[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2005 Edition]
[From the U.S. Government Printing Office]



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          12


          Parts 600 to 899

                         Revised as of January 1, 2005


          Banks and Banking
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2005
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................      vi

  Title 12:
          Chapter VI--Farm Credit Administration                     3
          Chapter VII--National Credit Union Administration        317
          Chapter VIII--Federal Financing Bank                     681
  Finding Aids:
      Table of CFR Titles and Chapters........................     691
      Alphabetical List of Agencies Appearing in the CFR......     709
      List of CFR Sections Affected...........................     719

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 600.1 refers 
                       to title 12, part 600, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

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[[Page vi]]

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                                    Director,
                          Office of the Federal Register.

January 1, 2005.

[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of seven volumes. The parts 
in these volumes are arranged in the following order: parts 1-199, 200-
219, 220-299, 300-499, 500-599, part 600-899, and 900-end. The first 
volume containing parts 1-199 is comprised of chapter I--Comptroller of 
the Currency, Department of the Treasury. The second and third volumes 
containing parts 200-299 are comprised of chapter II--Federal Reserve 
System. The fourth volume containing parts 300-499 is comprised of 
chapter III--Federal Deposit Insurance Corporation and chapter IV--
Export-Import Bank of the United States. The fifth volume containing 
parts 500-599 is comprised of chapter V--Office of Thrift Supervision, 
Department of the Treasury. The sixth volume containing parts 600-899 is 
comprised of chapter VI--Farm Credit Administration, chapter VII--
National Credit Union Administration, chapter VIII--Federal Financing 
Bank. The seventh volume containing part 900-end is comprised of chapter 
IX--Federal Housing Finance Board, chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2005.

    For this volume, Ruth Green was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Frances D. 
McDonald, assisted by Alomha S. Morris.

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                       TITLE 12--BANKS AND BANKING




                  (This book contains part 600 to 899)

  --------------------------------------------------------------------
                                                                    Part

chapter vi--Farm Credit Administration......................         600

chapter vii--National Credit Union Administration...........         700

chapter viii--Federal Financing Bank........................         810

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                 CHAPTER VI--FARM CREDIT ADMINISTRATION




  --------------------------------------------------------------------

                 SUBCHAPTER A--ADMINISTRATIVE PROVISIONS
Part                                                                Page
600             Organization and functions..................           5
601             Employee responsibilities and conduct.......           8
602             Releasing information.......................           8
603             Privacy Act regulations.....................          16
604             Farm Credit Administration Board meetings...          19
605             Information.................................          22
606             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Farm Credit 
                    Administration..........................          25
607             Assessment and apportionment of 
                    administrative expenses.................          30
608             Collection of claims owed the United States.          35
                    SUBCHAPTER B--FARM CREDIT SYSTEM
609             Electronic commerce.........................          49
611             Organization................................          52
612             Standards of conduct and referral of known 
                    or suspected criminal violations........          84
613             Eligibility and scope of financing..........          94
614             Loan policies and operations................         100
615             Funding and fiscal affairs, loan policies 
                    and operations, and funding operations..         145
616             Leasing.....................................         190
617             Borrower rights.............................         192
618             General provisions..........................         206
619             Definitions.................................         215
620             Disclosure to shareholders..................         217
621             Accounting and reporting requirements.......         235
622             Rules of practice and procedure.............         242
623             Practice before the Farm Credit 
                    Administration..........................         256
624             Regulatory accounting practices.............         260
625             Application for award of fees and other 
                    expenses under the Equal Access to 
                    Justice Act.............................         261
626             Nondiscrimination in lending................         267
627             Title IV conservators, receivers, and 
                    voluntary liquidations..................         270

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630             Disclosure to investors in systemwide and 
                    consolidated bank debt obligations of 
                    the Farm Credit System..................         279
650             Federal Agricultural Mortgage Corporation...         293

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                 SUBCHAPTER A_ADMINISTRATIVE PROVISIONS

PART 600_ORGANIZATION AND FUNCTIONS--Table of Contents
                  Subpart A_Farm Credit Administration

Sec.
600.1 The Farm Credit Act.
600.2 Farm Credit Administration.
600.3 Farm Credit Administration Board.
600.4 Chairman of the Farm Credit Administration Board.
600.5 Organization of the Farm Credit Administration.

    Subpart B_Rules and Procedures for Service Upon the Farm Credit 
                             Administration

600.10 Service of Process.

    Authority: Secs. 5.7, 5.8, 5.9, 5.10, 5.11, 5.17, 8.11 of the Farm 
Credit Act (12 U.S.C. 2241, 2242, 2243, 2244, 2245, 2252, 2279aa-11).

    Source: 53 FR 16693, May 11, 1988, unless otherwise noted.



                  Subpart A_Farm Credit Administration



Sec. 600.1  The Farm Credit Act.

    The Farm Credit Act of 1971, Pub. L. 92-181 recodified and replaced 
the prior laws under which the Farm Credit Administration and the 
institutions of the Farm Credit System were organized and operated. The 
prior laws, which were repealed and superseded by the Act, are 
identified in section 5.40(a) of the Act. Subsequent amendments to the 
Act and enactment dates are as follows: Pub. L. 94-184, December 31, 
1975; Pub. L. 95-443, October 10, 1978; Pub. L. 96-592, December 24, 
1980; Pub. L. 99-190, December 19, 1985; Pub. L. 99-198, December 23, 
1985; Pub. L. 99-205, December 23, 1985; Pub. L. 99-509, October 21, 
1986; Pub. L. 100-233, January 6, 1988; Pub. L. 100-399, August 17, 
1988; Pub. L. 100-460, October 1, 1988; Pub. L. 101-73, August 9, 1989; 
Pub. L. 101-220, December 12, 1989; Pub. L. 101-624, November 28, 1990; 
Pub. L. 102-237, December 13, 1991; Pub. L. 102-552, October 28, 1992. 
The law is codified at 12 U.S.C. 2000, et. seq.

[53 FR 16693, May 11, 1988, as amended at 56 FR 2672, Jan. 24, 1991; 59 
FR 21641, Apr. 26, 1994]



Sec. 600.2  Farm Credit Administration.

    The Farm Credit Administration is an independent, non-appropriated 
fund agency in the executive branch of the Federal Government. It is 
composed of the Farm Credit Administration Board and such other 
personnel as are employed in carrying out the functions, powers, and 
duties vested in the Farm Credit Administration. The mailing address of 
the central offices of the Farm Credit Administration is McLean, 
Virginia 22102-5090. The hours of business in the central offices are 
8:30 a.m.-5:00 p.m. (eastern time), Monday through Friday, excluding 
Federal holidays.



Sec. 600.3  Farm Credit Administration Board.

    (a) Organization. The Farm Credit Administration Board (Board) is a 
full-time, three-member board entrusted with the responsibility to 
manage the Farm Credit Administration. The Board consists of three 
members appointed by the President with the advice and consent of the 
Senate. The Board may not contain more than two members of the same 
political party. One member is designated by the President as Chairman 
of the Board for the duration of such member's term. Each member of the 
Board shall serve a single 6-year term and cannot be reappointed except 
in the case of such members who are initially appointed for less than a 
6-year term on initial formation of the Board or any member who is 
appointed to fill an unexpired term of less than 3 years. A member of 
the Board shall continue to serve subsequent to the expiration of that 
member's term until the point in time at which an eligible successor has 
taken his or her oath of office. A person appointed to the Board shall 
subscribe to the oath of office within 15 days after having received 
notice of appointment. Each Board member is assisted by a staff.
    (b) Functions and responsibilities. The Board manages, administers, 
and establishes policies for the Farm Credit Administration. 
Specifically, the

[[Page 6]]

Board prescribes the rules and regulations necessary for the 
implementation of the Farm Credit Act of 1971, as amended, and provides 
for the examination of Farm Credit System institutions and for the 
performance of all the powers and duties vested in the Farm Credit 
Administration.



Sec. 600.4  Chairman of the Farm Credit Administration Board.

    (a) The Chairman of the Board is the Chief Executive Officer of the 
Farm Credit Administration. The Chairman is responsible for directing 
the implementation of the policies and regulations adopted by the Board 
and, after consultation with the Board, the execution of the 
administrative functions and duties of the Farm Credit Administration. 
In carrying out policies as directed by the Board, the Chairman acts as 
the spokesperson for the Board and represents the Board and the Farm 
Credit Administration in their official relations within the Federal 
Government. Under policies adopted by the Board, the Chairman consults 
with the Secretary of Treasury, Board of Governors of the Federal 
Reserve System, and the Secretary of Agriculture on specific matters.
    (b) The Chairman has the authority to appoint such personnel as may 
be necessary to carry out the functions of the Farm Credit 
Administration, including the appointment of a Secretary to the Board 
and noncareer Office Directors. The Board has the authority to approve 
the appointment by the Chairman of a Chief Operating Officer and career 
Office Directors. Each Board member has the authority to appoint 
personnel employed regularly and full-time in his or her immediate 
office. The Chairman may not delegate powers specifically reserved to 
the Chairman by the Act without the approval of the Board. In carrying 
out authorities and responsibilities, the Chairman is governed by 
general policies adopted by the Board and by such regulatory decisions, 
findings, and determinations as the Board may by law be authorized to 
make.
    (c) The Chairman as Chief Executive Officer is responsible for 
overseeing the agency's equal employment opportunity programs. An Equal 
Employment Opportunity Manager reports directly to the Chairman as Chief 
Executive Officer.
    (d) The Chairman, as head of the agency, has general supervisory 
authority over the Inspector General. The Inspector General has the 
authority to select, appoint, and employ such officers and employees as 
may be necessary to carry out the functions, powers, and duties of the 
Office of Inspector General. The Inspector General is also authorized to 
enter into contracts and other arrangements for audits, studies, 
analyses, and other services with public agencies and private persons, 
and to obtain the temporary or intermittent services of experts or 
consultants or an organization of any such professionals. In exercising 
these authorities, the Inspector General is subject to applicable 
statutory and regulatory constraints, as well as agency and 
governmentwide administrative and budgetary limitations.

[53 FR 16693, May 11, 1988, as amended at 59 FR 21641, Apr. 26, 1994]



Sec. 600.5  Organization of the Farm Credit Administration.

    (a) Chief Operating Officer. The Chief Operating Officer (COO) 
reports to and is subject to the direction of the Chief Executive 
Officer (CEO) concerning administrative matters and to the Board 
regarding general planning and policy matters, budgetary issues, 
rulemaking issues, and other matters for which the Board is responsible. 
Within this context, the COO has responsibility for planning, 
organizing, directing, coordinating, and controlling agency operations.
    (b) Office Directors. Each Office of the Farm Credit Administration 
is headed by a Director. The Director of the Office of Congressional and 
Public Affairs reports to the CEO. The Director of the Office of 
Secondary Market Oversight reports to the CEO on administrative matters 
and to the Board concerning general policy and rulemaking issues. The 
Directors of the Offices of Examination, Policy Development and Risk 
Control, and Resources Management

[[Page 7]]

report to the COO. The General Counsel reports to the COO on 
administrative matters and to the Board on matters of agency policy. 
Each Office Director may, with the approval of the CEO or COO, as 
appropriate, establish and fix the responsibilities of the divisions and 
such other units as the Director deems necessary for the efficient 
functioning of the Office.
    (c) Inspector General. The Inspector General reports directly to the 
Chairman.
    (d) Offices and functions--(1) Office of Examination. The Office of 
Examination plans and conducts examinations of System institutions and 
other institutions as required by law; prepares and issues reports of 
examination summarizing examination findings; recommends corrective 
action as appropriate; and oversees compliance with the borrower rights 
provisions of the Act and agency regulations. The Office of Examination 
recommends formal administrative action to correct deficiencies when 
System institutions are found to be operating in an unsafe or unsound 
manner or are in violation of law or regulation. The Office Director 
prepares examination schedules for approval by the Board and advises the 
Board on matters affecting policy, regulation, and legislation relating 
to examination activities. The Director, Office of Examination, is the 
Chief Examiner of the Farm Credit Administration.
    (2) Office of Policy Development and Risk Control. The Office of 
Policy Development and Risk Control (OPDRC) develops policies and 
regulations for the FCA Board's consideration and promotes risk 
management policies and practices by the Farm Credit System. The OPDRC 
has primary responsibility for developing regulatory proposals and 
public policy statements that effectively implement applicable statutes 
and promote the safety and soundness of the System. Other major 
functions include evaluating requests for regulatory and charter 
approvals and managing the FCA's corporate activities; ensuring that 
risks associated with chartering activities are properly disclosed to 
System shareholders and the FCA Board; managing the FCA's formal 
enforcement activities and providing economic and financial analyses 
that identify risk and contribute to the effective management of such 
risks. The OPDRC also facilitates the FCA's strategic planning function.
    (3) Office of Resources Management. The Office of Resources 
Management provides agency administrative management for the agency 
budget, accounting, human resources, training, procurement, electronic 
data processing, document processing, property, supply, facilities, 
records and other administrative services. The Chairman and the Board 
members have delegated to the Chief of the Human Resources Division the 
authority to serve as appointing officer, including the authority to 
classify or place positions in the appropriate pay plan and pay ranges.
    (4) Office of General Counsel. The Office of General Counsel 
provides legal advice and services to the Board, the Chairman, and the 
agency staff. The Office interprets the Farm Credit Act of 1971, as 
amended, and other applicable laws; participates in the preparation of 
agency rules and regulations; and represents the agency in litigation, 
in enforcement proceedings brought by the agency, and in proceedings 
before other administrative bodies. The Office of General Counsel also 
has the responsibility to ensure that the agency meets all statutory and 
regulatory ethics requirements. The Director, Office of General Counsel, 
is the General Counsel of the Farm Credit Administration.
    (5) Office of Congressional and Public Affairs. The Office of 
Congressional and Public Affairs coordinates and disseminates all 
communication by the agency with the Congress and plans and implements 
all public communications. The Office is the first source of information 
to the Farm Credit System and borrowers concerning the Farm Credit 
Administration and provides other representational services for the 
Board and the agency to the public.
    (6) Office of Inspector General. The Office of Inspector General is 
an independent office established by the Inspector General Act 
Amendments of 1988 to:
    (i) Conduct and supervise audits and investigations relating to the 
programs

[[Page 8]]

and operations of the Farm Credit Administration;
    (ii) Provide leadership and coordination and recommend policies for 
activities designed to promote economy, efficiency, and effectiveness in 
the administration of the Farm Credit Administration's programs and 
operations;
    (iii) Prevent and detect fraud and abuse in the Farm Credit 
Administration's programs and operations; and
    (iv) Provide a means to keep the Chairman and Congress fully and 
currently informed about problems and deficiencies relating to the Farm 
Credit Administration's programs and operations and the necessity for, 
and progress of, corrective actions.
    (7) Office of Secondary Market Oversight. The Office of Secondary 
Market Oversight, a separate office within the Farm Credit 
Administration pursuant to section 8.11 of the Act, provides for:
    (i) The examination of the Federal Agricultural Mortgage Corporation 
and its affiliates; and
    (ii) The general supervision of the safe and sound performance of 
the powers, functions, and duties vested in the Federal Agricultural 
Mortgage Corporation and its affiliates.
    (e) Additional Information. Current information on the organization 
of the Farm Credit Administration may be obtained from the Office of 
Congressional and Public Affairs, Farm Credit Administration, McLean, 
Virginia 22102-5090.

[53 FR 16693, May 11, 1988, as amended at 59 FR 21641, Apr. 26, 1994; 61 
FR 67185, Dec. 20, 1996]



    Subpart B_Rules and Procedures for Service Upon the Farm Credit 
                             Administration



Sec. 600.10  Service of Process.

    (a) Except as otherwise provided in the Farm Credit Administration 
regulations, the Federal Rules of Civil Procedure or by order of a court 
with jurisdiction over the Farm Credit Administration, any legal process 
upon the Farm Credit Administration shall be duly issued and served upon 
the Secretary to the Farm Credit Administration Board, 1501 Farm Credit 
Drive, McLean, Virginia 22102-5090.
    (b) Service of process upon the Secretary to the Farm Credit 
Administration Board may be effected by personally delivering a copy of 
the documents to the Secretary or by sending a copy of the documents to 
the Secretary by registered or certified mail.
    (c) The Secretary shall promptly forward a copy of all documents to 
the General Counsel and to any Farm Credit Administration personnel 
named in the caption of the documents.

[54 FR 50736, Dec. 11, 1989, as amended at 59 FR 21642, Apr. 26, 1994]



PART 601_EMPLOYEE RESPONSIBILITIES AND CONDUCT--Table of Contents
    Authority: 5 U.S.C. 7301; 12 U.S.C. 2243, 2252.



Sec. 601.100  Cross-references to employee ethical conduct standards 
and financial disclosure regulations.

    Board members, officers, and other employees of the Farm Credit 
Administration are subject to the Standards of Ethical Conduct for 
Employees of the Executive Branch at 5 CFR part 2635, the Farm Credit 
Administration regulation at 5 CFR part 4101, which supplements the 
Executive Branch-wide Standards, and the executive branch-wide financial 
disclosure regulations at 5 CFR part 2634.

[60 FR 30782, June 12, 1995]



PART 602_RELEASING INFORMATION--Table of Contents
 
 Subpart A_Information and Records Generally

Sec.
602.1 Purpose and scope.
602.2 Disclosing reports of examination.

   Subpart B_Availability of Records of the Farm Credit Administration

602.3 Definitions.
602.4 How to make a request.
602.5 FCA response to requests for records.
602.6 FOIA exemptions.
602.7 Confidential business information.
602.8 Appeals.
602.9 Current FOIA index.

[[Page 9]]

                           Subpart C_FOIA Fees

602.10 Definitions.
602.11 Fees by type of requester.
602.12 Fees.
602.13 Fee waiver.
602.14 Advance payments--notice.
602.15 Interest on unpaid fees.
602.16 Combining requests.

Subpart D_Testimony and Production of Documents in Legal Proceedings in 
                     Which FCA is Not a Named Party

602.17 Policy.
602.18 Definitions.
602.19 Request for testimony or production of documents.
602.20 Testimony of FCA employees.
602.21 Production of FCA documents.
602.22 Fees.
602.23 Responses to demands served on FCA employees.
602.24 Responses to demands served on non-FCA employees or entities.

         Subpart E_Release of Records in Public Rulemaking Files

602.25 General.

    Authority: Secs. 5.9, 5.17; 12 U.S.C. 2243, 2252; 5 U.S.C. 301, 552; 
52 FR 10012; E.O. 12600, 52 FR 23781, 3 CFR 1987, p. 235.

    Source: 64 FR 41770, Aug. 2, 1999, unless otherwise noted.



               Subpart A_Information and Records Generally



Sec. 602.1  Purpose and scope.

    This part contains FCA's rules for disclosing our records or 
information; processing requests for records under the Freedom of 
Information Act (5 U.S.C. 552, as amended)(FOIA); FOIA fees; disclosing 
otherwise exempt information in litigation when FCA is not a party; and 
getting documents in public rulemaking files. Part 603 of this chapter 
tells you how to get records about yourself under the Privacy Act of 
1974, 5 U.S.C. 552a.



Sec. 602.2  Disclosing reports of examination.

    (a) Disclosure by FCA. Reports of examination are FCA property. We 
prepare them for our confidential use and the use of the institution 
examined. We do not give reports of examination to the public. Except as 
provided in this section, only the Chairman or the Chairman's designee 
may consent to disclosing reports of examination of Farm Credit System 
institutions and other institutions subject to our examination. You may 
send a written request to our General Counsel that explains why we 
should give permission.
    (b) Disclosure by Farm Credit System institutions. An institution 
that we have examined may disclose its report of examination to its 
officers, directors, and agents, such as its attorney or accountant, if 
they agree to keep the report confidential. In addition, banks may 
disclose their reports of examination to their affiliated associations, 
associations may disclose their reports to their supervisory bank, and 
service corporations may disclose their reports of examination to the 
institutions that own them. An institution may not disclose these 
institutions' reports of examination to any other person without our 
written permission.
    (c) Disclosure to governmental entities. Without waiving any 
privilege, we will disclose reports of examination to other Federal 
government entities:
    (1) In response to a Federal court order;
    (2) In response to a request of either House or a Committee or 
Subcommittee of Congress; or
    (3) When requested for confidential use in an official investigation 
by authorized representatives of other Federal agencies.



   Subpart B_Availability of Records of the Farm Credit Administration



Sec. 602.3  Definitions.

    Appeal means a request under the FOIA asking for the reversal of a 
decision.
    Business information means trade secrets or other commercial or 
financial information that is privileged or confidential.
    Business submitter means any person or entity that gives business 
information to the Government.
    FOIA request means a written request for FCA records, made by any 
person or entity that either directly or indirectly invokes the FOIA or 
this part.

[[Page 10]]

    Record means all documentary materials, such as books, papers, maps, 
photographs, and machine-readable materials, regardless of physical form 
or characteristics (for example, electronic format) in our possession 
and control when we receive your FOIA request.



Sec. 602.4  How to make a request.

    (a) How to make and address a request. Your request for records must 
be in writing and addressed to the FOIA Officer, Farm Credit 
Administration. You may send it:
    (1) By mail to 1501 Farm Credit Drive, McLean, Virginia 22102-5090;
    (2) By facsimile to (703) 790-0052; or
    (3) By E-mail to ``foiaofficer@fca.gov.''
    (b) Description of requested records. You must describe the 
requested records in enough detail to let us find them with a reasonable 
effort. If the description is inadequate, we will ask you to provide 
more information and the 20-day response period under Sec. 602.5(a) 
will not begin until we receive your reply.
    (c) Faster response. You may ask for a faster response to your FOIA 
request by giving us a statement, certified to be true, that you have a 
``compelling need.'' The FOIA Officer will tell you within 10 calendar 
days after receiving the request whether we will respond to it faster. 
If so, we will respond to your request as soon as we can. A compelling 
need means:
    (1) Someone's life or physical safety may be in danger if we do not 
respond to the request faster; or
    (2) You urgently need to tell the public about Federal government 
activity as a representative of the news media.
    (d) Request for personal information. If you or your representative 
requests your personal information, we may require you to give us a 
notarized request, identify yourself under penalty of perjury, or 
provide other proof of your identity.
    (e) Fees. When making a request, you must tell us the most you are 
willing to pay. Our charges are in the fee tables in Sec. Sec. 602.11 
and 602.12. You may also want to tell us the purpose of your request so 
we can classify your request for fee purposes.
    (f) Other requests. To ensure the public has timely information 
about our activities, the Office of Congressional and Public Affairs 
will make available copies of public documents, such as the FCA annual 
report and media advisories.



Sec. 602.5  FCA response to requests for records.

    (a) Response time. Within 20 business days of receiving your 
request, the FOIA Officer will tell you whether we have granted or 
denied it. If you send your request to the wrong address, the 20-day 
response time will not begin until the FOIA Officer receives your 
request.
    (b) Extension of response time. In ``unusual circumstances,'' the 
FOIA Officer may extend the 20-day response time for up to 10 more 
business days by telling you in writing why we need more time and the 
date we will mail you our response. As used in this subpart, ``unusual 
circumstances'' means our need to:
    (1) Search for and get the requested records from field offices or 
other locations;
    (2) Search for, get, and review many records identified in a single 
request;
    (3) Consult with another Federal agency having a substantial 
interest in the request; or
    (4) Consult with two or more FCA offices having a substantial 
interest in the request.
    (c) Referrals. If you ask for records we have that another Federal 
agency originated, we will refer the request to the originating agency 
and tell you about the referral. If you should have sent your request to 
another Federal agency, we will refer the request to that agency and so 
advise you.



Sec. 602.6  FOIA exemptions.

    The FOIA allows agencies to withhold documents in certain 
categories. For instance, we do not have to give you documents that 
relate to our examination of institutions or that would violate the 
personal privacy of an individual. If we do not give you a document 
because the FOIA does not require us to, we will tell you which FOIA 
exemption applies to our decision.

[[Page 11]]



Sec. 602.7  Confidential business information.

    (a) FCA disclosure. FCA may disclose business information from a 
business submitter only under this section. This section will not apply 
if:
    (1) We decide the business submitter has no valid basis to object to 
disclosure;
    (2) The information has been published lawfully or made available to 
the public; or
    (3) Law (other than the FOIA) requires disclosure of the 
information.
    (b) Notice by FCA. When we receive a request for confidential 
business information, the FOIA Officer will promptly tell the requester 
and the business submitter in writing that the responsive records may be 
free from disclosure under the FOIA. We will give the business submitter 
a reasonable time to object to the proposed disclosure of the responsive 
records and tell the requester whenever:
    (1) The business submitter has in good faith labeled the information 
a trade secret or commercial or financial information that is privileged 
or confidential. We will provide such notice for 10 years after 
receiving the information unless the business submitter justifies the 
need for a longer period; or
    (2) We believe that disclosing the information may result in 
commercial or financial injury to the business submitter.
    (c) Objection to release. A business submitter who objects to our 
releasing the requested information should tell us in writing why the 
information is a trade secret or commercial or financial information 
that is privileged or confidential.
    (d) FCA response. (1) We will consider carefully a business 
submitter's objections. If we decide to disclose business information 
over the submitter's objection, the FOIA Officer will explain to the 
submitter in writing why we disagreed with the submitter's objection and 
describe the business information to be disclosed.
    (2) We will tell the requester and the submitter the proposed 
disclosure date at the same time.
    (3) If a submitter sues to prevent release, we will promptly tell 
the requester and will not disclose the business information until after 
the court's decision.
    (4) If a requester sues to compel disclosure, we will promptly tell 
the business submitter.



Sec. 602.8  Appeals.

    (a) How to appeal. You may appeal a total or partial denial of your 
FOIA request within 30 calendar days of the date of the denial letter. 
Your appeal must be in writing and addressed to the Director, Office of 
Resources Management (ORM), Farm Credit Administration. You may send it:
    (1) By mail to 1501 Farm Credit Drive, McLean, Virginia 22102-5090;
    (2) By facsimile to (703) 893-2608; or
    (3) By E-mail to foiaappeal@fca.gov.
    (b) FCA action on appeal. Within 20 business days of receiving your 
appeal, the ORM Director will tell you, in writing, whether we have 
granted or denied it. If you send your appeal to the wrong address, the 
20-day response time will not begin until the ORM Director receives your 
appeal.
    (c) Unusual circumstances. In unusual circumstances, the ORM 
Director may extend the 20-day response time by telling you in writing 
why we need more time and the date we will mail you our response. All 
extensions, including any extension of the response time for the first 
request, may not total more than 10 business days.



Sec. 602.9  Current FOIA index.

    FCA will make a current index available for public inspection and 
copying, as required by the FOIA. We will give you an index for the cost 
of copying it. Because we rarely receive requests for an index, we have 
not published one in the Federal Register.



                           Subpart C_FOIA Fees



Sec. 602.10  Definitions.

    Commercial use request means an information request by an individual 
or entity seeking information for a use or purpose that furthers the 
commercial, trade, or profit interests of that individual or entity.
    Direct costs means the costs FCA incurs in searching for and 
reproducing documents to respond to a FOIA request. For a commercial use 
request, it

[[Page 12]]

also means the costs we incur in reviewing documents to respond to the 
request. Direct costs include the pro rated cost of the salary of the 
employee performing the work (based on the basic rate of pay plus 16 
percent to cover benefits) and the cost of operating reproduction 
equipment. They do not include overhead expenses.
    Educational institution means a preschool, a public or private 
elementary or secondary school, an institution of undergraduate or 
graduate higher education, an institution of professional education, or 
an institution of vocational education that runs a program of scholarly 
research.
    Noncommercial scientific institution means a nonprofit institution 
that conducts scientific research that is not intended to promote any 
particular product or industry.
    Pages mean 8-1/2 x 11 inch or 11 x 14 inch paper copies.
    Representative of the news media means any person actively gathering 
news for an entity that publishes or broadcasts news to the public. News 
means information about current events or of current interest to the 
public.
    Reproduce (or reproduction) means copying a record.
    Review means looking at documents found in response to a FOIA 
request to decide whether any portion should be withheld. It does not 
include the time spent resolving legal or policy issues.
    Search means all time spent looking for material responsive to a 
FOIA request, including page-by-page or line-by-line identification of 
material within documents.



Sec. 602.11  Fees by type of requester.

    Depending on your identity and the purpose of your request, the FCA 
may charge you the direct costs of searching for responsive records, 
reviewing the records, and reproducing them. If necessary, we will seek 
clarification before classifying the request.
    (a) Educational institutions and noncommercial scientific 
institutions. We charge fees for reproduction costs only. The first 100 
pages are free. You must show that the request is sanctioned by an 
educational or noncommercial scientific institution and that you seek 
the records for scholarly or scientific research, not for a commercial 
use.
    (b) Representatives of the news media. We charge fees for 
reproduction costs only. The first 100 pages are free. You must be a 
representative of the news media, and the request must not be made for a 
commercial use. A request for records supporting news distribution is 
not a request for a commercial use.
    (c) Commercial use. We charge the direct cost for search, review, 
and reproduction. Commercial use requesters are not entitled to free 
search time or free reproduction. We will charge you even if we do not 
disclose any records.
    (d) All others. The first 2 hours of search time and the first 100 
pages of reproduction are free. After that, we will charge you for 
search and reproduction costs. We will charge you for a search even if 
we do not disclose any records.
    (e) Fee table. The fee information in paragraphs (a) through (d) of 
this section is presented in the table to this paragraph. You may apply 
for a waiver if your request is not mostly in your commercial interest 
and the disclosure is in the public interest. See Sec. 602.13.

                                                    Fee Table
----------------------------------------------------------------------------------------------------------------
                                                         Charges for
          Type of requester          ---------------------------------------------------       Reproduction
                                             Search time              Review time
----------------------------------------------------------------------------------------------------------------
Educational.......  No Charge...............  No charge..............  First 100 pages free, $
Noncommercial                                                           0.15 a page after
 scientific users.                                                                        that.
News media........
Commercial Users \1\................  All direct costs........  All direct costs.......  $0.15 a page.
All others \1\......................  First 2 hours free, all   No charge..............  First 100 pages free,
                                       direct costs after that.                           $0.15 a page after
                                                                                          that.
----------------------------------------------------------------------------------------------------------------
\1\ You are responsible for fees even if we do not disclose any records.


[64 FR 41770, Aug. 2, 1999; 64 FR 45589, Aug. 20, 1999]

[[Page 13]]



Sec. 602.12  Fees.

    (a) FCA may charge:
    (1) For manual searches for records and for review, the pro rated 
cost of the salary of the employee doing the work.
    (2) For computer searches for records, the direct costs of computer 
search time and supply or material costs.
    (3) For each page made by photocopy or similar method, fifteen cents 
a page, and for other forms of copying, the direct costs.
    (4) The direct costs of elective services, such as certifying 
records as true copies or sending records by special methods.
    (b) We will not charge fees when total assessed fees are less than 
$15.00.
    (c) You must pay by personal check, bank draft drawn on a United 
States bank, or postal money order made payable to the Treasury of the 
United States.
    (d) We treat a request about yourself under Privacy Act fee rules.
    (e) The information in paragraphs (a) and (b) of this section is 
presented in the table to this paragraph. Direct costs means the costs 
FCA incurs in searching for, reviewing, and reproducing documents to 
respond to a request. Direct costs include pro rated salary and 
reproduction costs. We will not charge fees when they total less than 
$15.00.

                            Fee Amounts Table
------------------------------------------------------------------------
               Type of fee                         Amount of fee
------------------------------------------------------------------------
Manual Search and Review.................  Pro rated Salary Costs.
Computer Search..........................  Direct Costs.
Photocopy................................  $0.15 a page.
Other Reproduction Costs.................  Direct Costs.
Elective Services........................  Direct Costs.
------------------------------------------------------------------------



Sec. 602.13  Fee waiver.

    We may waive or reduce fees if disclosure is not mostly in your 
commercial interest but, instead, is in the public interest because it 
will advance public understanding of the Federal government's operations 
or activities.



Sec. 602.14  Advance payments--notice.

    (a) If fees will be more than $25.00 and you have not told us in 
advance that you will pay estimated fees, we will tell you the estimated 
amount and ask that you agree to pay it. Except as noted in this 
section, we will begin processing the FOIA request when we receive your 
agreement to pay.
    (b) If estimated fees exceed $250.00 and you have a history of 
promptly paying fees charged for information requests, we may respond to 
your request based on your agreement to pay.
    (c) If estimated fees exceed $250.00 and you have no history of 
paying fees, we may require you to pay in advance.
    (d) If you have previously failed to pay fees for information 
requests or paid them late, you must pay any fees still owed, plus 
interest calculated under Sec. 602.15, and the estimated fees before we 
will respond to a new or a pending request.
    (e) If we require advance payment or an advance agreement to pay, we 
will not consider your request to be received and will not respond to it 
until you meet the requirement.



Sec. 602.15  Interest on unpaid fees.

    If you fail to pay fees on time, FCA may charge you interest 
starting on the 31st calendar day following the date we bill you. We 
will charge you interest at the rate allowed by law (31 U.S.C. 3717) on 
the billing date.



Sec. 602.16  Combining requests.

    You may not avoid paying fees by filing multiple requests at the 
same time. When FCA reasonably believes that you, alone or with others, 
are breaking down a request into a series of requests to avoid fees, we 
will combine the requests and charge accordingly. We will assume that 
multiple requests within a 30-day period have been made to avoid fees.

[[Page 14]]



Subpart D_Testimony and Production of Documents in Legal Proceedings in 
                     Which FCA is Not a Named Party



Sec. 602.17  Policy.

    (a) The rules in this subpart preserve the confidentiality of FCA's 
documents and information, conserve employees' time for official duties, 
uphold fairness in litigation, and help the Chairman decide when to 
allow testimony and to produce documents. This subpart does not affect 
access to documents under the FOIA or the Privacy Act. See subpart B of 
this part and part 603 of this chapter.
    (b) Generally, we will not produce documents voluntarily and 
employees will not appear as witnesses voluntarily in any legal 
proceeding. However, in limited circumstances, the Chairman may allow 
the production of documents or testimony when the Chairman decides it 
would be in the best interest of FCA or the public. All privileged 
documents produced under this subpart remain our property. Any employee 
having information or privileged documents may disclose them only as 
allowed by the Chairman.



Sec. 602.18  Definitions.

    Court means any entity conducting a legal proceeding.
    Demand means any order, subpoena, or other legal process for 
testimony or documents.
    Direct costs means FCA's costs to search for, review, and reproduce 
documents to respond to a request. Direct costs include the pro rated 
cost of the salary of the employee performing the work (based on the 
basic rate of pay plus 16 percent to cover benefits) and the cost of 
operating reproduction equipment.
    Document means any record or other documentary materials, such as 
books, papers, maps, photographs, and machine-readable materials, 
regardless of physical form or characteristics (for example, electronic 
format) in our possession and control when we receive the request.
    Employee means any present or former FCA employee, any present or 
former FCA Board member, any former Federal Farm Credit Board member, 
any present or former FCA-appointed receiver or conservator, and any 
present or former agent or contractor.
    FCA Counsel means the General Counsel, a Department of Justice 
attorney, or counsel authorized by FCA to act for the FCA or an 
employee.
    General Counsel means the FCA's General Counsel or designee.
    Legal proceeding means any administrative, civil, or criminal 
proceeding, including a discovery proceeding, before a court when FCA is 
not a named party and has not instituted the legal proceeding.



Sec. 602.19  Request for testimony or production of documents.

    (a) How to make and address a request. Your request for an 
employee's testimony about official matters or the production of 
documents must be in writing and addressed to the General Counsel, 1501 
Farm Credit Drive, McLean, Virginia 22102-5090.
    (b) Your request must contain the following:
    (1) Title of the case;
    (2) Forum;
    (3) Your interest in the case;
    (4) Summary of the litigation issues;
    (5) Reasons for the request;
    (6) Why the confidential information is important; and
    (7) An explanation of why the testimony or document you want is not 
reasonably available from another source. If you want testimony, you 
must also state how you intend to use the testimony, provide a subject 
matter summary of the requested testimony, and explain why a document 
could not be used instead.
    (c) The General Counsel may ask you to limit your request to make it 
less burdensome or to give us information to help us decide if providing 
documents or testimony is in the public interest.



Sec. 602.20  Testimony of FCA employees.

    (a) An employee may testify only as the Chairman approves in 
writing. Generally, an employee may testify only by deposition or 
written interrogatory. An employee may give only factual testimony and 
may not give opinion testimony.

[[Page 15]]

    (b) If, in response to your request, the Chairman decides that an 
employee may testify, you must serve the employee with a subpoena under 
applicable Federal or State rules of procedure and at the same time send 
a copy of the subpoena by registered mail to the General Counsel.
    (c) Normally, depositions will be taken at the employee's office, at 
a time convenient to the employee and the FCA. FCA counsel may represent 
FCA's interests at the deposition.
    (d) If you request the deposition, you must give the General Counsel 
a copy of the deposition transcript at no charge.



Sec. 602.21  Production of FCA documents.

    (a) An FCA employee may produce documents only as the Chairman 
allows.
    (b) Before we will release any documents, the requesting party must 
get an acceptable protective order from the court before which the 
action is pending that will preserve the confidentiality of the 
documents to be released.
    (c) On request, we may provide certified or authenticated copies of 
documents.



Sec. 602.22  Fees.

    (a) For documents released under this subpart, FCA will charge:
    (1) The direct costs of searching for responsive records, including 
the use of a computer, reviewing the records, and reproducing them. We 
also will charge for the direct costs of any other services and 
materials that we provide at your request.
    (2) Fifteen cents a copy for each page made by photocopy or similar 
process.
    (3) The direct costs for each certification or authentication of 
documents.
    (b) You must pay by personal check, bank draft drawn on a United 
States bank, or postal money order made payable to FCA. We will waive 
fees of $15.00 or less. We will send the documents after we receive your 
payment.



Sec. 602.23  Responses to demands served on FCA employees.

    (a) An employee served with a demand or a subpoena in a legal 
proceeding must immediately tell the General Counsel of such service, 
the testimony or documents described in the demand, and all relevant 
facts.
    (b) When the Chairman does not allow testimony or production of 
documents, FCA Counsel will provide the regulations in this subpart to 
the party or court issuing the demand and explain that the employee may 
not testify or produce documents without the Chairman's prior approval.
    (c) If the court rules the employee must comply with the demand 
regardless of the Chairman's instructions not to do so, the employee 
must respectfully refuse to comply.
    (d) FCA's decision under this subpart to comply or not to comply 
with any demand is not a waiver, an assertion of privilege, or an 
objection based on relevance, technical deficiency, or any other ground. 
We may oppose any demand on any legal ground.



Sec. 602.24  Responses to demands served on non-FCA employees or entities.

    If you are not an employee and are served with a demand or a 
subpoena in a legal proceeding directing you to produce or testify about 
an FCA report of examination, other document created or adopted by FCA, 
or any related document, you must object and immediately tell the 
General Counsel of such service, the testimony or documents described in 
the demand, and all relevant facts. You also must object to the 
production of any documents on the basis that they are FCA's property 
and cannot be released without FCA's consent. You should tell the 
requester the production of documents or testimony must follow the 
procedures in this part.



         Subpart E_Release of Records in Public Rulemaking Files



Sec. 602.25  General.

    FCA has a public rulemaking file for each regulation. You may get 
copies of documents in the public rulemaking file by sending a written 
request to the Director, Regulation and Policy Division, Office of 
Policy and Analysis, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, Virginia 22102-5090. We will charge fifteen cents a

[[Page 16]]

copy for each page. We will waive fees of $15.00 or less.



PART 603_PRIVACY ACT REGULATIONS--Table of Contents

Sec.
603.300 Purpose and scope.
603.305 Definitions.
603.310 Procedures for requests pertaining to individual records in a 
          record system.
603.315 Times, places, and requirements for identification of 
          individuals making requests.
603.320 Disclosure of requested information to individuals.
603.325 Special procedures for medical records.
603.330 Request for amendment to record.
603.335 Agency review of request for amendment of record.
603.340 Appeal of an initial adverse determination of a request to amend 
          a record.
603.345 Fees for providing copies of records.
603.350 Criminal penalties.
603.355 Exemptions.

    Authority: Secs. 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2243, 
2252); 5 U.S.C. app. 3, 5 U.S.C. 552a (j)(2) and (k)(2).

    Source: 40 FR 40454, Sept. 2, 1975, unless otherwise noted.



Sec. 603.300  Purpose and scope.

    (a) This part is published by the Farm Credit Administration 
pursuant to the Privacy Act of 1974 (Pub. L. 93-579, 5 U.S.C. 552a) 
which requires each Federal agency to promulgate rules to establish 
procedures for notification and disclosure to an individual of agency 
records pertaining to that person, and for review of such records.
    (b) The records covered by this part include:
    (1) Personnel and employment records maintained by the Farm Credit 
Administration which are not covered by Sec. Sec. 293.101 through 
293.108 of the regulations of the Office of Personnel Management (5 CFR 
293.101 through 293.108), and
    (2) Other records contained in record systems maintained by the Farm 
Credit Administration.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41941, Nov. 20, 1986]



Sec. 603.305  Definitions.

    For the purposes of this part:
    (a) Agency means the Farm Credit Administration.
    (b) Individual means a citizen of the United States or an alien 
lawfully admitted for permanent residence;
    (c) Maintain includes maintain, collect, use, or disseminate;
    (d) Record means any item, collection, or grouping of information 
about an individual that is maintained by an agency including, but not 
limited to, that person's education, financial transactions, medical 
history, and criminal or employment history, and that contains that 
person's name, or the identifying number, symbol, or other identifying 
particular assigned to the individual, such as a finger or voice print 
or photograph;
    (e) Routine use means, with respect to the disclosure of a record, 
the use of such record for a purpose that is compatible with the purpose 
for which it was collected;
    (f) Statistical record means a record in a system of records 
maintained for statistical research or reporting purposes only and not 
used in whole or in part in making any determination about an 
identifiable individual, except as provided by 13 U.S.C. 8;
    (g) System of records means a group of any records under the control 
of any agency from which information is retrieved by the name of an 
individual or by some identifying number, symbol, or other identifying 
particular assigned to the individual.

[51 FR 41941, Nov. 20, 1986]



Sec. 603.310  Procedures for requests pertaining to individual records in a record system.

    (a) Any present or former employee of the Farm Credit Administration 
seeking access to that person's official civil service records 
maintained by the Farm Credit Administration shall submit a request in 
such manner as is prescribed by the Office of Personnel Management.
    (b) Individuals shall submit their requests in writing to the 
Privacy Act Officer, Office of General Counsel, Farm Credit 
Administration, McLean, Virginia 22102-5090, when seeking to obtain from 
the Farm Credit Administration:

[[Page 17]]

    (1) Notification of whether the agency maintains a record pertaining 
to that person in a system of records;
    (2) Notification of whether the agency has disclosed a record for 
which an accounting of disclosure is required to be maintained and made 
available to that person;
    (3) A copy of a record pertaining to that person or the accounting 
of its disclosure;
    (4) The review of a record pertaining to that person or the 
accounting of its disclosure. The request shall state the full name and 
address of the individual, and identify the system or systems of records 
believed to contain the information or record sought.

[51 FR 41941, Nov. 20, 1986, as amended at 61 FR 67185, Dec. 20, 1996]



Sec. 603.315  Times, places, and requirements for identification of individuals making requests.

    The individual making written requests for information or records 
ordinarily will not be required to verify that person's identity. The 
signature upon such requests shall be deemed to be a certification by 
the requester that he or she is the individual to whom the record 
pertains, or the parent of a minor, or the duly appointed legal guardian 
of the individual to whom the record pertains. The Privacy Act Officer, 
however, may require such additional verification of identity in any 
instance in which the Privacy Act Officer deems it advisable.

[51 FR 41941, Nov. 20, 1986]



Sec. 603.320  Disclosure of requested information to individuals.

    (a) The Privacy Act Officer shall, within a reasonable period of 
time after the date of receipt of a request for information of records:
    (1) Determine whether or not such request shall be granted,
    (2) Notify the requester of the determination and, if the request is 
denied, of the reasons therefor, and
    (3) Notify the requester that fees for reproducing copies of records 
may be charged as provided in Sec. 603.345 of this part.
    (b) If access to a record is denied because the information therein 
has been compiled by the Farm Credit Administration in reasonable 
anticipation of a civil or criminal action proceeding, the Privacy Act 
Officer shall notify the requester of that person's right to judicial 
appeal under 5 U.S.C. 552a(g).
    (c)(1) If access to a record is granted, the requester shall notify 
the Officer whether the requested record is to be copied and mailed to 
the requester or whether the record is to be made available for personal 
inspection.
    (2) A requester who is an individual may be accompanied by an 
individual selected by the requester when the record is disclosed, in 
which case the requester may be required to furnish a written statement 
authorizing the discussion of the record in the presence of the 
accompanying person.
    (d) If the record is to be made available for personal inspection, 
the requester shall arrange with the Privacy Act Officer a mutually 
agreeable time in the offices of the Farm Credit Administration for 
inspection of the record.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41941, Nov. 20, 1986]



Sec. 603.325  Special procedures for medical records.

    Medical records in the custody of the Farm Credit Administration 
which are not subject to Office of Personnel Management regulations 
shall be disclosed either to the individual to whom they pertain or that 
person's authorized or legal representative or to a licensed physician 
named by the individual.

[51 FR 41942, Nov. 20, 1986]



Sec. 603.330  Request for amendment to record.

    (a) If, after disclosure of the requested information, an individual 
believes that the record is not accurate, relevant, timely, or complete, 
that person may request in writing that the record be amended. Such a 
request shall be submitted to the Privacy Act Officer and shall contain 
identification of the system of records and the record or information 
therein, a brief description of the material requested to be changed, 
the requested change or changes, and the reason for such change or 
changes.

[[Page 18]]

    (b) The Privacy Act Officer shall acknowledge receipt of the request 
within 10 days (excluding Saturdays, Sundays, and legal holidays) and, 
if a determination has not been made, advise the individual when that 
person may expect to be advised of action taken on the request. The 
acknowledgment may contain a request for additional information needed 
to make a determination.

[51 FR 41942, Nov. 20, 1986]



Sec. 603.335  Agency review of request for amendment of record.

    Upon receipt of a request for amendment of a record, the Privacy Act 
Officer shall:
    (a) Correct any portion of a record which the individual making the 
request believes is not accurate, relevant, timely, or complete and 
thereafter inform the individual in writing of such correction, or
    (b) Inform the individual in writing of refusal to amend the record 
and of the reasons therefor, and advise that the individual may appeal 
such determination as provided in Sec. 603.340 of this part.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41942, Nov. 20, 1986]



Sec. 603.340  Appeal of an initial adverse determination of a request to amend a record.

    (a) Not more than 10 days (excluding Saturdays, Sundays, and legal 
holidays) after receipt by an individual of an adverse determination on 
the individual's request to amend a record or otherwise, the individual 
may appeal to the Director, Office of Resources Management.
    (b) The appeal shall be by letter, mailed or delivered to the 
Director, Office of Resources Management, Farm Credit Administration, 
McLean, Virginia 22102-5090. The letter shall identify the records 
involved in the same manner they were identified to the Privacy Act 
Officer, shall specify the dates of the request and adverse 
determination, and shall indicate the expressed basis for that 
determination. Also, the letter shall state briefly and succinctly the 
reasons why the adverse determination should be reversed.
    (c) The review shall be completed and a final determination made by 
the Director not later than 30 days (excluding Saturdays, Sundays, and 
legal holidays) from receipt of the request for such review, unless the 
Director extends such 30-day period for good cause. If the 30-day period 
is extended, the individual shall be notified of the reasons therefor.
    (d) If the Director refuses to amend the record in accordance with 
the request, the individual shall be notified of the right to file a 
concise statement setting forth that person's disagreement with the 
final determination and that person's right under 5 U.S.C. 552a(g)(1)(A) 
to a judicial review of the final determination.
    (e) If an amendment of a record as requested upon review is refused, 
there shall be included in the disputed portion of the record a copy of 
the concise statement filed by the individual together with a concise 
statement of the reasons for not amending the record as requested. Such 
statements will be included when disclosure of the disputed record is 
made to persons and agencies as authorized under 5 U.S.C. 552a.

