Title: FINAL RULE--Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Title V Conservators and Receivers--12 CFR Parts 611, 615 and 627
Issue Date: 10/09/1992
Agency: FCA
Federal Register Cite: 57 FR 46480
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 615 and 627

RIN 3052-AA92

Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Title V Conservators and Receivers


ACTION: Final rule.

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board (Board), adopts final regulations governing conservatorships and receiverships for which the Farm Credit System Insurance Corporation (Insurance Corporation) is appointed as conservator or receiver. These regulations were published as proposed regulations on June 3, 1992, 57 FR 23348. The final regulations reflect amendments to the Farm Credit Act of 1971 by the Agricultural Credit Act of 1987 providing that, after January 5, 1993, the Insurance Corporation will be the exclusive entity appointed as conservator or receiver of a Farm Credit System institution (System institution or Farm Credit institution). Also adopted are amendments to existing conservatorship and receivership regulations, which continue to apply in situations where the Insurance Corporation is not appointed as conservator or receiver.


EFFECTIVE DATE: The regulations shall become effective upon the expiration of 30 days after publication during which either or both houses of Congress are in session. Notice of the effective date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444, or

John J. Hays, Policy Analyst, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. General

The Agricultural Credit Act of 1987 (Pub. L. 100-233) (1987 Act) amended the Farm Credit Act of 1971 (Act) by adding a new title V which provided for the establishment of the Insurance Corporation. New sections 5.51(5) and 5.58(9) of the Act empower the Insurance Corporation to act as conservator or receiver. The 1987 Act also amended section 4.12(b) of the Act to provide that, after January 5, 1993, the Insurance Corporation will be the exclusive entity to be appointed by the FCA as conservator or receiver of a System institution. In new part 627, the Board sets forth the powers and duties of the Insurance Corporation when it acts as conservator or receiver of a System institution. Other conservators or receivers will continue to be governed by the existing provisions in part 611, subparts K, L, M, and N of the regulations, as amended.

The Board's decision to promulgate separate regulations for conservatorships and receiverships for which the Insurance Corporation is the conservator or receiver is based on fundamental differences between the Insurance Corporation and other persons or entities that have previously been appointed to the position. The primary difference is that the Insurance Corporation is a Federal agency in its own right. Thus, provisions pertaining to the status of other conservators or receivers as agents of the FCA are unnecessary for the Insurance Corporation. In addition, the Board believes that retention of a Farm Credit charter by an institution for which the Insurance Corporation acts as receiver is no longer necessary in all circumstances and has provided that the Board may, in its discretion, cancel the charter at the commencement of such receivership or at any time thereafter. Finally, most of the provisions relating to FCA supervisory involvement have been removed. For a full discussion of these matters, see 57 FR 23348 (June 3, 1992).

II. Discussion of Comments

The FCA received comments from the Farm Credit Council (FCC) on behalf of its member System institutions, and from two Farm Credit Banks (FCBs). The FCBs' comments consisted of statements of support for the FCC's comments. Their comments are discussed below.

A. Definition of "Farm Credit institution"

The FCC objected to the inclusion of the Federal Farm Credit Banks Funding Corporation (Funding Corporation), the Farm Credit System Financial Assistance Corporation (FAC), and the Federal Agricultural Mortgage Corporation (Farmer Mac) in the definition of "Farm Credit institution" in proposed 627.2705(b) for purposes of applying the conservatorship and receivership regulations. These institutions are also included in the definition of "bank" in existing regulation 611.1170(h) of this chapter. The FCC questioned the appropriateness of applying the receivership procedures to these institutions on the ground that such institutions are "congressionally established."

The FCA Board agrees with the FCC that the institutions were either established by Congress, in the case of the Funding Corporation and Farmer Mac, or chartered by the FCA pursuant to congressional mandate, in the case of the FAC. All the institutions are, however, designated by statute as "institution[s] of the Farm Credit System." See sections 4.9(a), 6.20, and 8.1(a) (1) of the Act. Section 4.12(b) of the Act empowers the FCA Board to "appoint a conservator or receiver for any System institution" (emphasis added) if one or more specified grounds exist, and the FCA's power to appoint is exclusive. Should a System institution become insolvent or should any other ground for appointment of a conservator or receiver arise, only the FCA can appoint a conservator or receiver. There is no distinction made in the application of section 4.12(b) on the basis of how a System institution was created. Therefore, unless some other provision of the Act provides for a different treatment, the three institutions in question should be subject to section 4.12(b) and to the conservatorship and receivership regulations.

