Title: FINAL RULE--Loan Policies and Operations; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations--12 CFR Parts 614 and 615
Issue Date: 10/22/1981
Federal Register Cite: 46 FR 51876
FARM CREDIT ADMINISTRATION
12 CFR Parts 614 and 615
Loan Policies and Operations; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations
AGENCY: Farm Credit Administration.
ACTION: Final rule.
SUMMARY: The Farm Credit Administration, by its Federal Farm Credit Board, adopts and publishes new and amended regulations implementing those provisions of the Farm Credit Act Amendments of 1980 (Pub. L. 96-592) which authorize banks for cooperatives of the Farm Credit System to provide international trade financing and related services to eligible borrowers, and an amendment to its regulation concerning interest rates.
The regulations relating to international trade financing enable the banks for cooperatives to, among other things: (1) deposit securities and current funds in any Federal Reserve member bank or any Federal Deposit Insurance Corporation-insured State nonmember bank or in any domestic or foreign bank or other financial organization as may be authorized and approved; (2) treat earnings that result from loans to newly eligible noncooperative borrowers differently than earnings from cooperative borrowers; (3) rediscount, in financial markets, bankers acceptances created by the banks for cooperatives and accepted and discounted by the Farm Credit System's Fiscal Agency in accordance with the requirements of the new regulations; and (4) provide a full range of international financial assistance including, among other things, letters of credit, standby letters of credit, foreign trade receivables financing, and guarantees and contracts of suretyship where such contracts serve as guarantees, provide credit services, and perform servicing functions.
The regulation relating to interest rates permits the boards of directors of banks for cooperatives to develop and adopt an interest rate plan, subject to Farm Credit Administration approval, within which bank management may establish rates.
EFFECTIVE DATE: Thirty days from this publication date provided both Houses of Congress are in session. Notice of effective date will be published.
FOR FURTHER INFORMATION CONTACT:
Larry H. Bacon, Deputy Governor, Office of Administration, Farm Credit Administration, 490 L'Enfant Plaza, S.W., Washington, DC 20578, (202-755-2181).
SUPPLEMENTARY INFORMATION: On July 7, 1981, the Farm Credit Administration noticed and published for public comment new and amended regulations to 12 CFR Parts 614 and 615 (46 FR 35109-35118). Regulations implementing the authority for international trade financing are designated as new §§ 614.4281, 614.4700, 614.4710, 614.4720, 614.4800, 614.4810, and 614.4900, and amendments to §§ 614.4080, 614.4120, 614.4280, 615.5190, 615.5370(d), and 615.5550. Regulations § 614.4280, concerning interest rates, is also amended. For purposes of this supplementary information, certain terms are designated as follows: Farm Credit Administration (FCA); Federal Farm Credit Board (Federal Board); Farm Credit System (System); Farm Credit Act Amendments of 1980 (1980 Amendments); Farm Credit Act of 1971, as amended, 12 U.S.C. 2001, et seq. (Act).
Twelve parties provided comments on the international trade financing regulations. These included eight System banks, two trade associations, one commercial bank, and one Federal banking agency. The Federal Board considered each of the comments received and adopted final regulations in the course of its October 6, 1981 meeting.
The 12 parties provided 21 specific comments on the international trade financing regulations. Three of the 21 comments were editorial. The editorial suggestions were made on §§ 614.4080 and 614.4710. No comments were received with respect to § 614.4281, 614.4800, 614.4900, or 615.5550. The following summarizes comments received and reconciles the differences between the proposed and final regulations in light of the comments.
As suggested by one commentator, § 614.4080 has been revised from the proposed form to clarify that an eligible cooperative must be a party to the transaction being financed by a bank for cooperatives under the international trade financing authorities.
As to § 614.4120: (1) one commentator suggested defining "minimum ownership interest" in the regulation; (2) another suggested specifically limiting the term "import" to the financing of importing farm supplies (farm imports) as contrasted to importing farm (agricultural) commodities and products (farm production); (3) another suggested limiting eligible borrowers to U.S. nationals; and (4) another suggested incorporating the language contained in section 3.7(b) of the Act as closely as possible. The final regulation has been modified from the proposal to follow closely the language of section 3.7(b) of the Act. The term "minimum ownership interest" is addressed effectively in the proposed regulation § 614.4210 (46 FR 40028-40029) in a manner that makes definition in § 614.4120 unnecessary. The suggested limitation on the import financing authorities of the banks for cooperatives was not incorporated into the final regulation because the Act provides authority for financing imports beyond the limitation suggested. The banks for cooperatives have financed imports for a number of years under existing law, and the 1980 Amendments specifically give authority to finance "export or import of agricultural commodities, farm supplies, or aquatic products." The suggestion to limit export financing to U.S. nationals was also rejected as more restrictive than the statute which expressly provides for financing foreign parties under certain conditions.
