limitation prohibits the FCA from requiring in shareholder reports disclosure of the condition or classification of a loan to a director of the institution who has resigned before the time for filing the applicable report with the Farm Credit Administration or whose term of office will expire no later than the date of the shareholder meeting to which the statement relates. The FCA interprets "resign" to mean that the officer or director has actually vacated office. In addition, the statute limits disclosure that can be required of members of immediate families of directors to those who reside with directors or those in whose loan or business operation the director has a material financial or legal interest. The legislative history of the section indicates that Congress also intends the limitations on disclosure to apply to senior officers. (See H.R. Rep. No. 490, 100th Cong., 1st Sess. 268.)

The statute requires the newly enacted limitation to be implemented within 30 days of enactment. To comply with the statutory mandate, the FCA adopts an interim rule, effective one week from publication, and invites comment on that rule. The amendment makes reporting and disclosure less burdensome for Farm Credit institutions, and adopting the interim rule will enable institutions to prepare their annual reports to shareholders for 1987 in accordance with the new statute. Because the statute requires immediate implementation and because the interim rule implements a straight-forward restriction contained in the statute, the FCA finds, pursuant to 5 U.S.C. 553(b)(B), that notice and comment prior to adoption are impracticable and contrary to the public interest. Comments received after the effective date of the interim rule will be considered and any necessary adjustments will be made in the final rule. For the reasons stated above, the FCA, pursuant to 5 U.S.C. 553(d)(1) and (2) and 12 U.S.C. 2252(b)(2), finds good cause to make this regulation effective in less than 30 days.

Section 620.3(j)(3) is revised by deleting paragraph (i)(C), substituting a new paragraph (ii), redesignating the current paragraph (ii) as (iii) and revising the introductory text to paragraph (iii). The effect of this revision is to require a separate statement with respect to the collectibility of loans to senior officers and directors that reflects the newly enacted statutory restrictions. The requirements of the regulation are unchanged with respect to loans that are not made in the ordinary course of business or are not made on substantially the same terms as those available to other persons for comparable transactions.

As stated above, the FCA interprets "resign" to mean that the officer or director has actually vacated the office. The FCA will monitor any resignations through its examination process to assure that they have been accomplished in good faith and not merely to circumvent the regulation.

List of Subjects in 12 CFR Part 620

Disclosure to shareholders, Annual reports, Quarterly reports, Association annual meeting information statements.

As stated in the preamble, Part 620 is amended as follows:

PART 620 -- DISCLOSURE TO SHAREHOLDERS

1. The authority citation for Part 620 is revised to read as follows:

Authority: Secs. 5.17(a)(9) and (10), Pub. L. 99-205, 99 Stat. 1678, 12 U.S.C. 2252(a) (9) and (10); Sec. 424, Pub. L. 100-233.

2. In 620.3, paragraphs (j)(3) introductory text and (j)(3)(i) are revised, paragraph (j)(3)(ii) is redesignated as (j)(3)(iii), a new paragraph (j)(3)(ii) is added, and newly redesignated (j)(3)(iii) introductory text is revised to read as follows:

620.3 Contents of the annual report to shareholders.

* * * * *

(j) Transactions with senior officers and directors

* * * * *
(3) Loans to senior officers and directors.

(i) To the extent applicable, state that the institution has had loans outstanding during the last full fiscal year to date to its senior officers and directors, their immediate family members, and any organizations with which such senior officers or directors are affiliated that:

(A) Were made in the ordinary course of business; and

(B) Were made on the same terms, including interest rate, amortization schedule, and collateral, as those prevailing at the time for comparable transactions with other persons.

(ii) To the extent applicable, state that no loan to a senior officer or director, or to any organization affiliated with such person, or to any immediate family member who resides in the same household as such person or in whose loan or business operation such person has a material financial or legal interest, involved more than the normal risk of collectibility; provided that no such statement need be made with respect to any director or senior officer who has resigned before the time for filing the applicable report with the Farm Credit Administration, or whose term of office will expire or terminate no later than the date of the meeting of stockholders to which the report relates.

(iii) If the conditions stated in paragraphs (j)(3)(i) and (ii) of this section do not apply to the loans of the persons or organizations specified therein, with respect to such loans, state:

* * * * *

3. Newly redesignated (j)(3)(iii)(E) is amended by changing the reference "(j)(3)(i)(A) through (C)" to read "(j)(3)(i) and (j)(3)(ii)."

4. Newly redesignated (j)(3)(iii)(G) is amended by changing the reference "(j) (3)(i)(c)" to read "(j)(3)(ii)."

Dated: February 2, 1988.

David A. Hill,

Secretary, Farm Credit Administration Board.

[FR Doc. 88-2483 Filed 2-4-88; 12:46 am]

BILLING CODE 6705-01-M