The provisions pertaining to the FCA's authority to regulate Farmer Mac are in title VIII of the Act. This title was amended by the Food, Agriculture, Conservation and Trade Act Amendments of 1991 (1991 Amendments) (Pub. L. 102-237) to establish a regulatory scheme of FCA examination and supervision through the Office of Secondary Market Oversight (OSMO). New section 8.11(a) provides that the FCA shall act through OSMO to examine, supervise, and promulgate rules and regulations for Farmer Mac, and new section 8.37(b)(6) authorizes the Director of OSMO to "[a]ppoint a conservator for [Farmer Mac] consistent with this Act." n1 Furthermore, section 8.3(c)(6), which was enacted in 1988, provides that Farmer Mac shall "have succession until dissolved by a law enacted by the Congress." Therefore, it appears that the Act gives the FCA, acting through the OSMO Director, power to appoint a conservator but does not permit the FCA to place Farmer Mac in receivership. The FCA would appoint a receiver only if Congress enacts a new law directing or authorizing the agency to take such action. Consequently, the receivership regulations would be inapplicable to Farmer Mac.

n 1 The FCA interprets "consistent with this Act" to mean that relevant provisions of section 4.12 apply -- such as, for example, the provision that an institution has a right to challenge the appointment of a conservator, or the requirement that the Insurance Corporation be appointed to act as conservator.

In addition, the Board has determined that the conservatorship regulations adopted here today should not be applicable to Farmer Mac but should be addressed separately. The Board has therefore removed Farmer Mac from the definitions of "bank" and "Farm Credit institution" in the final regulations.

There is no other provision of the Act that specifically addresses the appointment of a conservator or receiver for the Funding Corporation or the FAC. Accordingly, it is the Board's view that section 4.12(b) applies to them and that these regulations should likewise be applicable. n2 Therefore, the final regulations include the Funding Corporation and the FAC in the definitions of "bank" and "Farm Credit institution."

n 2 The FCA interprets the FAC termination provision in section 6.31 of the Act to set a time after which the FAC authorities are extinguished, not to prohibit the placing of the institution in conservatorship or receivership.

The FCA Board is aware of the special statutory origin of the Funding Corporation and the FAC. Should one or more of the grounds for appointment of a conservator or receiver ever arise at one of the institutions, the Board would not anticipate taking any action without full consideration of such institution's special status and consultation with appropriate parties. The Board notes that the nature of the operational activities of these two institutions makes it extremely unlikely that either would ever be placed in receivership, but should that occur, there should be some mechanism for winding up the affairs of the institutions. Also, when the FAC terminates its existence, it may be necessary to place the corporation in receivership to wind up its affairs. When and if any of these events occur, it should be the FCA that places them in receivership and the Insurance Corporation that acts as receiver.

B. Consultation With District Bank Before Voluntary Liquidation of Association

Section 627.2720 of the proposed regulations did not contain a requirement that the FCA consult with the district FCB before placing an association in voluntary receivership, as is currently required in 611.1160(a) of this chapter. The FCC requested that the consultation requirement be added to new part 627, reasoning that the FCA would and should want to know the views of the association's largest creditor and bank, in light of the potential impact of the liquidation on the FCB itself and the other association stockholders in the district. The FCC also stated that, if the district FCB did not have the opportunity to express its views to the FCA prior to the liquidation, it seemed unreasonable and unworkable to expect the FCB to fulfill its statutory and regulatory requirement to "institute appropriate measures to minimize the adverse effect of the liquidation on those borrowers whose loans are purchased by or otherwise transferred to another System institution" (section 4.12(a) of the Act).

The Board does not agree that it is "unreasonable and unworkable" to expect an FCB to fulfill its statutory duties if the FCB has not been consulted. The Board notes, however, that because the FCA would also be concerned about minimizing the adverse effects of a liquidation, the FCA would ordinarily be in contact with a district bank before approving an association's proposed voluntary liquidation. Although the Board does not believe it is necessary to place a consultation requirement in the regulations, in light of the FCC's concerns a provision has been added in 627.2720(a) that the FCA may, in its discretion, consult with the district bank prior to approving a voluntary liquidation of an association.

