Title: FINAL RULE--Organization--12 CFR Part 611
Issue Date: 10/05/1988
Agency: FCA
Federal Register Cite: 53 FR 39079
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FARM CREDIT ADMINISTRATION

12 CFR Part 611

Organization


ACTION: Final rule.

SUMMARY: The Farm Credit Administration (FCA) Board adopts a final regulation which implements the provisions of section 411 of the Agricultural Credit Act of 1987 (1987 Act) Pub. L. 100-233. The final regulation sets forth requirements governing the development of proposals for the merger of certain Federal land bank associations and production credit associations and timetables for the submission of merger proposals to the affiliated banks and to the FCA.

DATES: This regulation is effective October 5, 1988.

FOR FURTHER INFORMATION CONTACT:
James F. Thies, Assistant Chief, Financial Analysis and Standards Division, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4475.
or
Gary L. Norton, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444

SUPPLEMENTARY INFORMATION: On February 16, 1988, the FCA Board published an Advance Notice of Proposed Rulemaking requesting public comments on the implementation of the new authorities for institutions to reorganize contained in the 1987 Act (53 FR 4416). On June 6, 1988, the FCA Board published for comment a proposed regulation which, among other things, implemented the provisions of section 411 of the 1987 Act relating to the development of proposals for the merger or consolidation of Federal land bank associations (FLBAs) and production credit associations (PCAs) that share substantially the same territory (53 FR 20637). The FCA received comments from numerous interested parties addressing many of the proposed regulations published on June 6, 1988. The FCA Board determined that in light of the statutory deadlines applicable to section 411 mergers, the Board should adopt final regulations relating to those authorities as quickly as possible, taking into consideration the comments received on the proposed regulation. The FCA Board will address the remainder of the June 6, 1988 regulation, and the public comments received thereon, in the near future in a separate document.

The proposed regulation at 611.1145 sets forth the requirements governing the content of merger proposals and timetables for the submission of the merger proposals to the affiliated Farm Credit Bank (FCB) and to the FCA. The proposed regulation clarified the meaning of "substantially the same" as used in section 411 of the 1987 Act and specified that merger proposals must comply with the provisions of Subpart G of Part 611 relating to contents of the proposal. The proposed regulation also provided that the merger proposals must be submitted to the affiliated FCB for approval not later than 60 days following the creation of the affiliated FCB, and to the FCA for approval not later than 90 days following the creation of the affiliated FCB.

The FCA received comments from one Senator, Five Representatives, the Farm Credit Corporation of America (FCCA) the St. Paul District Federation of Local Associations, and the Association Coordination Committee of the Third Farm Credit District. The FCA received a comment from the FCCA regarding proposed 611.1145(b), which clarifies the meaning of "substantially the same" as used in section 411 of the 1987 Act. The FCCA requested that the regulation should be amended to identify the point in time at which unlike associations must have 90 percent territorial overlap in order to fall under the provisions of the regulation. The FCCA did not recommend a specific cutoff date for determining the applicability of this requirement. The FCA Board agrees with the need to establish a cutoff date to be applied in determining whether two associations are required to submit merger proposals under section 411 of the 1987 Act. The FCA Board considered using January 6, 1988, the date of enactment of the 1987 Act, or July 5, 1988, the date of the creation of the FCBs. The FCA Board believes that the July 5, 1988 date would be most consistent with the provisions of section 411 of the 1987 Act, which uses timetables based on that date, and would give maximum effect to the purpose of section 411, which is to give stockholders of associations the opportunity to determine if they desire to establish "one-stop" credit institutions. Accordingly, the final regulation has been amended to provide that the date for determining whether two associations share substantially the same territory shall be based on their chartered territories as of July 5, 1988. The Board notes that this cutoff date does not preclude other institutions from submitting proposals to merge in accordance with the authorities of unlike associations to merge under section 7.8 of the Act.

The FCCA also requested that the FCA promptly issue regulations which provide for the lending authorities for agricultural credit associations (ACAs) by reconciling the lending powers of FLBAs and PCAs. On September 28, 1988, the FCA Board approved proposed regulations which substantially revise all of 12 CFR Parts 613 and 614 and, among other things, specify the lending authorities of ACAs. Those regulations will be published in the Federal Register following the expiration of the 30-day review period required under section 5.17(a)(3) of the Farm Credit Act of 1971, as amended (Act).

The FCCA commented that proposed 611.1145 does not address "whether competition among associations would be permitted in those parts of a merged association's territory where the territories of the constituent associations did not overlap." The FCCA further commented that the existing regulations do not deal with situations where two entities are chartered to serve the same territory but "that the regulation does suggest one avenue of resolution of the question, namely, some form of agreement or understanding between the overlapping associations."

The FCA Board recognizes that section 411 of the 1987 Act contemplates the possibility of FLBA/PCA mergers in which both associations do not share the identical territory. In those situations it is possible that some of the merger proposals submitted under section 411 of the 1987 Act will contain proposed charters that only cover the common territory of the associations involved and other proposals may contain proposed charters for the territory served by either one of the institutions. In either event, any ACA chartered under section 411 of the 1987 Act or Title VII of the Act will be authorized to extend its lending authority for both long-term and short-term loans throughout its chartered territory.

If a proposed charter of an ACA excludes any territory served by one or both of the constituent associations, the charter will not be approved except in connection with the transfer of the excluded territory to another association. In this way the FCA Board will ensure that farm credit services are provided to all areas of the country.