As to § 614.4700: (1) one commentator questioned the authority of the banks for cooperatives to engage in financing foreign trade receivables through factoring and suggested deleting § 614.4700(a)(3); (2) another suggested identifying in § 614.4700(b) some of the guarantee or insurance plans to be used; and (3) another suggested amending § 614.4700(d) to provide for systemwide policies limiting the amount that the System lends in each country. The final regulation was changed from the proposal to identify some acceptable guarantee or insurance plans. The suggestion to delete § 614.4700(a)(3) was rejected because the Act does not so limit the type of international financing which may be extended to foreign and domestic parties. Factoring is a type of financing extended by commercial banks in the international area and, therefore, would not be beyond "national banking policies, objectives, and limitations." The suggestion to establish limits in the regulations as to the amount that banks for cooperatives can lend to a particular country was not followed because it would place FCA in a position of decision-making that might be interpreted as making official U.S. foreign policy. Furthermore, the Federal Board does not believe that a Federal agency should prescribe to privately owned banks to which countries those banks may lend or in what amounts. The regulation does require the banks for cooperatives to adopt policies setting appropriate country limits.
As to § 614.4710: one commentator suggested deleting §§ 614.4170(a)(5) and (a)(6). These changes were made in the final regulation because they more correctly define relationships within the Federal Reserve System. In addition, § 614.4710(a)(1) was modified from the proposal so as to tie bankers acceptances generated from exports or imports directly to agricultural commodities, farm supplies, or aquatic products, as suggested by another commentator. Another suggestion to define net worth in the regulation was not followed because the term has been defined in the FCA Uniform Chart and Description of Accounts for approximately 50 years. Another commentator suggested that goods available for bankers acceptance financing should include those produced from commercial fishing as well as from agriculture. This suggestion was adopted.
A commentator suggested altering § 614.4720(d) to require that banks for cooperatives be responsible only for "assuring the presentation of proper documents." This suggestion was rejected because common banking practice is to structure a letter of credit to be paid upon satisfaction of its terms and conditions. Typically, these terms and conditions direct payment upon presentation of proper documents. The FCA regulations only restrict the payment terms and conditions by requiring that the bank cannot be required to determine questions of fact or law involving the underlying transaction.
A commentator suggested rewriting § 614.4810 "to clarify that standby letters of credit issued on behalf of those domestic or foreign parties must also arise under qualified import or export transactions with an eligible cooperative." The Federal Board considered the change unnecessary because standby letters of credit issued in relation to transactions authorized under § 614.4120 must necessarily arise "under qualified import or export transactions with an eligible cooperative."
One commentator suggested as to § 615.5190 that System institutions be allowed to deposit funds in nonmember banks of the Federal Reserve System as long as the depository institutions are insured by the Federal Deposit Insurance Corporation. The Federal Board noted that this provision was included in the proposal and that no additional action was necessary.
All seven commentators on § 615.5370(d) suggested rewriting the regulation since the proposed rule for transactions involving leveraged lease and letter of credit transactions, and bankers acceptance and foreign trade receivable financing was too restrictive. The Federal Board believes that the proposed rule did not provide flexibility with regard to how certain earnings should be retained or allocated. The proposed rule dictated the means by which earnings are retained or allocated on the basis of whether the transaction is initially capitalized. This requirement, however, is beyond those requirements imposed on present borrowers from the banks for cooperatives. In response to these comments, § 615.5370 was rewritten to permit a bank for cooperatives to allocate certain transactions on a patronage basis and others on a nonpatronage basis. Allocation of earnings from new transactions must be consistent with allocation of earnings from current transactions. Also, the manner in which earnings are allocated is required to be consistent with the bank's bylaws.