The discretionary consultation provision should not, however, be construed as granting an FCB any right to prevent an association's proposed liquidation. Rather, the consultation would provide the FCA with additional information with which to decide whether to approve the liquidation and, if it is approved, how to arrange for continued Farm Credit service in the territory.

The FCC also requested the addition in part 627 of another provision of existing regulations that permits the board of directors of an institution in receivership, at the discretion of the FCA Board, to remain in office during the receivership to provide advice and recommendations to the receiver during the liquidation. The Board has decided not to add this provision to part 627 because it believes that the issue is now more appropriately the concern of the Insurance Corporation when it acts as receiver.

C. Cancellation of the Charter of an Institution in Receivership

The FCC questioned the appropriateness of canceling the charter of an institution at the commencement of a receivership, rather than at the end as is currently the practice. The FCC asserted that the charter cancellation "needlessly clouds" the issue of whether the institution has standing to challenge the imposition of an involuntary receivership.

The FCA Board does not believe that cancellation of the charter places any cloud on the right of the institution to bring an action, within 30 days after the appointment of a receiver, for an order requiring the FCA Board to remove the receiver. This right is expressly granted by section 4.12(b) of the Act, and no valid regulation can have the effect of overriding a statutory requirement.

However, the Board has determined that it will consider the merits of cancellation of the charter at the commencement of each receivership on a case-by-case basis. The Board expects that, ordinarily, the charter would be canceled when the Insurance Corporation is appointed as receiver. If circumstances indicate that there would be a benefit to retaining the charter of a specific institution for a period of time after the appointment of the receiver, the Board will have the flexibility to so provide. Therefore, the Board is adopting a provision that the Board may, in its discretion, cancel the charter of an institution in receivership at any time after the Insurance Corporation is appointed as receiver.

D. Ongoing and Future Credit Needs of Eligible Borrowers

The FCC requested that the Board clarify in the final regulations how the ongoing and future credit needs of eligible borrowers will be met in the territory formerly served by an association in liquidation. The Board has decided not to revise the proposed regulations in response to this comment because it believes that the organizational differences among districts are too numerous and the credit needs of eligible borrowers throughout the country are too various to address this issue through regulations. Thus, future credit needs will necessarily be addressed on a case-by-case basis.

List of Subjects

12 CFR Part 611

Agriculture, Banks, Banking, Rural areas.

12 CFR Part 615

Accounting, Agriculture, Banks, Banking, Government securities, Investments, Rural areas.

12 CFR Part 627

Agriculture, Banks, Banking, Claims, Rural areas.

For the reasons set forth in the preamble, parts 627, 611, and 615 of chapter VI, title 12 of the Code of Federal Regulations are added and amended, respectively, as follows:

1. A new part 627 is added to read as follows:

PART 627 -- TITLE V CONSERVATORS AND RECEIVERS

Subpart A -- General

Sec.

627.2700 General -- applicability.

627.2705 Definitions.

627.2710 [Reserved]

627.2715 Action for removal of conservator or receiver.

Subpart B -- Receivers and Receiverships

627.2720 Appointment of receiver.

627.2725 Powers and duties of the receiver.

627.2730 Preservation of equity.

627.2735 Notice to holders of uninsured accounts and stockholders.

627.2740 Creditors' claims.

627.2745 Priority of claims -- associations.

627.2750 Priority of claims -- banks.

627.2752 Priority of claims -- other Farm Credit institutions.

627.2755 Payment of claims.

627.2760 Inventory, audit, and reports.

627.2765 Final discharge and release of the receiver.

Subpart C -- Conservators and Conservatorships

627.2770 Conservators.

627.2775 Appointment of a conservator.

627.2780 Powers and duties of conservators.

627.2785 Inventory, examination, audit, and reports to stockholders.

627.2790 Final discharge and release of the conservator.

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58 of the Farm Credit Act; 12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7.

Subpart A -- General

627.2700 General -- applicability.

The provisions of this part shall apply to conservatorships and receiverships of Farm Credit institutions for which the Farm Credit System Insurance Corporation is appointed as conservator or receiver.

627.2705 Definitions.

For purposes of this part the following definitions apply:

(a) Act means the Farm Credit Act of 1971, as amended.

(b) Farm Credit institution(s) or institution(s) means all associations, banks, service corporations chartered under title IV of the Act, the Federal Farm Credit Banks Funding Corporation, and the Farm Credit System Financial Assistance Corporation.