If a proposed charter includes territory currently served by a third association which is not a party to the merger, the FCA Board will consider the best interests of the borrowers in that area in approving the charter. Before submitting a merger proposal that involves a request for a charter that overlaps the territory of a third association, the parties to the merger should discuss the issue with the association(s) involved. Any such association may also submit its views, in writing, to the FCA regarding the effects of the proposed action on its operations. The FCA's analysis of a merger request involving overlapping territories will be based on all relevant factors, including, but not limited to, the cost of credit delivery to eligible borrowers; the operating costs of the affected associations; the degree of competition among System and non-System lenders in the territory, and the effectiveness with which the credit needs of the borrower can best be served. Accordingly, these issues should be addressed in the merger proposal.

The Association Coordination Committee of the Third Farm Credit District commented that the regulation should clarify that merger proposals must be submitted only when the associations involved share 90 percent or more common territory with each other. The FCA Board agrees with this interpretation and the regulation is clear on this point. The regulation specifies that a merger proposal must be developed only when 90 percent or more of the territory of a FCA overlaps with 90 percent or more of the territory of an FLBA.

The FCA received comments from the FCCA, the St. Paul District Federation of Local Associations, one Senator and five Representatives regarding the proposed timetable for submission of merger proposals to the affiliated FCB and to the FCA. All of the commentors expressed the view that 611.1145 unnecessarily accelerates the times at which merger proposals must be submitted. The commentors believe that an extension of the timetable for submission would provide associations a better opportunity to analyze the available options and educate their stockholders concerning the implications of various proposed actions, as well as give full effect to congressional intent.

The FCA Board agrees that in light of the potential complexity involved in analyzing the relevant issues and in preparing the required documents, it would be prudent to provide all parties involved with the maximum flexibility in scheduling as possible. The FCA Board is concerned, however, that there should not be an extended delay in the consummation of any stockholder approved merger. One commentor suggested that the regulation should require the merger to be effective not more than 90 days after the date of the stockholder vote, thereby allowing the new association time to conduct the many post-vote responsibilities that are necessary, including the amendment of procedures and forms, the assignment of security interests to the new entity, the implementation of marketing strategies, and the running of any applicable reconsideration period. The FCA Board concurs with this recommendation but notes that mergers conducted under section 411 of the 1987 Act and this regulation are not subject to the reconsideration provisions of section 7.9 of the Act. While these mergers are not technically subject to the section 7.9 reconsideration provisions of the Act, the FCA Board would encourage institutions to implement the spirit of section 7.9 by including the reconsideration procedure in their merger agreements.

Taking into consideration the comments received, the final regulation has been amended to allow stockholder votes to take place not later than January 5, 1989, and to require the mergers to have an effective date not later than 90 days following the date of the stockholder vote. Consistent with the extended date for stockholder votes, the regulation has been amended to provide that merger proposals must be submitted to the affiliated FCB for review and approval not later than October 5, 1988, and, subsequently, to the FCA not later than November 5, 1988.

In accordance with 5 U.S.C. 553(d)(3) the FCA Board finds, for good cause, that this regulation must be effective immediately upon publication in the Federal Register. The FCA Board considered comments in response to an Advance Notice of Proposed Rulemaking and the proposed regulation. The final regulation provides the maximum flexibility possible to enable institutions to develop merger proposals and submit them to their stockholders in time to satisfy statutory deadlines. Any delay in the effective date would be contrary to the public interest since it could impede compliance with this statutory deadline. For the same reasons, the FCA Board, in accordance with 5.17(c)(2) of the Act, finds than an emergency exists which requires this regulation to be effective prior to the expiration of thirty days after it is published in the Federal Register.

List of Subjects in 12 CFR Part 611

Banks, Banking, Organizations and functions (Government agencies).

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, 2031, 2071, 2091, 2121, 2142, 2183, 2203, 2221, 2243, 2244, 2252, 2279a-2279j; secs. 411 and 412 of Pub. L. 100-233.

Subpart J -- Merger and Reorganization Proposals Required by the Agricultural Credit Act of 1987

2. Section 611.1145 is added to read as follows:

611.1145 Required consideration of proposals to merge production credit associations and Federal land bank associations.

(a) In accordance with section 411 of the Agricultural Credit Act of 1987 certain Federal land bank associations and production credit associations are required to develop proposals for the merger of such associations, with the resulting association to have the authority of an agricultural credit association.

(b) Merger proposals shall be developed in those instances in which 90 percent or more of the chartered territory of a production credit association overlaps with 90 percent or more of the chartered territory of a Federal land bank association. A determination of whether the chartered territories of two associations overlap shall be based on charters in effect on July 5, 1988.

(c) Merger proposals shall be developed by the associations involved and submitted to the affiliated Farm Credit Bank for approval not later than October 5, 1988. Following review and approval by the affiliated Farm Credit Bank, the associations shall submit the merger proposal to the Farm Credit Administration for approval not later than November 5, 1988.

(d) Each merger proposal shall comply with and be subject to all of the provisions of Subpart G of Part 611 relating to contents of the proposal, required information statements, Farm Credit Administration approval, and stockholder votes.

(e) Not later than January 5, 1989, each merger proposal must be submitted to the stockholders for a vote, and any resulting mergers shall have an effective date which shall not be later than 90 days after an affirming stockholder vote.

Dated: September 28, 1988.

David A. Hill,

Secretary, Farm Credit Administration Board.

[FR Doc. 88-22860 Filed 10-4-88; 8:45 am]
BILLING CODE 6705-01-M