[40 FR 40454, Sept. 2, 1975, as amended at 51 FR 41942, Nov. 20, 1986; 
56 FR 2673, Jan. 24, 1991]



Sec. 603.345  Fees for providing copies of records.

    Fees for providing copies of records shall be charged in accordance 
with Sec. Sec. 602.267 and 602.269 of this chapter.

[40 FR 40454, Sept. 2, 1975, as amended at 56 FR 28479, June 21, 1991]



Sec. 603.350  Criminal penalties.

    Section 552a (l) (3) of the Privacy Act (5 U.S.C. 552a (i) (3)) 
makes it a misdemeanor, subject to a maximum fine of $5,000, to 
knowingly and willfully request or obtain any record concerning any 
individual from an agency under false pretenses. Sections 552a (i) (1) 
and (2) of the Act (5 U.S.C. 552a (i) (1), (2)) provide penalties for 
violation by agency employees of the Act or regulations established 
thereunder.



Sec. 603.355  Exemptions.

    (a) Specific. Pursuant to 5 U.S.C. 552a(k)(2), the investigatory 
material

[[Page 19]]

compiled for law enforcement purposes in the following systems of 
records is exempt from subsections (c)(3), (d), (e)(1), (e)(4) (G), (H), 
and (I) and (f) of 5 U.S.C. 552a and from the provisions of this part:

Farm Credit Bank loans--FCA.
Production Credit Association loans--FCA.
Agricultural Credit Association loans--FCA.
Federal Land Credit Association loans--FCA.
Agricultural Credit Bank loans--FCA.
Office of Inspector General Investigative Files--FCA.

    (b) General. (1) In addition, pursuant to 5 U.S.C. 552a (j)(2), 
investigatory materials compiled for criminal law enforcement in the 
system of records described in (b)(2) are exempt from all subsections of 
5 U.S.C. 552a, except (b), (c) (1) and (2), (e)(4) (A) through (F), (e) 
(6), (7), (9), (10), and (11), and (i). Exemptions from the particular 
subsections are justified for the following reasons:
    (i) From subsection (c)(3) because making available to a record 
subject the accounting of disclosures from records concerning him/her 
would reveal investigative interest on the part of the OIG. This would 
enable record subjects to impede the investigation by, for example, 
destroying evidence, intimidating potential witnesses, or fleeing the 
area to avoid inquiries or apprehension by law enforcement personnel.
    (ii) From subsection (c)(4) because this system is exempt from the 
access provisions of subsection (d) pursuant to subsection (j)(2) of the 
Privacy Act.
    (iii) From subsection (d) because the records contained in this 
system relate to official Federal investigations. Individual access to 
those records might compromise ongoing investigations, reveal 
confidential informants or constitute unwarranted invasions of the 
personal privacy of third parties who are involved in a certain 
investigation. Amendment of the records would interfere with ongoing 
criminal law enforcement proceedings and impose an impossible 
administrative burden by requiring criminal investigations to be 
continuously reinvestigated.
    (iv) From subsections (e) (1) and (5) because in the course of law 
enforcement investigations, information may occasionally be obtained or 
introduced the accuracy of which is unclear or which is not strictly 
relevant or necessary to a specific investigation. In the interests of 
effective law enforcement, it is appropriate to retain all information 
that may aid in establishing patterns of criminal activity. Moreover, it 
would impede the specific investigative process if it were necessary to 
assure the relevance, accuracy, timeliness and completeness of all 
information obtained.
    (v) From subsection (e)(2) because in a law enforcement 
investigation the requirement that information be collected to the 
greatest extent possible from the subject individual would present a 
serious impediment to law enforcement in that the subject of the 
investigation would be informed of the existence of the investigation 
and would therefore be able to avoid detection, apprehension, or legal 
obligations or duties.
    (vi) From subsection (e)(3) because to comply with the requirements 
of this subsection during the course of an investigation could impede 
the information gathering process, thus hampering the investigation.
    (vii) From subsections (e)(4) (G), and (H), and (I), (e)(8), (f), 
(g) and (h) because this system is exempt from the access provisions of 
subsection (d) pursuant to subsection (j) of the Privacy Act.
    (2) Office of Inspector General Investigative Files--FCA.

[56 FR 2673, Jan. 24, 1991, as amended at 57 FR 32421, July 22, 1992]



PART 604_FARM CREDIT ADMINISTRATION BOARD MEETINGS--Table of Contents

Sec.
604.400 Definitions.
604.405 Notice of public observation.
604.410 Scope of application.
604.415 Open meetings.
604.420 Exemptive provisions.
604.425 Announcement of meetings.
604.430 Closure of meetings.
604.435 Record of closed meetings or closed portion of a meeting.
604.440 Requests for information.

    Authority: Secs. 5.9, 5.17 of the Farm Credit Act; 12 U.S.C. 2243, 
2252.

[[Page 20]]



Sec. 604.400  Definitions.

    For purposes of this part:
    (a) Agency means the Farm Credit Administration.
    (b) Board means the Farm Credit Administration Board.
    (c) Exempt meeting and exempt portion of a meeting mean, 
respectively, a meeting or that part of a meeting designated as provided 
in Sec. 604.430 of this part as closed to the public by reason of one 
or more of the exemptive provisions listed in Sec. 604.420 of this 
part.
    (d) Meeting means the deliberations of at least two (quorum) members 
of the Board where such deliberations determine or result in joint 
conduct or disposition of official Farm Credit Administration business.
    (e) Member means any one of the members of the Board.
    (f) Open meeting means a meeting or portion of a meeting which is 
not an exempt meeting or an exempt portion of a meeting.
    (g) Public observation means the right of any member of the public 
to attend and observe, but not participate or interfere in any way in, 
an open meeting of the Board, within the limits of reasonable and 
comfortable accommodations made available for such purpose by the Farm 
Credit Administration.

[51 FR 41942, Nov. 20, 1986]



Sec. 604.405  Notice of public observation.

    (a) A member of the public is not required to give advance notice to 
the Farm Credit Administration of an intention to exercise the right of 
public observation of an open meeting of the Board. However, in order to 
permit the Farm Credit Administration to determine the amount of space 
and number of seats which must be made available to accommodate 
individuals who desire to exercise the right of public observation, such 
individuals are requested to give notice to the Farm Credit 
Administration at least two business days before the start of the open 
meeting of the intention to exercise such right.
    (b) Notice of intention to exercise the right of public observation 
may be given in writing, in person, or by telephone to the official 
designated in Sec. 604.440 of this part.
    (c) Individuals who have not given advance notice of intention to 
exercise the right of public observation will not be permitted to attend 
and observe the open meeting of the Board if the available space and 
seating are necessary to accommodate individuals who gave advance notice 
of such intention to the Farm Credit Administration.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41942, 
Nov. 20, 1986]



Sec. 604.410  Scope of application.

    The provisions of this part apply to meetings of the Board, and do 
not apply to conferences or other gatherings of employees of the Farm 
Credit Administration who meet or join with others, except at meetings 
of the Board, to deliberate official agency business.

[51 FR 41942, Nov. 20, 1986]



Sec. 604.415  Open meetings.

    Every meeting and portion of a meeting of the Board shall be open to 
public observation unless the Board determines that such meeting or 
portion of a meeting will involve the discussion of matters which are 
within one or more of the exemptive provisions listed in Sec. 604.420 
of this part, and that the public interest is not served by the 
discussion of such matters in an open meeting.

[51 FR 41943, Nov. 20, 1986]



Sec. 604.420  Exemptive provisions.

    Except in a case where the Board determines that the public interest 
requires otherwise, a meeting or portion of a meeting may be closed to 
public observation where the Board determines that the meeting or 
portion of the meeting is likely to:
    (a) Disclose matters that are:
    (1) Specifically authorized under criteria established by an 
Executive order to be kept secret in the interests of national defense 
or foreign policy, and
    (2) In fact properly classified pursuant to such Executive order;
    (b) Relate solely to the internal personnel rules and practices of 
the Farm Credit Administration;
    (c) Disclose matters specifically exempted from disclosure by 
statute

[[Page 21]]

(other than 5 U.S.C. 552): Provided, That such statute:
    (1) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue, or
    (2) Establishes particular types of matters to be withheld;
    (d) Disclose trade secrets and privileged or confidential commercial 
or financial information obtained from a person;
    (e) Involve accusing any person of a crime, or formally censuring 
any person;
    (f) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (g) Disclose investigator records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would:
    (1) Interfere with enforcement proceedings;
    (2) Deprive a person of a right to a fair trial or an impartial 
adjudication;
    (3) Constitute an unwarranted invasion of personal privacy;
    (4) Disclose the identity of a confidential source and, in the case 
of a record compiled by a criminal law enforcement authority in the 
course of a criminal investigation, or by an agency conducting a lawful 
national security intelligence investigation, confidential information 
furnished only by the confidential source;
    (5) Disclose investigative techniques and procedures; or
    (6) Endanger the life or physical safety of law enforcement 
personnel;
    (h) Disclose information contained in or related to examination, 
supervision, operating, or condition reports prepared by, on behalf of, 
or for the use of the Farm Credit Administration;
    (i) Disclose information the premature disclosure of which would:
    (1) Significantly endanger the stability of any Farm Credit System 
institution, including banks, associations, service organizations, the 
Funding Corporation, the Farm Credit System Assistance Board, or the 
Farm Credit System Financial Assistance Corporation; or
    (2) Be likely to significantly frustrate implementation of a 
proposed action of the Farm Credit Administration: Provided, said 
Administration has not already disclosed to the public the content or 
nature of its proposed action, or is not required by law to make such 
disclosure on its own initiative prior to taking final action on such 
proposal; or
    (j) Specifically concern participation by the Farm Credit 
Administration in a civil action or proceeding otherwise involving a 
determination on the record before an opportunity for a hearing.

[51 FR 41943, Nov. 20, 1986, as amended at 56 FR 2673, Jan. 24, 1991]



Sec. 604.425  Announcement of meetings.

    (a) The Board meets in the offices of the Farm Credit 
Administration, McLean, Virginia 22102-5090, on the second Thursday of 
each month.
    (b) At any duly called meeting held previous to any meeting 
scheduled as provided in paragraph (a) of this section, the Board may 
fix a different time and place for a subsequent meeting.
    (c) At the earliest practicable time, which is estimated to be not 
later than 8 days before the beginning of a meeting of the Board, the 
Farm Credit Administration shall make available for public inspection by 
posting notice on its public notice board in its offices, or pursuant to 
telephonic or written requests, the time, place, and subject matter of 
the meeting except to the extent that such information is exempt from 
disclosure under the provisions of Sec. 604.420 of this part.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, 
Nov. 20, 1986; 56 FR 9611, Mar. 7, 1991]



Sec. 604.430  Closure of meetings.

    (a) A majority of the meetings or portions of a majority of the 
meetings of the board are exempt by reason of Sec. 604.420 (d), (h), 
(i)(1), or (j) of this part. An exempt meeting or an exempt portion of a 
meeting shall be closed to the public when at least two members of the 
Board vote by a recorded vote of the Board at the beginning of the 
exempt meeting or exempt portion of a

[[Page 22]]

meeting to close such meeting or such exempt portion, and the General 
Counsel, Farm Credit Administration, publicly certifies that, in his or 
her opinion, the meeting or portion of the meeting may be closed to the 
public stating each relevant exemptive provision listed in Sec. 604.420 
of this part.
    (b) A copy of the vote of the Board to close a meeting or an exempt 
portion thereof reflecting the vote of each member on the question, and 
a copy of the certification of General Counsel, shall be made available 
for public inspection in the offices of the Farm Credit Administration, 
or pursuant to telephonic or written requests.
    (c) A copy of the certification of the General Counsel, together 
with a statement from the presiding officer of the meeting setting forth 
the time and place of an exempt meeting or an exempt portion of a 
meeting which was closed and the persons present, shall be retained by 
the Farm Credit Administration for a period of at least 2 years after 
the date of such closed meeting or closed portion of a meeting.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, 
Nov. 20, 1986]



Sec. 604.435  Record of closed meetings or closed portion of a meeting.

    (a) The Farm Credit Administration shall maintain a complete 
transcript or electronic recording adequate to record fully the 
proceedings of each closed meeting or closed portion of a meeting, 
except that in the case of a meeting or portion of a meeting closed to 
the public pursuant to Sec. 604.420 (d), (h), (i)(1), or (j) of this 
part, the Farm Credit Administration shall maintain either such 
transcript, recording, or a set of minutes.
    (b) Any minutes so maintained shall fully and clearly describe all 
matters discussed and shall provide a full and accurate summary of any 
actions taken, and the reasons therefor, including a description of each 
of the views expressed on any item and the record of any roll call vote. 
All documents considered in connection with any action shall be 
identified in the minutes.
    (c) The Farm Credit Administration shall promptly make available to 
the public, in its offices, the transcript, electronic recording, or 
minutes, of the discussion of any item on the agenda of a closed 
meeting, or closed portion of a meeting, except for such item or items 
of discussion which the Farm Credit Administration determines to contain 
information which may be withheld under Sec. 604.420 of this part. 
Copies of such transcript or minutes, or a transcription of such 
recording disclosing the identity of each speaker, shall be furnished to 
any person at the actual cost of duplication or transcription.
    (d) The Farm Credit Administration shall maintain a complete 
verbatim copy of the transcript, a complete copy of the minutes, or a 
complete electronic recording of each closed meeting or closed portion 
of a meeting for a period of 2 years after the date of such closed 
meeting or closed portion of a meeting.
    (e) All actions required or permitted by this section to be 
undertaken by the Farm Credit Administration shall be by or under the 
authority of the Director, Office of Resources Management.

[42 FR 12161, Mar. 3, 1977. Redesignated and amended at 51 FR 41943, 
Nov. 20, 1986; 56 FR 2673, Jan. 24, 1991]



Sec. 604.440  Requests for information.

    Requests to the Farm Credit Administration for information about the 
time, place, and subject matter of a meeting, whether it or any portion 
thereof is closed to the public, and any requests for copies of the 
transcript or minutes, or of a transcript of an electronic recording of 
a closed meeting, or closed portion of a meeting, to the extent not 
exempt from disclosure by the provisions of Sec. 604.420 of this part, 
shall be addressed to the Secretary to the Board, Farm Credit 
Administration, McLean, Virginia 22102-5090.

[51 FR 41944, Nov. 20, 1986, as amended at 59 FR 21642, Apr. 26, 1994]



PART 605_INFORMATION--Table of Contents

Sec.
605.500 Policy.
605.501 Information Security Officer.
605.502 Program and procedures.

    Authority: Secs. 5.9, 5.12, 5.17 of the Farm Credit Act; 12 U.S.C. 
2243, 2246, 2252.

[[Page 23]]



Sec. 605.500  Policy.

    It is the policy of the Farm Credit Administration to act in matters 
relating to national security information in accordance with Executive 
Order 12356 and directives issued thereunder by the Information Security 
Oversight Office (ISOO).

[49 FR 9859, Mar. 16, 1984]



Sec. 605.501  Information Security Officer.

    (a) The Information Security Officer of the Farm Credit 
Administration shall be responsible for implementation and oversight of 
the information security program and procedures adopted by the Agency 
pursuant to the Executive order. This officer shall be the recipient of 
questions, suggestions, and complaints regarding all elements of this 
program and shall be solely responsible for changes to it and for the 
assurance that it is at all times consistent with the Executive order 
and ISOO directive.
    (b) The Information Security Officer shall be the Farm Credit 
Administration's official contact for requests for declassification of 
materials submitted under the Executive order, regardless of the point 
of origin of such requests, and shall assure that such requests for 
records in the Farm Credit Administration's possession that were 
originated by another agency shall be forwarded to the originating 
agency. The Farm Credit Administration shall include a copy of the 
records requested together with its recommendation for action. Upon 
receipt, the originating agency shall process the request in accordance 
with 32 CFR 2001.32(a)(2)(i). Upon request, the originating agency shall 
communicate its declassification determination to the Farm Credit 
Administration. The Farm Credit Administration shall inform the 
requester of the determination within 1 year from the date of receipt, 
except in unusual circumstances. If an appeal is made on a denial of a 
mandatory declassification review request, the originating agency's 
appellate authority shall normally make a determination within 30 
working days following the receipt of an appeal. If additional time is 
required to make a determination, the originating appellate authority 
shall notify the requester of the additional time needed and provide the 
requester with the reason for extension. The originating agency's 
appellate authority shall notify the requester in writing of the final 
determination and of the reasons for any denial. Such officer shall also 
assure that requests for declassification submitted under the Freedom of 
Information Act are handled in accordance with that Act.

[49 FR 9859, Mar. 16, 1984]



Sec. 605.502  Program and procedures.

    (a) The Farm Credit Administration has no authority for the original 
classification of information for national security purposes. Only those 
agencies described in the Executive order may so classify information.
    (b) Derivative classification. ``Derivative Classification'' means a 
determination that information is in substance the same information that 
is currently classified under a designated level of classification. 
Derivative application of classification markings shall be the 
responsibility of the Information Security Officer who shall assure that 
the use of this authority is in accordance with ISOO directives.
    (c) Mandatory review. All requests for review under the mandatory 
review provisions of the Executive order shall be handled by the 
Information Security Officer or his/her designee. Under no circumstances 
shall such official refuse to confirm the existence or nonexistence of a 
document requested under the Executive order or the Freedom of 
Information Act unless the fact of its existence or nonexistence would 
itself be classified under the Executive order.
    (d) Handling of classified documents. All documents bearing the 
terms ``Top Secret,'' ``Secret,'' and ``Confidential'' shall be 
delivered to the Information Security Officer or his/her designee 
immediately upon receipt. All potential recipients of such documents 
shall be advised of the names of such designees. In the event that the 
Information Security Officer or his/her designee is not available to 
receive such documents, they shall be sent to the FCA mailroom and 
stored in the combination safe located in the Agency Services Branch and 
secured unopened until the

[[Page 24]]

Information Security Officer is available. Under no cirumstances shall 
classified materials that cannot be delivered be stored other than in 
the designated safe. All materials not immediately deliverable or able 
to be secured in the designated safe shall be returned to the sender, 
under appropriate cover, for redelivery to the FCA at the next earliest 
opportunity.
    (e) Reproduction. Reproduction of classified materials shall take 
place only in accordance with section 4.1(b) of the Executive order and 
any limitations imposed by the originator. Should copies be made, they 
shall be subject to the same controls as the original document. Records 
showing the number and distribution of copies shall be maintained by the 
Information Security Officer or his/her designee, and the log stored 
with the original documents. These measures shall not restrict 
reproduction for the purposes of Mandatory Review.
    (f) Storage. In accordance with 32 CFR 2001.43, all classified 
documents shall be stored in combination safes located at the primary 
headquarters and/or a Field Office, Office of Examination, Farm Credit 
Administration. The combinations shall be changed as required by 
directives issued by ISOO. The combinations shall be known only to the 
Information Security Officer and his/her designees who have appropriate 
security clearances.
    (g) Employee education. All employees who have been granted a 
security clearance and who have occasion to handle classified materials 
shall be advised of handling, reproduction, and storage procedures and 
shall be required to review the Executive order and appropriate ISOO 
directives.
    (h) Agency terminology. No official of the Farm Credit 
Administration shall use the terms ``Top Secret'', ``Secret'', or 
``Confidential'' except in relation to materials classified for national 
security purposes. As a Federal regulatory agency, the Farm Credit 
Administration maintains certain internal documents that relate to its 
examination and supervision of the institutions of the Farm Credit 
System. Such documents are limited in use and distribution. Material 
that is of a sensitive nature to the Farm Credit Administration may be 
designated ``Executive Document.''
    (i) Nondisclosure agreement. In accordance with 32 CFR 2003.20, the 
Farm Credit Administration requires that any person whose position 
requires access to classified information must execute a nondisclosure 
agreement on Standard Form 189--Classified Information Nondisclosure 
Agreement. Persons not executing such nondisclosure agreements are 
subject to sanctions of Executive Order 12356. It is the policy of the 
Farm Credit Administration that any employee authorized access to 
classified information holds a personal responsibility for safeguarding 
against unlawful disclosures, and such employees are prohibited from 
disclosure without consent of the FCA Information Security Officer. Any 
such unauthorized disclosure will be reported to the Information 
Security Oversight Office, the Department of Justice, the Department of 
State, the Federal Emergency Management Agency, and to any other Federal 
agency for which the Farm Credit Administration has access to classified 
information, as such reportings are subject to interpretation as 
required by statute and Executive order. Any employee who knowingly 
disclosed classified information or who refuses to cooperate with an 
investigation may be subject to mandatory administrative sanctions, 
including as a minimum, denial of further access to classified 
information. Further sanctions could include demotion or dismissal 
depending on the circumstances of a particular case.
    (j) Freedom of Information request. All inquiries regarding requests 
for classified information under the Freedom of Information Act (5 
U.S.C. 552), including those from the news media, shall be referred to 
the FCA FOI Officer, Office of Congressional and Public Affairs, Farm 
Credit Administration, and shall be handled in accordance with 
provisions of that statute and applicable regulations.

[49 FR 9859, Mar. 16, 1984, as amended at 52 FR 18200, May 14, 1987; 59 
FR 21643, Apr. 26, 1994]

[[Page 25]]



PART 606_ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN 

PROGRAMS OR ACTIVITIES CONDUCTED BY THE FARM CREDIT ADMINISTRATION
--Table of Contents

Sec.
606.601 Purpose.
606.602 Application.
606.603 Definitions.
606.604-606.609 [Reserved]
606.610 Self-evaluation.
606.611 Notice.
606.612-606.629 [Reserved]
606.630 General prohibitions against discrimination.
606.631-606.639 [Reserved]
606.640 Employment.
606.641-606.648 [Reserved]
606.649 Program accessibility: Discrimination prohibited.
606.650 Program accessibility: Existing facilities.
606.651 Program accessibility: New construction and alterations.
606.652-606.659 [Reserved]
606.660 Communications.
606.661-606.669 [Reserved]
606.670 Compliance procedures.
606.671-606.999 [Reserved]

    Authority: 29 U.S.C. 794.

    Source: 53 FR 19889, June 1, 1988, unless otherwise noted.



Sec. 606.601  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation Comprehensive Services, and Developmental Disabilities 
Amendments of 1978, which amended section 504 of the Rehabilitation Act 
of 1973 to prohibit discrimination on the basis of handicap in programs 
or activities conducted by Executive agencies or the United States 
Postal Service.



Sec. 606.602  Application.

    (a) This part applies to all programs or activities conducted by the 
agency. For example, members of the public may participate in the 
following ``programs and activities'' of the FCA:
    (1) Attending open meetings of the Farm Credit Board.
    (2) Making inquiries or filing complaints.
    (3) Using the FCA library in McLean, Virginia.
    (4) Seeking employment with FCA.
    (5) Attending any meeting, conference, seminar, or other program 
open to the public.

This list is illustrative only and failure to include an activity does 
not necessarily mean that it is not covered by this regulation.
    (b) This regulation does not apply to the institutions that are 
regulated or examined by the FCA. However, this regulation governs the 
conduct of FCA personnel, in their interaction with employees of such 
institutions and employees of other Federal agencies, while discharging 
their official FCA duties.



Sec. 606.603  Definitions.

    For purposes of this part, the term:
    (a) Agency means the Farm Credit Administration.
    (b) Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, United States Department of Justice.
    (c) Auxiliary aids means services or devices that enable persons 
with impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TDDs), interpreters, note-takers, written 
materials, and other similar services and devices.
    (d) Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    (e) Facility means all or any portion of buildings, structures, 
equipment,

[[Page 26]]

roads, walks, parking lots, rolling stock or other conveyances, or other 
real or personal property.
    (f) Individual with handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes:
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term physical or mental impairment 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, and drug addiction and 
alcoholism.
    (2) Major life activities includes functions such as caring for 
oneself, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one more major life activities.
    (4) Is regarded as having an impairment means:
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (f)(1) of 
this definition but is treated by the agency as having such an 
impairment.
    (g) Qualified individual with handicaps means an individual with 
handicaps who meets the essential eligibility requirements for 
participation in the program or activity conducted by the agency. With 
respect to employment, a qualified individual with handicaps is one who 
meets the definition of qualified handicapped person set forth in 29 CFR 
1613.702(f), which is made applicable to this part by Sec. 606.640 of 
this rule.
    (h) Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617); 
the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955); and the 
Rehabilitation Act Amendments of 1986 (Pub. L. 99-506, 100 Stat. 1810).



Sec. Sec. 606.604-606.609  [Reserved]



Sec. 606.610  Self-evaluation.

    (a) The agency shall, within one year of the effective date of this 
part, evaluate its current policies and practices, and the effects 
thereof, that do not or may not meet the requirements of this part, and, 
to the extent modification of any such policies and practices is 
required, the agency shall proceed to make the necessary modifications.
    (b) The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation 
process by submitting comments (both oral and written).
    (c) The agency shall, for at least three years following completion 
of the evaluation required under paragraph (a) of this section, maintain 
on file and make available for public inspection:
    (1) A list of the interested persons who commented, with copies of 
comments received;
    (2) A description of areas examined and any problems identified; and
    (3) A description of any modifications made.

[[Page 27]]



Sec. 606.611  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such manner as the agency head finds 
necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this regulation.



Sec. Sec. 606.612-606.629  [Reserved]



Sec. 606.630  General prohibitions against discrimination.

    (a) No qualified individual with handicaps, on the basis of 
handicap, shall be excluded from participation in, be denied the 
benefits of, or otherwise be subjected to discrimination under any 
program or activity of the agency.
    (b)(1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual or other arrangements, on the basis 
of handicap:
    (i) Deny a qualified individual with handicaps the oportunity to 
participate in or benefit from the activity, aid, benefit, or service;
    (ii) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
individuals with handicaps or to any class of individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aid, benefits, or services 
that are as effective as those provided to others;
    (v) Deny a qualified individual with handicaps the opportunity to 
participate as a member of planning or advisory boards;
    (vi) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified individual with handicaps 
the opportunity to participate in programs or activities that are not 
separate or different, despite the existence of permissibly separate or 
different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
or effect of which would:
    (i) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would:
    (i) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (c) The exclusion of nonhandicapped persons from the benefits of a 
program limited by Federal statute or Executive order to individuals 
with handicaps or the exclusion of a specific class of individuals with 
handicaps from a program limited by Federal statute or Executive order 
to a different class of individuals with handicaps is not prohibited by 
this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.

[[Page 28]]



Sec. Sec. 606.631-606.639  [Reserved]



Sec. 606.640  Employment.

    No qualified individual with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any program 
or activity conducted by the agency. The definitions, requirements, and 
procedures of section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 
791), as established by the Equal Employment Opportunity Commission in 
29 CFR part 1613, shall apply to employment in the agency.



Sec. Sec. 606.641-606.648  [Reserved]



Sec. 606.649  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 606.650, no qualified 
individual with handicaps shall, because the agency's facilities are 
inaccessible to or unusable by individuals with handicaps, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the agency.



Sec. 606.650  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not:
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps;
    (2) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the agency has the burden of 
proving that compliance with paragraph (a) of this section would result 
in such alteration or burdens. The decision that compliance would result 
in such alteration or burdens must be made by the agency head or his or 
her designee after considering all agency resources available for use in 
the funding and operation of the conducted program or activity, and must 
be accompanied by a written statement of the reasons for reaching that 
conclusion. In preparing the report, the agency shall make reasonable 
efforts to ensure that the person(s) to be accommodated has an 
opportunity to provide relevant information. If an action would result 
in such an alteration or such burdens, the agency shall take any other 
action that would not result in such an alteration or such burdens but 
would nevertheless ensure that individuals with handicaps receive the 
benefits and services of the program or activity.
    (b) Methods. The agency may comply with the requirements of this 
section through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aides to beneficiaries, 
home visits, delivery of services at alternate accessible sites, 
alteration of existing facilities and construction of new facilities, or 
any other methods that result in making its programs or activities 
readily accessible to and usable by individuals with handicaps. The 
agency is not required to make structural changes in existing facilities 
where other methods are effective in achieving compliance with this 
section. The agency, in making alterations to existing buildings, shall 
meet accessibility requirements to the extent compelled by the 
Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151 through 
4157), and any regulations implementing it. In choosing among available 
methods for meeting the requirements of this section, the agency shall 
give priority to those methods that offer programs and activities to 
qualified individuals with handicaps in the most integrated setting 
appropriate.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section within sixty days of the 
effective date of this part except that where structural changes in 
facilities are undertaken, such changes shall be made within three years 
of the effective date of this part, but in any event as expeditiously as 
possible.

[[Page 29]]

    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve accessibility, the agency shall 
develop, within six months of the effective date of this part, a 
transition plan setting forth the steps necessary to complete such 
changes. The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the development of the 
transition plan by submitting comments (both oral and written). A copy 
of the transition plan shall be made available for public inspection. 
The plan shall, at a minimum:
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section, and if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period;
    (4) Indicate the official responsible for implementation of the 
plan; and
    (5) Identify the persons or groups who commented on the plan.



Sec. 606.651  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151 through 4157), as 
established in 41 CFR 101-19.600 to 101-19.607, apply to buildings 
covered by this section.



Sec. Sec. 606.652-606.659  [Reserved]



Sec. 606.660  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in and enjoy the benefits of a program or activity conducted 
by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices for deaf persons (TDDs) or 
equally effective telecommunication systems shall be used.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance with this section would result 
in such alteration or burdens. The decision that compliance would result 
in such alteration or burdens must be made by the agency head or his or 
her designee after considering all agency resources available for use in 
the funding and operation of the conducted program or activity, and must 
be accompanied by a written

[[Page 30]]

statement of the reasons for reaching that conclusion. In preparing the 
report, the agency shall make reasonable efforts to ensure that the 
person(s) to be accommodated has an opportunity to provide relevant 
information. If an action required to comply with this section would 
result in such an alteration or such burdens, the agency shall take any 
other action that would not result in such an alteration or such burdens 
but would nevertheless ensure that, to the maximum extent possible, 
individuals with handicaps receive the benefits and services of the 
program or activity.



Sec. Sec. 606.661-606.669  [Reserved]



Sec. 606.670  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs and activities conducted by the agency.
    (b) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) Responsibility for implementation and operation of this section 
shall be vested in the Director, Office of Resources Management, Farm 
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
    (d) The agency shall accept and investigate all complete complaints 
for which it has jurisdiction. All complete complaints must be filed 
within 180 days of the alleged act of discrimination. The agency may 
extend this time period for good cause.
    (e) If the agency receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate Government 
entity.
    (f) The agency shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151 through 4157), is not readily 
accessible to and usable by individuals with handicaps.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, the agency shall notify the complainant of the 
results of the investigation in a letter containing:
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 90 days of receipt from 
the agency of the letter required by this paragraph. The agency may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the Equal 
Employment Opportunity Manager, or his/her designee, Farm Credit 
Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
    (j) The head of the agency shall notify the complainant of the 
results of the appeal within 60 days of the receipt of the request. If 
the head of the agency determines that additional information is needed 
from the complainant, he or she shall have 60 days from the date of 
receipt of the additional information to make his or her determination 
on the appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended with the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.

[53 FR 19889, June 1, 1988, as amended at 56 FR 2674, Jan. 24, 1991]



Sec. Sec. 606.671-606.999  [Reserved]



PART 607_ASSESSMENT AND APPORTIONMENT OF ADMINISTRATIVE EXPENSES
--Table of Contents

Sec.
607.1 Purpose and scope.
607.2 Definitions.
607.3 Assessment of banks, associations, and designated other System 
          entities.
607.4 Assessment of other System entities.

[[Page 31]]

607.5 Notice of assessment.
607.6 Payment of assessment.
607.7 Late-payment charges on assessments.
607.8 Reimbursements for services to non-System entities.
607.9 Reimbursable billings.
607.10 Adjustments for overpayment or underpayment of assessments.
607.11 Report of assessments and expenses.

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

    Source: 58 FR 10942, Feb. 23, 1993, unless otherwise noted.



Sec. 607.1  Purpose and scope.

    The regulations in part 607 implement the provisions of section 5.15 
of the Farm Credit Act of 1971, 12 U.S.C. 2001 et seq. (Act) relating to 
Farm Credit Administration (FCA) assessments. The regulations prescribe 
the procedures for the equitable apportionment of FCA annual 
administrative expenses and necessary reserves among Farm Credit System 
(System) institutions. Pursuant to section 5.15(a) of the Act, the 
regulations also provide for the separate assessment of the FCA's costs 
of supervising and examining the Federal Agricultural Mortgage 
Corporation (FAMC). The regulations further provide for the 
reimbursement of expenses incurred in performing statutorily required 
examinations of non-System entities.



Sec. 607.2  Definitions.

    For the purpose of this part, the following definitions shall apply:
    (a) Assessment means the annual amount to be paid by each System 
institution to the Farm Credit Administration in accordance with section 
5.15 of the Act.
    (b) Average risk-adjusted asset base means the average of the risk-
adjusted asset base (as determined in accordance with Sec. 615.5210(f) 
of this chapter) of banks, associations, and designated other System 
entities, calculated as follows:
    (1) For banks, associations, and designated other System entities 
with four quarters of risk-adjusted assets as of June 30 of each year, 
the sum of the average daily risk-adjusted assets as of the last day of 
the quarter as reported on each quarterly Call Report Schedule RC-G to 
the FCA for the most recent four quarters immediately preceding each 
September 15, divided by four;
    (2) Except as provided in paragraphs (b)(3) and (b)(4) of this 
section, for banks, associations, and designated other System entities 
with less than four quarters of risk-adjusted assets as of June 30 of 
each year, the sum of the average daily risk-adjusted assets as of the 
last day of the quarter reported on each quarterly Call Report Schedule 
RC-G to the FCA for the quarters in which it was in existence 
immediately preceding September 15, divided by the number of quarters 
for which the Call Report Schedule RC-G was received;
    (3) For banks, associations, and designated other System entities 
that were formed through mergers, consolidations, or transfers of direct 
lending authority, and have less than four quarters of risk-adjusted 
assets as of June 30, the sum of the average daily risk-adjusted assets 
as of the last day of the quarter for the most recent four quarters 
immediately preceding September 15 as reported on each quarterly Call 
Report Schedule RC-G filed by the newly chartered institution and the 
institutions that were merged or consolidated or that received direct 
lending authority, divided by four;
    (4) For banks, associations, and designated other System entities 
chartered during the period July 1 through September 30 of each year 
that were not formed by the merger or consolidation of existing System 
institutions or the transfer of direct lending authority from another 
System institution, the total of the average daily risk-adjusted assets 
as of the last day of the quarter as reported on Call Report Schedule 
RC-G for the quarter ending September 30.
    (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

[[Page 32]]

ranges from 1 to 5, with a lower number indicating a better financial 
condition than a higher number.
    (d) Delinquent amount means an amount owed to the FCA that has not 
been paid by the date specified in the FCA's Notice of Assessment or 
billing.
    (e) Designated other System entities means other System entities 
designated by the FCA in Sec. 607.3(c) to be assessed on the same basis 
as banks and associations under Sec. 607.3.
    (f) Direct expenses means the expenses of the FCA attributable to 
the performance of examinations.
    (g) Indirect expenses means all FCA expenses that are not 
attributable to the performance of examinations.
    (h) Non-System entities means the National Consumer Cooperative 
Bank, the National Cooperative Bank Development Corporation, and any 
other entity that is required to be examined, supervised, or otherwise 
regulated by the FCA that is not a System institution.
    (i) Notice of Assessment means a written notice to each System 
institution showing the total amount assessed and owing, the fiscal year 
covered by the assessment, the amounts of installment payments, and the 
due dates for such payments. For banks, associations, and designated 
other System entities, the Notice of Assessment shall also include an 
individualized assessment table showing the assessment under Sec. 
607.3(b)(2), where applicable.
    (j) Other System entities means any service corporation chartered 
under section 4.25 of the Act, the Farm Credit System Financial 
Assistance Corporation, FAMC, the Federal Farm Credit Banks Funding 
Corporation, the Farm Credit Finance Corporation of Puerto Rico, and any 
other entity statutorily designated as a System institution that is not 
a bank or association.
    (k) System institutions means banks, associations, and other System 
entities.

[58 FR 10942, Feb. 23, 1993, as amended at 59 FR 37403, July 22, 1994; 
63 FR 34268, June 24, 1998]



Sec. 607.3  Assessment of banks, associations, and designated other System entities.

    (a) Banks, associations, and other System entities designated in 
paragraph (c) of this section will be assessed annually pursuant to this 
section for funds to cover a portion of the FCA's administrative 
expenses and for such funds as may be required to maintain a necessary 
reserve. The total amount of the annual assessment of banks, 
associations, and designated other System entities shall be based on the 
FCA budget for each fiscal year plus such amount as may be required to 
maintain a necessary reserve, excluding amounts to be assessed against 
other System entities and reimbursements received from non-System 
entities.
    (b) The assessment shall be apportioned among the banks, 
associations, and designated other System entities as follows:
    (1) Thirty (30) percent of the assessment under this section shall 
be apportioned to each bank, association, and designated other System 
entity on the basis of each institution's pro rata share of the total 
average risk-adjusted asset base.
    (2) Seventy (70) percent of the assessment under this section shall 
be apportioned to each bank, association, and designated other System 
entity based upon the amounts of the institution's average risk-adjusted 
assets that fall within the graduated risk-adjusted asset tiers 
contained in the following table. An institution's total assessment 
under this paragraph is the sum of the amounts assessed for risk-
adjusted assets falling into each applicable tier, subject to adjustment 
for its FIRS rating as required in paragraphs (b)(2)(i) and (b)(2)(ii) 
of this section. The same assessment rate (designated as X1 
or a declining percentage of X1 in the following table) will 
be applied to each dollar value of risk-adjusted assets falling within 
each tier, increased where applicable, by the amounts prescribed in 
paragraphs (b)(2)(i) and (b)(2)(ii) of this section. The actual 
assessment rate under this paragraph shall be determined annually based 
on relative average risk-adjusted asset bases, the FIRS ratings of 
individual institutions, and the FCA budget as adjusted pursuant to 
paragraph (a) of this section, but the relationship between

[[Page 33]]

the rates applied to each tier shall remain constant as set forth in the 
following table.

------------------------------------------------------------------------
    Average risk-adjusted asset size range (in
                    millions)
--------------------------------------------------    Assessment rate
                Over                       To
------------------------------------------------------------------------
$0..................................          $25  X1
25..................................           50  .85X1
50..................................          100  .75X1
100.................................          500  .60X1
500.................................        1,000  .50X1
1,000...............................        7,000  .35X1
7,000...............................       10,000  .20X1
10,000..............................  ...........  .10X1
------------------------------------------------------------------------

    Example: XYZ association has a FIRS rating of 2 and average risk-
adjusted assets of $500.4 million. The value of X1 has been 
determined to be .000917, based on an FCA budget of $40.29 million.

X1=.000917 therefore $25,000,000x.0917%...................   =   $22,925
.85X1=.000780 therefore $25,000,000x.0780%................   =    19,500
.75X1=.000688 therefore $50,000,000x.0688%................   =    34,400
.60X1=.000550 therefore $400,000,000x.0550%...............   =   220,000
.50X1=.000458 therefore $400,000x.0458%...................   =       183
                                                               ---------
    Total Assessment under Sec. 607.3(b)(2).............   =   297,008
 

    (i) If the FCA assigns a bank, association, or designated other 
System entity a composite FIRS rating of 3 following its most recent 
examination of the institution prior to the date of assessment, the 
assessment provided for in paragraph (b)(2) of this section shall be 
increased by 20 percent.
    (ii) If the FCA assigns a bank, association, or designated other 
System entity a composite FIRS rating of 4 or 5 following its most 
recent examination of the institution prior to the date of assessment, 
the assessment provided for in paragraph (b)(2) of this section shall be 
increased by 40 percent.
    (iii) Banks, associations, and designated other System entities that 
were formed through mergers or consolidations and have not been examined 
before their initial assessment under this section shall be deemed to 
have a composite FIRS rating equivalent to the best composite FIRS 
rating assigned to the merged or consolidated institutions in the FCA's 
most recent examination of the individual institutions prior to the date 
of merger or consolidation. Newly chartered institutions not formed 
through mergers or consolidations that have not been examined before 
their initial assessment under this section shall be deemed to have a 
composite FIRS rating of 2.
    (3) Each bank, association, and designated other System entity shall 
pay a minimum assessment of $20,000 regardless of the result of the 
application of the assessment formula established by paragraphs (b)(1) 
and (b)(2) of this section. If such a minimum assessment is apportioned 
to an institution, that institution's average risk-adjusted asset base 
shall be deducted from the total average risk-adjusted asset base, and 
$20,000 shall be deducted from the total assessment amount for purposes 
of determining the assessments of banks, associations, and designated 
other System entities paying more than the $20,000 minimum assessment.
    (c) Other System entities designated to be assessed in accordance 
with this section are:
    The Farm Credit Services Leasing Corporation.
    (d) Assessments may be adjusted periodically to reflect:
    (1) Changes in the FCA budget and necessary reserve; and
    (2) Any overpayment or underpayment by a bank, association, or 
designated other System entity in the prior fiscal year.

[58 FR 10942, Feb. 23, 1993, as amended at 63 FR 34268, June 24, 1998]



Sec. 607.4  Assessment of other System entities.

    (a)(1) Unless otherwise designated to be assessed under Sec. 607.3, 
and with the exception of FAMC as provided in paragraph (b) of this 
section, other System entities will be assessed for estimated direct 
expenses plus an allocated portion of FCA indirect expenses and such 
amount as may be required to maintain a necessary reserve. The estimate 
for direct expenses shall take into account the direct expenses incurred 
in the most recent examination of the entity preceding each September 15 
and expected increases or decreases in examination work for the next 
fiscal year. A proportional amount of FCA indirect expenses will be 
allocated to

[[Page 34]]

each entity based on the estimated direct expenses related to the 
particular entity as a percentage of the total budgeted direct expenses 
of the agency (excluding direct expenses under paragraph (b) of this 
section) for the fiscal year covered by the assessment.
    (2) Assessments of other System entities under paragraph (a)(1) of 
this section may be adjusted periodically to reflect:
    (i) Changes in the FCA budget and necessary reserve; and
    (ii) Any overpayment or underpayment by such other System entity in 
the prior fiscal year.
    (b) Assessment of Federal Agricultural Mortgage Corporation. The FCA 
shall assess FAMC for the estimated cost of FCA's regulation, 
supervision, and examination of FAMC, including reasonably related 
administrative and overhead expenses. FAMC's assessment may be adjusted 
periodically to reflect changes in the FCA budget and to reconcile 
differences between FAMC's assessment and FCA's actual expenditures for 
regulation of FAMC in the prior fiscal year.



Sec. 607.5  Notice of assessment.

    (a) Except as provided in paragraph (b) of this section, prior to 
September 15 of each year, the FCA shall determine the amount of 
assessment to be collected from each System institution for the next 
fiscal year under Sec. Sec. 607.3 and 607.4 and shall provide each 
System institution with a Notice of Assessment. The total amount 
assessed each System institution in the Notice of Assessment shall be an 
obligation of each institution on October 1 of each fiscal year. The 
total amount assessed each System institution shall be payable not less 
often than quarterly in equal installments during each fiscal year, 
subject to adjustment pursuant to Sec. Sec. 607.3(d), 607.4(a)(2), 
607.4(b), and 607.10.
    (b) For banks, associations and designated other System entities 
chartered during the period July 1 through September 30 of each year, 
the FCA shall, prior to December 15, determine the amount of assessment 
to be collected from each such institution for the remainder of the 
fiscal year and provide the institution with a Notice of Assessment. The 
total amount of the assessment becomes an obligation of the institution 
on January 1 and shall be payable in equal installments, subject to 
adjustment pursuant to Sec. Sec. 607.3(d) and 607.10, not less often 
than quarterly for the remainder of the fiscal year. The first 
installment shall be due on January 1. This paragraph shall not apply to 
banks, associations, and designated other System entities formed by 
merger, consolidation, or transfer of direct lending authority.
    (c) In the event of the proposed cancellation of the charter of a 
System institution, the unpaid installments of the total amount of the 
institution's assessment shall be provided for prior to the cancellation 
of the charter.



Sec. 607.6  Payment of assessment.

    (a) System institutions shall pay the amounts due as scheduled in 
the FCA Notice of Assessment. Payment shall be made by electronic funds 
transfer (EFT) for credit to the FCA's account in the Department of the 
Treasury, by check to the FCA for deposit, or by such other means as the 
FCA may authorize.
    (b) Payments made by EFT that are not received by the close of 
business on the due date shall be considered delinquent in accordance 
with Sec. 607.7.
    (c) Payments made by check that are not received by the FCA before 
the close of business on the third workday preceding the due date shall 
be considered delinquent in accordance with Sec. 607.7.



Sec. 607.7  Late-payment charges on assessments.

    (a) If any portion of a scheduled installment of a System 
institution's total assessment or the reimbursement billed to a non-
System entity is not paid by the due date, the overdue amount shall be 
considered delinquent.
    (b) Delinquent amounts shall be charged late-payment interest at the 
United States Treasury Department's current value of funds rate 
published in the Federal Register. Late payment interest shall be 
expressed as an annual rate of interest and shall accrue on a daily 
basis starting on the due date of the delinquent amount and continuing 
through the date payment is received by the FCA.

[[Page 35]]

    (c) The FCA shall waive the collection of interest on the delinquent 
amounts if such amounts are paid within 30 days of the date interest 
begins to accrue. The FCA may waive interest due on delinquent amounts 
upon finding no fault with the performance of the remitter.
    (d) The FCA shall charge an amount necessary to cover the 
administrative costs incurred as a result of collection of any 
delinquent amount.
    (e) The FCA shall charge a penalty of 6 percent per annum on any 
portion of a delinquent amount that is more than 90 days past due. Such 
penalty shall accrue from the date the amount became delinquent.



Sec. 607.8  Reimbursements for services to non-System entities.

    Non-System entities shall be assessed for direct expenses plus an 
amount for FCA indirect expenses reasonably related to the services 
rendered to the non-System entity. Such related indirect expenses shall 
be calculated as a percentage of the FCA's overall indirect expenses 
based on the extent of FCA activities with respect to the non-System 
entity during the period since the entity's most recent assessment.



Sec. 607.9  Reimbursable billings.

    The FCA shall bill the amounts due for services to non-System 
entities each year subsequent to the issuance of their respective 
Reports of Examination. Amounts billed are due in full within 30 days 
from the date billed. If the billed amount or any portion thereof 
remains unpaid at close of business on the due date, such amount or 
portion shall be considered delinquent in accordance with Sec. 607.7.



Sec. 607.10  Adjustments for overpayment or underpayment of assessments.

    Where adjustments for overpayment or underpayment of assessments are 
made pursuant to Sec. Sec. 607.3(d), 607.4(a)(2), and 607.4(b), credits 
for overpayments or charges for underpayments shall be based on FCA 
administrative operating expenses incurred in the applicable fiscal year 
and on funds required to be maintained pursuant to section 5.15 of the 
Act. Such credits or charges shall be applied to the next applicable 
assessment payment due during the current or subsequent fiscal year. 
Where such adjustments are made, the FCA shall provide the institution 
with a statement of adjustment at least 15 days prior to the date when 
the institution's next assessment payment is due. Adjustments in 
assessments shall be made in principal amount only. Overdue amounts 
under Sec. 607.7 are not underpayments for assessment adjustment 
purposes.



Sec. 607.11  Report of assessments and expenses.

    By January 15 of each calendar year, the FCA shall provide each 
assessed System institution with a report of assessments and expenses 
for the preceding fiscal year showing total assessments and other income 
received as applied to expenses incurred by major budget category and 
amounts set aside for a necessary reserve.