(c) Conservator means the Farm Credit System Insurance Corporation acting in its capacity as conservator.

(d) Insurance Corporation means the Farm Credit System Insurance Corporation.

(e) Receiver means the Insurance Corporation acting in its capacity as receiver.

627.2710 [Reserved]

627.2715 Action for removal of conservator or receiver.

Upon the appointment of a conservator or receiver for a Farm Credit institution by the Farm Credit Administration Board pursuant to 627.2710 of this part, the institution may, within 30 days of such appointment, bring an action in the United States District Court for the judicial district in which the home office of the institution is located, or in the United States District Court for the District of Columbia, for an order requiring the Farm Credit Administration Board to remove such conservator or receiver and, if the charter has been canceled, to rescind the cancellation of the charter. Notwithstanding any other provision of subpart B or C of this part, the institution's board of directors is empowered to meet subsequent to such appointment and authorize the filing of an action for removal. An action for removal may be authorized only by such institution's board of directors.

Subpart B -- Receivers and Receiverships

627.2720 Appointment of receiver.

(a) The board of directors of a Farm Credit institution, by the adoption of an appropriate resolution, may vote to liquidate the institution, and upon approval of the resolution by the Farm Credit Administration Board, the Board may, by order, place the Farm Credit institution in receivership. If the institution seeking to liquidate is an association, the Farm Credit Administration may, in its discretion, consult with the district bank prior to approving the association's resolution to liquidate.

(b) The Farm Credit Administration Board may, in its discretion, appoint ex parte and without notice a receiver for any Farm Credit institution in accordance with the grounds for appointment set forth in 627.2710 of this part.

(c) The voluntary or involuntary liquidation of a Farm Credit institution shall be conducted by the receiver. After January 5, 1993, the Insurance Corporation shall be the sole entity to be appointed as receiver.

(d) Upon the appointment of the Insurance Corporation as receiver, the Chairman of the Farm Credit Administration Board shall immediately notify the institution, and its district bank in the case of an association, and shall publish a notice of the appointment in the Federal Register.

(e) In the case of the voluntary or involuntary liquidation of an association, the district bank shall institute appropriate measures to minimize the adverse effect of the liquidation on those borrowers whose loans are purchased by or otherwise transferred to another System institution.

(f) Upon the issuance of the order placing a Farm Credit institution into liquidation and appointing the Insurance Corporation as receiver, all rights, privileges, and powers of the board of directors, officers, and employees of the institution shall be vested exclusively in the receiver. The Farm Credit Administration Board may simultaneously, or any time thereafter, cancel the charter of the institution.

627.2725 Powers and duties of the receiver.

(a) General. (1) Upon appointment as receiver, the receiver shall take possession of a Farm Credit institution pursuant to 12 U.S.C. 2183 and 627.2710 of this part in order to wind up the business operations of such institution, collect the debts owed to the institution, liquidate its property and assets, pay its creditors, and distribute the remaining proceeds to stockholders. The receiver is authorized to exercise all powers necessary to the efficient termination of an institution's operation as provided for in this subpart.

(2) Upon its appointment as receiver, the receiver automatically succeeds to --

(i) All rights, titles, powers and privileges of the institution and of any stockholder, officer, or director of such institution with respect to the institution and the assets of the institution; and

(ii) Title to the books, records, and assets of any previous conservator or other legal custodian of such institution.

(3) The receiver of a Farm Credit institution serves as the trustee of the receivership estate and conducts its operations for the benefit of the creditors and stockholders of the institution.

(b) Specific powers. The receiver may:

(1) Exercise all powers as are conferred upon the officers and directors of the institution under law and the charter, articles, and bylaws of the institution.

(2) Take any action the receiver considers appropriate or expedient to carry on the business of the institution during the process of liquidating its assets and winding up its affairs.

(3) Extend credit to existing borrowers as necessary to honor existing commitments and to effectuate the purposes of the receivership.

(4) Borrow such sums as necessary to effectuate the purposes of the receivership.

(5) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect the institution's assets or property or rehabilitate or improve such property and assets.

(6) Pay any sum the receiver deems necessary or advisable to preserve, conserve, or protect any asset or property on which the institution has a lien or in which the institution has a financial or property interest, and pay off and discharge any liens, claims, or charges of any nature against such property.