One commentator suggested that FCA did not have the authority to amend § 614.4280 to allow the bank boards, subject to FCA approval, to develop interest rate plans within which management may establish rates. The commentator further suggested that interest rates must be specifically approved by FCA and rates not so approved were subject to State usury laws. These suggestions are contrary to the Act before 1980, the 1980 Amendments and their respective legislative histories. Sections 1.7, 2.4, and 3.10 of the Act authorize district boards to set interest rates for the banks with FCA approval. The Senate Report states that these sections give the FCA broad authority in approving interest rates provided that any plan approved is directed toward "furnishing eligible farmer borrowers a continuing source of credit at the lowest reasonable cost under all money cost situations" S. Rep. No. 92-679, 92nd Cong., 1st Sess. 19 (1971). Such broad authority is not restricted by detailed approval procedures but would include approval of a variety of plans such as a variable interest plan, a series of interest rates, different rates for different types of loans, and a range of interest rates.
Regarding State usury laws, the House Report on the 1980 Amendments unequivocally states that State limitations on interest rates do not apply to loans made by System institutions H.R. Rep. No. 96-592, 96th Cong., 2nd Sess. 22 (1980). However, with the 1980 Amendments Congress added language to section 4.17 to make the law clear on this point. In any event, this addition was not intended as any limitation on FCA's interest rate approval process. Because these arguments against the proposal are without merit, they were rejected.
Several other editorial and technical changes necessary for clarity and consistency with the 1980 Amendments are reflected in various sections of the final regulations.
For the reasons set out in the preamble, Parts 614 and 615 of Chapter VI, Title 12, of the Code of Federal Regulations are amended as shown. As a convenience to the reader, a redesignation table showing the old sections of Part 614 and the new published elsewhere in this issue is shown below.
As there were no unresolved differences between FCA and the Board of Governors of the Federal Reserve System as to whether the international trade financing regulations conform to "national banking policies, objectives, and limitations," the international trade financing regulations and the amendment to the interest rate regulation shall become effective 30 days from this publication date provided either or both Houses of Congress are in session during that time.
PART 614 -- LOAN POLICIES AND OPERATIONS
Section Previous section
SUBPART A -- GENERAL
614.4000 Basic responsibilities Same.
614.4010 Supervision by the Farm Credit Administration Same.
614.4020 Delegation Same.
614.4030 Intent of delegation Same.
614.4031 Policies for delegation of authority Same.
614.4040 Bank guideline responsibilities Same.
614.4050 Bank supervision of associations Same.
614.4051 Federal land bank and Federal intermediate credit bank credit reviews Same.
614.4060 Association responsibilities Same.
SUBPART B -- CHARTERED TERRITORIES
614.4070 Loans outside the established territory -- Federal land banks, Federal land bank associations, and production credit associations Same.