PART 608_COLLECTION OF CLAIMS OWED THE UNITED STATES--Table of Contents
              Subpart A_Administrative Collection of Claims

Sec.
608.801 Authority.
608.802 Applicability.
608.803 Definitions.
608.804 Delegation of authority.
608.805 Responsibility for collection.
608.806 Demand for payment.
608.807 Right to inspect and copy records.
608.808 Right to offer to repay claim.
608.809 Right to agency review.
608.810 Review procedures.
608.811 Special review.
608.812 Charges for interest, administrative costs, and penalties.
608.813 Contracting for collection services.
608.814 Reporting of credit information.
608.815 Credit report.

                     Subpart B_Administrative Offset

608.820 Applicability.
608.821 Collection by offset.
608.822 Notice requirements before offset.
608.823 Right to review of claim.
608.824 Waiver of procedural requirements.
608.825 Coordinating offset with other Federal agencies.
608.826 Stay of offset.
608.827 Offset against amounts payable from Civil Service Retirement and 
          Disability Fund.

[[Page 36]]

                     Subpart C_Offset Against Salary

608.835 Purpose.
608.836 Applicability of regulations.
608.837 Definitions.
608.838 Waiver requests and claims to the General Accounting Office.
608.839 Procedures for salary offset.
608.840 Refunds.
608.841 Requesting current paying agency to offset salary.
608.842 Responsibility of the FCA as the paying agency.
608.843 Nonwaiver of rights by payments.

    Authority: Sec. 5.17 of the Farm Credit Act; 12 U.S.C. 2252; 31 
U.S.C. 3701-3719; 5 U.S.C. 5514; 4 CFR parts 101-105; 5 CFR part 550.

    Source: 59 FR 13187, Mar. 21, 1994, unless otherwise noted.



              Subpart A_Administrative Collection of Claims



Sec. 608.801  Authority.

    The regulations of this part are issued under the Federal Claims 
Collection Act of 1966, as amended by the Debt Collection Act of 1982, 
31 U.S.C. 3701-3719 and 5 U.S.C. 5514, and in conformity with the joint 
regulations issued under that Act by the General Accounting Office and 
the Department of Justice (joint regulations) prescribing standards for 
administrative collection, compromise, suspension, and termination of 
agency collection actions, and referral to the General Accounting Office 
and to the Department of Justice for litigation of civil claims for 
money or property owed to the United States (4 CFR parts 101-105).



Sec. 608.802  Applicability.

    This part applies to all claims of indebtedness due and owing to the 
United States and collectible under procedures authorized by the Federal 
Claims Collection Act of 1966, as amended by the Debt Collection Act of 
1982. The joint regulations and this part do not apply to conduct in 
violation of antitrust laws, tax claims, claims between Federal 
agencies, or to any claim which appears to involve fraud, presentation 
of a false claim, or misrepresentation on the part of the debtor or any 
other party having an interest in the claim, unless the Justice 
Department authorizes the Farm Credit Administration, pursuant to 4 CFR 
101.3, to handle the claim in accordance with the provisions of 4 CFR 
parts 101-105. Additionally, this part does not apply to Farm Credit 
Administration assessments under part 607 of this chapter.



Sec. 608.803  Definitions.

    In this part (except where the term is defined elsewhere in this 
part), the following definitions shall apply:
    (a) Administrative offset or offset, as defined in 31 U.S.C. 
3701(a)(1), means withholding money payable by the United States 
Government to, or held by the Government for, a person to satisfy a debt 
the person owes the Government.
    (b) Agency means a department, agency, or instrumentality in the 
executive or legislative branch of the Government.
    (c) Claim or debt means money or property owed by a person or entity 
to an agency of the Federal Government. A ``claim'' or ``debt'' includes 
amounts due the Government from loans insured by or guaranteed by the 
United States and all other amounts due from fees, leases, rents, 
royalties, services, sales of real or personal property, overpayment, 
penalties, damages, interest, and fines.
    (d) Claim certification means a creditor agency's written request to 
a paying agency to effect an administrative offset.
    (e) Creditor agency means an agency to which a claim or debt is 
owed.
    (f) Debtor means the person or entity owing money to the Federal 
Government.
    (g) FCA means the Farm Credit Administration.
    (h) Hearing official means an individual who is responsible for 
reviewing a claim under Sec. 608.810 of this part.
    (i) Paying agency means an agency of the Federal Government owing 
money to a debtor against which an administrative or salary offset can 
be effected.
    (j) Salary offset means an administrative offset to collect a debt 
under 5 U.S.C. 5514 by deductions at one or more officially established 
pay intervals from the current pay account of a debtor.

[[Page 37]]



Sec. 608.804  Delegation of authority.

    The FCA official(s) designated by the Chairman of the Farm Credit 
Administration are authorized to perform all duties which the Chairman 
is authorized to perform under these regulations, the Federal Claims 
Collection Act of 1966, as amended, and the joint regulations issued 
under that Act.



Sec. 608.805  Responsibility for collection.

    (a) The collection of claims shall be aggressively pursued in 
accordance with the provisions of the Federal Claims Collection Act of 
1966, as amended, the joint regulations issued under that Act, and these 
regulations. Debts owed to the United States, together with charges for 
interest, penalties, and administrative costs, should be collected in 
one lump sum unless otherwise provided by law. If a debtor requests 
installment payments, the debtor, as requested by the FCA, shall provide 
sufficient information to demonstrate that the debtor is unable to pay 
the debt in one lump sum. When appropriate, the FCA shall arrange an 
installment payment schedule. Claims which cannot be collected directly 
or by administrative offset shall be either written off as 
administratively uncollectible or referred to the General Counsel for 
further consideration.
    (b) The Chairman, or designee of the Chairman, may compromise claims 
for money or property arising out of the activities of the FCA, where 
the claim (exclusive of charges for interest, penalties, and 
administrative costs) does not exceed $100,000. When the claim exceeds 
$100,000 (exclusive of charges for interest, penalties, and 
administrative costs), the authority to accept a compromise rests solely 
with the Department of Justice. The standards governing the compromise 
of claims are set forth in 4 CFR part 103.
    (c) The Chairman, or designee of the Chairman, may suspend or 
terminate the collection of claims which do not exceed $100,000 
(exclusive of charges for interest, penalties, and administrative costs) 
after deducting the amount of any partial payments or collections. If, 
after deducting the amount of any partial payments or collections, a 
claim exceeds $100,000 (exclusive of charges for interest, penalties, 
and administrative costs), the authority to suspend or terminate rests 
solely with the Department of Justice. The standards governing the 
suspension or termination of claim collections are set forth in 4 CFR 
part 104.
    (d) The FCA shall refer claims to the Department of Justice for 
litigation or to the General Accounting Office (GAO) for claims arising 
from audit exceptions taken by the GAO to payments made by the FCA in 
accordance with 4 CFR part 105.



Sec. 608.806  Demand for payment.

    (a) A total of three progressively stronger written demands at not 
more than 30-day intervals should normally be made upon a debtor, unless 
a response or other information indicates that additional written 
demands would either be unnecessary or futile. When necessary to protect 
the Government's interest, written demands may be preceded by other 
appropriate actions under Federal law, including immediate referral for 
litigation and/or administrative offset.
    (b) The initial demand for payment shall be in writing and shall 
inform the debtor of the following:
    (1) The amount of the debt, the date it was incurred, and the facts 
upon which the determination of indebtedness was made;
    (2) The payment due date, which shall be 30 calendar days from the 
date of mailing or hand delivery of the initial demand for payment;
    (3) The right of the debtor to inspect and copy the records of the 
agency related to the claim or to receive copies if personal inspection 
is impractical. The debtor shall be informed that the debtor may be 
assessed for the cost of copying the documents in accordance with Sec. 
608.807;
    (4) The right of the debtor to obtain a review of the FCA's 
determination of indebtedness;
    (5) The right of the debtor to offer to enter into a written 
agreement with the agency to repay the amount of the claim. The debtor 
shall be informed that the acceptance of such an agreement is 
discretionary with the agency;
    (6) That charges for interest, penalties, and administrative costs 
will be

[[Page 38]]

assessed against the debtor, in accordance with 31 U.S.C. 3717, if 
payment is not received by the payment due date;
    (7) That if the debtor has not entered into an agreement with the 
FCA to pay the debt, has not requested the FCA to review the debt, or 
has not paid the debt by the payment due date, the FCA intends to 
collect the debt by all legally available means, which may include 
initiating legal action against the debtor, referring the debt to a 
collection agency for collection, collecting the debt by offset, or 
asking other Federal agencies for assistance in collecting the debt by 
offset;
    (8) The name and address of the FCA official to whom the debtor 
shall send all correspondence relating to the debt; and
    (9) Other information, as may be appropriate.
    (c) If, prior to, during, or after completion of the demand cycle, 
the FCA determines to collect the debt by either administrative or 
salary offset, the FCA shall follow, as applicable, the requirements for 
a Notice of Intent to Collect by Administrative Offset or a Notice of 
Intent to Collect by Salary Offset set forth in Sec. 608.822.
    (d) If no response to the initial demand for payment is received by 
the payment due date, the FCA shall take further action under this part, 
under the Federal Claims Collection Act of 1966, as amended, under the 
joint regulations (4 CFR parts 101-105), or under any other applicable 
State or Federal law. These actions may include reports to credit 
bureaus, referrals to collection agencies, termination of contracts, 
debarment, and salary or administrative offset.



Sec. 608.807  Right to inspect and copy records.

    The debtor may inspect and copy the FCA records related to the 
claim. The debtor shall give the FCA reasonable advance notice that it 
intends to inspect and copy the records involved. The debtor shall pay 
copying costs unless they are waived by the FCA. Copying costs shall be 
assessed pursuant to Sec. 602.267 of this chapter.



Sec. 608.808  Right to offer to repay claim.

    (a) The debtor may offer to enter into a written agreement with the 
FCA to repay the amount of the claim. The acceptance of such an offer 
and the decision to enter into such a written agreement is at the 
discretion of the FCA.
    (b) If the debtor requests a repayment arrangement because payment 
of the amount due would create a financial hardship, the FCA shall 
analyze the debtor's financial condition. The FCA may enter into a 
written agreement with the debtor permitting the debtor to repay the 
debt in installments if the FCA determines, in its sole discretion, that 
payment of the amount due would create an undue financial hardship for 
the debtor. The written agreement shall set forth the amount and 
frequency of installment payments and shall, in accordance with Sec. 
608.812, provide for the imposition of charges for interest, penalties, 
and administrative costs unless waived by the FCA.
    (c) The written agreement may require the debtor to execute a 
confess-judgment note when the total amount of the deferred installments 
will exceed $750. The FCA shall provide the debtor with a written 
explanation of the consequences of signing a confess-judgment note. The 
debtor shall sign a statement acknowledging receipt of the written 
explanation. The statement shall recite that the written explanation was 
read and understood before execution of the note and that the debtor 
signed the note knowingly and voluntarily. Documentation of these 
procedures will be maintained in the FCA's file on the debtor.



Sec. 608.809  Right to agency review.

    (a) If the debtor disputes the claim, the debtor may request a 
review of the FCA's determination of the existence of the debt or of the 
amount of the debt. If only part of the claim is disputed, the 
undisputed portion should be paid by the payment due date.
    (b) To obtain a review, the debtor shall submit a written request 
for review to the FCA official named in the initial demand letter, 
within 15 calendar days after receipt of the letter. The debtor's 
request for review shall

[[Page 39]]

state the basis on which the claim is disputed.
    (c) The FCA shall promptly notify the debtor, in writing, that the 
FCA has received the request for review. The FCA shall conduct its 
review of the claim in accordance with Sec. 608.810.
    (d) Upon completion of its review of the claim, the FCA shall notify 
the debtor whether the FCA's determination of the existence or amount of 
the debt has been sustained, amended, or canceled. The notification 
shall include a copy of the written decision issued by the hearing 
official pursuant to Sec. 608.810(e). If the FCA's determination is 
sustained, this notification shall contain a provision which states that 
the FCA intends to collect the debt by all legally available means, 
which may include initiating legal action against the debtor, referring 
the debt to a collection agency for collection, collecting the debt by 
offset, or asking other Federal agencies for assistance in collecting 
the debt by offset.



Sec. 608.810  Review procedures.

    (a) Unless an oral hearing is required by Sec. 608.823(d), the 
FCA's review shall be a review of the written record of the claim.
    (b) If an oral hearing is required under Sec. 608.823(d), the FCA 
shall provide the debtor with a reasonable opportunity for such a 
hearing. The oral hearing, however, shall not be an adversarial 
adjudication and need not take the form of a formal evidentiary hearing. 
All significant matters discussed at the hearing, however, will be 
carefully documented.
    (c) Any review required by this part, whether a review of the 
written record or an oral hearing, shall be conducted by a hearing 
official. In the case of a salary offset, the hearing official shall not 
be under the supervision or control of the Chairman of the Farm Credit 
Administration.
    (d) The FCA may be represented by legal counsel. The debtor may 
represent himself or herself or may be represented by an individual of 
the debtor's choice and at the debtor's expense.
    (e) The hearing official shall issue a final written decision based 
on documentary evidence and, if applicable, information developed at an 
oral hearing. The written decision shall be issued as soon as 
practicable after the review but not later than 60 days after the date 
on which the request for review was received by the FCA, unless the 
debtor requests a delay in the proceedings. A delay in the proceedings 
shall be granted if the hearing official determines, in his or her sole 
discretion, that there is good cause to grant the delay. If a delay is 
granted, the 60-day decision period shall be extended by the number of 
days by which the review was postponed.
    (f) Upon issuance of the written opinion, the FCA shall promptly 
notify the debtor of the hearing official's decision. Said notification 
shall include a copy of the written decision issued by the hearing 
official pursuant to paragraph (e) of this section.



Sec. 608.811  Special review.

    (a) An employee subject to salary offset, under subpart C of this 
part, or a voluntary repayment agreement, may, at any time, request a 
special review by the FCA of the amount of the salary offset or 
voluntary repayment, based on materially changed circumstances such as, 
but not limited to, catastrophic illness, divorce, death, or disability.
    (b) To determine whether an offset would prevent the employee from 
meeting essential subsistence expenses (costs incurred for food, 
housing, clothing, transportation, and medical care), the employee shall 
submit a detailed statement and supporting documents for the employee, 
his or her spouse, and dependents indicating:
    (1) Income from all sources;
    (2) Assets;
    (3) Liabilities;
    (4) Number of dependents;
    (5) Expenses for food, housing, clothing, and transportation;
    (6) Medical expenses; and
    (7) Exceptional expenses, if any.
    (c) If the employee requests a special review under this section, 
the employee shall file an alternative proposed offset or payment 
schedule and a statement, with supporting documents, showing why the 
current salary offset or payments result in an extreme financial 
hardship to the employee.

[[Page 40]]

    (d) The FCA shall evaluate the statement and supporting documents, 
and determine whether the original offset or repayment schedule imposes 
an undue financial hardship on the employee. The FCA shall notify the 
employee in writing of such determination, including, if appropriate, a 
revised offset or payment schedule.



Sec. 608.812  Charges for interest, administrative costs, and penalties.

    (a) Except as provided in paragraph (d) of this section, the FCA 
shall:
    (1) Assess interest on unpaid claims;
    (2) Assess administrative costs incurred in processing and handling 
overdue claims; and
    (3) Assess penalty charges not to exceed 6 percent a year on any 
part of a debt more than 90 days past due. The imposition of charges for 
interest, administrative costs, and penalties shall be made in 
accordance with 31 U.S.C. 3717.
    (b)(1) Interest shall accrue from the date of mailing or hand 
delivery of the initial demand for payment or the Notice of Intent to 
Collect by either Administrative or Salary Offset if the amount of the 
claim is not paid within 30 days from the date of mailing or hand 
delivery of the initial demand or notice.
    (2) The 30-day period may be extended on a case-by-case basis if the 
FCA reasonably determines that such action is appropriate. Interest 
shall only accrue on the principal of the claim and the interest rate 
shall remain fixed for the duration of the indebtedness, except, as 
provided in paragraph (c) of this section, in cases where a debtor has 
defaulted on a repayment agreement and seeks to enter into a new 
agreement, or if the FCA reasonably determines that a higher rate is 
necessary to protect the interests of the United States.
    (c) If a debtor defaults on a repayment agreement and seeks to enter 
into a new agreement, the FCA may assess a new interest rate on the 
unpaid claim. In addition, charges for interest, administrative costs, 
and penalties which accrued but were not collected under the original 
repayment agreement shall be added to the principal of the claim to be 
paid under the new repayment agreement. Interest shall accrue on the 
entire principal balance of the claim, as adjusted to reflect any 
increase resulting from the addition of these charges.
    (d) The FCA may waive charges for interest, administrative costs, 
and/or penalties if it determines that:
    (1) The debtor is unable to pay any significant sum toward the claim 
within a reasonable period of time;
    (2) Collection of charges for interest, administrative costs, and/or 
penalties would jeopardize collection of the principal of the claim;
    (3) Collection of charges for interest, administrative costs, or 
penalties would be against equity and good conscience; or
    (4) It is otherwise in the best interest of the United States, 
including the situation where an installment payment agreement or offset 
is in effect.



Sec. 608.813  Contracting for collection services.

    The Chairman, or designee of the Chairman, may contract for 
collection services in accordance with 31 U.S.C. 3718 and 4 CFR 102.6 to 
recover debts.



Sec. 608.814  Reporting of credit information.

    The Chairman, or designee of the Chairman, may disclose to a 
consumer reporting agency information that an individual is responsible 
for a debt owed to the United States. Information will be disclosed to 
reporting agencies in accordance with the terms and conditions of 
agreements entered into between the FCA and the reporting agencies. The 
terms and conditions of such agreements shall specify that all of the 
rights and protection afforded to the debtor under 31 U.S.C. 3711(f) 
have been fulfilled. The FCA shall notify each consumer reporting 
agency, to which a claim was disclosed, when the debt has been 
satisfied.



Sec. 608.815  Credit report.

    In order to aid the FCA in making appropriate determinations 
regarding the collection and compromise of claims; the collection of 
charges for interest, administrative costs, and penalties; the use of 
administrative offset; the use of other collection methods;

[[Page 41]]

and the likelihood of collecting the claim, the FCA may institute, 
consistent with the provisions of the Fair Credit Reporting Act (15 
U.S.C. 1681, et seq.), a credit investigation of the debtor immediately 
following a determination that the claim exists.



                     Subpart B_Administrative Offset



Sec. 608.820  Applicability.

    (a) The provisions of this subpart shall apply to the collection of 
debts by administrative [or salary] offset under 31 U.S.C. 3716, 5 
U.S.C. 5514, or other statutory or common law.
    (b) Offset shall not be used to collect a debt more than 10 years 
after the Government's right to collect the debt first accrued, unless 
facts material to the Government's right to collect the debt were not 
known and could not reasonably have been known by the official or 
officials of the Government who were charged with the responsibility of 
discovering and collecting such debt.
    (c) Offset shall not be used with respect to:
    (1) Debts owed by other agencies of the United States or by any 
State or local government;
    (2) Debts arising under or payments made under the Social Security 
Act, the Internal Revenue Code of 1986, as amended, or tariff laws of 
the United States; or
    (3) Any case in which collection by offset of the type of debt 
involved is explicitly provided for or prohibited by another statute.
    (d) Unless otherwise provided by contract or law, debts or payments 
which are not subject to offset under 31 U.S.C. 3716 or 5 U.S.C. 5514 
may be collected by offset if such collection is authorized under common 
law or other applicable statutory authority.



Sec. 608.821  Collection by offset.

    (a) Collection of a debt by administrative [or salary] offset shall 
be accomplished in accordance with the provisions of these regulations, 
of 4 CFR 102.3, and 5 CFR part 550, subpart K. It is not necessary for 
the debt to be reduced to judgment or to be undisputed for offset to be 
used.
    (b) The Chairman, or designee of the Chairman, may determine that it 
is feasible to collect a debt to the United States by offset against 
funds payable to the debtor.
    (c) The feasibility of collecting a debt by offset will be 
determined on a case-by-case basis. This determination shall be made by 
considering all relevant factors, including the following:
    (1) The degree to which the offset can be accomplished in accordance 
with law. This determination should take into consideration relevant 
statutory, regulatory, and contractual requirements;
    (2) The degree to which the FCA is certain that its determination of 
the existence and amount of the debt is correct;
    (3) The practicality of collecting the debt by offset. The cost, in 
time and money, of collecting the debt by offset and the amount of money 
which can reasonably be expected to be recovered through offset will be 
relevant to this determination; and
    (4) Whether the use of offset will substantially interfere with or 
defeat the purpose of a program authorizing payments against which the 
offset is contemplated. For example, under a grant program in which 
payments are made in advance of the grantee's performance, the 
imposition of offset against such a payment may be inappropriate.
    (d) The collection of a debt by offset may not be feasible when 
there are circumstances which would indicate that the likelihood of 
collection by offset is less than probable.
    (e) The offset will be effected 31 days after the debtor receives a 
Notice of Intent to Collect by Administrative Offset (or Notice of 
Intent to Collect by Salary Offset if the offset is a salary offset), or 
upon the expiration of a stay of offset, unless the FCA determines under 
Sec. 608.824 that immediate action is necessary.
    (f) If the debtor owes more than one debt, amounts recovered through 
offset may be applied to them in any order. Applicable statutes of 
limitation would be considered before applying the amounts recovered to 
any debts owed.



Sec. 608.822  Notice requirements before offset.

    (a) Except as provided in Sec. 608.824, the FCA will provide the 
debtor with 30

[[Page 42]]

calendar days' written notice that unpaid debt amounts shall be 
collected by administrative [or salary] offset (Notice of Intent to 
Collect by Administrative [or Salary] Offset) before the FCA imposes 
offset against any money that is to be paid to the debtor.
    (b) The Notice of Intent to Collect by Administrative [or Salary] 
Offset shall be delivered to the debtor by hand or by mail and shall 
provide the following information:
    (1) The amount of the debt, the date it was incurred, and the facts 
upon which the determination of indebtedness was made;
    (2) In the case of an administrative offset, the payment due date, 
which shall be 30 calendar days from the date of mailing or hand 
delivery of the Notice;
    (3) In the case of a salary offset: (i) The FCA's intention to 
collect the debt by means of deduction from the employee's current 
disposable pay account until the debt and all accumulated interest is 
paid in full; and
    (ii) The amount, frequency, proposed beginning date, and duration of 
the intended deductions;
    (4) The right of the debtor to inspect and copy the records of the 
FCA related to the claim or to receive copies if personal inspection is 
impractical. The debtor shall be informed that the debtor shall be 
assessed for the cost of copying the documents in accordance with Sec. 
608.807;
    (5) The right of the debtor to obtain a review of, and to request a 
hearing, on the FCA's determination of indebtedness, the propriety of 
collecting the debt by offset, and, in the case of salary offset, the 
propriety of the proposed repayment schedule (i.e., the percentage of 
disposable pay to be deducted each pay period). The debtor shall be 
informed that to obtain a review, the debtor shall deliver a written 
request for a review to the FCA official named in the Notice, within 15 
calendar days after the debtor's receipt of the Notice. In the case of a 
salary offset, the debtor shall also be informed that the review shall 
be conducted by an official arranged for by the FCA who shall be a 
hearing official not under the control of the Chairman of the Farm 
Credit Administration, or an administrative law judge;
    (6) That the filing of a petition for hearing within 15 calendar 
days after receipt of the Notice will stay the commencement of 
collection proceedings;
    (7) That a final decision on the hearing (if one is requested) will 
be issued at the earliest practical date, but not later than 60 days 
after the filing of the written request for review unless the employee 
requests, and the hearing official grants, a delay in the proceedings;
    (8) The right of the debtor to offer to enter into a written 
agreement with the FCA to repay the amount of the claim. The debtor 
shall be informed that the acceptance of such an agreement is 
discretionary with the FCA;
    (9) That charges for interest, penalties, and administrative costs 
shall be assessed against the debtor, in accordance with 31 U.S.C. 3717, 
if payment is not received by the payment due date. The debtor shall be 
informed that such assessments must be made unless excused in accordance 
with the Federal Claims Collection Standards (4 CFR parts 103 and 104);
    (10) The amount of accrued interest and the amount of any other 
penalties or administrative costs which may have been added to the 
principal debt;
    (11) That if the debtor has not entered into an agreement with the 
FCA to pay the debt, has not requested the FCA to review the debt, or 
has not paid the debt prior to the date on which the offset is to be 
imposed, the FCA intends to collect the debt by administrative [or 
salary] offset or by requesting other Federal agencies for assistance in 
collecting the debt by offset. The debtor shall be informed that the 
offset shall be imposed against any funds that might become available to 
the debtor, until the principal debt and all accumulated interest and 
other charges are paid in full;
    (12) The date on which the offset will be imposed, which shall be 31 
calendar days from the date of mailing or hand delivery of the Notice. 
The debtor shall be informed that the FCA reserves the right to impose 
an offset prior to this date if the FCA determines that immediate action 
is necessary;

[[Page 43]]

    (13) That any knowingly false or frivolous statements, 
representations, or evidence may subject the debtor to:
    (i) Penalties under the False Claims Act, sections 3729 through 3731 
of title 31, United States Code, or any other applicable statutory 
authority;
    (ii) Criminal penalties under sections 286, 287, 1001, and 1002 of 
title 18, United States Code, or any other applicable statutory 
authority; and, with regard to employees,
    (iii) Disciplinary procedures appropriate under chapter 75 of title 
5, United States Code; part 752 of title 5, Code of Federal Regulations, 
or any other applicable statute or regulation;
    (14) The name and address of the FCA official to whom the debtor 
shall send all correspondence relating to the debt or the offset;
    (15) Any other rights and remedies available to the debtor under 
statutes or regulations governing the program for which the collection 
is being made;
    (16) That unless there are applicable contractual or statutory 
provisions to the contrary, amounts paid on or deducted for the debt, 
which are later waived or found not owed to the United States, will be 
promptly refunded to the employee; and
    (17) Other information, as may be appropriate.
    (c) When the procedural requirements of this section have been 
provided to the debtor in connection with the same debt or under some 
other statutory or regulatory authority, the FCA is not required to 
duplicate those requirements before effecting offset.



Sec. 608.823  Right to review of claim.

    (a) If the debtor disputes the claim, the debtor may request a 
review of the FCA's determination of the existence of the debt, the 
amount of the debt, the propriety of collecting the debt by offset, and 
in the case of salary offset, the propriety of the proposed repayment 
schedule. If only part of the claim is disputed, the undisputed portion 
should be paid by the payment due date.
    (b) To obtain a review, the debtor shall submit a written request 
for review to the FCA official named in the Notice of Intent to Collect 
by Administrative [or Salary] Offset within 15 calendar days after 
receipt of the notice. The debtor's written request for review shall 
state the basis on which the claim is disputed and shall specify whether 
the debtor requests an oral hearing or a review of the written record of 
the claim. If an oral hearing is requested, the debtor shall explain in 
the request why the matter cannot be resolved by a review of the 
documentary evidence alone.
    (c) The FCA shall promptly notify the debtor, in writing, that the 
FCA has received the request for review. The FCA shall conduct its 
review of the claim in accordance with Sec. 608.810.
    (d) The FCA's review of the claim, under this section, shall include 
providing the debtor with a reasonable opportunity for an oral hearing 
if:
    (1) An applicable statute authorizes or requires the FCA to consider 
waiver of the indebtedness, the debtor requests waiver of the 
indebtedness, and the waiver determination turns on an issue of 
credibility or veracity; or
    (2) The debtor requests reconsideration of the debt and the FCA 
determines that the question of the indebtedness cannot be resolved by 
reviewing the documentary evidence; for example, when the validity of 
the debt turns on an issue of credibility or veracity.
    (e) A debtor waives the right to a hearing and will have his or her 
debt offset in accordance with the proposed offset schedule if the 
debtor:
    (1) Fails to file a written request for review within the timeframe 
set forth in paragraph (b) of this section, unless the FCA determines 
that the delay was the result of circumstances beyond his or her 
control; or
    (2) Fails to appear at an oral hearing of which he or she was 
notified unless the hearing official determines that the failure to 
appear was due to circumstances beyond the employee's control.
    (f) Upon completion of its review of the claim, the FCA shall notify 
the debtor whether the FCA's determination of the existence or amount of 
the debt has been sustained, amended, or canceled. The notification 
shall include a copy of the written decision issued by the hearing 
official, pursuant to Sec. 608.810(e). If the FCA's determination is 
sustained, this notification shall

[[Page 44]]

contain a provision which states that the FCA intends to collect the 
debt by offset or by requesting other Federal agencies for assistance in 
collecting the debt.
    (g) When the procedural requirements of this section have been 
provided to the debtor in connection with the same debt or under some 
other statutory or regulatory authority, the FCA is not required to 
duplicate those requirements before effecting offset.



Sec. 608.824  Waiver of procedural requirements.

    (a) The FCA may impose offset against a payment to be made to a 
debtor prior to the completion of the procedures required by this part, 
if:
    (1) Failure to impose the offset would substantially prejudice the 
Government's ability to collect the debt; and
    (2) The timing of the payment against which the offset will be 
imposed does not reasonably permit the completion of those procedures.
    (b) The procedures required by this part shall be complied with 
promptly after the offset is imposed. Amounts recovered by offset, which 
are later found not to be owed to the Government, shall be promptly 
refunded to the debtor.



Sec. 608.825  Coordinating offset with other Federal agencies.

    (a)(1) Any creditor agency which requests the FCA to impose an 
offset against amounts owed to the debtor shall submit to the FCA a 
claim certification which meets the requirements of this paragraph. The 
FCA shall submit the same certification to any agency that the FCA 
requests to effect an offset.
    (2) The claim certification shall be in writing. It shall certify 
the debtor owes the debt and that all of the applicable requirements of 
31 U.S.C. 3716 and 4 CFR part 102 have been met. If the intended offset 
is to be a salary offset, a claim certification shall instead certify 
that the debtor owes the debt and that the applicable requirements of 5 
U.S.C. 5514 and 5 CFR part 550, subpart K, have been met.
    (3) A certification that the debtor owes the debt shall state the 
amount of the debt, the factual basis supporting the determination of 
indebtedness, and the date on which payment of the debt was due. A 
certification that the requirements of 31 U.S.C. 3716 and 4 CFR part 102 
have been met shall include a statement that the debtor has been sent a 
notice of Intent to Collect by Administrative Offset at least 31 
calendar days prior to the date of the intended offset or a statement 
that pursuant to 4 CFR 102.3(b)(5) said Notice was not required to be 
sent. A certification that the requirements of 5 U.S.C. 5514 and 5 CFR 
part 550, subpart K, have been met shall include a statement that the 
debtor has been sent a Notice of Intent to Collect by Salary Offset at 
least 31 calendar days prior to the date of the intended offset or a 
statement that pursuant to 4 CFR 102.3(b)(5) said Notice was not 
required to be sent.
    (b)(1) The FCA shall not effect an offset requested by another 
Federal agency without first obtaining the claim certification required 
by paragraph (a) of this section. If the FCA receives an incomplete 
claim certification, the FCA shall return the claim certification with 
notice that a claim certification which complies with the requirements 
of paragraph (a) of this section must be submitted to the FCA before the 
FCA will consider effecting an offset.
    (2) The FCA may rely on the information contained in the claim 
certification provided by a requesting creditor agency. The FCA is not 
authorized to review a creditor agency's determination of indebtedness.
    (c) Only the creditor agency may agree to enter into an agreement 
with the debtor for the repayment of the claim. Only the creditor agency 
may agree to compromise, suspend, or terminate collection of the claim.
    (d) The FCA may decline, for good cause, a request by another agency 
to effect an offset. Good cause includes that the offset might disrupt, 
directly or indirectly, essential FCA operations. The refusal and the 
reasons shall be sent in writing to the creditor agency.



Sec. 608.826  Stay of offset.

    (a)(1) When a creditor agency receives a debtor's request for 
inspection of agency records, the offset is stayed

[[Page 45]]

for 10 calendar days beyond the date set for the record inspection.
    (2) When a creditor agency receives a debtor's offer to enter into a 
repayment agreement, the offset is stayed until the debtor is notified 
as to whether the proposed agreement is acceptable.
    (3) When a review is conducted, the offset is stayed until the 
creditor agency issues a final written decision.
    (b) When offset is stayed, the amount of the debt and the amount of 
any accrued interest or other charges will be withheld from payments to 
the debtor. The withheld amounts shall not be applied against the debt 
until the stay expires. If withheld funds are later determined not to be 
subject to offset, they will be promptly refunded to the debtor.
    (c) If the FCA is the creditor agency and the offset is stayed, the 
FCA will immediately notify an offsetting agency to withhold the payment 
pending termination of the stay.



Sec. 608.827  Offset against amounts payable from Civil Service 
Retirement and Disability Fund.

    The FCA may request that monies payable to a debtor from the Civil 
Service Retirement and Disability Fund be administratively offset to 
collect debts owed to the FCA by the debtor. The FCA must certify that 
the debtor owes the debt, the amount of the debt, and that the FCA has 
complied with the requirements set forth in this part, 4 CFR 102.3, and 
the Office of Personnel Management regulations. The request shall be 
submitted to the official designated in the Office of Personnel 
Management regulations to receive the request.



                     Subpart C_Offset Against Salary



Sec. 608.835  Purpose.

    The purpose of this subpart is to implement section 5 of the Debt 
Collection Act of 1982 (Pub. L. 97-365)(5 U.S.C. 5514), which authorizes 
the collection of debts owed by Federal employees to the Federal 
Government by means of salary offsets. These regulations provide 
procedures for the collection of a debt owed to the Government by the 
imposition of a salary offset against amounts payable to a Federal 
employee as salary. These regulations are consistent with the 
regulations on salary offset published by the Office of Personnel 
Management, codified in 5 CFR part 550, subpart K. Since salary offset 
is a type of administrative offset, this subpart supplements subpart B.



Sec. 608.836  Applicability of regulations.

    (a) These regulations apply to the following cases:
    (1) Where the FCA is owed a debt by an individual currently employed 
by another agency;
    (2) Where the FCA is owed a debt by an individual who is currently 
employed by the FCA; or
    (3) Where the FCA currently employs an individual who owes a debt to 
another Federal agency. Upon receipt of proper certification from the 
creditor agency, the FCA will offset the debtor-employee's salary in 
accordance with these regulations.
    (b) These regulations do not apply to the following:
    (1) Debts or claims rising under the Internal Revenue Code of 1986, 
as amended (26 U.S.C. 1 et seq.); the Social Security Act (42 U.S.C. 301 
et seq.); the tariff laws of the United States; or to any case where 
collection of a debt by salary offset is explicitly provided for or 
prohibited by another statute (e.g., travel advances in 5 U.S.C. 5705 
and employee training expenses in 5 U.S.C. 4108).
    (2) Any adjustment to pay arising from an employee's election of 
coverage or a change in coverage under a Federal benefits program 
requiring periodic deductions from pay if the amount to be recovered was 
accumulated over four pay periods or less.
    (3) A claim which has been outstanding for more than 10 years after 
the creditor agency's right to collect the debt first accrued, unless 
facts material to the Government's right to collect were not known and 
could not reasonably have been known by the official or officials 
charged with the responsibility for discovery and collection of such 
debts.

[[Page 46]]



Sec. 608.837  Definitions.

    In this subpart, the following definitions shall apply:
    (a) Agency means:
    (1) An executive agency as defined by 5 U.S.C. 105, including the 
United States Postal Service and the United States Postal Rate 
Commission;
    (2) A military department as defined in 5 U.S.C. 102;
    (3) An agency or court of the judicial branch, including a court as 
defined in 28 U.S.C. 610, the District Court for the Northern Mariana 
Islands, and the Judicial Panel on Multi-district Litigation;
    (4) An agency of the legislative branch, including the United States 
Senate and the United States House of Representatives; or
    (5) Other independent establishments that are entities of the 
Federal Government.
    (b) Disposable pay means, for an officially established pay 
interval, that part of current basic pay, special pay, incentive pay, 
retired pay, retainer pay, or, in the case of an employee not entitled 
to basic pay, other authorized pay, remaining after the deduction of any 
amount required by law to be withheld. The FCA shall allow the 
deductions described in 5 CFR 581.105 (b) through (f).
    (c) Employee means a current employee of the FCA or other agency, 
including a current member of the Armed Forces or Reserve of the Armed 
Forces of the United States.
    (d) Waiver means the cancellation, remission, forgiveness, or 
nonrecovery of a debt allegedly owed by an employee to the FCA or 
another agency as permitted or required by 5 U.S.C. 5584 or 8346(b), 10 
U.S.C. 2774, 32 U.S.C. 716, or any other law.



Sec. 608.838  Waiver requests and claims to the General Accounting Office.

    (a) The regulations contained in this subpart do not preclude an 
employee from requesting a waiver of an overpayment under 5 U.S.C. 5584 
or 8346(b), 10 U.S.C. 2774, 32 U.S.C. 716, or in any way questioning the 
amount or validity of a debt by submitting a subsequent claim to the 
General Accounting Office in accordance with the procedures prescribed 
by the General Accounting Office.
    (b) These regulations also do not preclude an employee from 
requesting a waiver pursuant to other statutory provisions pertaining to 
the particular debts being collected.



Sec. 608.839  Procedures for salary offset.

    (a) The Chairman, or designee of the Chairman, shall determine the 
amount of an employee's disposable pay and the amount to be deducted 
from the employee's disposable pay at regular pay intervals.
    (b) Deductions shall begin within three official pay periods 
following the date of mailing or delivery of the Notice of Intent to 
Collect by Salary Offset.
    (c)(1) If the amount of the debt is equal to or is less than 15 
percent of the employee's disposable pay, such debt should be collected 
in one lump-sum deduction.
    (2) If the amount of the debt is not collected in one lump-sum 
deduction, the debt shall be collected in installment deductions over a 
period of time not greater than the anticipated period of employment. 
The size and frequency of installment deductions will bear a reasonable 
relation to the size of the debt and the employee's ability to pay. 
However, the amount deducted from any pay period will not exceed 15 
percent of the employee's disposable pay for that period, unless the 
employee has agreed in writing to the deduction of a greater amount.
    (3) A deduction exceeding the 15-percent disposable pay limitation 
may be made from any final salary payment pursuant to 31 U.S.C. 3716 in 
order to liquidate the debt, whether the employee is being separated 
voluntarily or involuntarily.
    (4) Whenever an employee subject to salary offset is separated from 
the FCA and the balance of the debt cannot be liquidated by offset of 
the final salary check pursuant to 31 U.S.C. 3716, the FCA may offset 
any later payments of any kind against the balance of the debt.
    (d) In instances where two or more creditor agencies are seeking 
salary offsets against current employees of the FCA or where two or more 
debts

[[Page 47]]

are owed to a single creditor agency, the FCA, at its discretion, may 
determine whether one or more debts should be offset simultaneously 
within the 15-percent limitation. Debts owed to the FCA should generally 
take precedence over debts owed to other agencies.



Sec. 608.840  Refunds.

    (a) In instances where the FCA is the creditor agency, it shall 
promptly refund any amounts deducted under the authority of 5 U.S.C. 
5514 when:
    (1) The debt is waived or otherwise found not to be owed to the 
United States (unless expressly prohibited by statute or regulations); 
or
    (2) An administrative or judicial order directs the FCA to make a 
refund.
    (b) Unless required or permitted by law or contract, refunds under 
this section shall not bear interest.



Sec. 608.841  Requesting current paying agency to offset salary.

    (a) To request a paying agency to impose a salary offset against 
amounts owed to the debtor, the FCA shall provide the paying agency with 
a claim certification which meets the requirements set forth in Sec. 
608.825(a). The FCA shall also provide the paying agency with a 
repayment schedule determined under the provisions of Sec. 608.839 or 
in accordance with a repayment agreement entered into with the debtor.
    (b) If the employee separates from the paying agency before the debt 
is paid in full, the paying agency shall certify the total amount 
collected on the debt. A copy of this certification shall be sent to the 
employee and a copy shall be sent to the FCA. If the paying agency is 
aware that the employee is entitled to payments from the Civil Service 
Retirement and Disability Fund, or other similar payments, it must 
provide written notification to the agency responsible for making such 
payments that the debtor owes a debt (including the amount) and that the 
provisions of this section have been fully complied with. However, the 
FCA must submit a properly certified claim to the agency responsible for 
making such payments before the collection can be made.
    (c) When an employee transfers to another paying agency, the FCA is 
not required to repeat the due process procedures set forth in 5 U.S.C. 
5514 and this part to resume the collection. The FCA shall, however, 
review the debt upon receiving the former paying agency's notice of the 
employee's transfer to make sure the collection is resumed by the new 
paying agency.
    (d) If a special review is conducted pursuant to Sec. 608.811 and 
results in a revised offset or repayment schedule, the FCA shall provide 
a new claim certification to the paying agency.



Sec. 608.842  Responsibility of the FCA as the paying agency.

    (a) When the FCA receives a claim certification from a creditor 
agency, deductions should be scheduled to begin at the next officially 
established pay interval. The FCA shall send the debtor written notice 
which provides:
    (1) That the FCA has received a valid claim certification from the 
creditor agency;
    (2) The date on which salary offset will begin;
    (3) The amount of the debt; and
    (4) The amount of such deductions.
    (b) If, after the creditor agency has submitted the claim 
certification to the FCA, the employee transfers to a different agency 
before the debt is collected in full, the FCA must certify the total 
amount collected on the debt. The FCA shall send a copy of this 
certification to the creditor agency and a copy to the employee. If the 
FCA is aware that the employee is entitled to payments from the Civil 
Service Retirement Fund and Disability Fund, or other similar payments, 
it shall provide written notification to the agency responsible for 
making such payments that the debtor owes a debt (including the amount).



Sec. 608.843  Nonwaiver of rights by payments.

    An employee's involuntary payment of all or any portion of a debt 
being collected under this subpart shall not be construed as a waiver of 
any rights the employee may have under 5 U.S.C. 5514 or any other 
provisions of a written contract or law unless there are

[[Page 48]]

statutory or contractual provisions to the contrary.

[[Page 49]]



                     SUBCHAPTER B_FARM CREDIT SYSTEM

PART 609_ELECTRONIC COMMERCE--Table of Contents

                         Subpart A_General Rules

Sec.
609.905 Background.
609.910 Compliance with the Electronic Signatures in Global and National 
          Commerce Act (Public Law 106-229) (E-SIGN).
609.915 Compliance with Federal Reserve Board Regulations B, M, and Z.

                Subpart B_Interpretations and Definitions

609.920 Interpretations.
609.925 Definitions.

              Subpart C_Standards for Boards and Management

609.930 Policies and procedures.
609.935 Business planning.
609.940 Internal systems and controls.
609.945 Records retention.

      Subpart D_General Requirements for Electronic Communications

609.950 Electronic communications.

    Authority: Sec. 5.9 of the Farm Credit Act (12 U.S.C. 2243); 5 
U.S.C. 301; Pub. L. 106-229 (114 Stat. 464).

    Source: 67 FR 16631, Apr. 8, 2002, unless otherwise noted.



                         Subpart A_General Rules



Sec. 609.905  Background.

    The Farm Credit Administration (FCA) wants to create a flexible 
regulatory environment that facilitates electronic commerce (E-commerce) 
and allows Farm Credit System (System) institutions and their customers 
to use new technologies. System institutions may use E-commerce but must 
establish good business practices that ensure safety and soundness while 
doing so.



Sec. 609.910  Compliance with the Electronic Signatures in Global 
and National Commerce Act (Public Law 106-229) (E-SIGN).

    (a) General. E-SIGN makes it easier to conduct E-commerce. With some 
exceptions, E-SIGN permits the use and establishes the legal validity of 
electronic contracts, electronic signatures, and records maintained in 
electronic rather than paper form. It governs transactions relating to 
the conduct of business, consumer, or commercial affairs between two or 
more persons. E-commerce is optional; all parties to a transaction must 
agree before it can be used.
    (b) Consumer transactions. E-SIGN contains extensive consumer 
disclosure provisions that apply whenever another consumer protection 
law, such as the Equal Credit Opportunity Act, requires the disclosure 
of information to a consumer in writing. Consumer means an individual 
who obtains, through a transaction, products or services, including 
credit, used primarily for personal, family, or household purposes. You 
must follow E-SIGN's specific procedures to make the required consumer 
disclosures electronically. E-SIGN's special disclosure rules for 
consumer transactions do not apply to business transactions. Under E-
SIGN, some System loans qualify as consumer transactions, while others 
are business transactions. You will need to distinguish between the two 
types of transactions to comply with E-SIGN.
    (c) Specific exceptions. E-SIGN does not permit electronic 
notification for notices of default, acceleration, repossession, 
foreclosure, eviction, or the right to cure, under a credit agreement 
secured by, or a rental agreement for, a person's primary residence. 
These notices require paper notification. The law also requires paper 
notification to cancel or terminate life insurance. Thus, System 
institutions cannot use electronic notification to deliver some notices 
that must be provided under part 617, subparts A, D, E, and G of this 
chapter. In addition, E-SIGN does not apply to the writing or signature 
requirements imposed under the Uniform Commercial Code, other than 
sections 1-107 and 1-206 and Articles 2 and 2A.
    (d) Promissory notes. E-SIGN establishes special technological and 
business process standards for electronic promissory notes secured by 
real estate. To treat an electronic version of

[[Page 50]]

such a promissory note as the equivalent of a paper promissory note, you 
must conform to E-SIGN's detailed requirements for transferable records. 
A transferable record is an electronic record that:
    (1) Would be a note under Article 3 of the Uniform Commercial Code 
if the electronic record were in writing;
    (2) The issuer of the electronic record has expressly agreed is a 
transferable record; and
    (3) Relates to a loan secured by real property.
    (e) Effect on State and Federal law. E-SIGN preempts most State and 
Federal statutes or regulations, including the Farm Credit Act of 1971, 
as amended (Act), and its implementing regulations, that require 
contracts or other business, consumer, or commercial records to be 
written, signed, or in non-electronic form. Under E-SIGN, an electronic 
record or signature generally satisfies any provision of the Act, or its 
implementing regulations that requires such records and signatures to be 
written, signed, or in paper form. Therefore, unless an exception 
applies or a necessary condition under E-SIGN has not been met, an 
electronic record or signature satisfies any applicable provision of the 
Act or its implementing regulations.
    (f) Document integrity and signature authentication. Each System 
institution must verify the legitimacy of an E-commerce communication, 
transaction, or access request. Document integrity ensures that the same 
document is provided to all parties. Signature authentication proves the 
identities of all parties. The parties to the transaction may determine 
how to ensure document integrity and signature authentication.
    (g) Records retention. Each System institution may maintain all 
records electronically even if originally they were paper records. The 
stored electronic record must accurately reflect the information in the 
original record. The electronic record must be accessible and capable of 
being reproduced by all persons entitled by law or regulations to review 
the original record.

[67 FR 16631, Apr. 8, 2002, as amended at 69 FR 10906, Mar. 9, 2004]



Sec. 609.915  Compliance with Federal Reserve Board Regulations B, 
M, and Z.

    The regulations in this part require fair practices and meaningful 
disclosures for certain lending and leasing activities. System 
institutions must comply with Federal Reserve Board Regulations B (Equal 
Credit Opportunity), M (Consumer Leasing), and Z (Truth in Lending) (12 
CFR parts 202, 213, and 226).



                Subpart B_Interpretations and Definitions



Sec. 609.920  Interpretations.