(7) Investigate any matter related to the conduct of the business of the institution, including, but not limited to, any claim of the institution against any individual or entity, and institute appropriate legal or other proceedings to prosecute such claims.

(8) Institute, prosecute, maintain, defend, intervene, and otherwise participate in any legal proceeding by or against the institution or in which the institution or its creditors or members have any interest, and represent in every way the institution, its members, and creditors.

(9) Employ attorneys, accountants, appraisers, and other professionals to give advice and assistance to the receivership generally or on particular matters, and pay their retainers, compensation, and expenses, including litigation costs.

(10) Hire any agents or employees necessary for proper administration of the receivership.

(11) Execute, acknowledge, and deliver, in person or through a general or specific delegation, any instrument necessary for any authorized purpose, and any instrument executed under this paragraph shall be valid and effective as if it had been executed by the institution's officers by authority of its board of directors.

(12) Sell for cash or otherwise any mortgage, deed of trust, chose in action, note contract, judgment or decree, stock, or debt owed to the institution, or any property (real or personal, tangible or intangible).

(13) Purchase or lease office space, automobiles, furniture, equipment, and supplies, and purchase insurance, professional, and technical services necessary for the conduct of the receivership.

(14) Release any assets or property of any nature, regardless of whether the subject of pending litigation, and repudiate, with cause, any lease or executory contract the receiver considers burdensome.

(15) Settle, release, or obtain release of, for cash or other consideration, claims and demands against or in favor of the institution or receiver.

(16) Pay, out of the assets of the institution, all expenses of the receivership and all costs of carrying out or exercising the rights, powers, privileges, and duties as receiver.

(17) Pay out of the assets of the institution all approved claims of indebtedness in accordance with priorities established in this subpart.

(18) Take all actions and have such rights, powers, and privileges as are necessary and incident to the exercise of any specific power.

(19) Take such actions, and have such additional rights, powers, privileges, immunities, and duties as the Farm Credit Administration Board authorizes by order or by amendment of any order or by regulation.

(c) Authority to pay claims. The receiver of a bank is also empowered to pay claims of holders of notes, bonds, debentures, or other obligations issued by the bank under 12 U.S.C. 2153(c) or (d) in accordance with procedures specified by the Insurance Corporation pursuant to 627.2740(d) of this part.

627.2730 Preservation of equity.

(a) Except as provided for upon final distribution of the assets of the institution, no capital stock, participation certificates, equity reserves, or other allocated equities of an institution in receivership shall be issued, allocated, retired, sold, distributed, transferred, assigned, or applied against any indebtedness of the owners of such equities.

(b) Immediately upon the adoption of a resolution by its board of directors to liquidate voluntarily the institution, the capital stock, participation certificates, equity reserves, and allocated equities of the institution shall not be issued, allocated, retired, sold, distributed, transferred, assigned, or applied against any indebtedness of the owners of such equities until such time as the stockholders of the institution or the Farm Credit Administration Board disapproves such resolution. In the event the resolution is approved by the stockholders of the institution and the Farm Credit Administration Board, and the institution is placed in receivership, the provisions of paragraph (a) of this section shall govern further disposition of the equities of the institution.

(c) Notwithstanding paragraphs (a) and (b) of this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

627.2735 Notice to holders of uninsured accounts and stockholders.

(a) Upon the placing of an institution in liquidation, the receiver shall immediately notify every borrower who has an uninsured account (voluntary or involuntary) as described in 614.4513 of this chapter that the funds ceased earning interest when the receivership was instituted and will be applied against the outstanding indebtedness of any loans of such borrower unless, within 15 days of such notice, the borrower directs the receiver to otherwise apply such funds in the manner provided for in existing loan documents.

(b) As soon as practicable after the receiver takes possession of the institution, the receiver shall notify, by first class mail, each holder of stock and participation certificates of the following matters:

(1) The number of shares such holder owns;

(2) That the stock and other equities of the institution may not be retired or transferred until the liquidation is completed, whereupon the receiver will distribute a liquidating dividend, if any, to the owners of such equities; and

(3) Such other matters as the receiver or the Farm Credit Administration deems necessary.