614.4080 Loans outside of bank's territory -- banks for cooperatives Same.
SUBPART C -- LENDING AUTHORITIES
614.4090 Federal land banks Same.
614.4100 Federal intermediate credit banks Same.
614.4110 Production credit associations Same.
614.4120 Banks for cooperatives Same.
614.4130 Approval Same.
SUBPART D -- GENERAL LOAN POLICIES FOR BANKS AND ASSOCIATIONS
614.4140 Sound loan Same.
614.4150 Credit factors Same.
614.4160 Lending objective Same.
614.4165 Special credit needs Same.
614.4170 Borrower liability Same.
SUBPART E -- LOAN TERMS AND CONDITIONS
614.4180 Federal land banks Same.
614.4190 Federal intermediate credit banks Same.
614.4200 Production credit associations Same.
614.4210 Banks for cooperatives Same.
SUBPART F -- SECURITY REQUIREMENTS
614.4220 General Same.
614.4230 Federal land banks Same.
614.4240 Federal intermediate credit banks Same.
614.4250 Production credit associations Same.
614.4260 Banks for cooperatives Same.
614.4261 Security and appraisal standards -- banks for cooperatives Same.
SUBPART G -- INTEREST RATES AND CHANGES
614.4270 Policy Same.
614.4280 Interest rates Same.
614.4281 Discounts and related fees -- banks for cooperatives New.
614.4290 Interest on past due loans Same.
614.4300 Other charges and fees Same.
614.4310 Interest rate limitations for Federal intermediate credit banks Same.
614.4320 Production credit associations Same.
614.4321 Interest rate program Same.
SUBPART H -- LOAN PARTICIPATIONS
614.4330 General Same.
614.4331 Federal land banks Same.
614.4332 Federal intermediate credit banks Same.
614.4333 Production credit associations Same.
614.4334 Banks for cooperatives Same.
SUBPART I -- LOSS-SHARING AGREEMENTS
614.4340 General Same.
614.4345 Guaranty agreements Same.
SUBPART J -- LENDING LIMITS
614.4350 General Same.
614.4351 Federal land banks Same.
614.4352 Federal intermediate credit banks Same.
614.4353 Production credit associations Same.
614.4354 Banks for cooperatives Same.
614.4360 Computation of obligation for lending limit determination Same.
SUBPART L -- NOTICE OF ACTION AND APPEALS
614.4440 Notice of action on loan application Same.
614.4441 Applicant's right to appeal Same.
614.4442 Records Same.
SUBPART M -- LOAN APPROVAL REQUIREMENTS
614.4450 General requirements Same.
614.4460 Loan approval responsibility Same.
614.4470 Loans subject to bank prior approval Same.
SUBPART N -- LOAN SERVICING REQUIREMENTS
614.4510 General Same.
614.4511 Federal land bank association compensation Same.
614.4512 Compromise of indebtedness Same.
SUBPART O -- SPECIAL LENDING PROGRAMS
614.4520 General Same.
614.4530 Special loans, production credit associations Same.
SUBPART P -- FEDERAL INTERMEDIATE CREDIT BANK FINANCING OF OTHER FINANCING INSTITUTIONS
614.4540 Definitions New.
614.4545 General 614.4540 and 614.4550.
614.4550 Basic eligibility criteria 614.4560 and 614.4570.
614.4555 Review of denial of access based on eligibility New.
614.4560 Establishing and maintaining access 614.4560.
614.4565 Lending limit New.
614.4570 General collateral requirements 614.4600.
614.4580 Use of funds New.
614.4590 General financing agreement 614.4660.
614.4600 Methods of financing 614.4590, 614.4630, 614.4631, and 614.4632.
614.4610 Obligations eligible for discount or purchase New.
614.4620 Multiple ownership New.
614.4630 Insolvency of an OFI 614.4640.
614.4640 Rates and fees New.
614.4650 Basis for revocation of access 614.4620.
614.4660 Place of discount New
SUBPART Q -- BANKS FOR COOPERATIVES FINANCING INTERNATIONAL TRADE
614.4700 Financing foreign trade receivables New.
614.4710 Bankers acceptance financing New.
614.4720 Letters of credit New.
614.4800 Guarantees and contracts of suretyship New.
614.4810 Standby letters of credit New.
614.4900 Foreign exchange New.
Therefore, 12 CFR Parts 614 and 615 are amended as follows:
PART 614 -- LOAN POLICIES AND OPERATIONS
1. Part 614 is amended by removing the heading for Subpart E and moving §§ 614.4160 to 614.4170 to the end of Subpart D. Subpart F ( §§ 614.4180 to 614.4210) is redesignated as Subpart E. Subpart G ( §§ 614.4220 to 614.4261) is redesignated as Subpart F. Subpart H ( §§ 614.4270 to 614.4321) is redesignated as Subpart G. Subpart I ( §§ 614.4330 to 614.4334) is redesignated as Subpart H. Subpart J ( §§ 614.4340 and 614.4345) is redesignated as Subpart I. Subpart K ( §§ 614.4350 to 614.4360) is redesignated as Subpart J. Subpart M ( §§ 614.4440 to 614.4442) is redesignated as Subpart L. Subpart N ( §§ 614.4450 to 614.4470) is redesignated as Subpart M. Subpart O ( §§ 614.4510 to 614.4512) is redesignated as Subpart N. Subpart P ( §§ 614.4520 to 614.4530) is redesignated as Subpart O.
2. Section 614.4080 is amended by adding paragraph (d) to read as follows:
Subpart B -- Chartered Territories
* * * * *
§ 614.4080 Loans outside of bank's territory -- banks for cooperatives.
* * * * *
(d) A bank is authorized to provide a full range of credit services to eligible cooperatives enabling them to engage in international trade. This includes making technical and financial assistance available to a domestic or foreign party to facilitate the import or export of agricultural commodities, farm supplies, or aquatic products, and to make or participate in loans and commitments for the same, provided an eligible cooperative is a party to and benefits substantially from such transactions.