    (a) E-SIGN preempts most statutes and regulations, including the Act 
and its implementing regulations that require paper copies and 
handwritten signatures in business, consumer, or commercial 
transactions. E-SIGN requires that statutes and regulations be 
interpreted to allow E-commerce as long as the safeguards of E-SIGN are 
met and its exceptions recognized. Generally, an electronic record or 
signature satisfies any provision of the Act or its implementing 
regulations that require such records and signatures to be written, 
signed, or in paper form.
    (b) System institutions may interpret the Act and its implementing 
regulations broadly to allow electronic transmissions, communications, 
records, and submissions, as provided by E-SIGN. This means that the 
terms address, copy, distribute, document, file, mail, notice, notify, 
record, provide, send, signature, sent, written, writing, and similar 
words generally should be interpreted to permit electronic 
transmissions, communications, records, and submissions in business, 
consumer, or commercial transactions.



Sec. 609.925  Definitions.

    We provide the following definitions that apply to the Act and its 
implementing regulations:
    (a) Electronic means relating to technology having electrical, 
digital, magnetic, wireless, optical, electromagnetic, or similar 
capabilities.
    (b) Electronic communication means a message that can be transmitted 
electronically and displayed on equipment

[[Page 51]]

as visual text. An example is a message displayed on a personal computer 
monitor screen. This does not include audio- and voice-response 
telephone systems.
    (c) Electronic business (E-business) or electronic commerce (E-
commerce) means buying, selling, producing, or working in an electronic 
medium.
    (d) Electronic mail (E-mail) means:
    (1) To send or submit information electronically; or
    (2) A communication received electronically.
    (e) Electronic signature means an electronic sound, symbol, or 
process, attached to or logically associated with a contract or other 
record and executed or adopted by a person with the intent to sign the 
record. Electronic signature describes a category of electronic 
processes that can be substituted for a handwritten signature.



              Subpart C_Standards for Boards and Management



Sec. 609.930  Policies and procedures.

    The FCA supports E-commerce and wants to facilitate it and other new 
technologies and innovations to enhance the efficient conduct of 
business and the delivery of safe and sound credit and closely related 
services. Through E-commerce, System institutions can enhance customer 
service, access information, and provide alternate communication 
systems. At the same time, E-commerce presents challenges and risks that 
your board must carefully consider in advance. Before engaging in E-
commerce, you must weigh its business risks against its benefits. You 
must also adopt E-commerce policies and procedures to ensure your 
institution's safety and soundness and compliance with law and 
regulations. Among other concerns, the policies and procedures must 
address, when applicable:
    (a) Security and integrity of System institution and borrower data;
    (b) The privacy of your customers as well as visitors to your Web 
site;
    (c) Notices to customers or visitors to your Web site when they link 
to an affiliate or third party Web site;
    (d) Capability of vendor or application providers;
    (e) Business resumption after disruption;
    (f) Fraud and money laundering;
    (g) Intrusion detection and management;
    (h) Liability insurance; and
    (i) Prompt reporting of known or suspected criminal violations 
associated with E-commerce to law enforcement authorities and FCA under 
part 612, subpart B of this chapter.

[67 FR 16631, Apr. 8, 2002; 69 FR 42853, July 19, 2004]



Sec. 609.935  Business planning.

    When engaging in E-commerce, the business plan required under part 
618 of this chapter, subpart J, must describe the E-commerce initiative, 
including intended objectives, business risks, security issues, relevant 
markets, and legal compliance.



Sec. 609.940  Internal systems and controls.

    When applicable, internal systems and controls must provide 
reasonable assurances that System institutions will:
    (a) Follow and achieve business plan objectives and policies and 
procedures requirements regarding E-commerce; and
    (b) Prevent and detect material deficiencies on a timely basis.



Sec. 609.945  Records retention.

    Records stored electronically must be accurate, accessible, and 
reproducible for later reference.



      Subpart D_General Requirements for Electronic Communications



Sec. 609.950  Electronic communications.

    (a) Agreement. In accordance with E-SIGN, System institutions may 
communicate electronically in business, consumer, or commercial 
transactions. E-commerce transactions require the agreement of all 
parties when you do business.
    (b) Communications with consumers. E-SIGN and Federal Reserve Board 
Regulations B, M, and Z (12 CFR parts 202, 213, and 226) outline 
specific disclosure requirements for communications with consumers.

[[Page 52]]

    (c) Communications with parties other than consumers. The consumer 
disclosure requirements of E-SIGN and of Federal Reserve Board 
Regulation B (12 CFR part 202) do not apply to your communications with 
parties other than consumers. (Federal Reserve Board Regulations M and Z 
(12 CFR parts 213 and 226) apply to consumers only.) Nonetheless, you 
must ensure that your communications, including those disclosures 
required under the Act and the regulations in this part, demonstrate 
good business practices in the delivery of credit and closely related 
services and in your obtaining goods and services.



PART 611_ORGANIZATION--Table of Contents

Subparts A-B [Reserved]

       Subpart C_Election of Directors and Other Voting Procedures

Sec.
611.310 Eligibility for membership on bank and association boards and 
          subsequent employment.
611.320 Impartiality in the election of directors.
611.330 Confidentiality in voting.
611.340 Security in voting.
611.350 Application of cooperative principles to the election of 
          directors.

            Subpart D_Rules for Compensation of Board Members

611.400 Compensation of bank board members.

                    Subpart E_Transfer of Authorities

611.500 General.
611.501 Procedures.
611.505 Farm Credit Administration review.
611.510 Approval procedures.
611.515 Information statement.
611.520 Plan of transfer.
611.525 Stockholder reconsideration.

      Subpart F_Bank Mergers, Consolidations and Charter Amendments

611.1000 General authority.
611.1010 Bank charter amendment procedures.
611.1020 Requirements for mergers or consolidations of banks.
611.1030 Board of directors of an agricultural credit bank.
611.1040 Creation of new associations.

      Subpart G_Mergers, Consolidations, and Charter Amendments of 
                              Associations

611.1120 General authority.
611.1121 Charter amendment procedures.
611.1122 Requirements for mergers or consolidations.
611.1123 Merger or consolidation agreements.
611.1124 Territorial adjustments.
611.1125 Treatment of associations not approving districtwide mergers.

             Subpart H_Rules for Inter-System Fund Transfers

611.1130 Inter-System transfer of funds and equities.

                     Subpart I_Service Organizations

611.1135 Incorporation of service corporations.
611.1136 Regulation and examination of service organizations.
611.1137 Title VIII service corporations.

Subpart J-O [Reserved]

           Subpart P_Termination of System Institution Status

611.1200 Applicability of this subpart.
611.1205 Definitions that apply in this subpart.
611.1210 Commencement resolution and advance notice.
611.1215 Prohibited acts.
611.1220 Filing of termination application.
611.1221 Filing of termination application--timing.
611.1222 Plan of termination--contents.
611.1223 Information statement--contents.
611.1230 FCA review and approval.
611.1240 Voting record date and stockholder approval.
611.1245 Stockholder reconsideration.
611.1250 Preliminary exit fee estimate.
611.1255 Exit fee calculation.
611.1260 Payment of debts and assessments--terminating association.
611.1265 Retirement of a terminating association's investment in its 
          affiliated bank.
611.1270 Repayment of obligations--terminating bank.
611.1275 Retirement of equities held by other System institutions.
611.1280 Dissenting stockholders' rights.
611.1285 Loan refinancing by borrowers.
611.1290 Continuation of borrower rights.

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 4.20, 
4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm Credit 
Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2208, 
2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a--2279f-1, 2279aa-5(e)); 
secs. 411 and 412 of Pub.

[[Page 53]]

L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-399, 
102 Stat. 989, 1003, and 1004.

    Source: 37 FR 11415, June 7, 1972, unless otherwise noted.

Subparts A-B [Reserved]



       Subpart C_Election of Directors and Other Voting Procedures

    Source: 53 FR 50392, Dec. 15, 1988, unless otherwise noted.



Sec. 611.310  Eligibility for membership on bank and association 
boards and subsequent employment.

    (a) No person shall be eligible for membership on a bank or 
association board who is or has been, within 1 year preceding the date 
the term of office begins, a salaried officer or employee of any bank or 
association in the System.
    (b) No bank or association director shall be eligible to continue to 
serve in that capacity and his or her office shall become vacant if 
after election as a member of the board, he or she becomes legally 
incompetent or is convicted of a felony or held liable in damages for 
fraud.
    (c) No bank director shall, within 1 year after the date when he or 
she ceases to be a member of the board, serve as a salaried officer or 
employee of such bank, or any association with which the bank has a 
discount or agent relationship.
    (d) No director of an association shall, within 1 year after he or 
she ceases to be a member of the board, serve as a salaried officer or 
employee of such association.

[53 FR 50392, Dec. 15, 1988, as amended at 54 FR 37095, Sept. 7, 1989]



Sec. 611.320  Impartiality in the election of directors.

    (a) Each System institution shall adopt policies and procedures that 
are designed to assure that the elections of board members are conducted 
in an impartial manner.
    (b) No employee or agent of a System institution shall take any 
part, directly or indirectly, in the nomination or election of members 
to the board of directors of a System institution, or make any 
statement, either orally or in writing, which may be construed as 
intended to influence any vote in such nominations, or elections. This 
paragraph shall not prohibit employees or agents from providing 
biographical and other similar information or engaging in other 
activities pursuant to policies and procedures for nominations and 
elections. This paragraph does not affect the right of an employee or 
agent to nominate or vote for directors of an institution in which the 
employee or agent is a voting member.
    (c) No property, facilities, or resources of any System institution 
shall be used by any candidate for nomination or election or by any 
other person for the benefit of any candidate for nomination or 
election, unless the same property, facilities, or resources are 
simultaneously available and made known to be available for use by all 
declared candidates.
    (d) No director, employee, or agent of a System institution shall, 
for the purpose of furthering the interests of any candidates for 
nomination or election, furnish or make use of records that are not made 
available for use by all declared candidates.
    (e) No System institution shall distribute or mail either directly 
or at the expense of the institution, any campaign materials for 
director candidates. Institutions shall request biographical information 
from all declared candidates who certify that they are eligible, restate 
such information in a standard format, and distribute or mail it with 
ballots or proxy ballots.



Sec. 611.330  Confidentiality in voting.

    (a) No bank or association may use signed ballots in stockholder 
votes. Each bank and association must adopt policies and procedures to 
ensure that all information and materials regarding how or whether an 
individual stockholder has voted remain confidential, including with 
respect to the institution, its directors, stockholders, or employees, 
or any other person except:
    (1) An independent third party tabulating the vote; or
    (2) The Farm Credit Administration.

[[Page 54]]

    (b) A bank or association may use balloting procedures, such as an 
identity code on the ballot, that can be used to identify how or whether 
an individual stockholder has voted only if the votes are tabulated by 
an independent third party. In weighted voting, the votes must be 
tabulated by an independent third party. An independent third party that 
tabulates the votes must certify in writing that such party will not 
disclose to any person (including the institution, its directors, 
stockholders, or employees) any information about how or whether an 
individual stockholder has voted, except that the information must be 
disclosed to the Farm Credit Administration if requested.
    (c) Once a bank or association receives a ballot, the vote of that 
stockholder is final, except that a stockholder may withdraw a proxy 
ballot before balloting begins at a stockholders' meeting.
    (d) A bank or association may give a stockholder voting by proxy an 
opportunity to give voting discretion to the proxy of the stockholder's 
choice, provided that the proxy is also a stockholder eligible to vote.

[63 FR 64843, Nov. 24, 1998]



Sec. 611.340  Security in voting.

    (a) Each bank and association must adopt policies and procedures 
that assure the security of all records and materials related to a 
stockholder vote including, but not limited to, ballots, proxy ballots, 
and other related materials.
    (b) Bank and association procedures must assure that ballots and 
proxy ballots are provided only to stockholders who are eligible to 
vote.
    (c) Ballots and proxy ballots must be safeguarded before the time of 
distribution or mailing to voting stockholders and after the time of 
receipt by the bank or association until disposal. In an election of 
directors, ballots, proxy ballots and election records must be retained 
at least until the end of the term of office of the director. In other 
stockholder votes, ballots, proxy ballots, and records must be retained 
for at least 3 years after the vote.
    (d) The voting procedures of each institution must provide for the 
establishment of a tellers committee or other designated group of 
persons which must be responsible for validating ballots and proxies and 
tabulating voting results. An institution and its officers, directors, 
and employees may not make any public announcement of the results of a 
stockholder vote before the tellers committee or other designated 
persons have validated the results of the vote.

[53 FR 50392, Dec. 15, 1988, as amended at 63 FR 64843, Nov. 24, 1998]



Sec. 611.350  Application of cooperative principles to the election 
of directors.

    In the election of directors, each System institution shall comply 
with the applicable cooperative principles set forth in Sec. 615.5230 
of this chapter.

[63 FR 39225, July 22, 1998]



            Subpart D_Rules for Compensation of Board Members



Sec. 611.400  Compensation of bank board members.

    (a) Farm Credit System banks are authorized to pay fair and 
reasonable compensation to directors for services performed in an 
official capacity at a rate not to exceed the level established in 
section 4.21 of the Farm Credit Act of 1971, as amended, unless the FCA 
determines that such a level adversely affects the safety and soundness 
of the institution.
    (b) The bank director compensation level established in section 4.21 
of the Act shall be adjusted to reflect changes in the Consumer Price 
Index (CPI) for all urban consumers, as published by the Bureau of Labor 
Statistics, in the following manner: Current year's maximum compensation 
= Prior year's maximum compensation adjusted by the prior year's annual 
average percent change in the CPI for all urban consumers. Adjustments 
will be made to the bank director statutory compensation limit beginning 
from October 28, 1992 (the date of enactment of the Farm Credit Banks 
and Associations Safety and Soundness Act of 1992). Additionally, each 
year the FCA will distribute a bookletter to all FCS banks that 
communicates the CPI adjusted

[[Page 55]]

bank director statutory compensation limit.
    (c)(1) A Farm Credit bank is authorized to pay a director up to 30 
percent more than the statutory compensation limit in exceptional 
circumstances where the director contributes extraordinary time and 
effort in the service of the bank and its shareholders.
    (2) Banks must document the exceptional circumstances justifying 
additional director compensation. The documentation must describe:
    (i) The exceptional circumstances justifying the additional director 
compensation, including the extraordinary time and effort the director 
devoted to bank business; and
    (ii) The amount and the terms and conditions of the additional 
director compensation.
    (d) Each bank board shall adopt a written policy regarding 
compensation of bank directors. The policy shall address, at a minimum, 
the following areas:
    (1) The activities or functions for which attendance is necessary 
and appropriate and may be compensated, except that a Farm Credit System 
bank shall not compensate any director for rendering services on behalf 
of any other Farm Credit System institution or a cooperative of which 
the director is a member, or for performing other assignments of a non-
official nature;
    (2) The methodology for determining each director's rate of 
compensation; and
    (3) The exceptional circumstances under which the board would pay 
additional compensation for any of its directors as authorized by 
paragraph (c) of this section.
    (e) Directors may also be reimbursed for reasonable travel, 
subsistence, and other related expenses in accordance with the bank's 
policy.

[59 FR 37411, July 22, 1994, as amended at 64 FR 16618, Apr. 6, 1999; 65 
FR 8023, Feb. 17, 2000]



                    Subpart E_Transfer of Authorities

    Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.



Sec. 611.500  General.

    Each Farm Credit Bank or Agricultural Credit Bank is authorized, in 
accordance with section 7.6 of the Act, to transfer certain authorities 
to Federal land bank associations. The regulations in this subpart set 
forth the procedures and voting and approval requirements applicable to 
such transfers.



Sec. 611.501  Procedures.

    (a) The boards of directors of a bank and an association which seek 
to transfer authorities may adopt appropriate resolutions approving such 
transfer and providing for the submission of such a proposal to their 
respective stockholders for a vote.
    (b) The resolutions accompanied by the following information shall 
be submitted to the Farm Credit Administration for review and approval:
    (1) Any proposed amendments to the charters of the institutions;
    (2) A copy of the transfer plan as required under Sec. 611.520 of 
this part;
    (3) An information statement that complies with the requirements of 
Sec. 611.515;
    (4) The proposed bylaws of the bank and the association, as 
applicable; and
    (5) Any additional information the boards of directors wish to 
submit in support of the request or that the Farm Credit Administration 
requests.



Sec. 611.505  Farm Credit Administration review.

    (a) Upon receipt of the board of directors resolution and the 
accompanying documents, the Farm Credit Administration shall review the 
request and either deny or give its preliminary approval to the request.
    (b) If the request is denied, written notice stating the reasons for 
the denial shall be transmitted to the chief executive officer of the 
bank and the association who shall promptly notify their respective 
boards of directors.
    (c) Upon approval of the proposed transfer of authorities by the 
stockholders as provided in Sec. 611.510, the secretary of the bank and 
the secretary of the association shall forward to the Farm Credit 
Administration a certified record of the results of the stockholder 
votes.

[[Page 56]]

    (d) Each institution shall notify its stockholders not later than 30 
days after the stockholder vote of the final results of the vote. If no 
petition for reconsideration is filed with the Farm Credit 
Administration in accordance with Sec. 611.525, the transfer shall be 
effective on the date specified in the transfer plan, or at such later 
date as may be required by the Farm Credit Administration to grant final 
approval. Notice of final approval shall be transmitted to the 
institutions involved.
    (e) The effective date of a transfer may not be less than 35 days 
after mailing of the notification to stockholders of the results of the 
stockholder vote, or 15 days after the date of submission to the Farm 
Credit Administration of all required documents for the Agency's 
consideration of final approval, whichever occurs later. If a petition 
for reconsideration is filed within 35 days after the date of mailing of 
the notification of stockholder vote, the constituent institutions must 
agree on a second effective date to be used in the event the transfer is 
approved on reconsideration. The second effective date may not be less 
than 60 days after stockholder notification of the results of the first 
vote, or 15 days after the date of the reconsideration vote, whichever 
occurs later.

[53 FR 50393, Dec. 15, 1988, as amended at 63 FR 64844, Nov. 24, 1998]



Sec. 611.510  Approval procedures.

    (a) Upon receipt of approval of a resolution by the Farm Credit 
Administration, the bank and the association shall call a meeting of 
their voting stockholders. Each institution shall notify each 
stockholder that the resolution has been filed and that a meeting will 
be held in accordance with the institution's bylaws. The stockholders 
meeting of the bank and the association shall be held within 60 days of 
receipt of the approval from the Farm Credit Administration.
    (b) The notice of meeting to consider and act upon the directors' 
resolution shall be accompanied by an information statement that 
complies with the requirements of Sec. 611.515.
    (c) The proposal shall be approved if agreed to by:
    (1) A majority of the stockholders of the bank voting in person or 
by proxy, with each association entitled to cast a number of votes equal 
to the number of its voting stockholders;
    (2) A majority of the stockholders of the association voting, in 
person or by proxy;
    (3) The Farm Credit Administration.



Sec. 611.515  Information statement.

    (a) The bank and association shall prepare an information statement 
which will inform stockholders about the provisions of the proposed 
transfer of authorities and the effect of the proposal on the bank and 
the association.
    (b) The information statement for each institution involved shall 
contain the following materials as applicable to the institution:
    (1) A statement either on the first page of the materials or on the 
notice of the stockholders meeting, in capital letters and boldface 
type, that:

 THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE 
   ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF 
    MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE 
                 CONTRARY SHALL BE MADE OR RELIED UPON.

    (2) A description of the material provisions of the plan under Sec. 
611.520 and the effect of the transaction on the institution, its 
stockholders, and the territory to be served.
    (3) A statement enumerating the potential advantages and 
disadvantages of the proposed transfer including, but not limited to, 
changes in operating efficiencies, one-stop service, branch offices, 
local control, and financial condition.
    (4) A summary of the provisions of the charter and bylaws following 
the transfer that differ materially from the charter or bylaws currently 
existing.
    (5) A brief statement by the board of directors of the institution 
setting forth the board's opinion on the advisability of the transfer.
    (6) A presentation of the following financial data:

[[Page 57]]

    (i) An audited balance sheet and income statement and notes thereto 
of the bank or the association, as applicable, for the preceding 2 
fiscal years.
    (ii) If the transfer of authority includes any material transfer of 
assets, a balance sheet and income statement of the bank and the 
association showing its financial condition before the transfer of 
authority and a pro forma balance sheet and income statement for the 
bank or association, as applicable, showing its financial condition 
after the transfer. The statements shall meet the following conditions:
    (A) Such financial statements shall be presented in columnar form, 
showing the financial condition as of the end of the most recent quarter 
of the institution, and operating results since the end of the last 
fiscal year through the end of the most recent quarter of the 
institution.
    (B) If the request is made within 90 days after the end of the 
fiscal year, the institution's financial statements shall be as of the 
most recent fiscal yearend.
    (C) If the request is made within 45 days after the end of the most 
recent quarter, the institution's financial statements shall be as of 
the end of the quarter preceding the quarter just ended.
    (D) If the request is made more than 45 days after the end of the 
most recent quarter, the institution's financial statements shall be as 
of the end of that quarter.
    (E) The financial statements must be accompanied by appropriate 
notes, describing any assets being transferred and including data 
relating to high-risk assets and other property owned, allowance for 
loan losses, and current year-to-date chargeoffs.
    (F) The amount and nature of start-up costs estimated to be 
associated with the transfer.
    (7) A description of the type and dollar amount of any financial 
assistance that has been provided to the bank or the association, as 
applicable, during the past year; the conditions on which the financial 
assistance was extended, the terms of repayment or retirement, if any; 
and, the liability for repayment of this assistance by the bank or the 
association if the transfer were approved.
    (8) A statement as to whether the bank or the association, as 
applicable, would require financial assistance during the first 3 years 
of operation, the estimated type and dollar amount of the assistance, 
and terms of repayment or retirement, if known.
    (9) A statement indicating the possible tax consequences to 
stockholders and whether any legal opinion, ruling or external auditor's 
opinion has been obtained on the matter.
    (10) A presentation of the association's interest rate and fee 
programs, interest collection policy, capitalization plan and other 
factors that would affect a borrower's cost of doing business with the 
association.
    (11) A description of any event subsequent to the date of the last 
quarterly report, but prior to the stockholder vote, that would have a 
material impact on the financial condition of the bank or the 
association.
    (12) A statement of any other material fact or circumstances that a 
stockholder would need in order to make an informed and responsible 
decision, or that would be necessary in order to provide a disclosure 
that is not misleading.
    (13) A form of written proxy, together with instructions on its 
purpose, use and authorization by the stockholder. The proxy 
instructions must ensure the secrecy of the stockholder's ballot if the 
stockholder votes by proxy.
    (14) A copy of the plan of transfer provided for in Sec. 611.520 of 
this part.
    (c) No bank or association director, officer, or employee shall make 
any untrue or misleading statement of a material fact, or fail to 
disclose any material fact necessary under the circumstances to make 
statements made not misleading, to a stockholder of the association in 
connection with a transfer under this subpart.

[53 FR 50393, Dec. 15, 1988, as amended at 58 FR 48790, Sept. 20, 1993]



Sec. 611.520  Plan of transfer.

    The transfer of authorities and assets, as appropriate, shall occur 
pursuant to a written plan which shall be

[[Page 58]]

agreed to by the bank and the association involved. The written plan 
shall include the following:
    (a) An explanation of the value of the equity ownership as of the 
last monthend held by stockholders of the bank and the association and 
the impact, if any, of the transfer on the value of that equity.
    (b) If the plan provides for a transfer of assets, a description of 
the terms and conditions upon which such transfer will occur, including, 
but not limited to, any warranties or representations regarding the 
value of such assets.
    (c) A description of how the association would obtain loan funds 
after the transfer.
    (d) A statement on how the expenses connected with the transfer are 
to be borne by the affected parties.
    (e) A statement of any conditions which must be satisfied prior to 
the effective date of the transfer, including but not limited to 
approval by stockholders and approval by the Farm Credit Administration.
    (f) A statement that prior to the effective date of the transfer the 
board of directors of the bank or the association may rescind its 
resolution and void the transfer, with the concurrence of the Farm 
Credit Administration, on the basis that:
    (1) The information disclosed to stockholders contained material 
errors or omissions;
    (2) Material misrepresentations were made to stockholders regarding 
the impact of the transfer;
    (3) Fraudulent activities were used to obtain the stockholders' 
approval; or,
    (4) An event occurred between the time of the vote and the transfer 
that would have a significant adverse impact on the future viability of 
the association.
    (g) A designation of those persons who have authority to carry out 
the plan of transfer, including the authority to execute any documents 
necessary to perfect title, on behalf of the bank and the association.



Sec. 611.525  Stockholder reconsideration.

    (a) Stockholders have the right to reconsider the approval of the 
transfer provided that a petition signed by 15 percent of the 
stockholders of either institution involved in the transfer is filed 
with the Farm Credit Administration within 35 days after the date of 
mailing of the notification of the final results of the stockholder vote 
required under Sec. 611.505(d) and such petition is approved by the 
Farm Credit Administration.
    (b) A special stockholders meeting shall be called by the 
institution to vote on the reconsideration following the Farm Credit 
Administration's approval of a stockholder petition to reconsider the 
transfer. If a majority of stockholders of any institution involved in 
the transfer votes against the transfer, the transfer is not approved.



      Subpart F_Bank Mergers, Consolidations and Charter Amendments

    Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.



Sec. 611.1000  General authority.

    (a) An amendment to a bank charter may relate to any provision that 
is properly the subject of a charter, including, but not limited to, the 
name of the bank, the location of its offices, or the territory served.
    (b) The Farm Credit Administration may make changes in the charter 
of a bank as may be requested by that bank and approved by the Farm 
Credit Administration pursuant to Sec. 611.1010 of this part.
    (c) The Farm Credit Administration may, in accordance with the 
provisions of the Act, make changes in the charter of a bank as may be 
necessary or expedient to implement the provisions of the Act.



Sec. 611.1010  Bank charter amendment procedures.

    (a) A bank may recommend a charter amendment to accomplish any of 
the following actions:
    (1) A merger or consolidation with any other bank or banks operating 
under title I or III of the Act;
    (2) A transfer of territory with any other bank operating under the 
same title of the Act;
    (3) A change to its name or location;

[[Page 59]]

    (4) Any other change that is properly the subject of a bank charter;
    (b) Upon approval of an appropriate resolution by the bank board, 
the certified resolution, together with supporting documentation, shall 
be submitted to the Farm Credit Administration for preliminary or final 
approval, as the case may be.
    (c) The Farm Credit Administration shall review the material 
submitted and either approve or disapprove the request. The Farm Credit 
Administration may require submission of any supplemental materials it 
deems appropriate. If the request is for merger, consolidation, or 
transfer of territory, the approval of Farm Credit Administration will 
be preliminary only, with final approval subject to a vote of the bank's 
stockholders.
    (d) Following receipt of the Farm Credit Administration's written 
preliminary approval, the proposal shall be submitted for approval to 
the voting stockholders of the bank. A proposal shall be approved if 
agreed to by a majority of the stockholders of each bank voting, in 
person or by proxy, at a duly authorized stockholder meeting with each 
association entitled to cast a number of votes equal to the number of 
the association's voting shareholders.
    (e) Upon approval by the stockholders of the bank, the request for 
final approval and issuance of the appropriate charter or amendments to 
charter for the banks involved shall be submitted to the Farm Credit 
Administration.



Sec. 611.1020  Requirements for mergers or consolidations of banks.

    (a) As authorized under sections 7.0 and 7.12 of the Act, a bank may 
merge or consolidate with one or more banks operating under the same or 
different titles of the Act.
    (b) Where two or more banks plan to merge or consolidate, the banks 
shall jointly submit to the Farm Credit Administration the documents 
itemized in Sec. Sec. 611.1122(a)(1) through (4), (6), (7), 
611.1122(e), and 611.1123. In interpreting those sections, the word 
``bank'' shall be read for the word ``association.''
    (c) No bank director, officer, or employee shall make any untrue or 
misleading statement of a material fact, or fail to disclose any 
material fact necessary under the circumstances to make statements made 
not misleading, to any stockholder of the bank in connection with a bank 
merger or consolidation.
    (d) Upon approval of a proposed bank merger or consolidation by the 
stockholders of each constituent bank, the following documents shall be 
submitted from the constituent banks to the Farm Credit Administration 
for final approval and issuance of the appropriate charters or 
amendments to charter:
    (1) A certified copy of the stockholders' resolution, on which the 
stockholders cast their votes, from each constituent bank;
    (2) A certification of the stockholder vote from the corporate 
secretary of each bank or from an independent third party;
    (3) An Agreement of Merger or Consolidation duly executed by those 
authorized to sign on behalf of each constituent bank.



Sec. 611.1030  Board of directors of an agricultural credit bank.

    Each agricultural credit bank formed by the consolidation of a Farm 
Credit Bank and a bank for cooperatives shall elect a board of directors 
of such number, for such term, in such manner, and with such 
qualifications, as may be required in its bylaws, except that at least 
one member shall be elected by the other directors, which member shall 
not be a director, officer, employee, or stockholder of a System 
institution. In electing such directors each association shall be 
entitled to cast a number of votes equal to the number of its voting 
stockholders.

[53 FR 50393, Dec. 15, 1988, as amended at 61 FR 67185, Dec. 20, 1996]



Sec. 611.1040  Creation of new associations.

    Any application for the issuance of a charter to a new production 
credit association or Federal land bank association shall meet the 
requirements of sections 2.0 or 2.10, respectively, of the Act. Any 
application for the issuance of a charter for an agricultural credit 
association shall meet the requirements of section 2.0 of the Act.

[[Page 60]]



      Subpart G_Mergers, Consolidations, and Charter Amendments of 
                              Associations



Sec. 611.1120  General authority.

    (a) An amendment to an association charter may relate to any 
provision that is properly the subject of a charter, including, but not 
limited to, the name of the association, the location of its offices, or 
the territory served.
    (b) The Farm Credit Administration may make changes in the charter 
of an association as may be requested by that association and approved 
by the Farm Credit Administration pursuant to Sec. 611.1121 of this 
part.
    (c) The Farm Credit Administration may, by order of the Chairman and 
on its own initiative, make changes in the charter of a Federal land 
bank association or a production credit association where the Chairman 
determines that the change is necessary for the accomplishment of the 
purposes of the Act.

[50 FR 20400, May 16, 1985, as amended at 51 FR 41945, Nov. 20, 1986]



Sec. 611.1121  Charter amendment procedures.

    This section shall apply to any request by an association to amend 
its charter.
    (a) An association which proposes to amend its charter shall submit 
a request to its supervising bank containing the following information:
    (1) A statement of the provision(s) of the charter that the 
association proposes to amend and the proposed amendment(s);
    (2) A statement of the reasons for the proposed amendment(s), the 
impact of the amendment(s) on the association and its stockholders, and 
the requested effective date of the amendment(s);
    (3) A certified copy of the resolution of the board of directors of 
the association approving the amendment(s);
    (4) Any additional information or documents that the association 
wishes to submit in support of the request or that may be requested by 
the supervising bank.
    (b) Upon receipt of a proposed amendment from an association, the 
district bank shall review the materials submitted and provide the 
association with its analysis of the proposal within a reasonable period 
of time. Concurrently, the bank shall communicate its recommendation on 
the proposal to the Farm Credit Administration, including the reasons 
for the recommendation, and any analysis the bank believes appropriate. 
Following review by the bank, the association shall transmit the 
proposed amendment with attachments to the Farm Credit Administration.
    (c) Upon receipt of an association's request for a charter 
amendment, the Farm Credit Administration shall review the materials 
submitted and either approve or disapprove the request. The Farm Credit 
Administration may require submission of any supplemental materials it 
deems appropriate.
    (d) The Farm Credit Administration shall notify the association of 
its approval or disapproval of the amendment request, and provide a copy 
of such communication to the bank. A notification of approval shall be 
accompanied by a copy of the charter, as amended.

[50 FR 20400, May 16, 1985, as amended at 51 FR 32441, Sept. 12, 1986]



Sec. 611.1122  Requirements for mergers or consolidations.

    This section shall apply to any request for approval of a proposed 
merger or consolidation of associations. A merger involves the 
combination of one or more associations into a continuing constituent 
association, which retains its charter and bylaws (except as amended to 
effect the merger proposal). A consolidation involves the combination of 
two or more associations into a newly organized association having a new 
charter and bylaws.
    (a) Where two or more associations plan to merge or consolidate, or 
where the district board has adopted a reorganization plan for the 
associations in the district, the associations involved shall jointly 
submit a request to the district bank containing the following:
    (1) In the case of a merger, a copy of the charter of the continuing 
association reflecting any proposed amendments. In the case of 
consolidation, a copy of the proposed charter of the new association;

[[Page 61]]

    (2) A statement of the reasons for the proposed merger or 
consolidation, the impact of the proposed transaction on the 
associations and their stockholders, and the planned effective date of 
the merger or consolidation;
    (3)(i) A certified copy of the resolution of the board of directors 
of each association recommending approval of the merger or 
consolidation; or
    (ii) In the case of a district reorganization plan, a certified copy 
of the resolution of the board of directors of each association 
recommending either approval or disapproval of the proposal.
    (4) A copy of the agreement of merger or consolidation;
    (5) Two signed copies of the continuing or proposed Articles of 
Association;
    (6) All of the information specified in paragraph (e) of this 
section; and
    (7) Any additional information or documents each association wishes 
to submit in support of the request or that the supervising bank or the 
Farm Credit Administration requests.
    (b) Upon receipt of a request for approval of an association merger 
or consolidation, the district bank shall review the materials submitted 
to determine whether they comply with the requirements of these 
regulations and shall communicate with the associations concerning any 
deficiency. When the bank approves the request to merge or consolidate 
it shall notify the associations and the Farm Credit Administration of 
its approval together with the reasons for its approval and any 
supporting analysis the bank deems appropriate. The associations shall 
jointly submit the proposal together with required documentation to the 
Farm Credit Administration for preliminary approval.
    (c) Upon receipt of an association merger or consolidation request, 
the Farm Credit Administration shall review the request and either deny 
or give its preliminary approval to the request. When a request is 
denied, written notice stating the reasons for the denial shall be 
transmitted to the associations and a copy provided to the bank. When a 
request is preliminarily approved, written notice of the preliminary 
approval shall be given to the associations and a copy provided to the 
bank. Preliminary approval by the Farm Credit Administration shall not 
constitute approval of the merger or consolidation. Approval of a merger 
or consolidation shall be only pursuant to paragraph (g) of this 
section.
    (d) Upon receipt of preliminary approval by the Farm Credit 
Administration of a merger or consolidation request, each constituent 
association shall call a meeting of its voting stockholders. The meeting 
shall be called on written notice to each stockholder entitled to vote 
on the transaction, and held in accordance with the terms of each 
association's bylaws. The affirmative vote of a majority of the voting 
stockholders of each association present and voting or voting by written 
proxy at a meeting at which a quorum is present shall be required for 
stockholder approval of a merger or consolidation proposal.
    (e) Notice of the meeting to consider and act upon a proposed merger 
or consolidation of associations shall be accompanied by the following 
information covering each constituent association.
    (1) A statement either on the first page of the materials or on the 
notice of the stockholders' meeting, in capital letters and bold face 
type, that:

THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE 
   ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF 
    MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE 
                 CONTRARY SHALL BE MADE OR RELIED UPON.

    (2) A description of the material provisions of the agreement of 
merger or consolidation and the effect of the proposed merger or 
consolidation on the associations, their stockholders, the new or 
continuing board of directors, and the territory to be served. In 
addition, a copy of the agreement must be furnished with the notice to 
stockholders.
    (3) A summary of the provisions of the charter and bylaws of the 
continuing or new association that differ materially from the existing 
charter or

[[Page 62]]

bylaw provisions of the constituent associations.
    (4) A brief statement by the boards of directors of the constituent 
associations setting forth the basis for the boards' recommendation on 
the merger or consolidation.
    (5) A description of any agreement or arrangement between a 
constituent association and any of its officers relating to employment 
or termination of employment and arising from the merger or 
consolidation.
    (6) A presentation of the following financial data:
    (i) A balance sheet and income statement for each constituent 
association for each of the 2 preceding fiscal years.
    (ii) A balance sheet for each constituent association as of a date 
within 90 days of the date the request for preliminary approval is 
forwarded to the Farm Credit Administration presented on a comparative 
basis with the corresponding period of the prior fiscal year.
    (iii) An income statement for the interim period between the end of 
the last fiscal year and the date of the required balance sheet 
presented on a comparative basis with the corresponding period of the 
preceding fiscal year. The balance sheet and income statement format 
shall be that contained in the association's annual report to 
stockholders; shall contain any significant changes in accounting 
policies that differ from those in the latest association annual report 
to stockholders; and shall contain appropriate footnote disclosures, 
including data relating to high-risk assets and other property owned, 
and allowance for loan losses, including net chargeoffs as required in 
paragraph (e)(10) of this section.
    (7) The financial statements (balance sheet and income statement) 
shall be in sufficient detail to show separately all significant 
categories of interest-earning assets and interest-bearing liabilities 
and the income or expense accrued thereon.
    (8) Attached to the financial statements for each constituent 
association, either:
    (i) A statement signed by the chief executive officer and each 
member of the board of directors of the association that the various 
financial statements are unaudited, but have been prepared in all 
material respects in accordance with generally accepted accounting 
principles (except as otherwise disclosed therein) and are, to the best 
of the knowledge of the board, a fair and accurate presentation of the 
financial condition of the association; or
    (ii) A signed opinion by an independent certified public accountant 
that the various financial statements have been examined in accordance 
with generally accepted auditing standards and, accordingly, included 
such tests of the accounting records and such other auditing procedures 
as were considered necessary in the circumstances, and, as of the date 
of the statements, present fairly the financial position of the 
association in conformity with generally accepted accounting principles 
applied on a consistent basis, except as otherwise noted thereon.
    (9) A presentation for each constituent association regarding its 
policy on accounting for loan performance, together with the number and 
dollar amount of loans in all performance categories, including those 
categorized as high-risk assets.
    (10) Information of each constituent association concerning the 
amount of loans charged off in each of the 2 fiscal years preceding the 
date of the balance sheet, the current year-to-date net chargeoff 
amount, and the balance in the allowance for loan losses account and a 
statement regarding whether, in the opinion of management, the allowance 
for loan losses is adequate to absorb the risk currently existing in the 
loan portfolio. This information may be appropriately included in the 
footnotes to the financial statements.
    (11) A management discussion and analysis of the financial condition 
and results of operation for the past 2 fiscal years for each 
constituent institution. This requirement can be satisfied by including 
the materials contained in the management discussion and analysis of 
each institution's most recent annual report.
    (12) A discussion of any material changes in financial condition of 
each constituent institution from the end of the last fiscal year to the 
date of the interim balance sheet provided.

[[Page 63]]

    (13) A discussion of any material changes in the results of 
operations of each constituent institution with respect to the most 
recent fiscal-year-to-date period for which an income statement is 
provided.
    (14) A discussion of any change in the tax status of the new 
institution from those of the constituent institutions as a result of 
merger or consolidation. A statement on any adverse tax consequences to 
the stockholders of the institution as a result of the change in tax 
status.
    (15) A statement on the proposed institution's relationship with an 
independent public accountant, including any change that may occur as a 
result of the merger or consolidation.
    (16) A pro forma balance sheet of the continuing or consolidated 
association presented as if the merger or consolidation had occurred as 
of the date on the balance sheets required in paragraph (e)(6) of this 
section, as recommended to the stockholders. A pro forma summary of 
earnings for the continuing or consolidated association presented as if 
the merger or consolidation had been effective at the beginning of the 
interim period between the end of the last fiscal year and the date of 
the balance sheets.
    (17) A description of the type and dollar amount of any financial 
assistance that has been provided during the past year or will be 
provided by the supervising bank or other party to assist the 
constituent or the continuing or new association(s), the conditions on 
which financial assistance has been or will be extended, the terms of 
repayment or retirement, if any, and the impact of the assistance on the 
subject association(s) or the stockholders.
    (18) A presentation for each constituent association of interest 
rate comparisons for the last 2 fiscal years preceding the date of the 
balance sheet, together with a statement of the continuing or new 
association's proposed interest rate and fee programs, interest 
collection policies, capitalization rates, dividends or patronage 
refunds, and other factors that would affect a borrower's cost of doing 
business with the continuing or new association. Where agreement has not 
been reached on such matters, current related information shall be 
presented for each constituent association.
    (19) A description for each constituent association of any event 
subsequent to the date of the financial statements, but prior to the 
merger or consolidation vote, that would have a material impact on the 
financial condition of the constituent or continuing or new 
association(s).
    (20) A statement of any other material fact or circumstance that a 
stockholder would need in order to make an informed decision on the 
merger or consolidation proposal, or that is necessary to make the 
required disclosures not misleading.
    (21) Where proxies are to be solicited, a form of written proxy, 
together with instructions on the purpose and authority for its use, and 
the proper method for signature by the stockholder.
    (f) No bank or association, or director, officer, or employee 
thereof, shall make any untrue or misleading statement of a material 
fact, or fail to disclose any material fact necessary under the 
circumstances to make statements made not misleading, to a stockholder 
of any association in connection with an association merger or 
consolidation.
    (g) Upon approval of a proposed merger or consolidation by the 
stockholders of the constituent associations, a certified copy of the 
stockholders' resolution shall be forwarded to the Farm Credit 
Administration. Each constituent association shall notify its 
stockholders not later than 30 days after the stockholder vote of the 
final results of the vote. If no petition is filed with the Farm Credit 
Administration to reconsider the vote, upon final approval by the FCA, 
the merger or consolidation shall be effective on the date specified in 
the merger agreement or at such later date as may be required by the 
Farm Credit Administration to grant final approval. Notice of final 
approval shall be transmitted to the associations and a copy provided to 
the affiliated bank.
    (h) No director, officer, or employee of a bank or an association 
shall make an oral or written representation to any person that a 
preliminary or final

[[Page 64]]

approval by the Farm Credit Administration of an association merger or 
consolidation constitutes, directly or indirectly, either a 
recommendation on the merits of the transaction or an assurance 
concerning the adequacy or accuracy of any information provided to any 
association's stockholders in connection therewith.
    (i) The notice and accompanying information required under paragraph 
(e) of this section shall not be sent to stockholders until preliminary 
approval of the merger or consolidation has been given by the Farm 
Credit Administration.
    (j) Where a proposed merger or consolidation will involve more than 
three associations, the Farm Credit Administration may require the 
supplementation, or allow the condensation or omission of any 
information required under paragraph (e) of this section in furtherance 
of meaningful disclosure to stockholders. Any waiver sought under this 
paragraph shall be obtained before preparation of the financial 
statements and accompanying schedules required under paragraph (e) of 
this section.
    (k) The effective date of a merger or consolidation may not be less 
than 35 days after the date of mailing of the notification to 
stockholders of the results of the stockholder vote, or 15 days after 
the date of submission to the Farm Credit Administration of all required 
documents for the Agency's consideration of final approval, whichever 
occurs later. If a petition for reconsideration is filed within 35 days 
after mailing of the notification to stockholders of the results of the 
stockholder vote, the constituent institutions must agree on a second 
effective date to be used in the event the merger or consolidation is 
approved on reconsideration. The second effective date may not be less 
than 60 days after stockholder notification of the results of the first 
vote, or 15 days after the date of the reconsideration vote, whichever 
occurs later.

[50 FR 20400, May 16, 1985; 50 FR 32165, Aug. 9, 1985, as amended at 51 
FR 32441, Sept. 12, 1986; 53 FR 50396, Dec. 15, 1988; 56 FR 2674, Jan. 
24, 1991; 58 FR 48790, Sept. 20, 1993; 63 FR 64844, Nov. 24, 1998]



Sec. 611.1123  Merger or consolidation agreements.

    (a) Associations operating under the same title of the Act may merge 
or consolidate voluntarily only pursuant to a written agreement. The 
agreement shall set forth all of the terms of the transaction, 
including, but not limited to, the following:
    (1) The proposed effective date of the merger or consolidation.
    (2) The proposed name and headquarters location of the continuing or 
consolidated association.
    (3) The names of the persons nominated to serve as directors until 
the first regular annual meeting of the continuing or consolidated 
association to be held after the effective date of the merger or 
consolidation. Any director of a constituent association may be 
designated in the agreement to serve as a director of the continuing or 
consolidated association for a period not to exceed his or her current 
term, after which he or she must stand for reelection. However, the 
terms of the agreement must provide for the election of at least one 
director at each annual meeting subsequent to the effective date of the 
merger or consolidation. The bylaws of the continuing or consolidated 
association shall reflect the provisions of the merger or consolidation 
agreement regarding director terms.
    (4) A statement of the formula to be used to exchange the stock of 
the constituent associations for the stock of the continuing or 
consolidated association. No fractional shares of stock shall be issued.
    (5) A statement of any conditions which must be satisfied prior to 
the effective date of the proposed transaction, including but not 
limited to approval by stockholders, the supervising bank, and the Farm 
Credit Administration.
    (6) A statement of the representations or warranties, if any, made 
or to be made by any association, or its officers, directors, or 
employees that is a party to the proposed transactions.
    (7) A statement that the board of directors of each constituent 
association can terminate the agreement before

[[Page 65]]

the effective date upon a determination by an association, with the 
concurrence of the Farm Credit Administration, that:
    (i) The information disclosed to stockholders contained material 
errors or omissions;
    (ii) Material misrepresentations were made to stockholders regarding 
the impact of the merger or consolidation;
    (iii) Fraudulent activities were used to obtain stockholders' 
approval; or
    (iv) An event occurred between the time of the vote and the merger 
that would have a significant adverse impact on the future viability of 
the continuing institution.
    (8) A description of the legal opinions or rulings (including those 
related to tax matters), if any, that have been obtained or furnished by 
any party in connection with the proposed transaction. Also, refer to 
paragraph (a)(5) of this section.
    (9) The capitalization plan and capital structure for the new 
institution and a statement that the capitalization plan shall comply 
with applicable FCA regulations.
    (10) Provision for the employee benefits plan, its subsequent 
continuation or adaptation by the board of directors of the proposed 
institution following the merger or consolidation.
    (11) A statement of the authority of those persons designated to 
carry out the terms of the agreement, including the authority to waive 
provisions of the agreement and to execute any documents necessary to 
perfect title, on behalf of the constituent associations.
    (b) As an attachment to the agreement, set forth those provisions of 
the charter and bylaws of the continuing or consolidated association 
which differ from the existing charter or bylaw provisions of the 
constituent associations.
    (c) Stockholders have the right to reconsider the approval of the 
merger provided that a petition signed by 15 percent of the stockholders 
eligible to vote of one or more of the constituent institutions is filed 
with the Farm Credit Administration within 35 days after the date of 
mailing the notification of the final results of the stockholder vote 
required under Sec. 611.1122(g). The Farm Credit Administration will 
review the petition to determine whether it complies with the 
requirements of section 7.9 of the Act. Following a determination that 
the petition complies with the applicable requirements, a special 
stockholders meeting shall be called by the institution to reconsider 
the vote. If a majority of the stockholders voting, in person or by 
proxy, of any one of the constituent institutions that is a party to the 
merger vote against the merger, the merger shall not take place.

[50 FR 20400, May 16, 1985, as amended at 51 FR 32442, Sept. 12, 1986; 
53 FR 50396, Dec. 15, 1988]



Sec. 611.1124  Territorial adjustments.