627.2740 Creditors' claims.

(a) The receiver shall publish promptly a notice to creditors to present their claims against the institution, with proof thereof, to the receiver by a date specified in the notice, which shall be not less than 90 calendar days after the first publication. The notice shall be republished approximately 30 days and 60 days after the first publication. The receiver shall promptly send, by first class mail, a similar notice to any creditor shown on the institution's books at the creditor's last address appearing thereon. Claims filed after the specified date shall be disallowed, except as the receiver may approve them for full or partial payment from the institution's assets remaining undistributed at the time of approval.

(b) The receiver shall allow any claim that is timely received and proved to the receiver's satisfaction. The receiver may disallow in whole or in part any creditor's claim or claim of security, preference, or priority which is not proved to the receiver's satisfaction or is not timely received and shall notify the claimant of the disallowance and reason therefore. Sending the notice of disallowance by first class mail to the claimant's address appearing on the proof of claim shall be sufficient notice. The disallowance shall be final, unless, within 30 days after the notice of disallowance is mailed, the claimant files a written request for payment regardless of the disallowance. The receiver shall reconsider any claim upon the timely request of the claimant and may approve or disapprove such claim in whole or in part.

(c) Creditors' claims that are allowed shall be paid by the receiver from time to time, to the extent funds are available therefore and in accordance with the priorities established in this subpart and in such manner and amounts as the receiver deems appropriate. In the event the institution has a claim against a creditor of the institution, the receiver shall offset the amount of such claim against the claim asserted by such creditor.

(d) The claims of holders of notes, bonds, debentures, or other obligations issued by a bank under 12 U.S.C. 2153 (c) or (d) shall be made, if deemed necessary or appropriate, in accordance with procedures formulated by the Insurance Corporation. In the formulation of such procedures, the Insurance Corporation shall consult with the Farm Credit Administration.

627.2745 Priority of claims -- associations.

The following priority of claims shall apply to the distribution of the assets of an association in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the association, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the association.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the association whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the association not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors, including the district bank, which are secured by assets or equities of the association in accordance with applicable Federal or State law.

(g) All claims of the district bank other than those provided for in paragraph (f) of this section, based on the financing agreement between the association and the bank, including interest accrued before and after the appointment of the receiver, minus any setoff for stock or other equity of the district bank owned by the association made in accordance with this paragraph or paragraph (f) of this section. Prior to making such setoff, the district bank must obtain the approval of the Farm Credit Administration Board for the retirement of such equities.

(h) All claims of general creditors.

627.2750 Priority of claims -- banks.

The following priority of claims shall apply to the distribution of the assets of a bank in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the bank, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the bank.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the bank whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the bank not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets or equities of the bank, with priority of conflicting claims of creditors within this same class to be determined in accordance with priorities of applicable Federal or State law.

(g) All claims of holders of bonds issued by the bank individually to the extent such are collateralized in accordance with 12 U.S.C. 2154.

(h) All claims of holders of consolidated and Systemwide bonds and claims of the other Farm Credit banks arising from their payments pursuant to 12 U.S.C. 2155.

(i) All claims of general creditors.

627.2752 Priority of claims -- other Farm Credit institutions.

The following priority of claims shall apply to the distribution of the assets of an institution, other than a bank or association, in liquidation:

(a) All costs, expenses, and debts incurred by the receiver in connection with the administration of the receivership.

(b) Administrative expenses of the institution, provided that such expenses were incurred within 60 days prior to the receiver's taking possession, and that such expenses shall be limited to reasonable expenses incurred for services actually provided by accountants, attorneys, appraisers, examiners, or management companies, or reasonable expenses incurred by employees which were authorized and reimbursable under a preexisting expense reimbursement policy, that, in the opinion of the receiver, are of benefit to the receivership, and shall not include wages or salaries of employees of the institution.

(c) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver by an employee of the institution whom the receiver determines it is in the best interest of the receivership to engage or retain for a reasonable period of time.

(d) If authorized by the receiver, claims for wages and salaries, including vacation pay, earned prior to the appointment of the receiver, up to a maximum of three thousand dollars ($3,000) per person as adjusted for inflation, by an employee of the institution not engaged or retained by the receiver. The adjustment for inflation shall be the percentage by which the Consumer Price Index (as prepared by the Department of Labor) for the calendar year preceding the appointment of the receiver exceeds the Consumer Price Index for the calendar year 1992.

(e) All claims for taxes.

(f) All claims of creditors which are secured by specific assets or equities of the institution, with priority of conflicting claims of creditors within this same class to be determined in accordance with priorities of applicable Federal or State law.