Subpart C -- Lending Authorities
* * * * *
3. Section 614.4120 is revised to read as follows:
§ 614.4120 Banks for cooperatives.
The banks are authorized to make loans and commitments to eligible cooperatives and to extend to them other financial assistance, including, but not limited to, discounting notes and other obligations, guarantees, collateral custody, or participation with other banks for cooperatives and commercial banks or other financial institutions in loans to eligible cooperatives. The banks are authorized to make or participate in loans, commitments, and extend other technical and financial assistance to a domestic or foreign party with respect to its transactions with eligible cooperative, and to a domestic or foreign party in which an eligible cooperative has at least a minimum ownership interest for the export or import of agricultural commodities, farm supplies, or aquatic products through purchases, sales, or exchanges. The eligible cooperative must substantially benefit as a result of such a loan, commitment, or assistance for the purpose of facilitating the eligible cooperative's export or import operations. This type of activity shall be made under policies determined by the board of directors and approved by the Farm Credit Administration.
* * * * *
4. Section 614.4280 is revised to read as follows:
Subpart G -- Interest Rates and Changes
* * * * *
§ 614.4280 Interest rates.
(a) Loans made by each bank shall bear interest at a rate or rates as may be determined by the bank board with the approval of the Farm Credit Administration. A bank board shall set interest rates or approve individual interest rate changes either on a case-by-case basis or pursuant to an interest rate plan within which management may establish rates. Any interest rate plan shall set loan-pricing policies and objectives, provide guidance regarding the circumstances under which management may adjust rates, and provide the upper and lower limits on management authority. A bank board may not delegate its ultimate responsibilities for setting interest rates, and any interest rate plan adopted shall be reviewed on a continuing basis by the bank board, as well as in conjunction with its review and approval of the bank's annual fiscal plan and long-range financial plan.
(b) Interest rate policies require the approval of the Farm Credit Administration.
5. Section 614.4281 is added to read as follows:
§ 614.4281 Discounts and related fees.
Banks for cooperatives may discount or rediscount notes, drafts, acceptances, and other negotiable paper at such rates as may be determined by bank management under policies of the bank board as approved by the Farm Credit Administration. Requests of the Farm Credit Administration for approval of such board policies shall include justification for the policy or change in the policy.
* * * * *
6. Subpart Q is revised to read as follows:
Subpart Q -- Banks for Cooperatives Financing International Trade
614.4700 Financing foreign trade receivables.
614.4710 Bankers acceptance financing.
614.4720 Letters of credit.
614.4800 Guarantees and contracts of suretyship.
614.4800 Standby letters of credit.
614.4900 Foreign exchange.
Authority: Secs. 5.9, 5.12, 5.18, Pub. L. 92-181, 85 Stat. 619, 620, 621, 12 U.S.C. 2243, 2246 and 2252.
§ 614.4700 Financing foreign trade receivables.
(a) The banks for cooperatives, under policies determined by their boards of directors and approved by the Farm Credit Administration, are authorized to finance foreign trade receivables on behalf of eligible cooperatives to include the following:
(1) Advances against collections.
(2) Trade acceptances.
(4) Open accounts.
(b) To reduce credit, political, and other risks associated with foreign trade receivable financing, the banks for cooperatives shall avail themselves of such guarantee and insurance plans as are available in the United States and other countries, such as the Foreign Credit Insurance Association and the Export-Import Bank of the United States. Exceptions may be made where a prospective borrower has had a long-standing successful business relationship with the eligible cooperative borrower or an eligible cooperative which is not a borrower if the prospective borrower has a high credit rating as determined by the bank.
(c) When financing a draft drawn on a foreign importer, the banks should retain recourse to the exporter unless their credit evaluation of and experience with the importer indicate recourse is not necessary or unless appropriate guarantees or insurance plans are used.
(d) The financing of foreign trade receivables shall be limited by the policies of each bank's board of directors. The policies shall provide a method of determining the maximum amount in dollars, by country, to be financed and establishing a maximum percentage of the amount of a draft drawn on a foreign party against which the bank may advance funds. The banks shall take into consideration the following factors:
(1) The reputation and financial strength of the foreign importer.
(2) The reputation and payment record of the class of importers in the same country as the subject importer in regard to prompt payment of drafts drawn upon them.
(3) The quality of the supporting documents offered with the draft.
(4) The degree of ease with which necessary foreign exchange conversion can be made, or the extent to which foreign currency exposure may be hedged by forward or future contracts.