    This section shall apply to any request submitted to the Farm Credit 
Administration to modify association charters for the purpose of 
transferring territory from one association to another.
    (a) Territorial adjustments, except as specified in paragraph (m) of 
this section, require approval of a majority of the voting stockholders 
of each association present and voting or voting by written proxy at a 
duly authorized meeting at which a quorum is present.
    (b) When two or more associations agree to transfer territory, each 
association shall submit a proposal to the district bank containing the 
following:
    (1) A statement of the reasons for the proposed transfer and the 
impact the transfer will have on its stockholders and holders of 
participation certificates;
    (2) A certified copy of the resolution of the board of directors of 
each association approving the proposed territory transfer;
    (3) A copy of the agreement to transfer territory that contains the 
following information:
    (i) A description of the territory to be transferred.
    (ii) Transferor association's plan to transfer loans and the types 
of loans to be transferred.
    (iii) Transferor association's plan to retire and transferee 
association's plan to issue equities held by holders of stock, 
participation certificates, and allocated equities, if any, and a 
statement by each association that the book

[[Page 66]]

value of its equities is at least equal to par.
    (iv) An inventory of the assets to be sold by the transferor 
association and purchased by the transferee association.
    (v) An inventory of the liabilities to be assumed from the 
transferor association by the transferee association.
    (vi) A statement that the holders of stock and participation 
certificates whose loans are subject to transfer have 60 days from the 
effective date of the territory transfer to inform the transferor 
association of their decision to remain with the transferor association 
for normal servicing until the current loan is paid.
    (vii) A statement that the transfer is conditioned upon the approval 
of the stockholders of each constituent association.
    (viii) The effective date of the proposed territory transfer.
    (4) A copy of the stockholder disclosure statement provided for in 
paragraph (f) of this section; and
    (5) Any additional relevant information or documents that the 
association wishes to submit in support of its request or that may be 
required by the Farm Credit Administration.
    (c) Upon receipt of documents supporting a proposed territory 
transfer, the district bank shall review the materials submitted and 
provide the associations with its analysis of the proposal within a 
reasonable period of time. The bank shall concurrently advise the Farm 
Credit Administration of its recommendation regarding the proposed 
territory transfer. Following review by the bank, the associations shall 
transmit the proposal to the Farm Credit Administration together with 
all required documents.
    (d) Upon receipt of an association's request to transfer territory, 
the Farm Credit Administration shall review the request and either deny 
or give preliminary approval to the request. When a request is denied, 
written notice stating the reasons for the denial shall be transmitted 
to the associations, and a copy provided to the bank. When a request is 
preliminarily approved, written notice of the preliminary approval shall 
be transmitted to the associations, and a copy provided to the bank. 
Preliminary approval by the Farm Credit Administration shall not 
constitute approval of the territory transfer. Final approval shall be 
granted only in accordance with paragraph (h) of this section.
    (e) Upon receipt of preliminary approval by the Farm Credit 
Administration, each constituent association shall, by written notice, 
and in accordance with its bylaws, call a meeting of its voting 
stockholders. The affirmative vote of a majority of the voting 
stockholders of each association present and voting or voting by written 
proxy at a meeting at which a quorum is present shall be required for 
stockholder approval of a territory transfer.
    (f) Notice of the meeting to consider and act upon a proposed 
territory transfer shall be accompanied by the following information 
covering each constituent association:
    (1) A statement either on the first page of the materials or on the 
notice of the stockholders' meeting, in capital letters and bold face 
type, that:

THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE 
   ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF 
    MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE 
                 CONTRARY SHALL BE MADE OR RELIED UPON.

    (2) A copy of the Agreement to Transfer Territory and a summary of 
the major provisions of the Agreement.
    (3) The reason the territory transfer is proposed.
    (4) A map of the association's territory as it would look after the 
transfer.
    (5) A summary of the differences, if any, between the transferor and 
transferee associations' interest rates, interest rate policies, 
collection policies, service fees, bylaws, and any other items of 
interest that would impact a borrower's lending relationship with the 
institution.
    (6) A statement that all loans of the transferor association that 
finance operations located in the transferred territory shall be 
transferred to the transferee association except as otherwise provided 
for in this section or in accordance with agreements between the 
associations as provided for in Sec. 614.4070 of this chapter.

[[Page 67]]

    (7) Where proxies are to be solicited, a form of written proxy, 
together with instructions on the purpose and authority for its use, and 
the proper method for signature by the stockholders.
    (8) A statement that the associations' bylaws, financial statements 
for the previous 3 years, and any financial information prepared by the 
associations concerning the proposed transfer of territory are available 
on request to the stockholders of any association involved in the 
transaction.
    (g) No bank or association, or director, officer, or employee 
thereof, shall make any untrue or misleading statement of a material 
fact, or fail to disclose any material fact necessary under the 
circumstances to make statements made not misleading, to a stockholder 
of any association in connection with a territory transfer.
    (h) Upon approval of a proposed territory transfer by the 
stockholders of the constituent associations, a certified copy of the 
stockholders' resolution for each constituent association and one 
executed Agreement to Transfer Territory shall be forwarded to the Farm 
Credit Administration. The territory transfer shall be effective when 
thereafter finally approved and on the date as specified by the Farm 
Credit Administration. Notice of final approval shall be transmitted to 
the associations and a copy provided to the bank.
    (i) No director, officer, or employee of a bank or an association 
shall make an oral or written representation to any person that a 
Preliminary or final approval by the Farm Credit Administration of a 
territory transfer constitutes, directly or indirectly, a recommendation 
on the merits of the transaction or an assurance concerning the adequacy 
or accuracy of any information provided to any association's 
stockholders in connection therewith.
    (j) The notice and accompanying information required under paragraph 
(f) of this section shall not be sent to stockholders until preliminary 
approval of the territory transfer has been granted by the Farm Credit 
Administration.
    (k) Where a territory transfer is proposed simultaneously with a 
merger or consolidation, both transactions may be voted on by 
stockholders at the same meeting. Only stockholders of a transferee or 
transferor association shall vote on a territory transfer.
    (l) Each borrower whose real estate or operations is located in a 
territory that will be transferred shall be provided with a written 
Notice of Territory Transfer immediately after the Farm Credit 
Administration has given final approval of the territory transfer. The 
Notice shall inform the borrower of the transfer of the borrower's loan 
to the transferee association and the exchange of related equities for 
equities of like kinds and amounts in the transferee association. If a 
like kind of equity is not available in the transferee association, 
similar equities shall be offered that will not adversely affect the 
interest of the owner. The Notice shall give the borrower 60 days from 
the effective date of the territory transfer to notify the transferor 
association in writing if the borrower decides to stay with the 
transferor association for normal servicing until the current loan is 
paid. Any application by the borrower for renewal or for additional 
credit shall be made to the transferee association, except as otherwise 
provided for by an agreement between associations in accordance with 
Sec. 614.4070 of this chapter.
    (m) This section shall not apply to territory transfers initiated by 
order of the Chairman of the Farm Credit Administration or to territory 
transfers due to the liquidation of the transferor association.
    (n) Where a proposed action involves the transfer of a portion of an 
association's territory to an association operating in a different 
district, such proposal must comply with the provisions of this section 
and Sec. 611.1090 of this part.

[51 FR 32442, Sept. 12, 1986]



Sec. 611.1125  Treatment of associations not approving districtwide 
mergers.

    (a) Issuance of charters. When issuing charters or certificates of 
territory for districtwide mergers or consolidations

[[Page 68]]

of associations, the Farm Credit Administration will not issue any 
charters or certificates of territory that include the territory of one 
or more associations whose stockholders voted to disapprove the merger 
or consolidation.
    (b) A district bank shall not take any of the following actions with 
respect to an association that has determined to not participate in a 
districtwide merger or consolidation:
    (1) Discriminate in the provision of any financial service and 
assistance, including, but not limited to, access to loan funds and 
rates of interest on loans and discounts offered by the district bank to 
associations and their member/borrowers;
    (2) Discriminate in the provision of any related services that are 
offered by the district bank to associations and their member/borrowers;
    (3) Discriminate in the provision of any professional assistance 
that may be normally provided by the district bank to associations; or
    (4) Discriminate in the provision of any technical assistance that 
may be normally provided by the district bank to associations.
    (c) This regulation does not prohibit a district bank from taking 
any action with respect to an association, including, but not limited 
to, charging different rates of interest or different prices for 
services, or declining to provide financial assistance; provided that 
any such action is fully documented and based on an objective analysis 
of applicable criteria that are uniformly and consistently applied by 
the district bank to all associations in the district.

[51 FR 32443, Sept. 12, 1986, as amended at 60 FR 34099, June 30, 1995]



             Subpart H_Rules for Inter-System Fund Transfers



Sec. 611.1130  Inter-System transfer of funds and equities.

    (a) Section 5.17(a)(6) of the Act authorizes the FCA to regulate the 
borrowing, repayment, and transfer of funds and equities between 
institutions of the System, including banks, associations, and service 
organizations organized under the Act. This section sets forth the 
circumstances and procedures under which the FCA may direct such a 
transfer of funds and equities based on its determination with respect 
to the financial condition of one or more institutions of the System. 
For purposes of this section, the term ``bond'' refers to long-term 
notes, bonds, debentures, or other similar obligations, or short-term 
discount notes issued by one or more banks pursuant to section 4.2 of 
the Act.
    (b) The FCA may direct a transfer of funds or equities by one or 
more banks of the System to another bank of the System where it 
determines that:
    (1) The receiving institution will not be able to make payments of 
principal or interest on bonds for which it is primarily liable within 
the meaning of section 4.4(a) of the Act; or
    (2) The common or preferred stock, participation certificates, or 
allocated equities of the receiving institution have a book value less 
than their par or stated values; or
    (3) The total bonds outstanding for which the receiving institution 
is primarily liable exceed 20 times the combined capital and surplus 
accounts of the bank; or
    (4) Based on application to it of one or more of the following 
ratios, the receiving institution is not financially viable in that it 
will not be able to continue to extend new or additional credit or 
financial assistance to its eligible borrowers:
    (i) The ratio of stock to earned net worth (including legal reserve, 
unallocated and reserved surplus, undistributed earnings, and allowance 
for losses) exceeds 2 to 1;
    (ii) The ratio of the outstanding bonds to capital and surplus 
exceeds 15 to 1;
    (iii) Nonearning assets (any noninterest-bearing assets, including 
but not limited to cash, noninterest-earning loans, net fixed assets, 
other property owned, accrued interest receivable, and accounts 
receivable) exceed 15 percent of total assets;
    (iv) Lendable net worth (interest-earning assets less interest-
bearing liabilities) is zero or less.
    (c) The FCA may direct a transfer of funds or equities between two 
or more Federal land bank associations or two or more production credit 
associations

[[Page 69]]

in district where it determines that such transfer:
    (1) Is necessary to provide financial support to the district bank 
in which those associations are stockholders based on application of the 
criteria to the bank as set forth in paragraph (b) of this section; or
    (2) Is necessary to provide financial support to one or more other 
like associations in the district based on application of the criteria 
set forth in paragraph (b)(2) or (b)(4) of this section to the 
associations, provided that in applying paragraph (b)(4)(ii) of this 
section the ratio of outstanding indebtedness to capital and surplus of 
the receiving association(s) shall not exceed 9 to 1; or
    (3) Is an integral part of a plan that has been adopted by other 
institutions of the System, and approved by the FCA, under which those 
institutions will extend financial assistance to the district bank in 
which those associations are stockholders.
    (d) A direction by the FCA for a transfer of funds or equities 
pursuant to this section shall be signed by the Chairman and shall 
establish the amount, timing, duration, repayment, and other terms of 
assessments necessary to accomplish such transfer, taking into 
consideration the financial condition of each institution to be 
assessed. Where the FCA directs a transfer of funds or equities between 
associations under paragraph (c) (1) or (2) of this section, it may 
authorize the district bank in which such associations are stockholders 
to accomplish the necessary assessments through debits and credits to 
the accounts of the bank.

[50 FR 36986, Sept. 11, 1985. Redesignated at 51 FR 8666, Mar. 13, 1986, 
as amended at 51 FR 41945, Nov. 20, 1986; 58 FR 48790, Sept. 20, 1993; 
59 FR 21643, Apr. 26, 1994]



                     Subpart I_Service Organizations

    Source: 66 FR 16843, Mar. 28, 2001, unless otherwise noted.



Sec. 611.1135  Incorporation of service corporations.

    (a) What is the process for chartering a service corporation? A Farm 
Credit bank or association (you or your) may organize a corporation 
acting alone or with other Farm Credit banks or associations to perform, 
for you or on your behalf, any function or service that you are 
authorized to perform under the Act and Farm Credit Administration (we, 
us, or our) regulations, with two exceptions. Those exceptions are that 
your corporation may not extend credit or provide insurance services. To 
organize a service corporation, you must submit an application to us 
following the applicable requirements of paragraph (c) of this section. 
If what you propose in your application meets the requirements of the 
Act, our regulations, and any other conditions we may impose, we may 
issue a charter for your service corporation making it a federally 
chartered instrumentality of the United States. Your service corporation 
will be subject to examination, supervision, and regulation by us.
    (b) Who may own equities in your service corporation? All Farm 
Credit banks and associations are eligible to become stockholders in 
your service corporation. Your service corporation may also issue non-
voting and voting stock to persons that are not Farm Credit 
institutions, provided that at least 80 percent of the voting stock is 
at all times held by Farm Credit institutions. For the purposes of this 
subpart, we define persons as individuals or legal entities organized 
under the laws of the United States or any state or territory thereof.
    (c) What must be included in your application to form a service 
corporation? Your application for a corporate charter must include:
    (1) The certified resolution of the board of each organizing bank or 
association authorizing the incorporation;
    (2) A request signed by the president(s) of the organizing bank(s) 
or association(s) to us to issue a charter, supported by a detailed 
statement demonstrating the need and the justification for the proposed 
entity; and
    (3) The proposed articles of incorporation addressing, at a minimum, 
the following:
    (i) The name of your corporation;
    (ii) The city and state where the principal offices of your 
corporation are to be located;

[[Page 70]]

    (iii) The general purposes for the formation of your corporation;
    (iv) The general powers of your corporation;
    (v) The procedures for a Farm Credit bank or association or persons 
that are not Farm Credit institutions to become a stockholder;
    (vi) The procedures to adopt and amend your corporation's bylaws;
    (vii) The title, par value, voting and other rights, and authorized 
amount of each class of stock that your corporation will issue and the 
procedures to retire each class;
    (viii) The notice and quorum requirement for a meeting of 
shareholders, and the vote required for shareholder action on various 
matters;
    (ix) The procedures and shareholder voting requirements for the 
merger, voluntary liquidation, or dissolution of your corporation or the 
distribution of corporate assets;
    (x) The standards and procedures for the application and 
distribution of your corporation's earnings; and
    (xi) The length of time your corporation will exist.
    (4) The proposed bylaws, which must include the provisions required 
by Sec. 615.5220(b) of this chapter;
    (5) A statement of the proposed amounts and sources of 
capitalization and operating funds;
    (6) Any agreements between the organizing banks and associations 
relating to the organization or the operation of the corporation; and
    (7) Any other supporting documentation that we may request.
    (d) What will we do with your application? If we approve your 
completed application, we will issue a charter for your service 
corporation as a corporate body and a federally chartered 
instrumentality. We may condition the issuance of a charter, including 
imposing minimum capital requirements, as we deem appropriate. For good 
cause, we may deny your application.
    (e) Once your service corporation is formed, how are its articles of 
incorporation amended? Your service corporation's articles of 
incorporation may be amended in either of two ways:
    (1) The board of directors of the corporation may request that we 
amend the articles of incorporation by sending us a certified resolution 
of the board of directors of the service corporation that states the:
    (i) Section(s) to be amended;
    (ii) Reason(s) for the amendment;
    (iii) Language of the articles of incorporation provision, as 
amended; and
    (iv) Requisite shareholder approval has been obtained. The request 
will be subject to our approval as stated in paragraphs (a) and (c) of 
this section.
    (2) We may at any time make any changes in the articles of 
incorporation of your service corporation that are necessary and 
appropriate for the accomplishment of the purposes of the Act.
    (f) When your service corporation issues equities, what are the 
disclosure requirements? Your service corporation must provide the 
disclosures described in Sec. 615.5250(c) and (d) of this chapter.



Sec. 611.1136  Regulation and examination of service organizations.

    (a) What regulations apply to a service organization? Because a 
service organization is formed by banks and associations, it is subject 
to applicable Farm Credit Administration (we, our) regulations.
    (b) Who examines a service organization? We examine service 
organizations.
    (c) What types of service organizations are subject to our 
regulations and examination? All incorporated service corporations and 
unincorporated service organizations formed by banks and associations 
are subject to our regulations and examination.



Sec. 611.1137  Title VIII service corporations.

    (a) What is a title VIII service corporation? A title VIII service 
corporation is a service corporation organized for the purpose of 
exercising the authorities granted under title VIII of the Act to act as 
an agricultural mortgage marketing facility.
    (b) How do I form a title VIII service corporation? A title VIII 
service corporation is formed and subject to the same requirements as a 
service corporation formed under Sec. 611.1135, with one exception. The 
Federal Agricultural Mortgage Corporation or its affiliates may not form 
or own stock in a title VIII service corporation.

[[Page 71]]

Subpart J-O [Reserved]



           Subpart P_Termination of System Institution Status

    Source: 67 FR 17909, Apr. 12, 2002, unless otherwise noted.



Sec. 611.1200  Applicability of this subpart.

    The regulations in this subpart apply to each bank and association 
that desires to terminate its System institution status and become 
chartered as a bank, savings association, or other financial 
institution.



Sec. 611.1205  Definitions that apply in this subpart.

    Assets means all assets determined in conformity with GAAP, except 
as otherwise required in this subpart.
    GAAP means ``generally accepted accounting principles'' as that term 
is defined in Sec. 621.2(c) of this chapter.
    OFI means an ``other financing institution'' that has a funding and 
discount agreement with a Farm Credit bank under section 1.7(b)(1) of 
the Act.
    Successor institution means the bank, savings association, or other 
financial institution that the terminating bank or association will 
become when we revoke its Farm Credit charter.



Sec. 611.1210  Commencement resolution and advance notice.

    (a) Adoption of commencement resolution. Your board of directors 
must begin the termination process by adopting a commencement resolution 
stating your intention to terminate Farm Credit status under section 
7.10 of the Act.
    (b) Advance notice. Within 5 days after adopting the commencement 
resolution, you must:
    (1) Send a certified copy of the commencement resolution to us and 
the Farm Credit System Insurance Corporation (FCSIC). If your 
institution is an association, also send a copy to your affiliated bank. 
If your institution is a bank, also send a copy to your affiliated 
associations, the other Farm Credit banks, the Federal Farm Credit Banks 
Funding Corporation (Funding Corporation), and the Farm Credit System 
Financial Assistance Corporation (FAC);
    (2) Mail an announcement to all equity holders stating you are 
taking steps to terminate Farm Credit status and describing the 
following:
    (i) The process of termination;
    (ii) The expected effect of termination on equity holders, including 
the effect on borrower rights and the consequences of any stock 
retirements before termination;
    (iii) The type of charter the successor institution will have; and
    (iv) Any bylaw creating a special class of borrower stock and 
participation certificates under paragraph (f) of this section.
    (c) Bank negotiations on joint and several liability. If your 
institution is a terminating bank, within 10 days of adopting the 
commencement resolution, your bank and the other Farm Credit banks must 
begin negotiations to provide for your satisfaction of liabilities 
(other than your primary liability) under section 4.4 of the Act. The 
Funding Corporation may, at its option, be a party to the negotiations 
to the extent necessary to fulfill its duties with respect to financing 
and disclosure. The agreement must comply with the requirements in Sec. 
611.1270(c).
    (d) Disclosure to customers after commencement resolution. Between 
the date of the commencement resolution and the termination date, you 
must give the following information to your customers:
    (1) For each applicant who is not a current stockholder, describe at 
the time of loan application:
    (i) The effect of the proposed termination on the borrower's loan; 
and
    (ii) Whether the borrower will continue to have any of the borrower 
rights provided under the Act and regulations.
    (2) For any equity holders who ask to have their equities retired, 
explain that the retirement would extinguish the holder's right to 
exchange those equities for an interest in the successor institution. In 
addition, inform holders of equities entitled to your residual assets in 
liquidation that retirement before termination would extinguish their 
right to dissent from the termination and have their equities retired.

[[Page 72]]

    (e) Terminating bank's right to continue issuing debt. Through the 
termination date, a terminating bank may continue to participate in the 
issuance of consolidated and Systemwide obligations to the same extent 
it would be able to participate if it were not terminating.
    (f) Special class of stock. Notwithstanding any requirements to the 
contrary in Sec. 615.5230(b) of this chapter, you may adopt bylaws 
providing for the issuance of a special class of stock and participation 
certificates between the date of adoption of a commencement resolution 
and the termination date. Your stockholders must approve the special 
class before you adopt the commencement resolution. The equities must 
comply with section 4.3A of the Act and be identical in all respects to 
existing classes of equities that are entitled to the residual assets of 
the institution in a liquidation, except for the value a holder will 
receive in a termination. In a termination, the holder of the special 
class of stock receives value equal to the lower of either par (or face) 
value, or the value calculated under Sec. 611.1280(c) and (d). A holder 
must have the same right to vote (if the equity is held on the voting 
record date) and to dissent as holders of similar equities issued before 
the commencement resolution. If the termination does not occur, the 
special classes of stock and participation certificates must 
automatically convert into shares of the otherwise identical equities.



Sec. 611.1215  Prohibited acts.

    (a) Statements about termination. Neither the institution nor any 
director, officer, employee, or agent may make any untrue or misleading 
statement of a material fact, or fail to disclose any material fact, 
about the termination to a current or prospective equity holder.
    (b) Representations regarding FCA approval. Neither the institution 
nor any director, officer, employee, or agent may make an oral or 
written representation to anyone that a preliminary or final approval of 
the termination by us is, directly or indirectly, either a 
recommendation on the merits of the proposal or an assurance that the 
information you give to your equity holders is adequate or accurate.



Sec. 611.1220  Filing of termination application.

    (a) Adoption of termination resolution. Your board must adopt a 
termination resolution authorizing the application for termination and 
for a new charter.
    (b) Contents of termination application. Send us an original and 
five copies of the termination application for review and preliminary 
approval. If you send us the application in electronic form, you must 
send us at least one hard copy application with original signatures. The 
application must contain:
    (1) A certified copy of the termination resolution;
    (2) A copy of the plan of termination required under Sec. 611.1222;
    (3) An information statement that complies with Sec. 611.1223;
    (4) All other information that you give to current or prospective 
equity holders in connection with the termination; and
    (5) Any additional information that either we request or your board 
of directors wishes to submit in support of the application.
    (c) Requirement to update application. You must immediately send us 
any material changes to information in the plan of termination, 
including financial information, that occur between the date you file 
the application and the termination date. In addition, send us copies of 
any additional written information on the termination that you give to 
current or prospective equity holders before termination.



Sec. 611.1221  Filing of termination application--timing.

    If we receive the termination application required in Sec. 611.1220 
less than 30 days after receiving the advance notice, we may in our 
discretion disapprove the application.



Sec. 611.1222  Plan of termination--contents.

    The plan of termination must include:
    (a) Copies of all contracts, agreements, and other documents on the 
proposed termination and organization of the successor institution.

[[Page 73]]

    (b) A statement of how you will transfer assets to, and have your 
liabilities assumed by, the successor institution.
    (c) Your plan to retire outstanding equities or convert them to 
equities of the successor institution.
    (d) A copy of the charter application for the successor institution, 
with any exhibits or other supporting information.
    (e) A statement, if applicable, whether the successor institution 
will continue to borrow from a Farm Credit bank and how such a 
relationship will affect your provision for payment of debts. The plan 
of termination must include evidence of any agreement and plan for 
satisfaction of outstanding debts (including amounts you owe to the FAC 
because of the termination).



Sec. 611.1223  Information statement--contents.

    (a) Plain language requirements. (1) Present the contents of the 
information statement in a clear, concise, and understandable manner.
    (2) Use short, explanatory sentences, bullet lists or charts where 
helpful, and descriptive headings and subheadings.
    (3) Minimize the use of glossaries or defined terms.
    (4) Write in the active voice when possible.
    (5) Avoid legal and highly technical business terminology.
    (b) Disclaimer. Place the following statement in boldface type in 
the material sent to equity holders, either on the notice of meeting or 
the first page of the information statement:

The Farm Credit Administration has not determined if this information is 
accurate or complete. You should not rely on any statement to the 
contrary.

    (c) Summary. The first part of the information statement must be a 
summary that concisely explains:
    (1) Which stockholders have a right to vote on termination;
    (2) The material changes the termination will cause to the rights of 
stockholders, borrowers, and other equity holders;
    (3) The effect of those changes;
    (4) The potential benefits and disadvantages of the termination;
    (5) The right of certain stockholders to dissent and receive payment 
for their existing equities; and
    (6) The proposed termination date.
    (d) Remaining requirements. The rest of the information statement 
must contain the following:
    (1) Plan of termination. Describe the plan of termination.
    (2) Benefits and disadvantages. Provide the following information:
    (i) An enumerated statement of the anticipated benefits and 
potential disadvantages of the termination;
    (ii) An explanation of the preliminary exit fee estimate, with any 
adjustments we require, and estimated expenses of termination and 
organization of the successor institution; and
    (iii) An explanation of the board's basis for recommending the 
termination.
    (3) Initial board of directors. List the initial board of directors 
and senior officers for the successor institution, with a brief 
description of the business experience of each person, including 
principal occupation and employment during the past 5 years.
    (4) Bylaws and charter. Summarize the provisions of the bylaws and 
charter of the successor institution that differ materially from your 
bylaws and charter. The summary must state:
    (i) Whether the successor institution will require a borrower to 
hold an equity interest as a condition for having a loan; and
    (ii) Whether the successor institution will require stockholders to 
do business with the institution.
    (5) Changes to equity. Explain any changes in the nature of equity 
investments in the successor institution, such as changes in dividends, 
patronage, voting rights, preferences, retirement of equities, and 
liquidation priority. If equities protected under section 4.9A of the 
Act are outstanding, the information statement must state that the Act's 
protections will be extinguished on termination.
    (6) Effect of termination on statutory and regulatory rights. 
Explain the effect of termination on rights granted by the Act and FCA 
regulations. You must explain the effect termination will have on 
borrower rights granted in the Act and part 617 of this chapter.

[[Page 74]]

    (7) Loan refinancing by borrowers. (i) State, as applicable, that 
borrowers may seek to refinance their loans with the System institutions 
that already serve, or will be permitted to serve, your territory. State 
that no System institution is obligated to refinance your loans.
    (ii) If we have assigned your territory to another System 
institution before the information statement is mailed to equity 
holders, or if another System institution is already chartered to make 
the same type of loans you make in your territory, identify such 
institution(s) and provide the following information:
    (A) The name, address, and telephone number of the institution; and
    (B) An explanation of the institution's procedures for borrowers to 
apply for refinancing.
    (iii) If we have not assigned the territory before you mail the 
information statement, give the name, address, and telephone number of 
the System institution specified by us and state that borrowers may 
contact the institution for information about loan refinancing.
    (8) Equity exchanges. Explain the formula and procedure to exchange 
equity in your institution for equity in the successor institution.
    (9) Employment, retirement, and severance agreements. Describe any 
employment agreement or arrangement between the successor institution 
and any of your senior officers (as defined in Sec. 620.1 of this 
chapter) or directors. Describe any severance and retirement plans that 
cover your employees or directors and state the costs you expect to 
incur under the plans in connection with the termination.
    (10) Exit fee calculation. Explain how the exit fee will be 
calculated.
    (11) New charter. Describe the nature and type of financial 
institution the successor institution will be and any conditions of 
approval of the new chartering authority or regulator.
    (12) Differences in successor institution's programs and policies. 
Summarize any differences between you and the successor institution on:
    (i) Interest rates and fees;
    (ii) Collection policies;
    (iii) Services provided; and
    (iv) Any other item that would affect a borrower's lending 
relationship with the successor institution, including whether a 
stockholder's ability to borrow from the institution will be restricted.
    (13) Capitalization. Discuss expected capital requirements of the 
successor institution, and the amount and method of capitalization.
    (14) Sources of funding. Explain the sources and manner of funding 
for the successor institution's operations.
    (15) Contingent liabilities. Describe how the successor institution 
will address any contingent liability it will assume from you.
    (16) Tax status. Summarize the differences in tax status between 
your institution and the successor institution, and explain how the 
differences will affect stockholders.
    (17) Regulatory environment. Describe briefly how the regulatory 
environment for the successor institution will differ from your current 
regulatory environment, and any effect on the cost of doing business or 
the value of stockholders' equity.
    (18) Dissenters' rights. Explain which equity holders are entitled 
to dissenters' rights and what those rights are. The explanation must 
include the estimated liquidation value of the stock, procedures for 
exercising dissenters' rights, and a statement of when the rights may be 
exercised.
    (19) Financial information. (i) Present the following financial 
data:
    (A) A balance sheet and income statement for each of the 3 preceding 
fiscal years;
    (B) A balance sheet as of a date within 90 days of the date you mail 
the termination application to us, presented on a comparative basis with 
the corresponding period of the previous 2 fiscal years;
    (C) An income statement for the interim period between the end of 
the last fiscal year and the date of the balance sheet required by 
paragraph (d)(19)(i)(B) of this section, presented on a comparative 
basis with the corresponding period of the previous 2 fiscal years;
    (D) A pro forma balance sheet of the successor institution presented 
as if termination had occurred as of the

[[Page 75]]

date of the most recent balance sheet presented in the statement; and
    (E) A pro forma summary of earnings for the successor institution 
presented as if the termination had been effective at the beginning of 
the interim period between the end of the last fiscal year and the date 
of the balance sheet presented under paragraph (d)(19)(i)(D) of this 
section.
    (ii) The format for the balance sheet and income statement must be 
the same as the format in your annual report and must contain 
appropriate footnote disclosures, including data on high-risk assets, 
other property owned, and allowance for losses.
    (iii) The financial statements must include either:
    (A) A statement signed by the chief executive officer and each board 
member that the various financial statements are unaudited but have been 
prepared in all material respects in conformity with GAAP (except as 
otherwise disclosed) and are, to the best of each signer's knowledge, a 
fair and accurate presentation of the financial condition of the 
institution; or
    (B) A signed opinion by an independent certified public accountant 
that the various financial statements have been examined in conformity 
with generally accepted auditing standards and included such tests of 
the accounting records and other such auditing procedures as were 
considered necessary in the circumstances, and, as of the date of the 
statements, present fairly the financial position of the institution in 
conformity with GAAP applied on a consistent basis, except as otherwise 
disclosed.
    (20) Subsequent financial events. Describe any event after the date 
of the financial statements, but before the date you send the 
termination application to us, that would have a material impact on your 
financial condition or the condition of the successor institution.
    (21) Other subsequent events. Describe any event after you send the 
termination application to us that could have a material impact on any 
information in the termination application.
    (22) Other material disclosures. Describe any other material fact or 
circumstance that a stockholder would need to know to make an informed 
decision on the termination, or that is necessary to make the 
disclosures not misleading.
    (23) Ballot and proxy. Include a ballot and proxy, with instructions 
on the purpose and authority for their use, and the proper method for 
the stockholder to sign the proxy.
    (24) Board of directors certification. Include a certification 
signed by the entire board of directors as to the truth, accuracy, and 
completeness of the information contained in the information statement. 
If any director refuses to sign the certification, the director must 
inform us of the reasons for refusing.

[67 FR 17909, Apr. 12, 2002, as amended at 69 FR 10906, Mar. 9, 2004]



Sec. 611.1230  FCA review and approval.

    (a) FCA review period. We will review a termination application and 
either give preliminary approval or disapprove the application no later 
than 60 days after we receive the application.
    (b) Reservation of right to disapprove termination. In addition to 
any other reason for disapproval, we may disapprove a termination if we 
determine that the termination would have a material adverse effect on 
the ability of the remaining System institutions to fulfill their 
statutory purpose.
    (c) Conditions of final FCA approval. We will give final approval to 
your termination application only if:
    (1) Your stockholders vote in favor of termination in the 
termination vote and in any reconsideration vote;
    (2) You give us executed copies of all contracts, agreements, and 
other documents submitted under Sec. 611.1222;
    (3) You have paid or made adequate provision for payment of debts, 
including responsibility for any contingent liabilities, and for 
retirement of equities;
    (4) A Federal or State chartering authority has granted a new 
charter to the successor institution;
    (5) You deposit into escrow an amount equal to 110 percent of the 
estimated exit fee plus 110 percent of the estimated amount you must pay 
to retire equities of dissenting stockholders

[[Page 76]]

and Farm Credit institutions, as described in Sec. 611.1255(c); and
    (6) You have fulfilled any other condition of termination we have 
imposed.
    (d) Effective date of termination. If we grant final approval, we 
will revoke your charter, and the termination will be effective on the 
last to occur of:
    (1) Fulfillment of all conditions listed in paragraph (c) of this 
section;
    (2) Your proposed termination date;
    (3) Ninety (90) days after we receive the notice described in Sec. 
611.1240(e); and
    (4) Fifteen (15) days after any reconsideration vote.



Sec. 611.1240  Voting record date and stockholder approval.

    (a) Stockholder meeting. You must call the meeting by written notice 
in compliance with your bylaws. The stockholder meeting to vote on the 
termination must occur within 60 days of our preliminary approval (or, 
if we take no action, within 60 days of the end of our approval period).
    (b) Voting record date. The voting record date may not be more than 
70 days before the stockholders' meeting.
    (c) Information statement. You must provide all equity holders with 
a notice of meeting and the information statement required by Sec. 
611.1223 at least 30 days before the stockholder vote.
    (d) Voting procedures. The voting procedures must comply with Sec. 
611.330. You must have an independent third party count the ballots. If 
a voting stockholder notifies you of the stockholder's intent to 
exercise dissenters' rights, the tabulator must be able to verify to you 
that the stockholder voted against the termination. Otherwise, the votes 
of stockholders must remain confidential.
    (e) Notice to FCA and equity holders of voting results. Within 10 
days of the termination vote, you must send us a certified record of the 
results of the vote. You must notify all equity holders of the results 
within 30 days after the stockholder meeting. If the stockholders 
approve the termination, you must give the following information to 
equity holders:
    (1) Stockholders who voted against termination and equity holders 
who were not entitled to vote have a right to dissent as provided in 
Sec. 611.1280; and
    (2) Voting stockholders have a right, under Sec. 611.1245, to file 
a petition with the FCA for reconsideration within 35 days after the 
date you mail to them the notice of the results of the termination vote.
    (f) Requirement to notify new equity holders. You must provide the 
information described in paragraph (e)(1) of this section to each person 
that becomes an equity holder after the termination vote and before 
termination.



Sec. 611.1245  Stockholder reconsideration.

    (a) Right to reconsider termination. Voting stockholders have the 
right to reconsider their approval of the termination if a petition 
signed by 15 percent of the stockholders is filed with us within 35 days 
after you mail notices to stockholders that the termination was 
approved. If we determine that the petition complies with the 
requirements of section 7.9 of the Act, you must call a special 
stockholders' meeting to reconsider the vote. The meeting must occur 
within 60 days after the date on which you mailed to stockholders the 
results of the termination vote. If a majority of the stockholders 
voting, in person or by proxy, vote against the termination, the 
termination may not take place.
    (b) Stockholder list and expenses. You must, at your expense, timely 
give stockholders who request it a list of the names and addresses of 
stockholders eligible to vote in the reconsideration vote. The 
petitioners must pay all other expenses for the petition. You must pay 
expenses that you incur for the reconsideration vote.



Sec. 611.1250  Preliminary exit fee estimate.

    (a) Preliminary exit fee estimate--terminating association. You must 
provide a preliminary exit fee estimate to us when you submit the 
termination application. Calculate the preliminary exit fee estimate in 
the following order:
    (1) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period as of the quarter end 
immediately before the date you send us your termination application.

[[Page 77]]

    (2) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (3) Compute the average daily balances based on financial statements 
that comply with GAAP. The financial statements, as of the quarter end 
immediately before the date you send us your termination application, 
must be independently audited by a qualified public accountant, as 
defined in Sec. 621.2(i) of this chapter. We may, in our discretion, 
waive the audit requirement if an independent audit was performed as of 
a date less than 6 months before you submit the termination application.
    (4) Make adjustments to assets as follows:
    (i) Add back expenses you have incurred related to termination. 
Related expenses include, but are not limited to, legal services, 
accounting services, auditing, business planning, and application fees 
for the termination and reorganization.
    (ii) Subtract the following:
    (A) The dollar amount of your estimated payment (to your affiliated 
bank) related to FAC obligations as described in Sec. 611.1260(d); and
    (B) The dollar amount of your estimated taxes due to the 
termination.
    (iii) Adjust for the dollar amount of significant transactions you 
reasonably expect to occur between the quarter end before you file your 
termination application and termination. Examples of these transactions 
include, but are not limited to, gains or losses on the sale of assets, 
retirements of equity, loan repayments, and patronage distributions. Do 
not make adjustments for future expenses related to termination, such as 
severance or special retirement payments, or stock retirements to 
dissenting stockholders and Farm Credit institutions.
    (5) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (6) Make any adjustments we require under paragraph (c) of this 
section.
    (7) After making these adjustments to assets and liabilities, 
subtract liabilities from assets. This is your preliminary total capital 
for purposes of termination.
    (8) Multiply assets as adjusted above by 6 percent, and subtract 
this amount from preliminary total capital. This is your preliminary 
exit fee estimate.
    (b) Preliminary exit fee estimate--terminating bank. (1) Affiliated 
associations that are terminating with you must calculate their 
individual preliminary exit fee estimates as described in paragraph (a) 
of this section.
    (2) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period as of the quarter end 
immediately before the date you send us your termination application.
    (3) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (4) Compute the average daily balances based on bank-only financial 
statements that comply with GAAP. The financial statements, as of the 
quarter end immediately before the date you send us your termination 
application, must be independently audited by a qualified public 
accountant, as defined in Sec. 621.2(i) of this chapter. We may, in our 
discretion, waive this requirement if an independent audit was performed 
as of a date less than 6 months before you submit the termination 
application.
    (5) Make adjustments to assets and liabilities as follows:
    (i) Add back to assets the following:
    (A) Expenses you have incurred related to termination. Related 
expenses include, but are not limited to, legal services, accounting 
services, auditing, business planning, and application fees for the 
termination and reorganization; and
    (B) Any specific allowance for losses, and a pro rata portion of any 
general allowance for loan losses, on direct loans to associations that 
you do not expect to incur before or at termination.

[[Page 78]]

    (ii) Subtract from your assets and liabilities an amount equal to 
your direct loans to your affiliated associations that are not 
terminating.
    (iii) Subtract the following from assets:
    (A) Equity investments in your institution that are held by 
nonterminating associations and that you expect to transfer to another 
System bank before or at termination. A nonterminating association's 
investment consists of purchased equities, allocated equities, and a 
share of the bank's unallocated surplus calculated in accordance with 
the bank's bylaw provisions on liquidation. We may require a different 
calculation method for the unallocated surplus if we determine that 
using the liquidation provision would be inequitable to stockholders;
    (B) The dollar amount of your estimated termination payment to the 
FAC, as described in Sec. 611.1270(d); and
    (C) The dollar amount of estimated taxes due to the termination.
    (iv) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (v) Adjust for the dollar amount of significant transactions you 
reasonably expect to occur between the quarter end before you file your 
termination application and termination. Examples of these transactions 
include, but are not limited to, retirements of equity, loan repayments, 
and patronage distributions. Do not make adjustments for future expenses 
related to termination, such as severance or special retirement 
payments, or stock retirements to dissenting stockholders and Farm 
Credit institutions.
    (6) Add to assets the dollar amount of estimated termination 
payments of the terminating associations related to FAC obligations.
    (7) Make any adjustments we require under paragraph (c) of this 
section.
    (8) After the above adjustments, combine your balance sheet with the 
balance sheets of your terminating associations after they have made the 
adjustments required in paragraph (a) of this section. Subtract 
liabilities from assets. This is your preliminary total capital estimate 
for purposes of termination.
    (9) Multiply the assets of the combined balance sheet after the 
above adjustments by 6 percent. Subtract this amount from the 
preliminary total capital estimate of the combined balance sheet. The 
remainder is the preliminary exit fee estimate of the bank and 
terminating affiliated associations.
    (10) Your preliminary exit fee estimate is the amount by which the 
preliminary exit fee estimate for the combined entity exceeds the total 
of the individual preliminary exit fee estimates of your affiliated 
terminating associations.
    (c) Three-year look-back. (1) We will review your transactions over 
the 3 years before the date of the termination resolution under Sec. 
611.1220. Our review will include, but not be limited to, the following:
    (i) Additions to or subtractions from any allowance for losses;
    (ii) Additions to assets or liabilities, or subtractions from assets 
or liabilities, due to transactions that are outside your ordinary 
course of business;
    (iii) Dividends or patronage refunds exceeding your usual practices;
    (iv) Changes in the institution's capital plan, or in implementing 
the plan, that increased or decreased the level of borrower investment;
    (v) Contingent liabilities, such as loss-sharing obligations, that 
can be reasonably quantified; and
    (vi) Assets that may be overvalued, undervalued, or not recorded on 
your books.
    (2) If we determine the account balances do not accurately show the 
value of your assets and liabilities (whether the assets and liabilities 
were booked before or during the 3-year look-back period), we will make 
any adjustments we deem necessary.
    (3) We may require you to reverse the effect of a transaction if we 
determine that:
    (i) You have retired capital outside the ordinary course of 
business;
    (ii) You have taken any other actions unrelated to your core 
business that have the effect of changing the exit fee; or

[[Page 79]]

    (iii) You incurred expenses related to termination prior to the 12-
month average daily balance period on which the exit fee calculation is 
based.
    (4) We may require you to make these adjustments to the preliminary 
exit fee estimate that is disclosed in the information statement, the 
final exit fee calculation, and the calculations of the value of 
equities held by dissenting stockholders, Farm Credit institutions that 
choose to have their equities retired at termination, and reaffiliating 
associations.



Sec. 611.1255  Exit fee calculation.

    (a) Final exit fee calculation--terminating association. Calculate 
the final exit fee in the following order:
    (1) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period preceding the termination 
date. Assume for this calculation that you have not paid or accrued the 
items described in paragraph (a)(4)(ii) of this section.
    (2) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (3) Compute the average daily balances based on financial statements 
that comply with GAAP. The financial statements, as of the termination 
date, must be independently audited by a qualified public accountant, as 
defined in Sec. 621.2(i) of this chapter.
    (4) Make adjustments to assets and liabilities as follows:
    (i) Add back expenses related to termination incurred in the 12 
months before termination. Related expenses include, but are not limited 
to, legal services, accounting services, auditing, business planning, 
payments of severance and special retirements, and application fees for 
the termination and reorganization.
    (ii) Subtract from assets the following:
    (A) The dollar amount of your termination payment (to your 
affiliated bank) related to FAC obligations as described in Sec. 
611.1260(d); and
    (B) The dollar amount of taxes you will have to pay due to the 
termination;
    (iii) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (iv) Make the adjustments that we require under Sec. 611.1250(c). 
For the final exit fee, we will review and may require additional 
adjustments for transactions between the date you adopted the 
termination resolution and the termination date.
    (5) After making these adjustments to assets and liabilities, 
subtract liabilities from assets. This is your total capital for 
purposes of termination.
    (6) Multiply assets by 6 percent, and subtract this amount from 
total capital. This is your final exit fee.
    (b) Final exit fee calculation--terminating bank. (1) The individual 
exit fees of affiliated associations that are terminating with you must 
be calculated as described in paragraph (a) of this section.
    (2) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period preceding the termination 
date. Assume for this calculation that you have not paid or accrued the 
items described in paragraph (b)(5)(iii)(B) and (C) of this section.
    (3) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (4) Compute the average daily balances based on bank-only financial 
statements that comply with GAAP. The financial statements, as of the 
termination date, must be independently audited by a qualified public 
accountant, as defined in Sec. 621.2(i) of this chapter.
    (5) Make adjustments to assets and liabilities as follows:
    (i) Add back the following to your assets:
    (A) Expenses you have incurred related to termination. Related 
expenses include, but are not limited to, legal services, accounting 
services, auditing, business planning, payments of severance and special 
retirements, and application fees for the termination and 
reorganization.

[[Page 80]]

    (B) The dollar amount of the termination payments to you by the 
terminating associations related to FAC obligations.
    (C) Any specific allowance for losses, and a pro rata share of any 
general allowance for losses, on direct loans to associations that are 
paid off or transferred before or at termination.
    (ii) Subtract from your assets and liabilities your direct loans to 
affiliated associations that were paid off or transferred in the 12-
month period before termination or at termination.
    (iii) Subtract from your assets the following:
    (A) Equity investments held in your institution by affiliated 
associations that you transferred at termination or during the 12 months 
before termination;
    (B) The dollar amount of your termination payment to the FAC; and
    (C) The dollar amount of taxes paid or accrued due to the 
termination;
    (iv) Subtract from liabilities any liability that we treat as 
regulatory capital (or that we do not treat as a liability) under the 
capital or collateral requirements in subparts H and K of part 615 of 
this chapter.
    (v) Make the adjustments that we require under Sec. 611.1250(c). 
For the final exit fee, we will review and may require additional 
adjustments for transactions between the date you adopted the 
termination resolution and the termination date.
    (6) After the above adjustments, combine your balance sheet with the 
balance sheets of terminating associations after making the adjustments 
required in paragraph (a) of this section.
    (7) Subtract combined liabilities from combined assets. This is the 
total capital of the combined balance sheet.
    (8) Multiply the assets of the combined balance sheet after the 
above adjustments by 6 percent. Subtract this amount from the total 
capital of the combined balance sheet. This amount is the combined final 
exit fee for your institution and the terminating affiliated 
associations.
    (9) Your final exit fee is the amount by which the combined final 
exit fee exceeds the total of the individual final exit fees of your 
affiliated terminating associations.
    (c) Payment of exit fee. On the termination date, you must:
    (1) Deposit into an escrow account acceptable to us and the FCSIC an 
amount equal to 110 percent of the preliminary exit fee estimate, 
adjusted to account for stock retirements to dissenting stockholders and 
Farm Credit institutions, and any other adjustments we require.
    (2) Deposit into an escrow account acceptable to us an amount equal 
to 110 percent of the equity you must retire for dissenting stockholders 
and System institutions holding stock that would be entitled to a share 
of the remaining assets in a liquidation.
    (d) Pay-out of escrow. Following the independent audit of the 
institution's account balances as of the termination date, we will 
determine the amount of the final exit fee and the amounts owed to 
stockholders to retire their equities. We will then direct the escrow 
agent to:
    (1) Pay the exit fee to the Farm Credit Insurance Fund;
    (2) Pay the amounts owed to dissenting stockholders and Farm Credit 
institutions; and
    (3) Return any remaining amounts to the successor institution.
    (e) Additional payment. If the amount held in escrow is not enough 
to pay the amounts under paragraph (d)(1) and (2) of this section, the 
successor institution must pay any remaining liability to the escrow 
agent for distribution to the appropriate parties. The termination 
application must include evidence that, after termination, the successor 
institution will pay any remaining amounts owed.



Sec. 611.1260  Payment of debts and assessments--terminating association.

    (a) General rule. If your institution is a terminating association, 
you must pay or make adequate provision for the payment of all 
outstanding debt obligations and assessments.
    (b) No OFI relationship. If the successor institution will not 
become an OFI, you must either:
    (1) Pay debts and assessments owed to your affiliated Farm Credit 
bank at termination; or
    (2) With your affiliated Farm Credit bank's concurrence, arrange to 
pay any

[[Page 81]]

obligations or assessments to the bank after termination.
    (c) Obligations to other Farm Credit institutions. You must pay or 
make adequate provision for payment of obligations to any Farm Credit 
institution (other than your affiliated bank) under any loss-sharing or 
other agreement.
    (d) FAC payments. Before termination, you must pay the estimated 
present value of future assessments and payment obligations to your 
affiliated Farm Credit bank to the extent required by subparagraphs 
(c)(5)(F) and (d)(1)(C)(v) of section 6.26 of the Act. The FAC must make 
the present value estimations, subject to our approval, based on an 
appropriate discount rate. The appropriate discount rate is the non-
interest-bearing U.S. Treasury security rate for securities with a 
maturity as near as possible to the period remaining until the 
terminating association's obligations under this paragraph would be due 
(but before the due date).



Sec. 611.1265  Retirement of a terminating association's investment 
in its affiliated bank.