(g) All claims of general creditors.

627.2755 Payment of claims.

(a) All claims of each class described in 627.2745, 627.2750, or 627.2752 of this part, respectively, shall be paid in full, or provisions shall be made for such payment, prior to the payment of any claim of a lesser priority. If there are insufficient funds to pay in full any class of claims described in 627.2745, distribution on such class shall be on a pro rata basis.

(b) Following the payment of all claims, the receiver shall distribute the remainder of the assets of the institution to the owners of stock, participation certificates, and other equities in accordance with the priorities for impairment set forth in the bylaws of the institution.

(c) Notwithstanding this section, eligible borrower stock shall be retired in accordance with section 4.9A of the Act.

627.2760 Inventory, audit, and reports.

(a) As soon as practicable after taking possession of an institution, the receiver shall make an inventory of the assets and liabilities as of the date possession was taken.

(b) The institution in receivership shall be audited on an annual basis by a certified public accountant selected by the receiver.

(c) With respect to each receivership, the receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the institution in receivership or any member of the public, with a copy provided to the Farm Credit Administration.

(d) Upon the final liquidation of the institution, the receiver shall send to each stockholder of record a report summarizing the disposition of the assets of the receivership and claims against the receivership.

627.2765 Final discharge and release of the receiver.

After the receiver has made a final distribution of the assets of the receivership, the receivership shall be terminated, the charter shall be canceled by the Farm Credit Administration Board if such cancellation has not previously occurred, and the receiver shall be finally discharged and released.

Subpart C -- Conservators and Conservatorships

627.2770 Conservators.

(a) The Insurance Corporation shall be appointed as conservator by the Farm Credit Administration Board pursuant to section 4.12 of the Act and 627.2710 of this part to take possession of an institution in accordance with the terms of the appointment. Upon appointment, the conservator shall direct the institution's further operation until the Farm Credit Administration Board decides whether to place the institution into receivership. Upon correction or resolution of the problem or condition that provided the basis for the appointment and upon a determination by the Farm Credit Administration Board that the institution can be returned to normal operations, the Farm Credit Administration Board may turn the institution over to such management as the Farm Credit Administration Board may direct.

(b) The conservator shall exercise all powers necessary to continue the ongoing operations of the institution, to conserve and preserve the institution's assets and property, and otherwise protect the interests of the institution, its stockholders, and creditors as provided in this subpart.

627.2775 Appointment of a conservator.

(a) The Farm Credit Administration Board may appoint ex parte and without notice a conservator for any Farm Credit institution provided that one or more of the grounds for appointment as set forth in 627.2710 exist.

(b) Upon the appointment of a conservator, the Chairman of the Farm Credit Administration shall immediately notify the institution and, in the case of an association, the district bank, and notice of the appointment shall be published in the Federal Register. As soon as practicable after the conservator takes possession of the institution, the conservator shall notify, by first class mail, each holder of stock and participation certificates in the institution of the establishment of the conservatorship and shall describe the effect of the conservatorship on the institution's operations and on the borrower's loan and equity holdings.

(c) Upon the issuance of the order placing a Farm Credit institution in conservatorship, all rights, privileges, and powers of the members, board of directors, officers, and employees of the institution are vested exclusively in the conservator.

(d) The conservator is responsible for conserving and preserving the assets of the institution and continuing the ongoing operations of the institution until the conservatorship is terminated by order of the Farm Credit Administration Board.

(e) The Board may, at any time, terminate the conservatorship and direct the conservator to turn over the institution's operations to such management as the Board may designate, in which event the provisions of this subpart shall no longer apply.

627.2780 Powers and duties of conservators.

(a) The conservator of an institution serves as the trustee of the institution and conducts its operations for the benefit of the creditors and stockholders of the institution.

(b) The conservator may, with respect to Farm Credit institutions, exercise the powers that a receiver of an institution may exercise under any of the provisions of 627.2725(b) of this part, except paragraphs 627.2725 (b)(2) and (b)(17). In interpreting the applicable paragraphs for purposes of this section, the terms "conservator" and "conservatorship" shall be read for "receiver" and "receivership."

(c) The conservator may extend credit to new and existing borrowers as is necessary to the continuing operation of the institution and to effectuate the purposes of the conservatorship.

(d) The conservator may also take any other action the conservator considers appropriate or expedient to the continuing operation of the institution.