(5) The reputation and financial strength of the exporter.
(e) The banks may establish foreign trade receivable financing programs by which eligible parties pledge collections to the bank, and then may borrow from the bank up to a stated maximum percentage of the total amount of receivables pledged at any one time.
(f) When financing foreign trade receivables, the banks shall take such precautions and obtain such credit information as necessary to ascertain that all parties to the transaction(s) being financed are reputable and capable of performing their responsibilities under the contract of sale.
(g) When financing foreign trade receivables, the banks shall determine that all shipments are covered by maritime insurance while on the high seas.
(h) Countries where credit is to be extended will be analyzed periodically and systematically on a centralized basis. The resulting country studies will be disseminated to all banks for cooperatives to be used as inputs in credit grading decisions.
§ 614.4710 Bankers acceptance financing.
The Fiscal Agency is authorized to accept drafts or bills of exchange drawn upon banks for cooperatives. With the exception of acceptances eligible for purchase by the Federal Reserve Banks under the direction and regulation of the Federal Open Market Committee and rediscounted, acceptances shall be subject to the provisions of §§ 614.4350, 614.4354, and 614.4360 of the Regulations for Banks and Associations of the Farm Credit System, and must be combined with any other loans to the account party by the banks for cooperatives for the purpose of applying the lending limits of § 614.4354.
(a) District Banks for Cooperatives. (1) The Fiscal Agency's authority to accept drafts or bills of exchange includes the authority to accept drafts or bills of exchange drawn upon a district bank for cooperatives having not more than 6 months sight to run, exclusive of days of grace, that are derived from transactions involving the importation or exportation of agricultural commodities, farm supplies or aquatic products from the United States; or are derived from transactions involving the domestic shipment of goods that were produced from agriculture or commercial fishing or that have an agriculturally or aquatically related purpose; or are secured at the time of acceptance by title covering readily marketable staples.
(i) The dollar amount of such acceptances outstanding at any one time to any one borrower, exclusive of participations sold to others, shall be limited to 10 percent of the net worth of a district bank for cooperatives as of the preceding June 30 or December 31, whichever is more recent, or an interim date determined by the Farm Credit Administration as a result of material changes in a bank's net worth. However, if such acceptances are secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance, the 10-percent limit shall not apply.
(ii) The sum of all acceptance liabilities outstanding described in paragraph (a)(1), exclusive of participations sold to others, issued to all borrowers shall not exceed 100 percent of the bank for cooperatives' net worth but the aggregate of acceptances growing out of domestic transactions shall not exceed 50 percent of net worth calculated on the date indicated in paragraph (a)(1)(i) of this section.
(2) The limit specified in paragraph (a)(1)(ii) of this section is separate from and in addition to the lending limits of § 614.4354 of the regulations if the acceptances are rediscounted.
(3) During any period within which a bank for cooperatives holds its own acceptance, having given value therefore, the amount thereof shall be included against the § 614.4354 lending limits of the customer for whom the acceptance was made.
(4) The terms and requirements for the offering and purchase of participations in acceptance financing shall be the same as those for loans issued under § 614.4334 of the regulations.
(5) When acceptances denominated in foreign currencies are not funded in the same currency, the bank for cooperatives will take corresponding action to minimize foreign exchange risk.
(b) Central Bank for Cooperatives. (1) Drafts and bills of exchange discounted directly by the Central Bank for Cooperatives at any one time, exclusive of participations sold to others, shall not exceed the acceptance limit percentage prescribed in paragraph (a)(1)(i) of this section for district banks for cooperatives.
(c) Total system. Liabilities for drafts accepted at any one time from all the district banks for cooperatives and the Central Bank for Cooperatives shall not exceed 100 percent of the combined net worth of the banks for cooperatives. However, the aggregate of acceptances growing out of domestic transactions shall not exceed 50 percent of net worth. Discounted acceptances outstanding at any one time to any one borrower from one or more district banks for cooperatives and the Central Bank for Cooperatives, exclusive of participations sold to institutions other than banks for cooperatives, shall not exceed the percentage specified in paragraph (a)(1) of this section applied to the combined net worth of the banks for cooperatives. Acceptances created or discounted within previously established limits that have become excessive because of changes in accepting and/or discounting limits prescribed herein may be held and liquidated in accordance with terms individually specified by the Farm Credit Administration.