    (a) Safety and soundness restrictions. Notwithstanding anything in 
this subpart to the contrary, we may prohibit a bank from retiring the 
equities you hold in the bank if the retirement would cause the bank to 
fall below its regulatory capital requirements after retirement, or if 
we determine that the bank would be in an unsafe or unsound condition 
after retirement.
    (b) Retirement agreement. Your affiliated bank may retire the 
purchased and allocated equities held by your institution in the bank 
according to the terms of the bank's capital revolvement plan or an 
agreement between you and the bank.
    (c) Retirement in absence of agreement. Your affiliated bank must 
retire any equities not subject to an agreement or revolvement plan no 
later than when you or the successor institution pays off your loan from 
the bank.
    (d) No retirement of unallocated surplus. When your bank retires 
equities you own in the bank, the bank must pay par or face value for 
purchased and allocated equities, less any impairment. The bank may not 
pay you any portion of its unallocated surplus.
    (e) Exclusion of equities from capital ratios. If another Farm 
Credit institution makes an agreement to retire equities you hold in 
that institution after termination, we may require that institution to 
exclude part or all of those equities from assets and capital when the 
institution calculates its capital and net collateral ratios under 
subparts H and K of part 615 of this chapter.



Sec. 611.1270  Repayment of obligations--terminating bank.

    (a) General rule. If your institution is a terminating bank, you 
must pay or make adequate provision for the payment of all outstanding 
debt obligations, and provide for your responsibility for any probable 
contingent liabilities identified.
    (b) Satisfaction of primary liability on consolidated or Systemwide 
obligations. After consulting with the other Farm Credit banks, the 
Funding Corporation, and the FCSIC, you must pay or make adequate 
provision for payment of your primary liability on consolidated or 
Systemwide obligations in a method that we deem acceptable. Before we 
make a final decision on your proposal and as we deem necessary, we may 
consult with the other Farm Credit banks, the Funding Corporation, and 
the FCSIC.
    (c) Satisfaction of joint and several liability and liability for 
interest on individual obligations. (1) You and the other Farm Credit 
banks must enter into an agreement, which is subject to our approval, 
covering obligations issued under section 4.2 of the Act and outstanding 
on the termination date. The agreement must specify how you and your 
successor institution will make adequate provision for the payment of 
your joint and several liability to holders of obligations other than 
those obligations on which you are primarily liable, in the event we 
make calls for payment under section 4.4 of the Act. You and your 
successor institution must also provide for your liability under section 
4.4(a)(1) of the Act to pay interest on the individual obligations 
issued by other System banks. As a part of the agreement, you must also 
agree that your successor institution

[[Page 82]]

will provide ongoing information to the Funding Corporation to enable it 
to fulfill its funding and disclosure duties. The Funding Corporation 
may, at its option, be a party to the agreement to the extent necessary 
to fulfill its duties with respect to financing and disclosure.
    (2) If you and the other Farm Credit banks are unable to reach 
agreement within 90 days before the proposed termination date, we will 
specify the manner in which you will make adequate provision for the 
payment of the liabilities in question and how we will make joint and 
several calls for those obligations outstanding on the termination date.
    (3) Notwithstanding any other provision in these regulations, the 
successor institution will be jointly and severally liable for 
consolidated and Systemwide debt outstanding on the termination date 
(other than the obligations on which you are primarily liable). The 
successor institution will also be liable for interest on other banks' 
individual obligations as described in section 4.4(a)(1) of the Act and 
outstanding on the termination date. The termination application must 
include evidence that the successor institution will continue to be 
liable for consolidated and Systemwide debt and for interest on other 
banks' individual obligations.
    (d) Payment to the FAC. (1) Before termination, you must pay to the 
FAC the amounts required by section 6.9(e)(3)(C)(ii) of the Act and by 
subparagraphs (c)(5)(E)(i) and (d)(1)(C)(iv) of section 6.26 of the Act. 
To make the calculations for section 6.26, you must include your retail 
loan volume, the retail loan volume of the associations that are 
terminating with you, and the retail loan volume of the affiliated 
associations that continue their direct lending relationships with the 
successor institution, but you must not include the retail loan volume 
of associations that reaffiliate with another bank and transfer or repay 
their direct loan on or before termination.
    (2) The FAC must make the present value estimations, subject to our 
approval, based on an appropriate discount rate. The appropriate 
discount rate is the non-interest-bearing U.S. Treasury security rate 
for securities with a maturity as near as possible to the period 
remaining until your obligations under this paragraph would be due (but 
before the due date).
    (3) If your bank or your predecessor bank has redeemed early any 
preferred stock issued to the FAC, we may require you to confirm in 
writing that your successor institution will assume responsibility for 
any and all of your contingent liabilities under any FAC-preferred stock 
redemption agreement and indemnification agreement.



Sec. 611.1275  Retirement of equities held by other System institutions.

    (a) Retirement at option of equity holder. If your institution is a 
terminating institution, System institutions that own your equities have 
the right to require you to retire the equities on the termination date.
    (b) Value of equity holders' interests. You must retire the equities 
in accordance with the liquidation provisions in your bylaws unless we 
determine that the liquidation provisions would result in an inequitable 
distribution to stockholders. If we make such a determination, we will 
require you to distribute the equity in accordance with another method 
that we deem equitable to stockholders. Before you retire any equity, 
you must make the following adjustments to the amount of stockholder 
equity as stated in the financial statements on the termination date:
    (1) Make deductions for any FAC obligations and taxes due to the 
termination that you have not yet recorded;
    (2) Deduct the amount of the exit fee; and
    (3) Make any adjustments described under Sec. 611.1250(c) that we 
may require as we deem appropriate.
    (c) Transfer of affiliated association's investment. As an 
alternative to equity retirement, an affiliated association that 
reaffiliates with another Farm Credit bank instead of terminating with 
its bank has the right to require the terminating bank to transfer its 
investment to its new affiliated bank when it reaffiliates. If your 
institution is a terminating bank, at the time of reaffiliation you must 
transfer the purchased and allocated equities held by the association, 
as well as its share of

[[Page 83]]

unallocated surplus, to the new affiliated bank. Calculate the 
association's share before deduction of the exit fee as of the month end 
preceding the reaffiliation date (or the termination date if it is the 
same as the reaffiliation date) in accordance with the liquidation 
provisions of your bylaws, unless we determine that the liquidation 
provisions would result in an inequitable distribution. If we make such 
a determination, we will require you to distribute the association's 
share of your unallocated surplus in accordance with another method that 
we deem equitable to stockholders. Before you distribute any unallocated 
surplus, you must make the following adjustments to stockholder equity 
as stated in the financial statements as of the month end preceding the 
reaffiliation date (or the termination date if it is the same as the 
reaffiliation date):
    (1) Add back any deductions of FAC obligations due to the 
termination, taxes due to the termination, and the exit fee; and
    (2) Make any adjustments described under Sec. 611.1250(c) that we 
may require as we deem appropriate.
    (d) Prohibition on certain affiliations. No Farm Credit institution 
may retain an equity interest otherwise prohibited by law in a successor 
institution.



Sec. 611.1280  Dissenting stockholders' rights.

    (a) Definition. A dissenting stockholder is an equity holder (other 
than a System institution) in a terminating institution on the 
termination date who either:
    (1) Was eligible to vote on the termination resolution and voted 
against termination;
    (2) Was an equity holder on the voting record date but was not 
eligible to vote; or
    (3) Became an equity holder after the voting record date.
    (b) Retirement at option of a dissenting stockholder. A dissenting 
stockholder may require a terminating institution to retire the 
stockholder's equity interest in the terminating institution.
    (c) Value of a dissenting stockholder's interest. You must pay a 
dissenting stockholder according to the liquidation provision in your 
bylaws, except that you must pay at least par or face value for eligible 
borrower stock (as defined in section 4.9A(d)(2) of the Act). If we 
determine that the liquidation provision is inequitable to stockholders, 
we will require you to calculate their share in accordance with another 
formula that we deem equitable.
    (d) Calculation of interest of a dissenting stockholder. Before you 
retire any equity, you must make the following adjustments to the amount 
of stockholder equity as stated in the financial statements on the 
termination date:
    (1) Deduct any FAC obligations and taxes due to the termination that 
you have not yet recorded;
    (2) Deduct the amount of the exit fee; and
    (3) Make any adjustments described under Sec. 611.1250(c) that we 
may require as we deem appropriate.
    (e) Form of payment to a dissenting stockholder. You must pay a 
dissenting stockholder for his equities as follows:
    (1) Pay cash for the par or face value of purchased stock, less any 
impairment;
    (2) For equities other than purchased equities, you may:
    (i) Pay cash;
    (ii) Cause or otherwise provide for the successor institution to 
issue, on the date of termination, subordinated debt to the stockholder 
with a face value equal to the value of the remaining equities. This 
subordinated debt must have a maturity date of 7 years or less, must 
have priority in liquidation ahead of all equity, and must carry a rate 
of interest not less than the rate (at the time of termination) for debt 
of comparable maturity issued by the U.S. Treasury plus 1 percent; or
    (iii) Provide for a combination of cash and subordinated debt as 
described above.
    (f) Payment to holders of special class of stock. If you have 
adopted bylaws under Sec. 611.1210(f), you must pay a dissenting 
stockholder who owns shares of the special class of stock an amount 
equal to the lower of the par (or face) value or the value of such stock 
as determined under Sec. 611.1280(c) and (d).
    (g) Notice to equity holders. The notice to equity holders required 
in

[[Page 84]]

Sec. 611.1240(e) must include a form for stockholders to send back to 
you, stating their intention to exercise dissenters' rights. The notice 
must contain the following information:
    (1) A description of the rights of dissenting stockholders set forth 
in this section and the approximate value per share that a dissenting 
stockholder can expect to receive. State whether the successor 
institution will require borrowers to be stockholders or whether it will 
require stockholders to be borrowers.
    (2) A description of the current book and par value per share of 
each class of equities, and the expected book and market value of the 
stockholder's interest in the successor institution.
    (3) A statement that a stockholder must return the enclosed form to 
you within 30 days if the stockholder chooses to exercise dissenters' 
rights.
    (h) Notice to subsequent equity holders. Equity holders that acquire 
their equities after the termination vote must also receive the notice 
described in paragraph (g) of this section. You must give them at least 
5 business days to decide whether to request retirement of their stock.
    (i) Reconsideration. If a reconsideration vote is held and the 
termination is disapproved, the right of stockholders to exercise 
dissenters' rights is rescinded. If a reconsideration vote is held and 
the termination is approved, you must retire the equities of dissenting 
stockholders as if there had been no reconsideration vote.



Sec. 611.1285  Loan refinancing by borrowers.

    (a) Disclosure of credit and loan information. At the request of a 
borrower seeking refinancing with another System institution before you 
terminate, you must give credit and loan information about the borrower 
to such institution.
    (b) No reassignment of territory. If, at the termination date, we 
have not assigned your territory to another System institution, any 
System institution may lend in your territory, to the extent otherwise 
permitted by the Act and the regulations in this chapter.



Sec. 611.1290  Continuation of borrower rights.

    You may not require a waiver of contractual borrower rights 
provisions as a condition of borrowing from and owning equity in the 
successor institution. Institutions that become other financing 
institutions on termination must comply with the applicable borrower 
rights provisions in the Act and part 617 of this chapter.

[67 FR 17909, Apr. 12, 2002, as amended at 69 FR 10906, Mar. 9, 2004]



PART 612_STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED 
CRIMINAL VIOLATIONS--Table of Contents

                     Subpart A_Standards of Conduct

Sec.
612.2130 Definitions.
612.2135 Director and employee responsibilities and conduct--generally.
612.2140 Directors--prohibited conduct.
612.2145 Director reporting.
612.2150 Employees--prohibited conduct.
612.2155 Employee reporting.
612.2157 Joint employees.
612.2160 Institution responsibilities.
612.2165 Policies and procedures.
612.2170 Standards of Conduct Official.
612.2260 Standards of conduct for agents.
612.2270 Purchase of System obligations.

      Subpart B_Referral of Known or Suspected Criminal Violations

612.2300 Purpose and scope.
612.2301 Referrals.
612.2302 Notification of board of directors and bonding company.
612.2303 Institution responsibilities.

    Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 
2243, 2252, 2254).

    Source: 59 FR 24894, May 13, 1994, unless otherwise noted.



                     Subpart A_Standards of Conduct



Sec. 612.2130  Definitions.

    For purposes of this part, the following terms are defined:
    (a) Agent means any person, other than a director or employee, who 
represents a System institution in contacts with third parties or who 
provides professional services to a System

[[Page 85]]

institution, such as legal, accounting, appraisal, and other similar 
services.
    (b) A conflict of interest or the appearance thereof exists when a 
person has a financial interest in a transaction, relationship, or 
activity that actually affects or has the appearance of affecting the 
person's ability to perform official duties and responsibilities in a 
totally impartial manner and in the best interest of the employing 
institution when viewed from the perspective of a reasonable person with 
knowledge of the relevant facts.
    (c) Controlled entity and entity controlled by mean an entity in 
which the individual, directly or indirectly, or acting through or in 
concert with one or more persons:
    (1) Owns 5 percent or more of the equity;
    (2) Owns, controls, or has the power to vote 5 percent or more of 
any class of voting securities; or
    (3) Has the power to exercise a controlling influence over the 
management of policies of such entity.
    (d) Director means a member of a board of directors.
    (e) Employee means any salaried officer or part-time, full-time, or 
temporary salaried employee.
    (f) Entity means a corporation, company, association, firm, joint 
venture, partnership (general or limited), society, joint stock company, 
trust (business or otherwise), fund, or other organization or 
institution, except System institutions.
    (g) Family means an individual and spouse and anyone having the 
following relationship to either: parents, spouse, son, daughter, 
sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister, 
half brother, half sister, uncle, aunt, nephew, niece, grandparent, 
grandson, granddaughter, and the spouses of the foregoing.
    (h) Financial interest means an interest in an activity, 
transaction, property, or relationship with a person or an entity that 
involves receiving or providing something of monetary value or other 
present or deferred compensation.
    (i) Financially obligated with means having a joint legally 
enforceable obligation with, being financially obligated on behalf of 
(contingently or otherwise), having an enforceable legal obligation 
secured by property owned by another, or owning property that secures an 
enforceable legal obligation of another.
    (j) Material, when applied to a financial interest or transaction or 
series of transactions, means that the interest or transaction or series 
of transactions is of such magnitude that a reasonable person with 
knowledge of the relevant facts would question the ability of the person 
who has the interest or is party to such transaction(s) to perform his 
or her official duties objectively and impartially and in the best 
interest of the institution and its statutory purpose.
    (k) Mineral interest means any interest in minerals, oil, or gas, 
including, but not limited to, any right derived directly or indirectly 
from a mineral, oil, or gas lease, deed, or royalty conveyance.
    (l) OFI means other financing institutions that have established an 
access relationship with a Farm Credit Bank or an agricultural credit 
bank under section 1.7(b)(1)(B) of the Act.
    (m) Officer means the chief executive officer, president, chief 
operating officer, vice president, secretary, treasurer, general 
counsel, chief financial officer, and chief credit officer of each 
System institution, and any person not so designated who holds a similar 
position of authority.
    (n) Ordinary course of business, when applied to a transaction, 
means: (1) A transaction that is usual and customary between two persons 
who are in business together; or
    (2) A transaction with a person who is in the business of offering 
the goods or services that are the subject of the transaction on terms 
that are not preferential. Preferential means that the transaction is 
not on the same terms as those prevailing at the same time for 
comparable transactions for other persons who are not directors or 
employees of a System institution.
    (o) Person means individual or entity.
    (p) Relative means any member of the family as defined in paragraph 
(g) of this section.

[[Page 86]]

    (q) Service organization means each service organization authorized 
by section 4.25 of the Act, and each unincorporated service organization 
formed by one or more System institutions.
    (r) Standards of Conduct Official means the official designated 
under Sec. 612.2170 of these regulations.
    (s) Supervised institution is a term which only applies within the 
context of a System bank or an employee of a System bank and refers to 
each association supervised by that bank.
    (t) Supervising institution is a term that only applies within the 
context of an association or an employee of an association and refers to 
the bank that supervises that association.
    (u) System institution and institution mean any bank, association, 
or service organization in the Farm Credit System, including the Farm 
Credit Banks, banks for cooperatives, agricultural credit banks, Federal 
land bank associations, agricultural credit associations, Federal land 
credit associations, production credit associations, the Federal Farm 
Credit Banks Funding Corporation, and service organizations.



Sec. 612.2135  Director and employee responsibilities and conduct
--generally.

    (a) Directors and employees of all System institutions shall 
maintain high standards of industry, honesty, integrity, impartiality, 
and conduct in order to ensure the proper performance of System business 
and continued public confidence in the System and each of its 
institutions. The avoidance of misconduct and conflicts of interest is 
indispensable to the maintenance of these standards.
    (b) To achieve these high standards of conduct, directors and 
employees shall observe, to the best of their abilities, the letter and 
intent of all applicable local, state, and Federal laws and regulations 
and policy statements, instructions, and procedures of the Farm Credit 
Administration and System institutions and shall exercise diligence and 
good judgment in carrying out their duties, obligations, and 
responsibilities.



Sec. 612.2140  Directors--prohibited conduct.

    A director of a System institution shall not:
    (a) Participate, directly or indirectly, in deliberations on, or the 
determination of, any matter affecting, directly or indirectly, the 
financial interest of the director, any relative of the director, any 
person residing in the director's household, any business partner of the 
director, or any entity controlled by the director or such persons 
(alone or in concert), except those matters of general applicability 
that affect all shareholders/borrowers in a nondiscriminatory way, e.g., 
a determination of interest rates.
    (b) Divulge or make use of, except in the performance of official 
duties, any fact, information, or document not generally available to 
the public that is acquired by virtue of serving on the board of a 
System institution.
    (c) Use the director's position to obtain or attempt to obtain 
special advantage or favoritism for the director, any relative of the 
director, any person residing in the director's household, any business 
partner of the director, any entity controlled by the director or such 
persons (alone or in concert), any other System institution, or any 
person transacting business with the institution, including borrowers 
and loan applicants.
    (d) Use the director's position or information acquired in 
connection with the director's position to solicit or obtain, directly 
or indirectly, any gift, fee, or other present or deferred compensation 
or for any other personal benefit on behalf of the director, any 
relative of the director, any person residing in the director's 
household, any business partner of the director, any entity controlled 
by the director or such persons (alone or in concert), any other System 
institution, or any person transacting business with the institution, 
including borrowers and loan applicants.
    (e) Accept, directly or indirectly, any gift, fee, or other present 
or deferred compensation that is offered or could reasonably be viewed 
as being offered to influence official action or to obtain

[[Page 87]]

information that the director has access to by reason of serving on the 
board of a System institution.
    (f) Knowingly acquire, directly or indirectly, except by inheritance 
or through public auction or open competitive bidding available to the 
general public, any interest in any real or personal property, including 
mineral interests, that was owned by the employing, supervising, or any 
supervised institution within the preceding 12 months and that had been 
acquired by any such institution as a result of foreclosure or similar 
action; provided, however, a director shall not acquire any such 
interest in real or personal property if he or she participated in the 
deliberations or decision to foreclose or to dispose of the property or 
in establishing the terms of the sale.
    (g) Directly or indirectly borrow from, lend to, or become 
financially obligated with or on behalf of a director, employee, or 
agent of the employing, supervising, or a supervised institution or a 
borrower or loan applicant of the employing institution, unless:
    (1) The transaction is with a relative or any person residing in the 
director's household;
    (2) The transaction is undertaken in an official capacity in 
connection with the institution's discounting, lending, or participation 
relationships with OFIs and other lenders; or
    (3) The Standards of Conduct Official determines, pursuant to 
policies and procedures adopted by the board, that the potential for 
conflict is insignificant because the transaction is in the ordinary 
course of business or is not material in amount and the director does 
not participate in the determination of any matter affecting the 
financial interests of the other party to the transaction except those 
matters affecting all shareholders/borrowers in a nondiscriminatory way.
    (h) Violate an institution's policies and procedures governing 
standards of conduct.



Sec. 612.2145  Director reporting.

    (a) Annually, as of the institution's fiscal year end, and at such 
other times as may be required to comply with paragraph (c) of this 
section, each director shall file a written and signed statement with 
the Standards of Conduct Official that fully discloses:
    (1) The names of any immediate family members as defined in Sec. 
620.1(e) of this chapter, or affiliated organizations, as defined in 
Sec. 620.1(a) of this chapter, who had transactions with the 
institution at any time during the year;
    (2) Any matter required to be disclosed by Sec. 620.5(k) of this 
chapter; and
    (3) Any additional information the institution may require to make 
the disclosures required by part 620 of this chapter.
    (b) Each director shall, at such intervals as the institution's 
board shall determine is necessary to effectively enforce this 
regulation and the institution's standards-of-conduct policy adopted 
pursuant to Sec. 612.2165, file a written and signed statement with the 
Standards of Conduct Official that contains those disclosures required 
by the regulations and such policy. At a minimum, these requirements 
shall include:
    (1) The name of any relative or any person residing in the 
director's household, business partner, or any entity controlled by the 
director or such persons (alone or in concert) if the director knows or 
has reason to know that such individual or entity transacts business 
with the institution or any institution supervised by the director's 
institution; and
    (2) The name and the nature of the business of any entity in which 
the director has a material financial interest or on whose board the 
director sits if the director knows or has reason to know that such 
entity transacts business with:
    (i) The director's institution or any institution supervised by the 
director's institution; or
    (ii) A borrower of the director's institution or any institution 
supervised by the director's institution.
    (c) Any director who becomes or plans to become involved in any 
relationship, transaction, or activity that is required to be reported 
under this section or could constitute a conflict of interest shall 
promptly report such involvement in writing to the Standards of Conduct 
Official for a determination

[[Page 88]]

of whether the relationship, transaction, or activity is, in fact, a 
conflict of interest.
    (d) Unless a disclosure as a director candidate under part 620 of 
this chapter has been made within the preceding 180 days, a newly 
elected or appointed director shall report matters required to be 
reported in paragraphs (a), (b), and (c) of this section to the 
Standards of Conduct Official within 30 days after the election or 
appointment and thereafter shall comply with the requirements of this 
section.



Sec. 612.2150  Employees--prohibited conduct.

    An employee of a System institution shall not:
    (a) Participate, directly or indirectly, in deliberations on, or the 
determination of, any matter affecting, directly or indirectly, the 
financial interest of the employee, any relative of the employee, any 
person residing in the employee's household, any business partner of the 
employee, or any entity controlled by the employee or such persons 
(alone or in concert), except those matters of general applicability 
that affect all shareholders/borrowers in a nondiscriminating way, e.g. 
a determination of interest rates.
    (b) Divulge or make use of, except in the performance of official 
duties, any fact, information, or document not generally available to 
the public that is acquired by virtue of employment with a System 
institution.
    (c) Use the employee's position to obtain or attempt to obtain 
special advantage or favoritism for the employee, any relative of the 
employee, any person residing in the employee's household, any business 
partner of the employee, any entity controlled by the employee or such 
persons (alone or in concert), any other System institution, or any 
person transacting business with the institution, including borrowers 
and loan applicants.
    (d) Serve as an officer or director of an entity that transacts 
business with a System institution in the district or of any commercial 
bank, savings and loan, or other non-System financial institution, 
except employee credit unions. For the purposes of this paragraph, 
``transacts business'' does not include loans by a System institution to 
a family-owned entity, service on the board of directors of the Federal 
Agricultural Mortgage Corporation, or transactions with nonprofit 
entities or entities in which the System institution has an ownership 
interest. With the prior approval of the board of the employing 
institution, an employee of a Farm Credit Bank or association may serve 
as a director of a cooperative that borrows from a bank for 
cooperatives. Prior to approving an employee request, the board shall 
determine whether the employee's proposed service as a director is 
likely to cause the employee to violate any regulations in this part or 
the institution's policies, e.g., the requirements relating to devotion 
of time to official duties.
    (e) Use the employee's position or information acquired in 
connection with the employee's position to solicit or obtain any gift, 
fee, or other present or deferred compensation or for any other personal 
benefit for the employee, any relative of the employee, any person 
residing in the employee's household, any business partner of the 
employee, any entity controlled by the employee or such persons (alone 
or in concert), any other System institution, or any person transacting 
business with the institution, including borrowers and loan applicants.
    (f) Accept, directly or indirectly, any gift, fee, or other present 
or deferred compensation that is offered or could reasonably be viewed 
as being offered to influence official action or to obtain information 
the employee has access to by reason of employment with a System 
institution.
    (g) Knowingly acquire, directly or indirectly, except by 
inheritance, any interest in any real or personal property, including 
mineral interests, that was owned by the employing, supervising, or any 
supervised institution within the preceding 12 months and that had been 
acquired by any such institution as a result of foreclosure or similar 
action.
    (h) Directly or indirectly borrow from, lend to, or become 
financially obligated with or on behalf of a director, employee, or 
agent of the employing, supervising, or a supervised institution

[[Page 89]]

or a borrower or loan applicant of the employing institution, unless:
    (1) The transaction is with a relative or any person residing in the 
employee's household;
    (2) The transaction is undertaken in an official capacity in 
connection with the institution's discounting, lending, or participation 
relationships with OFIs and other lenders; or
    (3) The Standards of Conduct Official determines, pursuant to 
policies and procedures adopted by the board, that the potential for 
conflict is insignificant because the transaction is in the ordinary 
course of business or is not material in amount and the employee does 
not participate in the determination of any matter affecting the 
financial interests of the other party to the transaction except those 
matters affecting all shareholders/borrowers in a nondiscriminatory way.
    (i) Violate an institution's policies and procedures governing 
standards of conduct.
    (j) Act as a real estate agent or broker; provided that this 
paragraph shall not apply to transactions involving the purchase or sale 
of real estate intended for the use of the employee, a member of the 
employee's family, or a person residing in the employee's household.
    (k) Act as an agent or broker in connection with the sale and 
placement of insurance; provided that this paragraph shall not apply to 
the sale or placement of insurance authorized by section 4.29 of the 
Act.



Sec. 612.2155  Employee reporting.

    (a) Annually, as of the institution's fiscal yearend, and at such 
other times as may be required to comply with paragraph (c) of this 
section, each senior officer, as defined in Sec. 620.1(o) of this 
chapter, shall file a written and signed statement with the Standards of 
Conduct Official that fully discloses:
    (1) The names of any immediate family members, as defined in Sec. 
620.1(e) of this chapter, or affiliated organizations, as defined in 
Sec. 620.1(a) of this chapter, who had transactions with the 
institution at any time during the year;
    (2) Any matter required to be disclosed by Sec. 620.5(k) of this 
chapter; and
    (3) Any additional information the institution may require to make 
the disclosures required by part 620 of this chapter.
    (b) Each employee shall, at such intervals as the Board shall 
determine necessary to effectively enforce this regulation and the 
institution's standards-of-conduct policy adopted pursuant to Sec. 
612.2165, file a written and signed statement with the Standards of 
Conduct Official that contains those disclosures required by the 
regulation and such policy. At a minimum, these requirements shall 
include:
    (1) The name of any relative or any person residing in the 
employee's household, any business partner, or any entity controlled by 
the employee or such persons (alone or in concert) if the employee knows 
or has reason to know that such individual or entity transacts business 
with the employing institution or any institution supervised by the 
employing institution; and
    (2) The name and the nature of the business of any entity in which 
the employee has a material financial interest or on whose board the 
employee sits if the employee knows or has reason to know that such 
entity transacts business with:
    (i) The employing institution or any institution supervised by the 
employing institution; or
    (ii) A borrower of the employing institution or any institution 
supervised by the employing institution.
    (c) Any employee who becomes or plans to become involved in any 
relationship, transaction, or activity that is required to be reported 
under this section or could constitute a conflict of interest shall 
promptly report such involvement in writing to the Standards of Conduct 
Official for a determination of whether the relationship, transaction, 
or activity is, in fact, a conflict of interest.
    (d) A newly hired employee shall report matters required to be 
reported in paragraphs (a), (b), and (c) of this section to the 
Standards of Conduct Official within 30 days after accepting an offer 
for employment and thereafter shall comply with the requirements of this 
section.

[[Page 90]]



Sec. 612.2157  Joint employees.

    No officer of a Farm Credit Bank or an agricultural credit bank may 
serve as an employee of an association in its district and no employee 
of a Farm Credit Bank or an agricultural credit bank may serve as an 
officer of an association in its district. Farm Credit Bank or 
agricultural credit bank employees other than officers may serve as 
employees other than officers of an association in its district provided 
each institution appropriately reflects the expense of such employees in 
its financial statements.



Sec. 612.2160  Institution responsibilities.

    Each institution shall: (a) Ensure compliance with this part by its 
directors and employees and act promptly to preserve the integrity of 
and public confidence in the institution in any matter involving a 
conflict of interest, whether or not specifically addressed by this part 
or the policies and procedures adopted pursuant to Sec. 612.2165;
    (b) Take appropriate measures to ensure that all directors and 
employees are informed of the requirements of this regulation and 
policies and procedures adopted pursuant to Sec. 612.2165;
    (c) Adopt and implement policies and procedures that will preserve 
the integrity of and public confidence in the institution and the System 
pursuant to Sec. 612.2165;
    (d) Designate a Standards of Conduct Official pursuant to Sec. 
612.2170; and
    (e) Maintain all standards-of-conduct policies and procedures, 
reports, investigations, determinations, and evidence of compliance with 
this part for a minimum of 6 years.



Sec. 612.2165  Policies and procedures.

    (a) Each institution's board of directors shall issue, consistent 
with this part, policies and procedures governing standards of conduct 
for directors and employees.
    (b) Board policies and procedures issued pursuant to paragraph (a) 
of this section shall reflect due consideration of the potential adverse 
impact of any activities permitted under the policies and shall at a 
minimum:
    (1) Establish such requirements and prohibitions as are necessary to 
promote public confidence in the institution and the System, preserve 
the integrity and independence of the supervisory process, and prevent 
the improper use of official property, position, or information. In 
developing such requirements and prohibitions, the institution shall 
address such issues as the hiring of relatives, political activity, 
devotion of time to duty, the exchange of gifts and favors among 
directors and employees of the employing, supervising, and supervised 
institution, and the circumstances under which gifts may be accepted by 
directors and employees from outside sources, in light of the foregoing 
objectives;
    (2) Outline authorities and responsibilities of the Standards of 
Conduct Official;
    (3) Establish criteria for business relationships and transactions 
not specifically prohibited by this part between employees or directors 
and borrowers, loan applicants, directors, or employees of the 
employing, supervised, or supervising institutions, or persons 
transacting business with such institutions, including OFIs or other 
lenders having an access or participation relationship;
    (4) Establish criteria under which employees may accept outside 
employment or compensation;
    (5) Establish conditions under which employees may receive loans 
from System institutions;
    (6) Establish conditions under which employees may acquire an 
interest in real or personal property that was mortgaged to a System 
institution at any time within the preceding 12 months;
    (7) Establish conditions under which employees may purchase any real 
or personal property of a System institution acquired by such 
institution for its operations. Farm Credit institutions must use open 
competitive bidding whenever they sell surplus property above a stated 
value (as established by the board) to their employees.
    (8) Provide for a reasonable period of time for directors and 
employees to terminate transactions, relationships, or activities that 
are subject to prohibitions that arise at the time of adoption or 
amendment of the policies.

[[Page 91]]

    (9) Require new directors and new employees involved at the time of 
election or hiring in transactions, relationships, and activities 
prohibited by these regulations or internal policies to terminate such 
transactions within the same time period established for existing 
directors or employees pursuant to paragraph (b)(8) of this section, 
beginning with the commencement of official duties, or such shorter time 
period as the institution may establish.
    (10) Establish procedures providing for a director's or employee's 
recusal from official action on any matter in which he or she is 
prohibited from participating under these regulations or the 
institution's policies.
    (11) Establish documentation requirements demonstrating compliance 
with standards-of-conduct decisions and board policy;
    (12) Establish reporting requirements, consistent with this part, to 
enable the institution to comply with Sec. 620.5 of this chapter, 
monitor conflicts of interest, and monitor recusal compliance; and
    (13) Establish appeal procedures available to any employee to whom 
any required approval has been denied.

[59 FR 24894, May 13, 1994, as amended at 64 FR 43048, Aug. 9, 1999]



Sec. 612.2170  Standards of Conduct Official.

    (a) Each institution's board shall designate a Standards of Conduct 
Official who shall:
    (1) Advise directors, director candidates, and employees concerning 
the provisions of this part;
    (2) Receive reports required by this part;
    (3) Make such determinations as are required by this part;
    (4) Maintain records of actions taken to resolve and/or make 
determinations upon each case reported relative to provisions of this 
part;
    (5) Make appropriate investigations, as directed by the 
institution's board; and
    (6) Report promptly, pursuant to part 617 of this chapter, to the 
institution's board and the Office of General Counsel, Farm Credit 
Administration, all cases where:
    (i) A preliminary investigation indicates that a Federal criminal 
statute may have been violated;
    (ii) An investigation results in the removal of a director or 
discharge of an employee; or
    (iii) A violation may have an adverse impact on continued public 
confidence in the System or any of its institutions.
    (b) The Standards of Conduct Official shall investigate or cause to 
be investigated all cases involving:
    (1) Possible violations of criminal statutes;
    (2) Possible violations of Sec. Sec. 612.2140 and 612.2150, and 
applicable policies and procedures approved under Sec. 612.2165;
    (3) Complaints received against the directors and employees of such 
institution; and
    (4) Possible violations of other provisions of this part or when the 
activities or suspected activities are of a sensitive nature and could 
affect continued public confidence in the Farm Credit System.
    (c) An association board may comply with this section by contracting 
with the Farm Credit Bank or agricultural credit bank in its district to 
provide a Standards of Conduct Official.



Sec. 612.2260  Standards of conduct for agents.

    (a) Agents of System institutions shall maintain high standards of 
honesty, integrity, and impartiality in order to ensure the proper 
performance of System business and continued public confidence in the 
System and all its institutions. The avoidance of misconduct and 
conflicts of interest is indispensable to the maintenance of these 
standards.
    (b) System institutions shall utilize safe and sound business 
practices in the engagement, utilization, and retention of agents. These 
practices shall provide for the selection of qualified and reputable 
agents. Employing System institutions shall be responsible for the 
administration of relationships with their agents, and shall take 
appropriate investigative and corrective action in the case of a breach 
of fiduciary duties by the agent or failure of

[[Page 92]]

the agent to carry out other agent duties as required by contract, FCA 
regulations, or law.
    (c) System institutions shall be responsible for exercising 
corresponding special diligence and control, through good business 
practices, to avoid or control situations that have inherent potential 
for sensitivity, either real or perceived. These areas include the 
employment of agents who are related to directors or employees of the 
institutions; the solicitation and acceptance of gifts, contributions, 
or special considerations by agents; and the use of System and borrower 
information obtained in the course of the agent's association with 
System institutions.



Sec. 612.2270  Purchase of System obligations.

    (a) Employees and directors of System institutions, other than the 
Federal Farm Credit Banks Funding Corporation, may only purchase joint, 
consolidated, or Systemwide obligations that are:
    (1) Part of an offering available to the general public; and
    (2) Purchased through a dealer or dealer bank affiliated with a 
member of the selling group designated by the Federal Farm Credit Banks 
Funding Corporation or purchased in the secondary market.
    (b) No director or employee of the Federal Farm Credit Banks Funding 
Corporation may purchase or otherwise acquire, directly or indirectly, 
except by inheritance, any joint, consolidated, or Systemwide 
obligation.



      Subpart B_Referral of Known or Suspected Criminal Violations

    Source: 62 FR 24566, May 6, 1997, unless otherwise noted. 
Redesignated at 69 FR 10907, Mar. 9, 2004.



Sec. 612.2300  Purpose and scope.

    (a) This part applies to all institutions of the Farm Credit System 
as defined in section 1.2(a) of the Farm Credit Act of 1971, as amended, 
(Act) (12 U.S.C. 2002(a)) including, but not limited to, associations, 
banks, service corporations chartered under section 4.25 of the Act, the 
Federal Farm Credit Banks Funding Corporation, the Farm Credit System 
Financial Assistance Corporation, the Farm Credit Leasing Services 
Corporation, and the Federal Agricultural Mortgage Corporation 
(hereinafter, institutions). The purposes of this part are to ensure 
public confidence in the Farm Credit System, to ensure the reporting of 
known or suspected criminal activity, to reduce potential losses to 
institutions, and to ensure the safety and soundness of institutions. 
This part requires that institutions use the Farm Credit Administration 
Criminal Referral Form (hereinafter FCA Referral Form) to notify the 
appropriate Federal authorities when any known or suspected Federal 
criminal violations of the type described in Sec. 612.2301 are 
discovered by institutions.
    (b) The specific referral requirements of this part apply to known 
or suspected criminal violations of the United States Code involving the 
assets, operations, or affairs of an institution. This part prescribes 
procedures for referring those violations to the proper Federal 
authorities and the Farm Credit Administration. No specific procedural 
requirements apply to the referral of violations of State or local laws.
    (c) Nothing in this part should be construed as reducing in any way 
an institution's ability to report known or suspected criminal 
activities to the appropriate investigatory or prosecuting authorities, 
whether Federal, State, or local, even when the circumstances in which a 
report is required under Sec. 612.2301 are not present.
    (d) It shall be the responsibility of each System institution to 
determine whether there appears to be a reasonable basis to conclude 
that a criminal violation has been committed and, if so, to report the 
matter to the proper law enforcement authorities for consideration of 
prosecution.
    (e) Each referral required by Sec. 612.2301(a) shall be made on the 
FCA Referral Form in accordance with the FCA Referral Form instructions 
relating to its filing and distribution.

[62 FR 24566, May 6, 1997. Redesignated and amended at 69 FR 10907, Mar. 
9, 2004]

[[Page 93]]



Sec. 612.2301  Referrals.

    (a) Each institution and its board of directors shall exercise due 
diligence to ensure the discovery, appropriate investigation, and 
reporting of criminal activity. Within 30 calendar days of determining 
that there is a known or suspected criminal violation of the United 
States Code involving or affecting its assets, operations, or affairs, 
the institution shall refer such criminal violation to the appropriate 
regional offices of the United States Attorney, and the Federal Bureau 
of Investigation or the United States Secret Service or both, using the 
FCA Referral Form. A copy of the completed FCA Referral Form, 
accompanied by any relevant documentation, shall be provided at the same 
time to the Farm Credit Administration's Office of General Counsel. In 
the event that a Farm Credit bank makes a loan through a Federal land 
bank association which services the loan, the Federal land bank 
association must inform the Farm Credit bank of any known or suspected 
violation involving that loan and the Farm Credit bank shall refer the 
violation to Federal law enforcement authorities under this section. A 
report is required in circumstances where there is:
    (1) Any known or suspected criminal activity (e.g., theft, 
embezzlement), mysterious disappearance, unexplained shortage, 
misapplication, or other defalcation of property and/or funds, 
regardless of amount, where an institution employee, officer, director, 
agent, or other person participating in the conduct of the affairs of 
such an institution is suspected;
    (2) Any known or suspected criminal activity involving an actual or 
potential loss of $5,000 or more, through false statements or other 
fraudulent means, where the institution has a substantial basis for 
identifying a possible suspect or group of suspects and the suspect(s) 
is not an institution employee, officer, director, agent, or other 
person participating in the conduct of the affairs of such an 
institution;
    (3) Any known or suspected criminal activity involving an actual or 
potential loss of $25,000 or more, through false statements or other 
fraudulent means, where the institution has no substantial basis for 
identifying a possible suspect or group of suspects; or
    (4) Any known or suspected criminal activity involving a financial 
transaction in which the institution was used as a conduit for such 
criminal activity (such as money laundering/structuring schemes).
    (b) In circumstances where there is a known or suspected violation 
of State or local criminal law, the institution shall notify the 
appropriate State or local law enforcement authorities.
    (c) In addition to the requirements of paragraph (a) of this 
section, the institution shall immediately notify by telephone the 
appropriate Federal law enforcement authorities and FCA offices 
specified on the FCA Referral Form upon determining that a known or 
suspected criminal violation of Federal law requiring urgent attention 
has occurred or is ongoing. Such cases include, but are not limited to, 
those where:
    (1) There is a likelihood that the suspect(s) will flee;
    (2) The magnitude or the continuation of the known or suspected 
criminal violation may imperil the institution's continued operation; or
    (3) Key institution personnel are involved.



Sec. 612.2302  Notification of board of directors and bonding company.

    (a) The institution's board of directors shall be promptly notified 
of any criminal referral by the institution, except that if the criminal 
referral involves a member of the board of directors, discretion may be 
exercised in notifying such member of the referral.
    (b) The institution involved shall promptly make all required 
notifications under any applicable surety bond or other contract for 
protection.



Sec. 612.2303  Institution responsibilities.

    Each institution shall establish effective policies and procedures 
designed to ensure compliance with this part, including, but not limited 
to, adequate internal controls.

[[Page 94]]



PART 613_ELIGIBILITY AND SCOPE OF FINANCING--Table of Contents

    Subpart A_Financing Under Titles I and II of the Farm Credit Act

Sec.
613.3000 Financing for farmers, ranchers, and aquatic producers or 
          harvesters.
613.3005 Lending objective.
613.3010 Financing for processing or marketing operations.
613.3020 Financing for farm-related service businesses.
613.3030 Rural home financing.

  Subpart B_Financing for Banks Operating Under Title III of the Farm 
                               Credit Act

613.3100 Domestic lending.
613.3200 International lending.

 Subpart C_Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A 
                               of the Act

613.3300 Participations and other interests in loans to similar 
          entities.

    Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 
3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the Farm Credit 
Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 2093, 2122, 
2128, 2129, 2143, 2206a, 2211, 2212, 2213, 2243, 2252).



    Subpart A_Financing Under Titles I and II of the Farm Credit Act

    Source: 62 FR 4441, Jan. 30, 1997, unless otherwise noted.



Sec. 613.3000   Financing for farmers, ranchers, and aquatic 
producers or harvesters.

    (a) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) Bona fide farmer or rancher means a person owning agricultural 
land or engaged in the production of agricultural products, including 
aquatic products under controlled conditions.
    (2) Legal entity means any partnership, corporation, estate, trust, 
or other legal entity that is established pursuant to the laws of the 
United States, any State thereof, the Commonwealth of Puerto Rico, the 
District of Columbia, or any tribal authority and is legally authorized 
to conduct a business.
    (3) Person means an individual who is a citizen of the United States 
or a foreign national who has been lawfully admitted into the United 
States either for permanent residency pursuant to 8 U.S.C. 1101(a)(20) 
or on a visa pursuant to a provision in 8 U.S.C. 1101(a)(15) that 
authorizes such individual to own property or operate or manage a 
business or a legal entity.
    (4) Producer or harvester of aquatic products means a person engaged 
in producing or harvesting aquatic products for economic gain in open 
waters under uncontrolled conditions.
    (b) Eligible borrower. Farm Credit institutions that operate under 
titles I or II of the Act may provide financing to a bona fide farmer or 
rancher, or producer or harvester of aquatic products for any 
agricultural or aquatic purpose and for other credit needs.



Sec. 613.3005  Lending objective.

    It is the objective of each bank and association, except for banks 
for cooperatives, to provide full credit, to the extent of 
creditworthiness, to the full-time bona fide farmer (one whose primary 
business and vocation is farming, ranching, or producing or harvesting 
aquatic products); and conservative credit to less than full-time 
farmers for agricultural enterprises, and more restricted credit for 
other credit requirements as needed to ensure a sound credit package or 
to accommodate a borrower's needs as long as the total credit results in 
being primarily an agricultural loan. However, the part-time farmer who 
needs to seek off-farm employment to supplement farm income or who 
desires to supplement off-farm income by living in a rural area and is 
carrying on a valid agricultural operation, shall have availability of 
credit for mortgages, other agricultural purposes, and family needs in 
the preferred position along with full-time farmers. Loans to farmers 
shall be on an increasingly conservative basis as the emphasis moves 
away from the full-time bona fide farmer to the point where agricultural 
needs only will be financed for the applicant whose business is 
essentially other than farming. Credit shall not be extended where 
investment in agricultural assets for speculative appreciation is a 
primary factor.

[[Page 95]]



Sec. 613.3010  Financing for processing or marketing operations.

    (a) Eligible borrowers. A borrower is eligible for financing for a 
processing or marketing operation under titles I and II of the Act, only 
if the borrower meets the following requirements:
    (1) The borrower is either a bona fide farmer, rancher, or producer 
or harvester of aquatic products, or is a legal entity in which eligible 
borrowers under Sec. 613.3000(b) own more than 50 percent of the voting 
stock or equity; and
    (2) The borrower or an owner of the borrowing legal entity regularly 
produces some portion of the throughput used in the processing or 
marketing operation.
    (b) Portfolio restrictions for certain processing and marketing 
loans. Processing or marketing loans to eligible borrowers who regularly 
supply less than 20 percent of the throughput are subject to the 
following restrictions:
    (1) Bank limitation. The aggregate of such processing and marketing 
loans made by a Farm Credit bank shall not exceed 15 percent of all its 
outstanding retail loans at the end of the preceding fiscal year.
    (2) Association limitation. The aggregate of such processing and 
marketing loans made by all direct lender associations affiliated with 
the same Farm Credit bank shall not exceed 15 percent of the aggregate 
of their outstanding retail loans at the end of the preceding fiscal 
year. Each Farm Credit bank, in conjunction with all its affiliated 
direct lender associations, shall ensure that such processing or 
marketing loans are equitably allocated among its affiliated direct 
lender associations.
    (3) Calculation of outstanding retail loans. For the purposes of 
this paragraph, ``outstanding retail loans'' includes loans, loan 
participations, and other interests in loans that are either bought 
without recourse or sold with recourse.



Sec. 613.3020  Financing for farm-related service businesses.

    (a) Eligibility. An individual or legal entity that furnishes farm-
related services to farmers and ranchers that are directly related to 
their agricultural production is eligible to borrow from a Farm Credit 
bank or association that operates under titles I or II of the Act.
    (b) Purposes of financing. A Farm Credit Bank, agricultural credit 
bank, or direct lender association may finance:
    (1) All of the farm-related business activities of an eligible 
borrower who derives more than 50 percent of its annual income (as 
consistently measured on either a gross sales or net sales basis) from 
furnishing farm-related services that are directly related to the 
agricultural production of farmers and ranchers; or
    (2) Only the farm-related services activities of an eligible 
borrower who derives 50 percent or less of its annual income (as 
consistently measured on either a gross sales or net sales basis) from 
furnishing farm-related services that are directly related to the 
agricultural production of farmers and ranchers.
    (c) Limitation. The authority of Farm Credit banks and associations 
operating under section 1.7(a) of the Act to finance eligible farm-
related service businesses under paragraphs (b)(1) and (b)(2) of this 
section is limited to necessary capital structures, equipment, and 
initial working capital.

[62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001]



Sec. 613.3030  Rural home financing.

    (a) Definitions.
    (1) Rural homeowner means an individual who resides in a rural area 
and is not a bona fide farmer, rancher, or producer or harvester of 
aquatic products.
    (2) Rural home means a single-family moderately priced dwelling 
located in a rural area that will be owned and occupied as the rural 
homeowner's principal residence.
    (3) Rural area means open country within a State or the Commonwealth 
of Puerto Rico, which may include a town or village that has a 
population of not more than 2,500 persons.
    (4) Moderately priced means the price of any rural home that either:
    (i) Satisfies the criteria in section 8.0 of the Act pertaining to 
rural home loans that collateralize securities that are guaranteed by 
the Federal Agricultural Mortgage Corporation; or

[[Page 96]]

    (ii) Is otherwise determined to be moderately priced for housing 
values for the rural area where it is located, as documented by data 
from a credible, independent, and recognized national or regional 
source, such as a Federal, State, or local government agency, or an 
industry source. Housing values at or below the 75th percentile of 
values reflected in such data will be deemed moderately priced.
    (b) Eligibility. Any rural homeowner is eligible to obtain financing 
on a rural home. No borrower shall have a loan from the Farm Credit 
System on more than one rural home at any one time.
    (c) Purposes of financing. Loans may be made to rural homeowners for 
the purpose of buying, building, remodeling, improving, repairing rural 
homes, and refinancing existing indebtedness thereon.
    (d) Portfolio limitations. (1) The aggregate of retail rural home 
loans by any Farm Credit Bank or agricultural credit bank shall not 
exceed 15 percent of the total of all of its outstanding loans at any 
one time.
    (2) The aggregate of rural home loans made by each direct lender 
association shall not exceed 15 percent of the total of its outstanding 
loans at the end of its preceding fiscal year, except with the prior 
approval of its funding bank.
    (3) The aggregate of rural home loans made by all direct lender 
associations that are funded by the same Farm Credit bank shall not 
exceed 15 percent of the total outstanding loans of all such 
associations at the end of the funding bank's preceding fiscal year.