627.2785 Inventory, examination, audit, and reports to stockholders.

(a) As soon as practicable after taking possession of a Farm Credit institution the conservator shall make an inventory of the assets and liabilities of the institution as of the date possession was taken. One copy of the inventory shall be filed with the Farm Credit Administration.

(b) The institution in conservatorship shall be examined by the Farm Credit Administration in accordance with section 5.19 of the Act. The institution shall also be audited by a certified public accountant in accordance with part 621 of this chapter.

(c) Each institution in conservatorship shall prepare and file with the Farm Credit Administration financial reports in accordance with the requirements of part 621 of this chapter. The conservator of the institution shall provide the certification required in 621.12 of this chapter.

(d) Each institution in conservatorship shall prepare and issue published financial reports in accordance with provisions of part 620 of this chapter, and the certifications and signatures of the board of directors or management provided for in 620.2(b), 620.2(c), and 620.5(m)(2) of this chapter shall be provided by the conservator of the institution.

627.2790 Final discharge and release of the conservator.

At such time as the conservator shall be relieved of its conservatorship duties, the conservator shall file a report on the conservator's activities with the Farm Credit Administration. The conservator shall thereupon be completely and finally released.

PART 611 -- ORGANIZATION

2. The authority citation for part 611 continues to read as follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act; 12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003 and 1004.

Subpart K -- Appointment of Conservators and Receivers

611.1155 [Amended]

3. Section 611.1155 is amended by adding two sentences to the end of the existing text to read:

611.1155 General.

* * * Subparts K, L, M, and N of this part shall not apply to conservatorships or receiverships for which the Farm Credit System Insurance Corporation is appointed as conservator or receiver. Such conservatorships and receiverships shall be governed by part 627 of this chapter.

611.1156 [Redesignated]

4. Section 611.1156 is redesignated as 627.2710, and paragraph (a) of newly designated 627.2710 is revised to read as follows:

627.2710 Grounds for appointment of conservators and receivers.

(a) Upon a determination by the Farm Credit Administration Board of the existence of one or more of the factors set forth in paragraph (b) of this section, with respect to any bank, association, or other institution of the System, the Farm Credit Administration Board may, in its discretion, appoint a conservator or receiver for such institution. After January 5, 1993, the Insurance Corporation shall be the sole entity to be appointed as conservator or receiver.

* * * * *

611.1157 [Amended]

5. Section 611.1157 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (a) and (b).

Subpart L -- Liquidation of Associations

611.1160 [Amended]

6. Section 611.1160 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (b) and (g).

7. Section 611.1168 is amended by removing paragraphs (c), (d), and (e); by redesignating paragraph (f) as new paragraph (d); and by adding new paragraph (c) to read as follows:

611.1168 Inventory, examination, audit, and reports to stockholders.

* * * * *

(c) The receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the association in receivership or any member of the public.

* * * * *

Subpart M -- Liquidation of Banks

611.1170 [Amended]

8. Section 611.1170 is amended by removing the reference " 611.1156 of this part" and adding in its place, the reference " 627.2710 of this chapter" in paragraphs (b) and (g); and by removing "the Federal Agricultural Mortgage Corporation," from paragraph (h).

9. Section 611.1175 is amended by removing paragraphs (c), (d), and (e); by redesignating paragraph (f) as new paragraph (d); and by adding new paragraph (c) to read as follows:

611.1175 Inventory, examination, audit, and reports to stockholders.

* * * * *

(c) The receiver shall make an annual accounting or report, as appropriate, available upon request to any stockholder of the bank in receivership or any member of the public.
* * * * *

Subpart N -- Conservators and Conservatorships of Banks and Associations

611.1180 [Amended]

10. Section 611.1180 is amended by removing the reference " 611.1156" and adding in its place, the reference " 627.2710 of this chapter" in paragraph (a); and by removing "the Federal Agricultural Mortgage Corporation," from paragraph (f).

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

11. The authority citation for part 615 is revised to read as follows:

Authority: Secs. 1.5, 1.7, 1.10, 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, 2015, 2018, 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

615.5216 [Amended]

12. Section 615.5216 is amended by removing the reference " 611.1156" and adding in its place, the reference " 627.2710 of this chapter" in paragraph (b).

Dated: October 2, 1992.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 92-24481 Filed 10-8-92; 8:45 am]

BILLING CODE 6705-01-M