(d) Purchase of Participations in Bankers Acceptances. (1) A district bank for cooperatives shall determine limits on purchasing participations in discounted acceptances of another bank for cooperatives on the same basis as prescribed in § 614.4354 of the regulations for purchasing participations in loans of another bank for cooperatives.
(2) Participations in discounted acceptances shall be offered in accordance with § 614.4334 of the regulations.
(e) Fiscal Agency. All acceptances created by the 13 banks for cooperatives shall be physically accepted by the Fiscal Agency when intended for rediscount.
§ 614.4720 Letters of credit.
The banks for cooperatives, under policies determined by the board of directors and approved by the Farm Credit Administration, may issue, advise, or confirm import or export letters of credit in accordance with the Uniform Commercial Code, or the Uniform Customs and Practice for Documentary Credits, to or on behalf of its customers. Until such individual district bank board policies are approved by the Farm Credit Administration, the Central Bank for Cooperatives will issue, advise, or confirm import or export letters of credit on behalf of the district banks for cooperatives. In addition, as a matter of sound banking practice, letters of credit shall be issued in conformity with the following: (a) Each letter of credit shall conspicuously state that it is a letter of credit, or be conspicuously entitled as such.
(b) The letter of credit shall contain a specified expiration date or be for a definite term.
(c) The letter of credit shall contain a sum certain.
(d) The bank's obligation to pay should arise only upon fulfilling the terms and conditions as specified in the letter of credit. The bank must not be called upon to determine questions of fact or law at issue between the account party and the beneficiary.
(e) The bank's customer should have an unqualified obligation to reimburse the bank for payments made under the letter of credit.
(f) All letters of credit shall be irrevocable.
(g) The bank shall charge a fee for either issuing or confirming a letter of credit.
§ 614.4800 Guarantees and contracts of suretyship.
A bank for cooperatives, under a policy approved by the bank's board of directors and the Farm Credit Administration, may lend its credit, be itself a surety to indemnify another, or otherwise become a guarantor if an eligible cooperative substantially benefits from the performance of the transaction involved. A bank for cooperatives may guarantee the debt of eligible cooperatives and foreign parties or otherwise agree to make payments on the occurrence of readily ascertainable events if the guarantee or agreement specifies a maximum monetary liability. Guarantees may be secured or unsecured, and can include, but are not limited to, such events as nonpayment of taxes, rentals, customs duties, costs of transport, and loss or nonconformance of shipping documents. The bank's customer shall have an unqualified obligation to reimburse the bank for payments made under a guarantee.
§ 614.4810 Standby letters of credit.
(a) The banks for cooperatives are authorized to issue on behalf of parties eligible for financing under regulations § 614.4120 standby letters of credit that represent an obligation to the beneficiary on the part of the issuer:
(1) To repay money borrowed by, advanced to, or for the account of the account party, or
(2) To make payment on account of any indebtedness undertaken by the account party, or
(3) To make payment on account of any default by the account party in the performance of an obligation.
(b) As a matter of sound banking practice, banks for cooperatives shall evaluate applications for standby letters of credit on the basis of credit factors listed in § 614.4150 of the regulations.
§ 614.4900 Foreign exchange.
(a) Before a bank for cooperatives may engage in any financial transaction which transports monetary instruments:
(1) From any place within the United States to or through any place outside the United States, or
(2) To any place within the United States from or through any place outside the United States.
the Farm Credit Administration must have already approved that bank's policies governing such transactions and determine that the bank has established procedures necessary to safeguard the interests of the stockholders of the bank in regard to such transactions.
(b) Under policies approved by the Farm Credit Administration, a bank for cooperatives may engage in currency exchange activities necessary to service individual transactions that may be financed under the regulations authorizing export, import, and other internationally related credit and financial services. These currency exchange activities shall not include any loans or commitments intended to finance speculative futures transactions by eligible borrowers in foreign currencies. The bank may engage on behalf of its eligible borrowers or on its own behalf in bona fide hedging transactions and positions, where such transactions or positions normally reduce risks in the conduct and management of international financial activities. The bank's policies should include established guidelines for:
(1) Net overnight positions, by currency.
(2) Maturity distribution, by currency, of foreign currency assets, liabilities, and foreign exchange contracts.
(3) Outstanding contracts with individual customers and banks.
(4) Credit approval procedures safeguarding against delivery or settlement risk.