[62 FR 4441, Jan. 30, 1997, as amended at 66 FR 28643, May 24, 2001]



  Subpart B_Financing for Banks Operating Under Title III of the Farm 
                               Credit Act

    Source: 62 FR 4442, Jan. 30, 1997, unless otherwise noted.



Sec. 613.3100  Domestic lending.

    (a) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) Cooperative means any association of farmers, ranchers, 
producers or harvesters of aquatic products, or any federation of such 
associations, or a combination of such associations and farmers, 
ranchers, or producers or harvesters of aquatic products that conducts 
business for the mutual benefit of its members and has the power to:
    (i) Process, prepare for market, handle, or market farm or aquatic 
products;
    (ii) Purchase, test, grade, process, distribute, or furnish farm or 
aquatic supplies; or
    (iii) Furnish business and financially related services to its 
members.
    (2) Farm or aquatic supplies and farm or aquatic business services 
are any goods or services normally used by farmers, ranchers, or 
producers and harvesters of aquatic products in their business 
operations, or to improve the welfare or livelihood of such persons.
    (3) Public utility means a cooperative or other entity that is 
licensed under Federal, State, or local law to provide electric, 
telecommunication, cable television, water, or waste treatment services.
    (4) Rural area means all territory of a State that is not within the 
outer boundary of any city or town having a population of more than 
20,000 inhabitants based on the latest decennial census of the United 
States.
    (5) Service cooperative means a cooperative that is involved in 
providing business and financially related services (other than public 
utility services) to farmers, ranchers, aquatic producers or harvesters, 
or their cooperatives.
    (b) Cooperatives and other entities that serve agricultural or 
aquatic producers. (1) Eligibility of cooperatives. A bank for 
cooperatives or an agricultural credit bank may lend to a cooperative 
that satisfies the following requirements:
    (i) Unless the bank's board of directors establishes by resolution a 
higher voting control threshold for any type of cooperative, the 
percentage of voting control of the cooperative held by farmers, 
ranchers, producers or harvesters of aquatic products, or cooperatives 
shall be 80 percent except:
    (A) Sixty (60) percent for a service cooperative;
    (B) Sixty (60) percent for local farm supply cooperatives that have 
historically served the needs of a community

[[Page 97]]

that would not be adequately served by other suppliers and have 
experienced a reduction in the percentage of membership by agricultural 
or aquatic producers due to changed circumstances beyond their control; 
and
    (C) Sixty (60) percent for local farm supply cooperatives that 
provide or will provide needed services to a community, and are or will 
be in competition with a cooperative specified in Sec. 
613.3100(b)(1)(i)(B);
    (ii) The cooperative deals in farm or aquatic products, or products 
processed therefrom, farm or aquatic supplies, farm or aquatic business 
services, or financially related services with or for members in an 
amount at least equal in value to the total amount of such business it 
transacts with or for non-members, excluding from the total of member 
and non-member business, transactions with the United States, or any 
agencies or instrumentalities thereof, or services or supplies furnished 
by a public utility; and
    (iii) The cooperative complies with one of the following two 
conditions:
    (A) No member of the cooperative shall have more than one vote 
because of the amount of stock or membership capital owned therein; or
    (B) The cooperative restricts dividends on stock or membership 
capital to 10 percent per year or the maximum percentage per year 
permitted by applicable State law, whichever is less.
    (iv) Any cooperative that has received a loan from a bank for 
cooperatives or an agricultural credit bank shall, without regard to the 
requirements in paragraph (b)(1) of this section, continue to be 
eligible for as long as more than 50 percent (or such higher percentage 
as is established by the bank board) of the voting control of the 
cooperative is held by farmers, ranchers, producers or harvesters of 
aquatic products, or other eligible cooperatives.
    (2) Other eligible entities. The following entities are eligible to 
borrow from banks for cooperatives and agricultural credit banks:
    (i) Any legal entity that holds more than 50 percent of the voting 
control of a cooperative that is an eligible borrower under paragraph 
(b)(1) of this section and uses the proceeds of the loan to fund the 
activities of its cooperative subsidiary on the terms and conditions 
specified by the bank;
    (ii) Any legal entity in which an eligible cooperative (or a 
subsidiary or other entity in which an eligible cooperative has an 
ownership interest) has an ownership interest, provided that if the 
percentage of ownership attributable to the eligible cooperative is less 
than 50 percent, financing may not exceed the percentage of ownership 
attributable to the eligible cooperative multiplied by the value of the 
total assets of such entity; or
    (iii) Any creditworthy private entity operated on a non-profit basis 
that satisfies the requirements for a service cooperative and complies 
with the requirements of either paragraphs (b)(1)(i)(A) and (b)(1)(iii) 
of this section, or paragraph (b)(1)(iv) of this section, and any 
subsidiary of such entity. An entity that is eligible to borrow under 
this paragraph shall be organized to benefit agriculture in furtherance 
of the welfare of the farmers, ranchers, and aquatic producers or 
harvesters who are its members.
    (c) Electric and telecommunication utilities. (1) Eligibility. A 
bank for cooperatives or an agricultural credit bank may lend to:
    (i) Electric and telephone cooperatives as defined by section 
3.8(a)(4)(A) of the Act that satisfy the eligibility criteria in 
paragraph (b)(1) of this section;
    (ii) Cooperatives and other entities that:
    (A) Have received a loan, loan commitment, insured loan, or loan 
guarantee from the Rural Utilities Service of the United States 
Department of Agriculture to finance rural electric and 
telecommunication services;
    (B) Have received a loan or a loan commitment from the Rural 
Telephone Bank of the United States Department of Agriculture; or
    (C) Are eligible under the Rural Electrification Act of 1936, as 
amended, for a loan, loan commitment, or loan guarantee from the Rural 
Utilities Service or the Rural Telephone Bank.
    (iii) The subsidiaries of cooperatives or other entities that are 
eligible under paragraph (c)(1)(ii) of this section.

[[Page 98]]

    (iv) Any legal entity that holds more than 50 percent of the voting 
control of any public utility that is an eligible borrower under 
paragraph (c)(1)(ii) of this section, and uses the proceeds of the loan 
to fund the activities of the eligible subsidiary on the terms and 
conditions specified by the bank.
    (v) Any legal entity in which an eligible utility under paragraph 
(c)(1)(ii) of this section (or a subsidiary or other entity in which an 
eligible utility under paragraph (c)(1)(ii) has an ownership interest) 
has an ownership interest, provided that if the percentage of ownership 
attributable to the eligible utility is less than 50 percent, financing 
may not exceed the percentage of ownership attributable to the eligible 
utility multiplied by the value of the total assets of such entity.
    (2) Purposes for financing. A bank for cooperatives or agricultural 
credit bank may extend credit to entities that are eligible to borrow 
under paragraph (c)(1) of this section in order to provide electric or 
telecommunication services in a rural area. A subsidiary that is 
eligible to borrow under paragraph (c)(1)(iii) of this section may also 
obtain financing from a bank for cooperatives or agricultural credit 
bank for energy-related or public utility-related purposes that cannot 
be financed by the lenders referred to in paragraph (c)(1)(ii), 
including, without limitation, financing to operate a licensed cable 
television utility.
    (d) Water and waste disposal facilities. (1) Eligibility. A 
cooperative or a public agency, quasi-public agency, body, or other 
public or private entity that, under the authority of State or local 
law, establishes and operates water and waste disposal facilities in a 
rural area, as that term is defined by paragraph (a)(5) of this section, 
is eligible to borrow from a bank for cooperatives or an agricultural 
credit bank.
    (2) Purposes for financing. A bank for cooperatives or agricultural 
credit bank may extend credit to entities that are eligible under 
paragraph (d)(1) of this section solely for installing, maintaining, 
expanding, improving, or operating water and waste disposal facilities 
in rural areas.
    (e) Domestic lessors. A bank for cooperatives or agricultural credit 
bank may lend to domestic parties to finance the acquisition of 
facilities or equipment that will be leased to shareholders of the bank 
for use in their operations located inside of the United States.

[62 FR 4442, Jan. 30, 1997; 62 FR 33746, June 23, 1997, as amended at 69 
FR 43514, July 21, 2004]



Sec. 613.3200  International lending.

    (a) Definitions. For the purpose of this section only, the following 
definitions apply:
    (1) Agricultural supply includes:
    (i) A farm supply; and
    (ii) Agriculture-related processing equipment, agriculture-related 
machinery, and other capital goods related to the storage or handling of 
agricultural commodities or products.
    (2) Farm supply refers to an input that is used in a farming or 
ranching operation.
    (b) Import transactions. The following parties are eligible to 
borrow from a bank for cooperatives or an agricultural credit bank 
pursuant to section 3.7(b) of the Act for the purpose of financing the 
import of agricultural commodities or products therefrom, aquatic 
products, and agricultural supplies into the United States:
    (1) An eligible cooperative as defined by Sec. 613.3100(b);
    (2) A counterparty with respect to a specific import transaction 
with a voting stockholder of the bank for the substantial benefit of the 
shareholder; and
    (3) Any foreign or domestic legal entity in which eligible 
cooperatives hold an ownership interest.
    (c) Export transactions. Pursuant to section 3.7(b)(2) of the Act, a 
bank for cooperatives or an agricultural credit bank is authorized to 
finance the export (including the cost of freight) of agricultural 
commodities or products therefrom, aquatic products, or agricultural 
supplies from the United States to any foreign country. The board of 
directors of each bank for cooperatives and agricultural credit bank 
shall adopt policies that ensure that exports of agricultural products 
and commodities, aquatic products, and agricultural supplies which 
originate from eligible cooperatives are financed on a priority basis. 
The total amount

[[Page 99]]

of balances outstanding on loans made under this paragraph shall not, at 
any time, exceed 50 percent of the capital of any bank for cooperatives 
or agricultural credit bank for loans that:
    (1) Finance the export of agricultural commodities and products 
therefrom, aquatic products, or agricultural supplies that are not 
originally sourced from an eligible cooperative; and
    (2) At least 95 percent of the loan amount is not guaranteed by a 
department, agency, bureau, board, or commission of the United States or 
a corporation that is wholly owned directly or indirectly by the United 
States.
    (d) International business operations. A bank for cooperatives or an 
agricultural credit bank may finance a domestic or foreign entity which 
is at least partially owned by eligible cooperatives described in Sec. 
613.3100(b), and facilitates the international business operations of 
such cooperatives.
    (e) Restrictions. (1) When eligible cooperatives own less than 50 
percent of a foreign or domestic legal entity, the amount of financing 
that a bank for cooperatives or agricultural credit bank may provide to 
the entity for imports, exports, or international business operations 
shall not exceed the percentage of ownership that eligible cooperatives 
hold in such entity multiplied by the value of the total assets of such 
entity; and
    (2) A bank for cooperatives or agricultural credit bank shall not 
finance the relocation of any plant or facility from the United States 
to a foreign country.

[62 FR 4442, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004]



 Subpart C_Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A 
                               of the Act



Sec. 613.3300  Participations and other interests in loans to similar 
entities.

    (a) Definitions. (1) Participate and participation, for the purpose 
of this section, refer to multi-lender transactions, including 
syndications, assignments, loan participations, subparticipations, other 
forms of the purchase, sale, or transfer of interests in loans, or other 
extensions of credit, or other technical and financial assistance.
    (2) Similar entity means a party that is ineligible for a loan from 
a Farm Credit bank or association, but has operations that are 
functionally similar to the activities of eligible borrowers in that a 
majority of its income is derived from, or a majority of its assets are 
invested in, the conduct of activities that are performed by eligible 
borrowers.
    (b) Similar entity transactions. A Farm Credit bank or a direct 
lender association may participate with a lender that is not a Farm 
Credit System institution in loans to a similar entity that is not 
eligible to borrow directly under Sec. 613.3000, 613.3010, 613.3020, 
613.3100, or 613.3200, for purposes similar to those for which an 
eligible borrower could obtain financing from the participating FCS 
institution.
    (c) Restrictions. Participations by a Farm Credit bank or 
association in loans to a similar entity under this section are subject 
to the following limitations:
    (1) Lending limits. (i) Farm Credit banks operating under title I of 
the Act and direct lender associations. The total amount of all loan 
participations that any Farm Credit bank, agricultural credit bank, or 
direct lender association has outstanding under paragraph (b) of this 
section to a single credit risk shall not exceed:
    (A) Ten (10) percent of its total capital; or
    (B) Twenty-five (25) percent of its total capital if a majority of 
the shareholders of the respective Farm Credit bank or direct lender 
association so approve.
    (ii) Farm Credit banks operating under title III of the Act. The 
total amount of all loan participations that any bank for cooperatives 
or agricultural credit bank has outstanding under paragraph (b) of this 
section to a single credit risk shall not exceed 10 percent of its total 
capital;
    (2) Percentage held in the principal amount of the loan. The 
participation interest in the same loan held by one or more Farm Credit 
bank(s) or association(s) shall not, at any time, equal or exceed 50 
percent of the principal amount of the loan; and

[[Page 100]]

    (3) Portfolio limitations. The total amount of participations that 
any Farm Credit bank or direct lender association has outstanding under 
paragraph (b) of this section shall not exceed 15 percent of its total 
outstanding assets at the end of its preceding fiscal year.
    (d) Approval by other Farm Credit System institutions. A bank for 
cooperatives or agricultural credit bank may not participate in a loan 
to a similar entity under title III of the Act if the similar entity has 
a loan or loan commitment outstanding with a Farm Credit Bank or an 
association chartered under the Act, unless agreed to by the Farm Credit 
Bank or association.

[62 FR 4444, Jan. 30, 1997, as amended at 69 FR 43514, July 21, 2004]



PART 614_LOAN POLICIES AND OPERATIONS--Table of Contents

                      Subpart A_Lending Authorities

Sec.
614.4000 Farm Credit Banks.
614.4010 Agricultural credit banks.
614.4020 Banks for cooperatives.
614.4030 Federal land credit associations.
614.4040 Production credit associations.
614.4050 Agricultural credit associations.
614.4055 Federal Agricultural Mortgage Corporation loan participations.
614.4060 Affiliates established pursuant to section 8.5(e)(1) of the 
          Farm Credit Act of 1971.

                     Subpart B_Chartered Territories

614.4070 Loans and chartered territory--Farm Credit Banks, agricultural 
          credit banks, Federal land bank associations, Federal land 
          credit associations, production credit associations, and 
          agricultural credit associations.
614.4080 Loans and chartered territory--banks for cooperatives.

             Subpart C_Bank/Association Lending Relationship

614.4100 Policies governing lending through Federal land bank 
          associations.
614.4110 Transfer of direct lending authority to Federal land bank 
          associations and agricultural credit associations.
614.4120 Policies governing extensions of credit to direct lender 
          associations and OFIs.
614.4125 Funding and discount relationships between Farm Credit Banks or 
          agricultural credit banks and direct lender associations.
614.4130 Funding and discount relationships between Farm Credit Banks or 
          agricultural credit banks and OFIs.

       Subpart D_General Loan Policies for Banks and Associations

614.4150 Lending policies and loan underwriting standards.
614.4155 Interest rates.
614.4160 Differential interst rate programs.
614.4165 Young, beginning, and small farmers and ranchers.

                   Subpart E_Loan Terms and Conditions

614.4200 General requirements.
614.4231 Certain seasonal commodity loans to cooperatives.
614.4232 Loans to domestic lessors.
614.4233 International loans.

              Subpart F_Collateral Evaluation Requirements

614.4240 Collateral definitions.
614.4245 Collateral evaluation policies.
614.4250 Collateral evaluation standards.
614.4255 Independence requirements.
614.4260 Evaluation requirements.
614.4265 Real property evaluations.
614.4266 Personal and intangible property evaluations.
614.4267 Professional association membership; competency.

Subpart G [Reserved]

                   Subpart H_Loan Purchases and Sales

614.4325 Purchase and sale of interests in loans.
614.4330 Loan participations.
614.4335 Borrower stock requirements.
614.4337 Disclosure to borrowers.

                    Subpart I_Loss-Sharing Agreements

614.4340 General.
614.4341 Financial assistance.
614.4345 Guaranty agreements.

                  Subpart J_Lending and Leasing Limits

614.4350 Definitions.
614.4351 Computation of lending and leasing limit base.
614.4352 Farm Credit Banks and agricultural credit banks.
614.4353 Direct lender associations.
614.4354 Federal land bank associations.
614.4355 Banks for cooperatives.
614.4356 Farm Credit Leasing Services Corporation.
614.4357 Banks for cooperatives look-through notes.
614.4358 Computation of obligations.
614.4359 Attribution rules.

[[Page 101]]

614.4360 Lending and leasing limit violations.
614.4361 Transition.

Subparts K-L [Reserved]

                  Subpart M_Loan Approval Requirements

614.4450 General requirements.
614.4460 Loan approval responsibility.
614.4470 Loans subject to bank approval.

Subpart N_Loan Servicing Requirements; State Agricultural Loan Mediation 
                    Programs; Right of First Refusal

614.4510 General.
614.4511 Federal land bank association compensation.
614.4512 Definitions.
614.4513 Uninsured voluntary and involuntary accounts.

                   Subpart O_Special Lending Programs

614.4525 General.
614.4530 Special loans, production credit associations and agricultural 
          credit associations.

  Subpart P_Farm Credit Bank and Agricultural Credit Bank Financing of 
                      Other Financing Institutions

614.4540 Other financing institution access to Farm Credit Banks and 
          agricultural credit banks for funding, discount, and other 
          similar financial assistance.
614.4550 Place of discount.
614.4560 Requirements for OFI funding relationships.
614.4570 Recourse and security.
614.4580 Limitation on the extension of funding, discount and other 
          similar financial assistance to an OFI.
614.4590 Equitable treatment of OFIs and Farm Credit System 
          associations.
614.4595 Public disclosure about OFIs.
614.4600 Insolvency of an OFI.

Subpart Q_Banks for Cooperatives and Agricultural Credit Banks 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.
614.4810 Standby letters of credit.
614.4900 Foreign exchange.

                 Subpart R_Secondary Market Authorities

614.4910 Basic authorities.

                 Subpart S_Flood Insurance Requirements

614.4920 Purpose and scope.
614.4925 Definitions.
614.4930 Requirement to purchase flood insurance where available.
614.4935 Escrow requirement.
614.4940 Required use of standard flood hazard determination form.
614.4945 Forced placement of flood insurance.
614.4950 Determination fees.
614.4955 Notice of special flood hazards and availability of Federal 
          disaster relief assistance.
614.4960 Notice of servicer's identity.

Appendix A to Subpart S of Part 614--Sample Form of Notice of Special 
          Flood Hazards and Availability of Federal Disaster Relief 
          Assistance

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 1.3, 
1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 
2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13B, 
4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 4.25, 4.26, 4.27, 
4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.8, 7.12, 7.13, 8.0, 
8.5 of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 
2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2097, 2121, 2122, 
2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2201, 2202, 2202a, 
2202c, 2202d, 2202e, 2206, 2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 
2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 
2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.



                      Subpart A_Lending Authorities

    Source: 55 FR 24880, June 19, 1990, unless otherwise noted.



Sec. 614.4000  Farm Credit Banks.

    (a) Long-term real estate lending. Except to the extent such 
authorities are transferred pursuant to section 7.6 of the Act, Farm 
Credit Banks are authorized, subject to the requirements in Sec. 
614.4200 of this part, to make real estate mortgage loans with 
maturities of not less than 5 years nor more than 40 years and 
continuing commitments to make such loans.
    (b) Extensions of credit to Farm Credit direct lender associations. 
Farm Credit Banks are authorized to make loans and extend other similar 
financial assistance to associations with direct lending authority and 
discount for or purchase from such associations, with

[[Page 102]]

the association's endorsement or guaranty, any note, draft, and other 
obligations for loans that have been made in accordance with the 
provisions of subparts D and E of part 614 of these regulations. Such 
extensions of credit shall be made pursuant to a written financing 
agreement meeting the requirements of Sec. 614.4125.
    (c) Extensions of credit to other financing institutions. Farm 
Credit Banks are authorized to make loans and extend other similar 
financial assistance to any national bank, State bank, trust company, 
agricultural credit corporation, incorporated livestock loan company, 
savings institution, credit union, or any association of agricultural 
producers or any corporation engaged in the making of loans to farmers 
and ranchers or producers or harvesters of aquatic products 
(collectively, [hairsp][hairsp]``other financing institutions''), for 
purposes eligible for financing by a production credit association in 
accordance with Sec. 614.4130 and subpart P of this part. Farm Credit 
Banks are authorized to discount for or purchase from such institutions, 
with the institution's endorsement or guaranty, notes, drafts, and other 
obligations or loans made to persons and for purposes eligible for 
financing by a production credit association, in accordance with Sec. 
614.4130 and subpart P of this part.
    (d) Loan participations. Subject to the requirements of subpart H of 
part 614, a Farm Credit Bank may enter into loan participation 
agreements with:
    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under title I of the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans it is not authorized to make, provided the borrower eligibility, 
membership, term, amount, loan security, and stock or participation 
certificate requirements of the originating institution are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
    (e) Other interests in loans. (1) Subject to the requirements of 
subpart H of this part, Farm Credit Banks may sell interests in loans 
only to:
    (i) Farm Credit System institutions authorized to purchase such 
interests;
    (ii) Other lenders that are not Farm Credit System institutions; and
    (iii) Any certified agricultural mortgage marketing facility, as 
defined by section 8.0(3) of the Act, for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (2) Subject to the requirements of subpart H of this part, Farm 
Credit Banks may purchase interests other than participation interests 
in loans and nonvoting stock from other Farm Credit System institutions.
    (3) Farm Credit Banks, in their capacity as certified agricultural 
mortgage marketing facilities under title VIII of the Act, may purchase 
interests in loans (other than participation interests authorized in 
paragraph (d) of this section) from institutions other than Farm Credit 
System institutions only for the purpose of pooling and securitizing 
such loans under title VIII of the Act.
    (f) Residual powers after the transfer of lending authority to an 
association. After transferring its authority to make and participate in 
long-term real estate loans to an agricultural credit association or a 
Federal land credit association pursuant to section 7.6(a) of the Act 
and subpart E of part 611 of these regulations, a Farm Credit Bank 
retains residual authority to:
    (1) Enter into loan participation agreements pursuant to paragraph 
(d) of this section;
    (2) Purchase or sell other interests in loans in accordance with 
paragraph (e) of this section; and
    (3) Make long-term real estate loans in accordance with paragraph 
(a) of this section in areas of its chartered territory where no active 
association operates.

[55 FR 24880, June 19, 1990, as amended at 57 FR 38246, Aug. 24, 1992; 
57 FR 43290, Sept. 18, 1992; 62 FR 51013, Sept. 30, 1997; 63 FR 5723, 
Feb. 4, 1998; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 
FR 1285, Jan. 10, 2002]



Sec. 614.4010  Agricultural credit banks.

    (a) Long-term real estate lending. Except to the extent such 
authorities are transferred pursuant to section 7.6 of the Act, 
agricultural credit banks are authorized, subject to the requirements

[[Page 103]]

of Sec. 614.4200, to make real estate mortgage loans with maturities of 
not less than 5 years nor more than 40 years and continuing commitments 
to make such loans.
    (b) Extensions of credit to Farm Credit direct lender associations. 
Agricultural credit banks are authorized to make loans and extend other 
similar financial assistance to associations with direct lending 
authority and discount for or purchase from such associations, with the 
association's endorsement or guaranty, any note, draft, and other 
obligations for loans made by the association in accordance with the 
provisions of this part. Such extensions of credit shall be made 
pursuant to a written financing agreement meeting the requirements of 
Sec. 614.4125.
    (c) Extensions of credit to other financing institutions. 
Agricultural credit banks are authorized to make loans and extend other 
similar financial assistance to any national bank, State bank, trust 
company, agricultural credit corporation, incorporated livestock loan 
company, savings institution, credit union, or any association of 
agricultural producers or corporation engaged in the making of loans to 
farmers, ranchers, or producers or harvesters of aquatic products 
(collectively, ``other financing institutions''), for purposes eligible 
for financing by a production credit association, in accordance with 
Sec. 614.4130 and subpart P of this part. Agricultural credit banks are 
authorized to discount for or purchase from such other financing 
institutions, with the institution's endorsement or guaranty, notes, 
drafts, and other obligations or loans made to persons and for purposes 
eligible for financing by a production credit association, in accordance 
with the requirements of Sec. 614.4130 and subpart P of this part.
    (d) Extensions of credit to or on behalf of eligible cooperatives. 
Agricultural credit banks are authorized to make loans and commitments 
and extend other technical and financial assistance, including but not 
limited to, collateral custody, discounting notes and other obligations, 
guarantees, and currency exchanges necessary to service transactions 
financed under paragraphs (d)(4) and (d)(5) of this section, to:
    (1) Eligible cooperatives, as defined in Sec. 613.3110, in 
accordance with Sec. Sec. 614.4200, 614.4231, 614.4232, 614.4233, and 
subpart Q of part 614;
    (2) Other eligible entities, as defined in Sec. 613.3110(c), in 
accordance with Sec. Sec. 614.4200, 614.4231, and 614.4232;
    (3) Domestic lessors, for the purpose of providing leased assets to 
stockholders of the bank eligible to borrow under section 3.7(a) of the 
Act for use in such stockholders' operations in the United States, in 
accordance with Sec. 614.4232;
    (4) Domestic or foreign parties with respect to a transaction with a 
voting stockholder of the bank, for the import of agricultural 
commodities, farm supplies, or aquatic products through purchases, sales 
or exchanges, provided such stockholder substantially benefits as a 
result of such extension of credit or assistance, in accordance with 
policies of the bank's board, Sec. 614.4233, and subpart Q of part 614; 
and
    (5) Domestic or foreign parties in which a voting stockholder of the 
bank has a minimum ownership interest, for the purpose of facilitating 
such stockholder's import operations of the type described in paragraph 
(d)(4) of this section, provided the stockholder substantially benefits 
as a result of such extension of credit or assistance, in accordance 
with policies of the bank's board, Sec. 614.4233, and subpart Q of part 
614.
    (6) Any party, subject to the requirements in Sec. 613.3200(c) of 
this chapter, for the export (including the cost of freight) of 
agricultural commodities or products therefrom, aquatic products, or 
farm supplies from the United States to any foreign country, in 
accordance with Sec. 614.4233 and subpart Q of this part 614; and
    (7) Domestic or foreign parties in which eligible cooperatives, as 
defined in Sec. 613.3100 of this chapter, hold an ownership interest, 
for the purpose of facilitating the international business operations of 
such cooperatives pursuant to the requirements of Sec. 613.3200 (d) and 
(e) of this chapter.
    (e) Loan participations. Subject to the requirements of subpart H of 
this part, an agricultural credit bank may enter into loan participation 
agreements with:

[[Page 104]]

    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans it is not authorized to make, provided the borrower eligibility, 
membership, term, amount, loan security, and stock or participation 
certificate requirements of the originating institution are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
    (f) Other interest in loans. (1) Subject to subpart H of this part, 
agricultural credit banks may sell interests in real estate mortgage 
loans identified in paragraph (a) of this section to Farm Credit System 
institutions authorized to purchase such interests, other lenders, and 
certified agricultural mortgage marketing facilities for the Federal 
Agricultural Mortgage Corporation. Agricultural credit banks may also 
sell interests in the types of loans listed in paragraph (d) of this 
section to other Farm Credit System institutions that are authorized to 
purchase such interests.
    (2) Subject to the requirements of subpart H of this part, 
agricultural credit banks may purchase interests other than 
participation interests in loans and nonvoting stock from other Farm 
Credit System institutions.
    (3) Agricultural credit banks, in their capacity as certified 
agricultural mortgage marketing facilities under title VIII of the Act, 
may purchase interests in loans (other than participation interests 
authorized in paragraph (e) of this section) from institutions other 
than Farm Credit System institutions only for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (g) Residual powers after the transfer of lending authority to an 
association. After transferring its authority to make and participate in 
long-term real estate loans to an agricultural credit association or a 
Federal land credit association pursuant to section 7.6(a) of the Act 
and subpart E of part 611 of these regulations, an agricultural credit 
bank retains residual authority to:
    (1) Enter into loan participation agreements pursuant to paragraph 
(e) of this section;
    (2) Purchase or sell other interests in loans in accordance with 
paragraph (f) of this section; and
    (3) Make long-term real estate loans in accordance with paragraph 
(a) of this section in areas of its chartered territory where no active 
association operates.

[55 FR 24880, June 19, 1990, as amended at 57 FR 38246, Aug. 24, 1992; 
57 FR 43290, Sept. 18, 1992; 62 FR 4445, Jan. 30, 1997; 62 FR 51013, 
Sept. 30, 1997; 63 FR 5723, Feb. 4, 1998; 64 FR 43049, Aug. 9, 1999; 65 
FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]



Sec. 614.4020  Banks for cooperatives.

    (a) Banks for cooperatives are authorized to make loans and 
commitments and extend other technical and financial assistance, 
including but not limited to, collateral custody, discounting notes and 
other obligations, guarantees, and currency exchanges necessary to 
service transactions financed under paragraphs (a)(4) and (a)(5) of this 
section, to:
    (1) Eligible cooperatives, as defined in Sec. 613.3110, in 
accordance with Sec. Sec. 614.4200, 614.4231, 614.4232, 614.4233, and 
subpart Q of this part;
    (2) Other eligible entities as defined in Sec. 613.3110(c), in 
accordance with Sec. Sec. 614.4200, 614.4231, and 614.4232;
    (3) Domestic lessors, for the purpose of providing leased assets to 
stockholders of the bank eligible to borrow under section 3.7(a) of the 
Act for use in such stockholder's operations in the United States, in 
accordance with Sec. 614.4232;
    (4) Domestic or foreign parties with respect to a transaction with a 
voting stockholder of the bank, for the import of agricultural 
commodities, farm supplies, or aquatic products through purchases, sales 
or exchanges, provided such stockholder substantially benefits as a 
result of such extension of credit or assistance, in accordance with 
policies of the bank's board, Sec. 614.4233, and subpart Q of this 
part; and
    (5) Domestic or foreign parties in which a voting stockholder of the 
bank

[[Page 105]]

has an ownership interest, for the purpose of facilitating the import 
operations of the type described in paragraph (a)(4) of this section, in 
accordance with policies of the bank's board, Sec. 614.4233, and 
subpart Q of this part.
    (6) Any party, subject to the requirements in Sec. 613.3200(c) of 
this chapter, for the export (including the cost of freight) of 
agricultural commodities or products therefrom, aquatic products, or 
farm supplies from the United States to any foreign country, in 
accordance with Sec. 614.4233 and subpart Q of this part; and
    (7) Domestic or foreign parties in which eligible cooperatives, as 
defined in Sec. 613.3100 of this chapter, hold an ownership interest, 
for the purpose of facilitating the international business operations of 
such cooperatives pursuant to the requirements in Sec. 613.3200 (d) and 
(e) of this chapter.
    (b) Loan participations. Subject to the requirements of subpart H of 
this part, a bank for cooperatives may enter into loan participation 
agreements with:
    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under title III of the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans of the type it is not authorized to make, provided the borrower 
eligibility, membership, term, amount, loan security, and stock or 
participation certificate requirements of the originating institution 
are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.

[55 FR 24880, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997; 62 
FR 51013, Sept. 30, 1997; 67 FR 1285, Jan. 10, 2002]



Sec. 614.4030  Federal land credit associations.

    (a) Long-term real estate lending. Federal land credit associations 
are authorized, subject to the requirments of Sec. 614.4200, to make 
real estate mortgage loans with maturities of not less than 5 years nor 
more than 40 years and continuing commitments to make such loans.
    (b) Loan participations. Subject to the requirements of subpart H of 
this part, Federal land credit associations may enter into participation 
agreements with:
    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under title I of the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans it is not authorized to make, provided the borrower eligibility, 
membership, term, amount, loan security, and stock or participation 
certificate requirements of the originating institution are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
    (c) Other interests in loans. (1) Subject to the requirements of 
subpart H of this part and the supervision of their respective funding 
banks, Federal land credit associations may sell interests in loans made 
under paragraph (a) of this section only to:
    (i) Farm Credit System institutions, as authorized by their 
respective funding banks;
    (ii) Other lenders that are not Farm Credit System institutions, as 
authorized by their respective funding banks; and
    (iii) Any certified agricultural mortgage marketing facility, as 
defined by section 8.0(3) of the Act, for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (2) Subject to the requirements of subpart H of this part, Federal 
land credit associations may purchase interests in loans that comply 
with the requirements of paragraph (a) of this section and nonvoting 
stock from Farm Credit System institutions.
    (3) Federal land credit associations, in their capacity as certified 
agricultural mortgage marketing facilities under title VIII of the Act, 
may purchase interests in loans (other than participation interests 
under paragraph (b) of this section) from institutions other than Farm 
Credit System institutions for the purpose of pooling

[[Page 106]]

and securitizing such loans under title VIII of the Act.

[55 FR 24880, June 19, 1990, as amended at 57 FR 38247, Aug. 24, 1992; 
62 FR 51013, Sept. 30, 1997; 64 FR 43049, Aug. 9, 1999; 65 FR 24102, 
Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]



Sec. 614.4040  Production credit associations.

    (a) Loan terms. (1) Production credit associations are authorized to 
make or guarantee loans and other similar financial assistance for the 
following terms:
    (i) Not more than 7 years
    (ii) More than 7 years, but not more than 10 years, subject to 
authorization in policies approved by the funding bank
    (iii) Not more than 15 years to producers or harvesters of aquatic 
products for major capital expenditures, including but not limited to 
the purchase of vessels, construction or purchase of shore facilities, 
and similar purposes directly related to the producing or harvesting 
operation
    (2) Subject to policies approved by the funding bank, production 
credit associations may amortize loans over a period greater than the 
loan terms authorized under paragraph (a)(1) of this section, provided 
that:
    (i) The loan is amortized over a period not to exceed 15 years
    (ii) The loan may be refinanced only if the lender determines, at 
the time of refinancing, that the loan meets its loan policy and 
underwriting criteria;
    (iii) Any refinancing may not extend repayment beyond 15 years from 
the date of the original loan; and
    (iv) The loan is not being made solely for the purpose of acquiring 
unimproved real estate; and
    (3) Short- and intermediate-term loans shall be made with maturities 
that are appropriate for the purpose and underlying collateral of the 
loan and that comply with an institution's loan underwriting standards 
adopted pursuant to Sec. 614.4150 and the general requirements of Sec. 
614.4200 of this part.
    (b) Loan participations. Subject to the requirements of subpart H of 
this part, a production credit association may enter into participation 
agreements with:
    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under title II of the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans it is not authorized to make, provided the borrower eligibility, 
membership, term, amount, loan security, and stock or participation 
certificate requirements of the originating institution are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
    (c) Other interests in loans. (1) Subject to the requirements of 
subpart H of this part and the supervision of their respective funding 
banks, production credit associations may sell interests in loans that 
are made under paragraph (a) of this section to:
    (i) Banks of the Farm Credit System, as authorized by their 
respective funding banks; and
    (ii) Any certified agricultural mortgage marketing facility, as 
defined by section 8.0(3) of the Act, for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (2) Subject to the requirements of subpart H of this part, 
production credit associations, as authorized by their respective 
funding banks, may purchase interests in loans that comply with the 
requirements of paragraph (a) of this section and nonvoting stock from 
banks of the Farm Credit System.
    (3) Production credit associations, in their capacity as certified 
mortgage marketing facilities under title VIII of the Act, may purchase 
from Farm Credit System institutions and institutions that are not Farm 
Credit System institutions interests in loans (other than participation 
interests authorized by paragraph (c) of this section) for the purpose 
of pooling and securitizing such loans under title VIII of the Act.

[55 FR 24880, June 19, 1990; 55 FR 28511, July 11, 1990, as amended at 
57 FR 38247, Aug. 24, 1992; 62 FR 51013, Sept. 30, 1997; 64 FR 43049, 
Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]

[[Page 107]]



Sec. 614.4050  Agricultural credit associations.

    Agricultural credit associations are authorized to make or 
guarantee, subject to the requirements of Sec. 614.4200 of this part:
    (a) Long-term real estate mortgage loans with maturities of not less 
than 5 nor more than 40 years, and continue commitments to make such 
loans; and
    (b) Short- and intermediate-term loans and provide other similar 
financial assistance for a term of not more than 10 years (15 years for 
aquatic producers and harvesters.
    (c) Loan participations. Subject to the requirements of subpart H of 
this part, agricultural credit associations may enter into participation 
agreements with:
    (1) Farm Credit banks and associations that are direct lenders and 
lenders that are not Farm Credit institutions on loans of the type it is 
authorized to make under titles I and II of the Act;
    (2) Farm Credit banks and associations that are direct lenders on 
loans of the type it is not authorized to make, provided the borrower 
eligibility, membership, term, amount, loan security, and stock or 
participation certificate requirements of the originating institution 
are met; and
    (3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
    (d) Other interests in loans. (1) Subject to the requirements of 
subpart H of this part and the supervision of their respective funding 
banks, agricultural credit associations may sell:
    (i) Interests in loans made under paragraph (a) of this section only 
to:
    (A) Farm Credit System institutions, as authorized by their 
respective funding banks;
    (B) Lenders that are not Farm Credit System institutions, as 
authorized by their respective funding banks; and
    (C) Any certified agricultural mortgage marketing facility, as 
defined by section 8.0(3) of the Act, for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (ii) Interests in loans made under paragraph (b) of this part only 
to:
    (A) Banks of the Farm Credit System, as authorized by their 
respective funding banks; and
    (B) Any certified agricultural mortgage marketing facility, as 
defined by section 8.0(3) of the Act, for the purpose of pooling and 
securitizing such loans under title VIII of the Act.
    (2) Subject to the requirements of subpart H of this part, 
agricultural credit associations may purchase:
    (i) Interests in loans that comply with the requirements in 
paragraph (a) of this section from institutions of the Farm Credit 
System;
    (ii) Interests in loans that comply with the requirements of 
paragraph (b) of this section from banks of the Farm Credit System; and
    (iii) Nonvoting stock from institutions of the Farm Credit System.
    (3) Agricultural credit associations, in their capacity as certified 
agricultural mortgage marketing facilities under title VIII of the Act, 
may purchase interests in loans, other than participation interests 
authorized by paragraph (c) of this section, from institutions other 
than Farm Credit System institutions for the purpose of pooling and 
securitizing such loans under title VIII of the Act.

[55 FR 24880, June 19, 1990; 55 FR 28511, July 11, 1990, as amended at 
57 FR 38247, Aug. 24, 1992; 62 FR 51013, Sept. 30, 1997; 64 FR 43049, 
Aug. 9, 1999; 65 FR 24102, Apr. 25, 2000; 67 FR 1285, Jan. 10, 2002]



Sec. 614.4055  Federal Agricultural Mortgage Corporation loan 
participations.

    Subject to the requirements of subpart H of this part 614:
    (a) Any Farm Credit System bank or direct lender association may buy 
from, and sell to, the Federal Agricultural Mortgage Corporation, 
participation interests in ``qualified loans.''
    (b) The Federal Agricultural Mortgage Corporation may buy from, and 
sell to, any Farm Credit System bank or direct lender association, or 
lender that is not a Farm Credit System institution, participation 
interests in ``qualified loans.''
    (c) For purposes of this section, ``qualified loans'' means 
qualified loans as defined in section 8.0(9) of the Act.

[67 FR 1285, Jan. 10, 2002]

[[Page 108]]



Sec. 614.4060  Affiliates established pursuant to section 8.5(e)(1) 
of the Farm Credit Act of 1971.

    An affiliate established by one or more Farm Credit System 
institutions pursuant to section 8.5(e)(1) of the Act and Sec. 611.1137 
of this chapter, as a certified agricultural mortgage marketing 
facility, may purchase loans from Farm Credit System institutions and 
institutions other than Farm Credit System institutions in accordance 
with title VIII of the Act and any applicable regulation promulgated 
thereunder.

[57 FR 38247, Aug. 24, 1992]



                     Subpart B_Chartered Territories



Sec. 614.4070  Loans and chartered territory--Farm Credit Banks, 

agricultural credit banks, Federal land bank associations, Federal 
land credit associations, production credit associations, and 
agricultural credit associations.

    (a) A bank or association chartered under title I or II of the Act 
may finance eligible borrower operations conducted wholly within its 
chartered territory regardless of the residence of the applicant.
    (b) A bank or association operating under title I or II of the Act 
may finance the operations of a borrower headquartered and operating in 
its territory even though the operation financed is conducted partially 
outside its territory, provided notice is given to all Farm Credit 
institutions providing similar credit in the territory(ies) in which the 
operations being financed are conducted. A bank or association operating 
under title I or II of the Act may lend to a borrower headquartered 
outside its territory to finance eligible borrower operations that are 
conducted partially within its territory and partially outside its 
territory only if the concurrence of Farm Credit institutions providing 
similar credit for the territories in which the operations are conducted 
is obtained.
    (c) A bank or association chartered under title I or II of the Act 
may finance eligible borrower operations conducted wholly outside its 
chartered territory, provided such loans are authorized by the policies 
of the bank and/or association involved, do not constitute a significant 
shift in loan volume away from the bank or association's assigned 
territory, and are made and administered in accordance with paragraphs 
(c)(1) and (c)(2) of this section.
    (1) If a loan is made to an eligible borrower whose operations are 
conducted wholly outside the chartered territory of the lending bank or 
association, the lending institution shall obtain concurrence of all 
Farm Credit institutions providing similar credit in the territory(ies) 
in which the operation being financed is conducted.
    (2) Loans to finance eligible borrower operations conducted wholly 
outside a bank's or association's territory shall be appropriately 
designated by the bank or association to provide adequate identification 
of the number and volume of such loans, which shall be monitored by the 
bank or association.

[55 FR 24882, June 19, 1990]



Sec. 614.4080  Loans and chartered territory--banks for cooperatives.

    Loans made under title III by banks for cooperatives and 
agricultural credit banks may be made to eligible domestic parties 
domiciled within any territory that may be served by Farm Credit 
institutions under section 1.2 of the Act and to eligible foreign 
parties without regard to domicile.

[55 FR 24882, June 19, 1990]



             Subpart C_Bank/Association Lending Relationship



Sec. 614.4100  Policies governing lending through Federal land bank 
associations.

    (a) Farm Credit Banks and agricultural credit banks may delegate 
authority to make credit decisions to Federal land bank associations 
that demonstrate the ability to extend and administer credit soundly, 
provided the association develops, implements and maintains adequate 
credit administration guidelines, standards, and practices.
    (b) The board of directors of each Farm Credit Bank and each 
agricultural credit bank lending through Federal land bank associations 
shall adopt policies and procedures governing the

[[Page 109]]

exercise of statutory and delegated authorities by such associations. 
Policies governing the delegated authorities shall:
    (1) Define authorities to be delegated;
    (2) Require the documented evaluation of the capability and 
responsibility of individuals exercising delegated authorities;
    (3) Provide for reporting of actions taken under delegated authority 
to the delegating bank;
    (4) Provide procedures for periodic review and enforcement;
    (5) Provide for withdrawal of authority where appropriate; and
    (6) Where redelegation from the association's board to association 
employees is authorized, require similar control measures to be used.

[55 FR 24883, June 19, 1990]



Sec. 614.4110  Transfer of direct lending authority to Federal land 
bank associations and agricultural credit associations.

    (a) Upon the transfer of authority to make and participate in long-
term agricultural real estate mortgage loans by a Farm Credit Bank or 
agricultural credit bank to a Federal land bank association pursuant to 
section 7.6(a) of the Act and subpart E of part 611 of these 
regulations, the association shall be designated a Federal land credit 
association and shall have the powers set forth in Sec. 614.4030.
    (b) Upon the transfer of the authority to make and participate in 
long-term real estate loans by a Farm Credit Bank or agricultural credit 
bank to an agricultural credit association pursuant to section 7.6(d) of 
the Act, the association shall have all of the powers set forth in 
Sec. [hairsp][hairsp]614.4050.
    (c) An association to which such long-term lending authority is to 
be transferred shall have in place, prior to the transfer, policies and 
procedures guiding the extension and administration of credit within its 
territory.

[55 FR 24883, June 19, 1990]



Sec. 614.4120  Policies governing extensions of credit to direct 
lender associations and OFIs.

    The board of directors of each Farm Credit Bank and agricultural 
credit bank shall adopt policies and procedures governing the making of 
direct loans to and the discounting of loans for direct lender 
associations and OFIs. The policies and procedures shall prescribe 
lending policies and loan underwriting standards that are consistent 
with sound financial and credit practices. The policies shall require a 
periodic review of the lending relationship with each direct lender 
association and OFI at intervals consistent with the term of the general 
financing agreement but in no case longer than 5 years. The policies 
shall require an evaluation of the creditworthiness of a direct lender 
association on the basis of credit factors and lending policies and loan 
underwriting standards set forth in part 614, subpart D, and may permit 
lending to such an institution on an unsecured basis only if the overall 
condition of the institution warrants. The stated term of a general 
financing agreement shall not exceed 5 years but may be automatically 
renewable for additional terms not to exceed 5 years if neither party 
objects at the time of renewal. The term of any general financing 
agreement that provides for unsecured lending to a direct lender 
association shall not exceed 1 year and may not be automatically 
renewed.

[63 FR 5724, Feb. 4, 1998]



Sec. 614.4125  Funding and discount relationships between Farm Credit 
Banks or agricultural credit banks and direct lender associations.

    (a) A Farm Credit Bank or agricultural credit bank shall not advance 
funds to, or discount loans for, any direct lender association except 
pursuant to a general financing agreement. Each general financing 
agreement must require that the amount of financing available to a 
direct lender association not be based on loans that are ineligible 
under the Act and the regulations in this chapter. If financing under a 
general financing agreement is based on a loan that FCA determines is 
ineligible under the Act and the regulations in this chapter, then the 
amount of financing available must be recalculated without that 
ineligible loan.
    (b) The Farm Credit Bank or agricultural credit bank shall deliver a 
copy of the executed general financing agreement and all related 
documents,

[[Page 110]]

such as a promissory note or security agreement, and all amendments of 
any of these documents, within 10 business days after any such document 
or amendment is executed, to the Chief Examiner, Farm Credit 
Administration, or to the Farm Credit Administration office that the 
Chief Examiner designates.
    (c) The general financing agreement shall address only those matters 
that are reasonably related to the debtor/creditor relationship between 
the Farm Credit Bank or agricultural credit bank and the direct lender 
association.
    (d) The total credit extended to a direct lender association, 
through direct loan or discounts, shall be consistent with the Farm 
Credit Bank's or agricultural credit bank's lending policies and loan 
underwriting standards and the creditworthiness of the direct lender 
association. The general financing agreement or promissory note shall 
establish a maximum credit limit determined by objective standards as 
established by the Farm Credit Bank or agricultural credit bank.
    (e) A Farm Credit Bank or agricultural credit bank that provides 
notice to a direct lender association that it is in material default of 
any covenant, term, or condition of the general financing agreement, 
promissory note, security agreement, or other related documents 
simultaneously shall provide written notification to the Chief Examiner, 
Farm Credit Administration, or to the Farm Credit Administration office 
that the Chief Examiner designates and the Director, Risk Management, 
Farm Credit System Insurance Corporation.
    (f) A direct lender association shall provide written notification 
to the Chief Examiner, Farm Credit Administration, or to the Farm Credit 
Administration office that the Chief Examiner designates, and the 
Director, Risk Management, Farm Credit System Insurance Corporation 
immediately upon receipt of a notice that it is in material default 
under any general financing agreement, loan agreement, promissory note, 
security agreement, or other related documents with a Farm Credit Bank, 
agricultural credit bank or non-Farm Credit institution.
    (g) A Farm Credit Bank or agricultural credit bank shall obtain 
prior written consent of the Farm Credit Administration before it takes 
any action that leads to or could lead to the liquidation of a direct 
lender association.
    (h) No direct lender association shall obtain financing from any 
party unless the parties agree to the requirements of this paragraph. No 
Farm Credit Bank, agricultural credit bank, or other party shall 
petition any Federal or State court to appoint a conservator, receiver, 
liquidation agent, or other administrator to manage the affairs of or 
liquidate a direct lender association.

