Title: DIRECT FINAL RULE WITH OPPORTUNITY FOR COMMENT--Assessment and Apportionment of Administrative Expenses; Technical Change--12 CFR Part 607
Issue Date: 06/24/1998
Agency: FCA
Federal Register Cite: 63 FR 34267
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FARM CREDIT ADMINISTRATION

12 CFR Part 607

RIN 3052-AB83

Assessment and Apportionment of Administrative Expenses; Technical Change

ACTION: Direct final rule with opportunity for comment.

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SUMMARY: The Farm Credit Administration (FCA or Agency), through the FCA Board (Board), issues a direct final rule that makes technical amendments to its assessment regulations in order to conform to the recently adopted FCA Board policy statement on its financial institution rating system. The Financial Institution Rating System (FIRS) is the rating system used by FCA examiners for evaluating and categorizing the safety and soundness of Farm Credit System (System) institutions on an ongoing, uniform, and comprehensive basis. The FIRS modified the FCA Rating System (which had been referred to as the CAMEL rating system) by adding a separate rating factor for sensitivity to market risk. In accordance with the FIRS policy statement, these technical amendments replace the reference to "composite CAMEL rating" (the acronym CAMEL referred to the following five rating components: capital, asset quality, management, earnings, and liquidity), with "composite Financial Institution Rating System (FIRS) rating" and replace references to "CAMEL" with "FIRS." The technical amendments do not substantively change the FCA assessment process or adversely affect System institutions.

DATES: If no significant adverse comment is received on or before July 24, 1998, these regulations shall be effective upon the expiration of 30 days after publication in the Federal Register during which either or both Houses of Congress are in session. Notice of the effective date will be published in the Federal Register. If significant adverse comment is received, the FCA will publish a timely notice of withdrawal of the regulations and indicate how the Agency expects to proceed with further rulemaking.

ADDRESSES: Comments may be submitted via electronic mail to "reg-comm@fca.gov" or facsimile transmission to (703) 734-5784. Comments also may be mailed or delivered to Patricia W. DiMuzio, Director, Regulation and Policy Division, Office of Policy and Analysis, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090. Copies of all communications received will be available for review by interested parties in the Office of Policy and Analysis, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Andrew D. Jacob, Senior Financial Analyst, Office of Policy and Analysis, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4498, TDD (703) 883-4444

or

Wendy R. Laguarda, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

The Board is making technical amendments to its assessment regulations to replace the reference to "composite CAMEL rating" with "composite Financial Institution Rating System (FIRS) rating" and to replace references to "CAMEL" with "FIRS." The technical amendments reflect the Board's adoption, at its April 9, 1998 Board meeting, of a policy statement on the FIRS. The policy statement establishes six rating factor components and a composite rating that reflect the condition and overall safety and soundness of a System institution. The FIRS policy statement differs from the previous CAMEL rating system by the addition of a sixth rating component-the "S" component for sensitivity to market risk. Hence, the six rating factor components of the FIRS are capital, assets, management, earnings, liquidity, and sensitivity ("S" component). The policy statement also sets forth the responsibility of the Chief Examiner to implement, maintain, and recommend to the FCA Board changes to the rating system and to establish appropriate evaluative criteria for determining FIRS composite and component ratings.

The FIRS is an internal rating system used by the FCA for evaluating the safety and soundness of System institutions on a uniform basis and for identifying those System institutions requiring special supervisory attention or concern. In addition, the FIRS also provides the Agency with valuable information for assessing risk and allocating resources based on the safety and soundness of regulated institutions. The FIRS is similar to the system known as the Uniform Financial Institutions Rating System (UFIRS), which is used by Federal and state supervisory [*34268] banking agencies for rating commercial banks and savings associations.

The FIRS policy statement was published in the Federal Register at 63 FR 19918, April 22, 1998. In addition, the evaluative criteria for determining FIRS composite and component ratings is set forth in the FCA Examination Manual at section EM 135. The examination manual is a public document and available for a fee upon request from the FCA or through the FCA's Internet Home Page (http://www.fca.gov).

II. Direct Final Rulemaking

The FCA is using a "direct final" procedure for this rulemaking. In a direct final rulemaking, an agency gives notice that a rule will become final at a specified future date unless the agency receives significant adverse comment on the rule during the comment period established in the rulemaking notice. Direct final rulemaking is justified under section 553(b)(B) of the Administrative Procedure Act, 5 U.S.C. 551-59, et seq. (APA). Section 553(b)(B) is the APA's "good cause" exemption for omitting notice and comment on a rule where an agency finds "that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." However, rather than eliminating public comment altogether, as would be permissible under section 553(b)(B), in a direct final rule, the FCA gives the public adequate opportunity to comment on or object to a rule. For a full explanation of direct final rulemaking, see 62 FR 63644 (December 3, 1997).

The FCA believes that the technical amendments to the assessment regulations fit the category of rules appropriate for direct final rulemaking. These changes merely conform the regulations to the FCA Board's policy statement on FIRS. The changes amend current regulatory references to "composite CAMEL rating" with an updated reference to "composite FIRS rating." As such, the changes are straightforward and noncontroversial.

This rule has a 30-day comment period. If, during that period, the FCA receives a significant adverse comment on the rule, the FCA will withdraw the rule and may either issue another direct final rule or promulgate the rule in proposed form. A significant adverse comment is defined as one where the commentor explains why the rule would be inappropriate, including challenges to the rule's underlying premise or approach, or would be ineffective or unacceptable without a change. In general, a significant adverse comment would raise an issue serious enough to warrant a substantive response from the FCA in a notice-and-comment proceeding.

If no significant adverse comment is received, the FCA will publish its customary notice of the effective date of the rule following the required Congressional waiting period under section 5.17(c)(1) of the Farm Credit Act of 1971, as amended.

List of Subjects in 12 CFR Part 607

Accounting, Agriculture, Banks, Banking, Reporting and recordkeeping requirements, Rural areas.

As stated in the preamble, part 607 of chapter VI, title 12 of the Code of Federal Regulations is amended as follows:

PART 607--ASSESSMENT AND APPORTIONMENT OF ADMINISTRATIVE EXPENSES

1. The authority citation for part 607 is revised to read as follows:

Authority: Secs. 5.15, 5.17 of the Farm Credit Act (12 U.S.C. 2250, 2252) and 12 U.S.C. 3025.

2. Section 607.2 is amended by revising paragraph (c) to read as follows:

607.2 -- Definitions.

* * * * *

(c) Composite Financial Institution Rating System (FIRS) rating means the composite numerical assessment of the financial condition of an institution assigned to the institution by the FCA based on its most recent examination of the institution. The FIRS factors are generally considered to be important indicators of an institution's financial health. Institutions are rated on each of the factors during an examination. The composite FIRS rating ranges from 1 to 5, with a lower number indicating a better financial condition than a higher number.

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607.3 -- [Amended]

3. Section 607.3 is amended by removing the acronym "CAMEL" and adding in its place "FIRS" each place it appears in paragraph (b)(2).

Dated: June 19, 1998.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 98-16809 Filed 6-23-98; 8:45 am]

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