(5) Total value of outstanding contracts -- spot and forward.
(c) A bank for cooperatives is responsible for its compliance with the laws of the United States in regard to reporting requirements of the Department of the Treasury pertaining to currency exchange activities and international transfers of monetary instruments.
(d) A bank for cooperatives engaged in foreign exchange trading shall have written policies describing the scope of trading activity authorized, delegation of authority, types of services offered, trading limits, reporting requirements, and internal accounting controls.
(e) The bank's trading guideline policies should provide for reporting procedures adequate to inform management properly of trading activities and to facilitate detection of lack of compliance with policy directives.
(f) The bank's policies shall establish foreign exchange delivery limits for eligible customers with relationship to the customer's financial capability to bear the financial risks assumed. The bank will be expected to maintain documentary evidence that a customer's delivery exposure is reasonable, and that responsible bank officers routinely review outstanding delivery exposure of individual customers.
(g) The bank's personnel policies shall include written standards of conduct for those involved with foreign exchange activities, including the following which should be prohibited:
(1) Trading with entities affiliated with the bank or with members of the board of directors.
(2) Foreign exchange and deposit transactions with other bank employees.
(3) Personal business relationships with foreign exchange and money brokers with whom the bank deals.
(h) The bank's policies should provide detailed instructions regarding the need for bank officers to disclose the limits of responsibility and liability of the bank when it holds positions or executes contracts for the account of eligible parties. The bank's policies regarding the respective procedures should provide reasonable assurance that reports on trading activities are current and complete, and that the opportunity for concealment of unauthorized transactions is kept at the absolute minimum.
(i) The 13 banks for cooperatives shall use the Fiscal Agency for purposes of trading foreign exchange. All foreign exchange transactions shall be made by the Fiscal Agency on behalf of the banks consistent with instructions received from the respective bank.
(j) Guidelines (b) through (i) of this section will not apply if a bank purchases or sells foreign exchange through a commercial bank and has no foreign exchange risk exposure.
PART 615 -- FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
Subpart G -- Deposit of Funds
7. Section 615.5190 is revised to read as follows:
§ 615.5190 General.
(a) Federal land banks and Federal land bank associations, Federal intermediate credit banks and production credit associations, and banks for cooperatives may deposit securities and current funds with and receive interest from any member bank of the Federal Reserve System or any insured State nonmember bank as defined in section 3 of the Federal Deposit Insurance Act. Federal land bank associations and production credit associations also may deposit funds with their supervisory bank.
(b) The banks for cooperatives also may deposit securities and current funds with and receive interest from any foreign or domestic financial organization as may be authorized under policies adopted by the banks' boards of directors and approved by the Farm Credit Administration to the extent necessary to facilitate transactions described under § 614.4080(d) of these regulations, except that, to the extent such deposits are invested in instruments approved under § 615.5140 of these regulations, they may not be invested in foreign funds. The sum of deposits placed by a bank for cooperatives with financial organizations as authorized under the foregoing shall not exceed 10 percent of the aggregate bank for cooperatives' total net worth for a period of more than 30 calendar days, and shall be made only by the Central Bank for Cooperatives on behalf of the district bank for cooperatives.
8. Section 615.5370 is amended by adding (d) to read as follows:
Subpart L -- Distribution of Earnings
§ 615.5370 Banks for cooperatives' earnings.
* * * * *
(d) A bank may conduct certain transactions on a patronage basis and others on a nonpatronage basis. Reasonable equity shall exist among the parties involved in patronage and nonpatronage transactions including, but not limited to, an equitable allocation of expenses. Each bank shall provide for an equitable method of allocating patronage earnings in a manner consistent with bank bylaws.
9. A new subpart Q consisting of § 615.5550 is added to read as follows:
Subpart Q -- Bankers Acceptances
§ 615.5550 Bankers acceptances.
Subject to the provisions of subpart 614, banks for cooperatives may rediscount with other purchasers the acceptances they have created. The bank board, under policies approved by the Farm Credit Administration, may delegate this authority to bank management.
(Secs. 5.9, 5.12, 5.18, Pub. L. 92-181, 85 Stat. 619, 620, 621 (12 U.S.C. 2243, 2246 and 2252))
C. T. Fredrickson,
[FR Doc. 81-30663 Filed 10-21-81; 8:45 am]
BILLING CODE 6705-01-M