[63 FR 5724, Feb. 4, 1998, as amended at 69 FR 43514, July 21, 2004]



Sec. 614.4130  Funding and discount relationships between Farm Credit 
Banks or agricultural credit banks and OFIs.

    (a) A Farm Credit Bank or agricultural credit bank shall not advance 
funds to, or discount loans for, an OFI, as defined in Sec. 611.1205 of 
this chapter, except pursuant to a general financing agreement.
    (b) The Farm Credit Bank or agricultural credit bank shall deliver a 
copy of the executed general financing agreement and all related 
documents, such as a promissory note or security agreement, and all 
amendments of any of these documents, within 10 business days after any 
such document or amendment is executed, to the Chief Examiner, Farm 
Credit Administration, or to the Farm Credit Administration office that 
the Chief Examiner designates.
    (c) The total credit extended to the OFI, through direct loan or 
discounts, shall be consistent with the Farm Credit Bank's or 
agricultural credit bank's lending policies and loan underwriting 
standards and the creditworthiness of the OFI. The general financing 
agreement or promissory note shall establish a maximum credit limit 
determined by objective standards as established by the Farm Credit Bank 
or agricultural credit bank.

[63 FR 5724, Feb. 4, 1998, as amended at 67 FR 17917, Apr. 12, 2002]

[[Page 111]]



       Subpart D_General Loan Policies for Banks and Associations



Sec. 614.4150  Lending policies and loan underwriting standards.

    Under the policies of its board, each institution shall adopt 
written standards for prudent lending and shall issue written policies, 
operating procedures, and control mechanisms that reflect prudent credit 
practices and comply with all applicable laws and regulations. Written 
policies and procedures shall, at a minimum, prescribe:
    (a) The minimum supporting credit and financial information, 
frequency for collection of information, and verification of information 
required in relation to loan size, complexity and risk exposure
    (b) The procedures to be followed in credit analysis
    (c) The minimum standards for loan disbursement, servicing and 
collections
    (d) Requirements for collateral and methods for its administration
    (e) Loan approval delegations and requirements for reporting to the 
board
    (f) Loan pricing practices
    (g) Loan underwriting standards that include measurable standards:
    (1) For determining that an applicant has the operational, 
financial, and management resources necessary to repay the debt from 
cashflow
    (2) That are appropriate for each loan program and the institution's 
risk-bearing ability; and
    (3) That consider the nature and type of credit risk, amount of the 
loan, and enterprises being financed
    (h) Requirements that loan terms and conditions are appropriate for 
the loan; and
    (i) Such other requirements as are necessary for the professional 
conduct of a lending organization, including documentation for each loan 
transaction of compliance with the loan underwriting standards or the 
compensating factors or extenuating circumstances that establish 
repayment of the loan notwithstanding the failure to meet any one or 
more loan underwriting standard.

[62 FR 51014, Sept. 30, 1997]



Sec. 614.4155  Interest rates.

    Loans made by each bank and direct lender association shall bear 
interest at a rate or rates as may be determined by the institution 
board. The 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. Any interest 
rate plan adopted shall be reviewed on a continuing basis by the board, 
as well as in conjunction with its review and approval of the 
institution's operational an strategic business plan.

[62 FR 66818, Dec. 22, 1997]



Sec. 614.4160  Differential interest rate programs.

    Pursuant to policies approved by the board of directors, 
differential interest rates may be established for loans based on a 
variety of factors that may include type, purpose, amount, quality, 
funding or operating costs, or similar factors or combinations of 
factors. Differential interest rate programs should achieve equitable 
rate treatment within categories of borrowers. In the adoption of 
differential interest rate programs, institutions may consider, among 
other things, the effect that such interest rate structures will have on 
the achievement of objectives relating to the special credit needs of 
young, beginning or small farmers.

[61 FR 67186, Dec. 20, 1996. Redesignated at 62 FR 66818, Dec. 22, 1997]



Sec. 614.4165  Young, beginning, and small farmers and ranchers.

    (a) Definitions.
    (1) For purposes of this subpart, the term ``credit'' includes:
    (i) Loans made to farmers and ranchers and producers or harvesters 
of aquatic products under title I or II of the Act; and
    (ii) Interests in participations made to farmers and ranchers and 
producers or harvesters of aquatic products under title I or II of the 
Act.

[[Page 112]]

    (2) For purposes of this subpart, the term ``services'' includes:
    (i) Leases made to farmers and ranchers and producers or harvesters 
of aquatic products under title I or II of the Act; and
    (ii) Related services to farmers and ranchers and producers or 
harvesters of aquatic products under title I or II of the Act.
    (b) Farm Credit bank policies. Each Farm Credit Bank and 
Agricultural Credit Bank must adopt written policies that direct:
    (1) The board of each affiliated direct lender association to 
establish a program to provide sound and constructive credit and 
services to young, beginning, and small farmers and ranchers and 
producers or harvesters of aquatic products (YBS farmers and ranchers or 
YBS). The terms ``bona fide farmer or rancher,'' and ``producer or 
harvester of aquatic products'' are defined in Sec. 613.3000 of this 
chapter;
    (2) Each affiliated direct lender association to include in its YBS 
farmers and ranchers program provisions ensuring coordination with other 
System institutions in the territory and other governmental and private 
sources of credit;
    (3) Each affiliated direct lender association to provide, annually, 
a complete and accurate YBS farmers and ranchers operations and 
achievements report to its funding bank; and
    (4) The bank to provide the agency a complete and accurate annual 
report summarizing the YBS program operations and achievements of its 
affiliated direct lender associations.
    (c) Direct lender association YBS programs. The board of directors 
of each direct lender association must establish a program to provide 
sound and constructive credit and services to YBS farmers and ranchers 
in its territory. Such a program must include the following minimum 
components:
    (1) A mission statement describing program objectives and specific 
means for achieving such objectives.
    (2) Annual quantitative targets for credit to YBS farmers and 
ranchers that are based on an understanding of reasonably reliable 
demographic data for the lending territory. Such targets may include:
    (i) Loan volume and loan number goals for ``young,'' ``beginning,'' 
and ``small'' farmers and ranchers in the territory;
    (ii) Percentage goals representative of the demographics for 
``young,'' ``beginning,'' and ``small'' farmers and ranchers in the 
territory;
    (iii) Percentage goals for loans made to new borrowers qualifying as 
``young,'' ``beginning,'' and ``small'' farmers and ranchers in the 
territory; or
    (iv) Goals for capital committed to loans made to ``young,'' 
``beginning,'' and ``small'' farmers and ranchers in the territory.
    (3) Annual qualitative YBS goals that must include efforts to:
    (i) Offer related services either directly or in coordination with 
others that are responsive to the needs of the ``young,'' ``beginning,'' 
and ``small'' farmers and ranchers in the territory;
    (ii) Take full advantage of opportunities for coordinating credit 
and services offered with other System institutions in the territory and 
other governmental and private sources of credit who offer credit and 
services to those who qualify as ``young,'' ``beginning,'' and ``small'' 
farmers and ranchers; and
    (iii) Implement effective outreach programs to attract YBS farmers 
and ranchers, which may include the use of advertising campaigns and 
educational credit and services programs beneficial to ``young,'' 
``beginning,'' and ``small'' farmers and ranchers in the territory, as 
well as an advisory committee comprised of ``young,'' ``beginning,'' and 
``small'' farmers and ranchers to provide views on how the credit and 
services of the direct lender association could best serve the credit 
and services needs of YBS farmers and ranchers.
    (4) Methods to ensure that credit and services offered to YBS 
farmers and ranchers are provided in a safe and sound manner and within 
a direct lender association's risk-bearing capacity. Such methods could 
include customized loan underwriting standards, loan guarantee programs, 
fee waiver programs, or other credit enhancement programs.
    (d) Review and approval of YBS programs. The YBS program of each 
direct

[[Page 113]]

lender association is subject to the review and approval of its funding 
bank. However, the funding bank's review and approval is limited to a 
determination that the YBS program contains all required components as 
set forth in paragraph (c) of this section. Any conclusion by the bank 
that a YBS program is incomplete must be communicated to the direct 
lender association in writing.
    (e) YBS program and the operational and strategic business plan. 
Targets and goals outlined in paragraphs (c)(2) and (c)(3) of this 
section must be included in each direct lender association's operational 
and strategic business plan for at least the succeeding 3 years (as set 
forth in Sec. 618.8440 of this chapter).
    (f) YBS program internal controls. Each direct lender association 
must have internal controls that establish clear lines of responsibility 
for YBS program implementation, YBS performance results, and YBS 
quarterly reporting to the association's board of directors.

[69 FR 16470, Mar. 30, 2004]



                   Subpart E_Loan Terms and Conditions

    Source: 55 FR 24884, June 19, 1990, unless otherwise noted.



Sec. 614.4200  General requirements.

    (a) Terms and conditions. (1) The terms and conditions of each loan 
made by a Farm Credit bank or association shall be set forth in a 
written document or documents, such as a loan agreement, promissory 
note, or other instrument(s) appropriate to the type and amount of the 
credit extension, in order to establish loan conditions and performance 
requirements. Copies of all documents executed by the borrower in 
connection with the closing of a loan made under titles I or II of the 
Act shall be provided to the borrower at the time of execution and at 
any time thereafter that the borrower requests additional copies.
    (2) The terms and conditions of all loans shall be adequately 
disclosed in writing to the borrower not later than loan closing. For 
loans made under titles I and II of the Act, the institution shall 
provide prompt written notice of the approval of the loan.
    (3) Applicants shall be provided notification of the action taken on 
each credit application in compliance with the requirements of 12 CFR 
202.9.
    (b) Security. (1) Long-term real estate mortgage loans must be 
secured by a first lien interest in real estate, except that the loans 
may be secured by a second lien interest if the institution also holds 
the first lien on the property. No funds shall be advanced, under a 
legally binding commitment or otherwise, if the outstanding loan balance 
after the advance would exceed 85 percent (or 97 percent as provided in 
section 1.10(a) of the Act) of the appraised value of the real estate, 
except that a loan on which private mortgage insurance is obtained may 
exceed 85 percent of the appraised value of the real estate to the 
extent that the loan amount in excess of 85 percent is covered by such 
insurance. The real estate that is used to satisfy the loan-to-value 
limitation must be comprised primarily of agricultural or rural 
property, including agricultural land and improvements thereto, a farm-
related business, a marketing or processing operation, a rural 
residence, or real estate used as an integral part of an aquatic 
operation.
    (2) Notwithstanding the requirements of paragraph (b)(1) of this 
section, the lending institution may advance funds for the payment of 
taxes or insurance premiums with respect to the real estate, reschedule 
loan payments, grant partial releases of security interests in the real 
estate, and take other actions necessary to protect the lender's 
collateral position. Any action taken that results in exceeding the 
loan-to-value limitation shall be in accordance with a policy of the 
institution's board of directors and adequately documented in the loan 
file.
    (3) Short- and intermediate-term loans may be secured or unsecured 
as the documented creditworthiness of the borrower warrants.
    (4) In addition to the requirements in paragraph (b)(1) of this 
section, a long-term, non-farm rural home loan, including a revolving 
line of credit, shall be secured by a first lien on the property, except 
that it may be secured by

[[Page 114]]

a second lien if the institution also holds the first lien on the 
property. A short- or intermediate-term loan on a rural home, including 
a revolving line of credit, must be secured by a lien on the property 
unless the financing is provided exclusively for repairs, remodeling, or 
other improvements to the rural home, in which case the loan may be 
secured by other property or unsecured if warranted by the documented 
creditworthiness of the borrower.
    (5) Except as provided in Sec. 614.4231, loans made under title III 
of the Act may be secured or unsecured, as appropriate for the purpose 
of the loan and the documented creditworthiness of the borrower.

[62 FR 51014, Sept. 30, 1997]



Sec. 614.4231  Certain seasonal commodity loans to cooperatives.

    Loans on certain commodities that are part of government programs 
shall comply with the criteria established for those programs. Security 
taken on program commodities shall be consistent with prudent lending 
practices and ensure compliance with the government program. The bank 
shall provide for periodic review by bank officials of any custodial 
activities and shall provide notice to the custodians that their 
activities are subject to review and examination by the Farm Credit 
Administration.

[62 FR 51015, Sept. 30, 1997]



Sec. 614.4232  Loans to domestic lessors.

    Loans and financial assistance extended by banks for cooperatives 
and agricultural credit banks to domestic lessors to finance equipment 
or facilities leased by a stockholder of the bank shall be subject to 
the following terms and conditions:
    (a) The term of the loan shall not be longer than the total period 
of the lease;
    (b) The contract between the lessor and lessee shall establish that 
the leased assets are effectively under the control of the lessee and 
that such control shall continue in effect for essentially all of the 
term of the lease;
    (c) The lessee must hold at least one share of stock or one 
participation certificate; and
    (d) The leased equipment and facilities must be primarily for use in 
the lessee's operations in the United States.

[55 FR 24884, June 19, 1990, as amended at 64 FR 34517, June 28, 1999]



Sec. 614.4233  International loans.

    Term loans made by banks for cooperatives and agricultural credit 
banks under the authority of section 3.7(b) of the Act and Sec. 
613.3200 of this chapter to foreign or domestic parties who are not 
shareholders of the bank shall be subject to the following conditions:
    (a) The loan shall be denominated in a currency to eliminate foreign 
exchange risk on repayment.
    (b) The borrower's obligations shall be guaranteed or insured 
against default under such policies as are available in the United 
States and other countries. Exceptions may be made where a prospective 
borrower has had a longstanding successful business relationship with an 
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) For a borrower in which a voting stockholder of the bank has a 
majority ownership interest, financing may be extended for the full 
value of the transaction; otherwise, financing may be extended only to 
approximate the percent of ownership.

[55 FR 24884, June 19, 1990, as amended at 55 FR 28886, July 16, 1990; 
55 FR 50544, Dec. 7, 1990; 56 FR 5927, Feb. 14, 1991; 62 FR 4445, Jan. 
30, 1997]



              Subpart F_Collateral Evaluation Requirements

    Source: 59 FR 46730, Sept. 12, 1994, unless otherwise noted.



Sec. 614.4240  Collateral definitions.

    For the purposes of this part, the following definitions shall 
apply:

[[Page 115]]

    (a) Abundance of caution, when used to describe decisions to require 
collateral, means that the collateral is taken in circumstances in 
which:
    (1) It is not required by statute, regulation, or the institution's 
policies; and
    (2) A prudent lender would extend credit based on a borrower's 
income and/or other collateral, absent the real estate, and the decision 
to extend credit was, in fact, based on other sources of revenue or 
collateral.
    (b) Appraisal means a written statement independently and 
impartially prepared by a qualified appraiser setting forth an opinion 
as to the market value of an adequately described property as of a 
specific date(s), supported by the presentation and analysis of relevant 
market information.
    (c) Appraisal Foundation means the Appraisal Foundation established 
on November 30, 1987, by professional appraisal organizations, as a not-
for-profit corporation under the laws of Illinois, in order to enhance 
the quality of professional appraisals.
    (d) Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institutions Examination Council.
    (e) Business loan means a loan or other extension of credit to any 
corporation, general or limited partnership, business trust, joint 
venture, sole proprietorship, or other business entity (including 
entities and individuals engaged in farming enterprises).
    (f) Cost approach means the process by which an evaluator 
establishes an indicated value by measuring the current market cost to 
construct a reproduction of or replacement for the improvements, minus 
the amount of depreciation (physical deterioration, or functional and/or 
external obsolescence) evident in the structure from all causes, plus 
the market value of the land.
    (g) Evaluation means a study of the nature, quality, or utility of, 
interest in, or aspects of, an asset. An evaluation may take the form of 
a valuation or an appraisal.
    (h) Fee appraiser means a qualified evaluator who is not an employee 
of the party contracting for the completion of the evaluation and who 
performs an evaluation on a fee basis. For purposes of this subpart, a 
fee appraiser may include a staff evaluator from another Farm Credit 
System institution only if the employing institution is not operating 
under joint management with the contracting institution. In addition, 
for purposes of personal and intangible collateral evaluations, the term 
``fee appraiser'' includes, but is not limited to, certified public 
accountants, equipment dealers, grain buyers, livestock buyers, and 
auctioneers.
    (i) FIRREA means the Financial Institutions Recovery, Reform, and 
Enforcement Act of 1989.
    (j) Highest and best use means the reasonable and most probable use 
of the property that would result in the highest market value of vacant 
land or improved property, as of the date of valuation; or that use, 
from among reasonably probable and legally alternative uses, found to be 
physically possible, appropriately supported, financially feasible, and 
which results in the highest land value.
    (k) Income capitalization approach means the procedure that values 
property by measuring the present value of the expected future benefits 
of property ownership. This value is derived from either:
    (1) Capitalizing a single year's income expectancy or an annual 
average of several years' income expectancies at a market-derived 
capitalization rate that reflects a specific income pattern, return on 
investment, and change in the value of the investment; or
    (2) Discounting the annual cashflows for the holding period and the 
reversion at a specified yield rate or specified yield rates which 
reflect market behavior.
    (l) Market value means the most probable price that a property 
should bring in a competitive and open market under all conditions 
requisite to a fair sale, the buyer and seller each acting prudently, 
knowledgeably, and assuming neither is under duress. Implicit in this 
definition is the consummation of a sale as of a specified date and the 
passing of title from seller to buyer under conditions whereby:
    (1) Buyer and seller are typically motivated;

[[Page 116]]

    (2) Both parties are well informed or well advised, and acting in 
what they consider their best interests;
    (3) A reasonable time is allowed for exposure in the open market;
    (4) Payment is made in terms of cash in United States dollars or in 
terms of financial arrangements comparable thereto; and
    (5) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    (m) Personal property, for purposes of this subpart, means all 
tangible and movable property not considered real property or fixtures.
    (n) Qualified evaluator means an individual who is competent, 
reputable, impartial, and has demonstrated sufficient training and 
experience to properly evaluate property of the type that is the subject 
of the evaluation. For the purposes of this definition, the term 
``qualified evaluator'' includes an appraiser or valuator.
    (o) Real estate means an identified parcel or tract of land, 
including improvements, if any.
    (p) Real estate-related financial transactions means any transaction 
involving:
    (1) The sale, lease, purchase, investment in, or exchange of real 
property, including interests in property or the financing thereof; or
    (2) The refinancing of real property or interests in real property; 
or
    (3) The use of real property or interests in real property as 
security for a loan or investment, including mortgage-backed securities.
    (q) Real property means all interests, benefits, and rights inherent 
in the ownership of real estate.
    (r) Sales comparison approach means the procedure that values 
property by comparing the subject property to similar properties located 
in relatively close proximity, having similar size and utility, and 
having been recently sold in arm's-length transactions (comparable 
sales). The sales comparison approach requires the evaluator to estimate 
the degree of similarity and difference between the subject property and 
comparable sales. Such comparison shall be made on the basis of 
conditions of sale, financing terms, market conditions, location, 
physical characteristics, and income characteristics. Appropriate 
adjustments shall be made to the sales price of the comparable property 
based on the identified deficiencies or superiorities of the subject 
property to arrive at a probable price for which the subject property 
could be sold on the date of the collateral evaluation.
    (s) State certified appraiser means any individual who has satisfied 
the requirements for and has been certified as a real estate appraiser 
by a State or territory whose requirements for certification currently 
meet or exceed the minimum criteria for certification issued by the 
Appraiser Qualification Board of the Appraisal Foundation. No individual 
shall be a State certified appraiser unless such individual has achieved 
a passing grade on a suitable examination administered by a State or 
territory that is consistent with and equivalent to the Uniform State 
Certification Examination issued or endorsed by the Appraiser 
Qualification Board of the Appraisal Foundation. In addition, the 
Appraisal Subcommittee must not have issued a finding that the policies, 
practices, or procedures of the State or territory are inconsistent with 
title XI of FIRREA.
    (t) State licensed appraiser means any individual who has satisfied 
the requirements for licensing and has been licensed as a real estate 
appraiser by a State or territory in which the licensing procedures 
comply with title XI of FIRREA and in which the Appraisal Subcommittee 
has not issued a finding that the policies, practices, or procedures of 
the State or territory are inconsistent with title XI of FIRREA.
    (u) Transaction value means:
    (1) For loans or other extensions of credit, the amount of the loan, 
loan commitment, or other extensions of credit;
    (2) For sales, leases, purchases, investments in, or exchanges of 
real property, the market value of the property interest involved; and
    (3) For the pools of loans or interests in real property, the 
transaction value of the individual loans or the market value of the 
real property interests comprising the pool.

[[Page 117]]

    (v) USPAP means the Uniform Standards of Professional Appraisal 
Practice adopted by the Appraisal Foundation.
    (w) Valuation means the process of estimating a defined value of an 
identified interest or interests in a specific asset or assets as of a 
given date. A valuation results from the completion of a collateral 
evaluation that does not require an appraisal.



Sec. 614.4245  Collateral evaluation policies.

    (a) The board of directors of each Farm Credit System institution 
that engages in lending or leasing secured by collateral shall adopt 
well-defined and effective collateral evaluation policies and standards, 
that comply with the regulations in this subpart, to ensure that 
collateral evaluations are:
    (1) Sufficiently descriptive and detailed to provide ample support 
to the institution's related credit decisions;
    (2) Performed based on criteria established for the purpose of 
determining the circumstances under which collateral evaluations will be 
required and when they will be required. Such criteria must, at a 
minimum:
    (i) Establish when an institution will require a collateral 
appraisal completed under the USPAP rather than a collateral valuation; 
and
    (ii) Take into account such factors as market trends, market 
volatility, and various types of credit, loan servicing, collection, and 
liquidation actions; and
    (3) Completed by a qualified evaluator in an unbiased manner.
    (b) The policies and standards required by this section shall, at a 
minimum, address the criteria outlined in Sec. Sec. 614.4250 through 
614.4267 of this subpart.
    (c) A Federal land bank association shall, with the approval of its 
respective Farm Credit bank, adopt collateral evaluation policies that 
are consistent with the bank's policies and standards.
    (d) An institution's board of directors may adopt specific 
collateral evaluation requirements, consistent with the regulations in 
this subpart, for loans designated as part of a minimum information 
program.

[59 FR 46730, Sept. 12, 1994, as amended at 62 FR 51015, Sept. 30, 1997]



Sec. 614.4250  Collateral evaluation standards.

    (a) When real, personal, or intangible property is taken as security 
for a loan or is the subject of a lease, an evaluation of such property 
shall be performed in accordance with Sec. 614.4260 and the 
institutions' policies and procedures. Such a collateral evaluation 
shall be identified as either a collateral valuation or a collateral 
appraisal. Specifically, all collateral evaluations must:
    (1) Value the subject property based upon market value as defined in 
Sec. 614.4240(l);
    (2) Be presented in a written format;
    (3) Consider the purpose for which the property will be used and the 
property's highest and best use, if different from the intended use;
    (4) Be sufficiently descriptive to enable the reader to ascertain 
the reasonableness of the estimated market value and the rationale for 
the estimate;
    (5) Provide sufficient detail (including an identification and 
description of the property) and depth of analysis to reflect the 
relevant characteristics and complexity of the subject property;
    (6) Analyze and report, as appropriate, for real, intangible, and/or 
personal property, on:
    (i) The current income producing capacity of the property;
    (ii) A reasonable marketing period for the property;
    (iii) The current market conditions and trends that will affect 
projected income, to the extent such conditions will affect the value of 
the property;
    (iv) The appropriate deductions and discounts as they would apply to 
the property, including but not limited to, those based on the condition 
of the property, as well as the specialization of the operation and 
property; and
    (v) Potential liabilities, including those associated with any 
hazardous waste or other environmental concerns; and
    (7) Include in the evaluation report a certification that the 
evaluation was not based on a requested minimum valuation or specific 
valuation or approval of a loan.
    (b) For purposes of determining appraisal value as required in 
section

[[Page 118]]

1.10(a) of the Act, the definition of market value and the requirements 
of this subpart shall apply.



Sec. 614.4255  Independence requirements.

    (a) Prohibitions. For all personal and intangible property, and for 
all real property exempted under Sec. 614.4260(c) of this subpart, no 
person may:
    (1) Perform evaluations in connection with transactions in which 
such person has a direct or indirect interest, financial or otherwise, 
in the loan or subject property;
    (2) As a director, vote on or approve a loan decision on which such 
person performed a collateral evaluation; or
    (3) As a director, perform a collateral evaluation in connection 
with any transaction on which such person made or will be required to 
make a credit decision.
    (b) Officers and employees. If the institution's internal control 
procedures required by Sec. 618.8430 of this chapter include 
requirements for either a prior approval or post-review of credit 
decisions, officers and employees may:
    (1) Participate in a vote or approval involving assets on which they 
performed a collateral evaluation; or
    (2) Perform a collateral evaluation in connection with a transaction 
on which they have made or will be required to make a credit decision.
    (c) Real estate appraiser. Except as provided in Sec. 614.4260(c) 
of this subpart, all evaluations of real property that serve as the 
primary security for a loan shall be performed by a qualified real 
estate appraiser who has no direct or indirect interest, financial or 
otherwise, in the loan or subject property and is not engaged in the 
marketing, lending, collection, or credit decision processes of any of 
the following:
    (1) A Farm Credit System institution making or originating the loan;
    (2) A Farm Credit System institution operating under common 
management with the institution making or originating the loan; or
    (3) A Farm Credit System institution purchasing an interest in the 
loan.
    (d) Fee appraisers. Fee appraisers shall be engaged directly by the 
Farm Credit System institution or its agent, and shall have no direct or 
indirect interest, financial or otherwise, in the property or 
transaction. A Farm Credit System institution may accept a real estate 
appraisal that was prepared by an appraiser engaged directly by another 
Farm Credit System institution, by a United States Government agency, a 
Government-Sponsored Enterprise or by a financial institution subject to 
title XI of FIRREA.
    (e) Loan purchases. No employee who, acting as a State licensed or 
State certified appraiser, performed a real estate appraisal on any 
collateral supporting a loan shall subsequently participate in any 
decision related to the loan purchase.



Sec. 614.4260  Evaluation requirements.

    (a) Valuation. Valuations of personal and intangible property, as 
well as real property exempted under paragraph (c) of this section, 
shall be performed by qualified individuals who meet the established 
standards of this subpart and the Farm Credit System institution 
obtaining the collateral valuation.
    (b) Appraisal. (1) Appraisals for real estate-related financial 
transactions with transaction values of more than $250,000 shall be 
performed by a qualified appraiser who is a State licensed or a State 
certified real estate appraiser.
    (2) Appraisals for real estate-related financial transactions with 
transaction values of more than $1,000,000 shall be performed by a 
qualified appraiser who is a State certified real estate appraiser.
    (c) Appraisals not required. An appraisal performed by a State 
certified or State licensed appraiser is not required for any real 
estate-related financial transaction in which any of the following 
conditions are met:
    (1) The transaction value is $250,000 or less;
    (2) The transaction is a ``business loan'' as defined in Sec. 
614.4240(e) that:
    (i) Has a transaction value of $1,000,000 or less; and
    (ii) Is not dependent on income derived from the sale or cash rental 
of real estate as the primary source of repayment;
    (3) A lien on real property has been taken as collateral in an 
abundance of caution, and the application, when

[[Page 119]]

evaluated on the five basic credit factors, without considering the 
subject real estate, would support the credit decision that was based on 
other sources of repayment or collateral;
    (4) A lien on real estate is not statutorily required and has been 
taken for purposes other than the real estate's value;
    (5) Subsequent loan transactions (which include but are not limited 
to loan servicing actions, reamortizations, modifications of loan terms, 
and partial releases), provided that either:
    (i) The transaction does not involve the advancement of new loan 
funds other than funds necessary to cover reasonable closing costs; or
    (ii) There has been no obvious and material change in market 
conditions or physical aspects of the property that threatens the 
adequacy of the Farm Credit System institution's real estate collateral 
protection, even with the advancement of new loan funds;
    (6) A Farm Credit System institution purchases a loan or an interest 
in a loan, pool of loans, or interests in real property, including 
mortgage-backed securities, provided that:
    (i) The appraisal prepared for each loan, pooled loan, or real 
property interest, when originated, met the standards of this subpart, 
other Federal regulations adopted pursuant to FIRREA, or the 
requirements of the government-sponsored secondary market intermediaries 
under whose auspices the interest is sold; and
    (ii) There has been no obvious and material change in market 
conditions or physical aspects of the property that would threaten the 
Farm Credit System institution's collateral position, or
    (7) A Farm Credit System institution makes or purchases a loan 
secured by real estate, which loan is guaranteed by an agency of the 
United States Government and is supported by an appraisal that conforms 
to the requirements of the guaranteeing agency.
    To qualify for exceptions in paragraphs (c)(1) through (c)(7) of 
this section from the requirements of this subpart, the institution must 
have documentation justifying the use of such exceptions in the 
applicable loan file(s). In addition, the institution must document that 
the repayment of a ``business loan'' is not dependent on income derived 
from the sale or cash rental of real estate.
    (d) FCA-required appraisals. The FCA reserves the right to require 
an appraisal under this subpart whenever it believes it is necessary to 
address safety and soundness issues.
    (e) Reciprocity. The requirements of this subpart are satisfied by 
the use of State certified or State licensed appraisers from any State 
provided that:
    (1) The appraiser is qualified to perform such appraisals;
    (2) The applicable Farm Credit System institution has established 
policies providing for such interstate appraisals; and
    (3) The applicable State appraiser licensing and certification 
agency recognizes the certification or license of the appraiser's State 
of permanent certification or licensure.

[59 FR 46730, Sept. 12, 1994, as amended at 60 FR 2687, Jan. 11, 1995]



Sec. 614.4265  Real property evaluations.

    (a) Real estate shall be valued on the basis of market value.
    (b) Market value shall be determined by a reasonable valuation 
method that:
    (1) Considers the income capitalization approach, the sales 
comparison approach, and/or the cost approach, as appropriate, to 
determine market value;
    (2) Explains and documents the elimination of any approach not used.
    (3) Reconciles the market values of the applicable approaches; and
    (c) Where real estate appraisals or real estate collateral 
valuations for business loans in excess of $250,000 that would not 
otherwise be exempted under Sec. 614.4260(c) are required, such 
evaluations shall be completed in accordance with the USPAP and shall 
include a legal description of the subject property.
    (d) At a minimum, the institution shall develop and document the 
evaluation of the income and debt servicing capacity for the property 
and operation where the transaction value exceeds $250,000 and the real 
estate taken as collateral:
    (1) Is an integral part of and supports the principal source of loan 
repayment; or

[[Page 120]]

    (2) Is not an integral part of and does not support the principal 
source of loan repayment, but has demonstrable rental market appeal, is 
statutorily required, and fully or partially constitutes an integral 
part of an agricultural or aquatic operation.
    (e) The income-earning and debt-servicing capacity established under 
paragraph (d) of this section on such properties shall be documented as 
part of the credit analysis for any related loan action, whether or not 
the income capitalization approach value is used as the basis for the 
market value conclusion stated in the evaluation report.
    (f) Collateral closely aligned with, an integral part of, and 
normally sold with real estate (fixtures) may be included in the value 
of the real estate. All other collateral associated with the real 
estate, but designated as personal property, shall be evaluated as 
personal property in accordance with Sec. Sec. 614.4250 and 614.4266.
    (g) The evaluation shall properly identify all nonagricultural 
influences, including, but not limited to, urban development, mineral 
deposits, and commercial building development value, and the reasoning 
supporting the evaluator's highest and best-use conclusion.
    (h) Where an evaluation of real property is completed by a fee 
appraiser, as defined in Sec. 614.4240(g), the institution's standards 
shall include provisions for periodic collateral inspections performed 
by the institution's account officer or appropriate designee.



Sec. 614.4266  Personal and intangible property evaluations.

    (a) Personal property and intangibles shall be valued on the basis 
of market value in accordance with the institution's evaluation 
standards and policies.
    (b) Personal property evaluations shall include a source of 
comparisons of value (i.e., equipment dealer listings, Blue Book, market 
sales reports, etc.) and a description of the property being evaluated, 
including location of the property and, where applicable, quantity, 
species/variety, measure/weight, value per unit and in total, type of 
identification (such as brand, bill of lading, or warehouse receipt), 
quality, condition, and date.
    (c) Evaluations of intangibles shall include a review and 
description of the documents supporting the property interests and the 
marketability of the intangible property, including applicable terms, 
conditions, and restrictions contained in the document that would affect 
the value of the property.
    (d) Where an evaluation of personal or intangible property is 
completed by a fee appraiser, as defined in Sec. 614.4240(g), the 
institution's standards shall include provisions for periodic collateral 
inspections and verification by the institution's account officer or 
appropriate designee.
    (e) When a Farm Credit System institution deems an appraisal 
necessary, personal or intangible property shall be appraised in 
accordance with procedures and standards established by the institution 
by individuals deemed qualified by the institution to complete the work 
under the USPAP Competency and Ethics Provisions.

[59 FR 46730, Sept. 12, 1994, as amended at 59 FR 50964, Oct. 6, 1994]



Sec. 614.4267  Professional association membership; competency.

    (a) Membership in appraisal organizations. A State certified 
appraiser or a State licensed appraiser may not be excluded from 
consideration for an assignment for a real estate-related transaction 
solely by virtue of membership or lack of membership in any particular 
appraisal organization.
    (b) Competency. All staff and fee evaluators, including appraisers, 
performing evaluations in connection with real, personal, or intangible 
property taken as collateral in connection with extensions of credit 
must meet the qualification requirements of this subpart. However, an 
evaluator (as defined in Sec. 614.4240(n)) may not be considered 
competent solely by virtue of being certified, licensed, or accredited. 
Any determination of competency shall be based on the individual's 
experience and educational background as they relate to the particular 
evaluation assignment for which such individual is being considered.

Subpart G [Reserved]

[[Page 121]]



                   Subpart H_Loan Purchases and Sales

    Source: 57 FR 38247, Aug. 24, 1992, unless otherwise noted.



Sec. 614.4325  Purchase and sale of interests in loans.

    (a) Definitions. For the purposes of this subpart, the following 
definitions shall apply:
    (1) Interests in loans means ownership interests in the principal 
amount, interest payments, or any aspect of a loan transaction and 
transactions involving a pool of loans, including servicing rights.
    (2) Lead lender means a lending institution having a direct 
contractual relationship with a borrower to advance funds, which 
institution sells or assigns an interest or interests in such loan to 
one or more other lenders.
    (3) Loan means any extension of credit or similar financial 
assistance of the type authorized under the Act, such as guarantees, 
letters of credit, and other similar transactions.
    (4) Participating institution means an institution that purchases a 
participation interest in a loan originated by another lender.
    (5) Sale with recourse means a sale of a loan or an interest in a 
loan in which the seller:
    (i) Retains some risk of loss from the transferred asset for any 
cause except the seller's breach of usual and customary warranties or 
representations designed to protect the purchaser against fraud or 
misrepresentation; or
    (ii) Has an obligation to make payments of principal or interest to 
any party resulting from:
    (A) Default on the payment of principal or interest on the loan by 
the borrower or guarantor or any other deficiencies in the obligor's 
performance;
    (B) Changes in the market value of the assets after transfer;
    (C) Any contractual relationship between the seller and purchaser 
incident to the transfer that, by its terms, could continue even after 
final payment, default, or other termination of the assets transferred; 
or
    (D) Any other cause, except the retention at servicing rights alone 
shall not constitute recourse.
    (6) Subordinated participation interest means an interest in a loan 
that bears the first risk of loss, including the retention of such an 
interest when a loan is sold to a pooler certified by the Federal 
Agricultural Mortgage Corporation pursuant to title VIII of the Act, or 
an interest in a pool of subordinated participation interests purchased 
to satisfy the requirements of title VIII of the Act with respect to a 
loan sold to such a certified pooler.
    (b) Authority to purchase and sell interests in loans. Loans and 
interests in loans may only be sold in accordance with each 
institution's lending authorities, as set forth in subpart A of this 
part. No Farm Credit System institution may purchase from an institution 
that is not a Farm Credit System institution any interest in a loan, 
except for the purpose of pooling and securitizing such loans under 
title VIII of the Act, unless such an interest is a participation 
interest that qualifies under the institution's lending authority, as 
set forth in subpart A of this part, and meets the requirements of Sec. 
614.4330 of this subpart.
    (c) Policies. Each Farm Credit System institution that is authorized 
to sell or purchase interests in loans under subpart A of this part 
shall exercise that authority in accordance with a policy adopted by its 
board of directors that addresses the following matters:
    (1) The types of purchasers to which the institution is authorized 
to sell interests in loans;
    (2) The types of loans in which the institution may purchase or sell 
an interest and the types of interests which may be purchased or sold;
    (3) The underwriting standards to be applied in the purchase of 
interests in loans:
    (4) Such limitations on the aggregate principal amount of interests 
in loans that the institution may purchase from a single institution as 
are necessary to diversify risk, and such limitations on the aggregate 
amount the institution may purchase from all institutions as are 
necessary to assure that service to the territory is not impeded;
    (5) Provision for the identification and reporting of loans in which 
interests are sold or purchased;

[[Page 122]]

    (6) Requirements for providing and securing in a timely manner 
adequate credit and other information needed to make an independent 
credit judgment; and
    (7) Any limitations or conditions to which sales or purchases are 
subject that the board deems appropriate, including arbitration.
    (d) Purchase and sale agreements. Agreements to purchase or sell an 
interest in a loan shall, at a minimum:
    (1) Identify the particular loan(s) to be covered by the agreement;
    (2) Provide for the transfer of credit and other borrower 
information on a timely and continuing basis;
    (3) Provide for sharing, dividing, or assigning collateral;
    (4) Identify the nature of the interest(s) sold or purchased;
    (5) Set forth the rights and obligations of the parties and the 
terms and conditions of the sale; and
    (6) Contain any terms necessary for the appropriate administration 
of the loan and the protection of the interests of the Farm Credit 
System institution.
    (e) Independent credit judgment. Each institution that purchases an 
interest in a loan shall make a judgment on the creditworthiness of the 
borrower that is independent of the originating or lead lender and any 
intermediary seller or broker prior to the purchase of the interest and 
prior to any servicing action that alters the terms of the original 
agreement, which judgment shall not be delegated to any person(s) not 
employed by the institution. A Farm Credit System institution that 
purchases a loan or any interest therein may use information, such as 
appraisals or collateral inspections, furnished by the originating or 
lead lender, or any intermediary seller or broker; however, the 
purchasing Farm Credit System institution shall independently evaluate 
such information when exercising its independent credit judgment. No 
employee who performed a real estate appraisal on any collateral 
supporting a loan shall participate in the decision to purchase that 
loan. The independent credit judgment shall be documented by a credit 
analysis that considers factors set forth in the loan underwriting 
standards adopted pursuant to Sec. 614.4150 of this part and is 
independent of the originating institution and any intermediary seller 
or broker. The credit analysis shall consider such credit and other 
borrower information as would be required by a prudent lender and shall 
include an evaluation of the capacity and reliability of the servicer. 
Boards of directors of jointly managed institutions shall adopt 
procedures to ensure that the interests of their respective shareholders 
are protected in participation between such institutions.
    (f) Limitations. The aggregate principal amount of interests in 
loans purchased from a single lead lender and the aggregate principal 
amount of interests in loans purchased from other institutions shall not 
exceed the limits set in the institution's policy.
    (g) Sales with recourse. When a loan or interest in a loan is sold 
with recourse, it shall be accorded the following treatment:
    (1) The loan shall be considered, to the extent of the recourse, an 
extension of credit by the purchaser to the seller, as well as an 
extension of credit from the seller to the borrower(s), for the purpose 
of determining whether credit extensions to a borrower are within the 
lending limits established in subpart J of this part.
    (2) The amount of the loan subject to the recourse agreement shall 
be considered a loan sold with recourse for the purpose of computing 
permanent capital ratios.
    (h) Transactions through agents. Transactions pertaining to 
purchases of loans, including the judgement on creditworthiness, may be 
performed through an agent, provided that:
    (1) The institution establishes the necessary criteria in a written 
agency agreement that outlines, at a minimum, the scope of the agency 
relationship and obligates the agent to comply with the institution's 
underwriting standards;
    (2) The institution periodically reviews the agency relationship to 
determine if the agent's actions are in the best interest of the 
institution;
    (3) The agent must be independent of the seller or intermediate 
broker in the transaction; and

[[Page 123]]

    (4) If an association's funding bank serves as its agent, the agency 
agreement must provide that:
    (i) The association can terminate the agreement upon no more than 60 
days notice to the bank;
    (ii) The association may, in its discretion, require the bank to 
purchase from the association any interest in a loan that the 
association determines does not comply with the terms of the agency 
agreement or the association's loan underwriting standards.

[57 FR 38247, Aug. 24, 1992, as amended at 58 FR 40321, July 28, 1993; 
62 FR 51015, Sept. 30, 1997; 64 FR 34517, June 28, 1999; 67 FR 1285, 
Jan. 10, 2002]



Sec. 614.4330  Loan participations.

    Agreements to purchase or sell a participation interest shall be 
subject to the provisions of Sec. 614.4325 of this subpart, and, in 
addition, shall satisfy the requirements of this section.
    (a) Participation agreements. Agreements to purchase or sell a 
participation interest in a loan shall, in addition to meeting the 
requirements of Sec. 614.4325(d) of this subpart, at a minimum:
    (1) Define the duties and responsibilities of the participating 
institution and the lead lender, and/or the servicing institution, if 
different from the lead lender.
    (2) Provide for loan servicing and monitoring of the servicer;
    (3) Set forth authorization and conditions for action in the event 
of borrower distress or default;
    (4) Provide for sharing of risk;
    (5) Set forth conditions for the offering and acceptance of the loan 
participation and termination of the agreement;
    (6) Provide for sharing of fees, interest charges, and costs between 
participating institutions;
    (7) Provide for a method of resolution of disagreements arising 
under the agreement between two or more institutions;
    (8) Specify whether the contract is assignable by either party; and
    (9) Provide for the issuance of certificates evidencing a 
participation interest in a loan.
    (b) Intrasystem participations. Loans participated between or among 
Farm Credit System institutions shall meet the borrower eligibility, 
membership, loan term, loan amount, loan security, and stock purchase 
requirements of the originating lender.

[57 FR 38247, Aug. 24, 1992, as amended at 67 FR 1285, Jan. 10, 2002]



Sec. 614.4335  Borrower stock requirements.

    (a) In general. Except as provided in paragraph (b) of this section, 
a borrower shall meet the minimum borrower stock purchase requirements 
as a condition of obtaining a loan.
    (b) Loans designated for sale into a secondary market. (1) An 
institution's bylaws may provide that the institution's minimum borrower 
stock purchase requirements do not apply if a loan is designated, at the 
time it is made, for sale into a secondary market.
    (2) If a loan designated for sale under paragraph (b)(1) of this 
section is not sold into a secondary market during the 180-day period 
that begins on the date of designation, the institution's minimum 
borrower stock purchase requirements shall apply.
    (c) Retirement of borrower stock. (1) In general. Borrower stock may 
be retired only if the institution meets the minimum permanent capital 
requirements imposed by the FCA pursuant to the Act or regulations and, 
except as provided in paragraph (c)(2) of this section, in accordance 
with the following:
    (i) Borrower stock may be retired if the entire loan is sold without 
recourse, provided that when the loan is sold without recourse to 
another Farm Credit System institution, the borrower may elect to hold 
stock in either the selling or purchasing institution.
    (ii) Borrower stock may not be retired when the entire loan is sold 
with recourse.
    (iii) When an interest in a loan is sold without recourse, a 
proportionate amount of borrower stock may be retired, but in no event 
may stock be retired below the institution's minimum stock purchase 
requirements for the interest retained.
    (iv) If an institution repurchases a loan on which the stock has 
been retired, the borrower shall be required to repurchase stock in the 
amount of the minimum stock purchase requirement.

[[Page 124]]

    (2) Loans sold into a secondary market. An institution's bylaws may 
provide that all outstanding voting stock held by a borrower with 
respect to a loan shall be retired when the loan is sold into a 
secondary market.
    (d) Applicability. In the case of a loan sold into a secondary 
market under title VIII of the Act, paragraphs (b)(1) and (c)(2) of this 
section apply regardless of whether the institution retains a 
subordinated participation interest in a loan or pool of loans or 
contributes to a cash reserve.

[62 FR 63646, Dec. 2, 1997]



Sec. 614.4337  Disclosure to borrowers.

    When a loan or an interest in a loan other than a participation 
interest is sold with servicing rights, the disclosure shall be made to 
the borrower in accordance with this section:
    (a) The selling institution shall disclose to the borrower at least 
10 days prior to the borrower's next payment date;
    (1) The name, address, and telephone number of the purchasing 
institution;
    (2) The name and address of the party to whom payment is to be made;
    (3) A description of the impact of the sale on statutory borrower 
rights after the sale;
    (4) Any terms in the agreement that would permit a purchaser to 
change the terms or conditions of the loan.
    (b) A Farm Credit System institution that purchases a loan or a non-
participation interest therein shall not take any servicing action that 
adversely affects the borrower until it ensures that disclosure has been 
made to the borrower of:
    (1) The name, address, and telephone number of the purchasing 
institution; and
    (2) The address where the payment should be sent.



                    Subpart I_Loss-Sharing Agreements



Sec. 614.4340  General.

    (a) Upon the approval of the board of directors of the respective 
Farm Credit System institutions, any System bank, association, or 
service corporation or service association may enter into an agreement 
to share loan and other losses with any other institution(s) of the 
System. As appropriate, a loss-sharing agreement may contain provisions 
relating to definitions of terms, terms and conditions for activation, 
determinations of assessment formulas, limitations on assessments, 
reimbursements, administration, arbitration, and provisions for 
amendment and termination.
    (b) System institutions may agree among themselves to share losses 
for the purpose of protecting against the impairment of capital stock or 
participation certificates, or for any other purpose. Agreements may 
provide for sharing losses that arise in the future or that were 
recognized by one or more of the signatory institutions before the date 
of the agreement. Agreements may contain provisions that are not 
entirely reciprocal among the signatories to the agreement. Loss-sharing 
agreements can provide for the sharing of loan losses, operating losses, 
casualty losses, losses on high risk assets, or any other losses.

[49 FR 48910, Dec. 17, 1984, as amended at 54 FR 1151, Jan. 12, 1989; 54 
FR 50736, Dec. 11, 1989]



Sec. 614.4341  Financial assistance.

    No institution shall reverse any financial assistance provided under 
the 37-Bank Capital Preservation Agreement, or any other capital 
preservation/loss-sharing program that was received or accrued prior to 
July 1, 1986.

[53 FR 3191, Feb. 4, 1988]



Sec. 614.4345  Guaranty agreements.

    Guaranty agreements under which a percentage of the risk associated 
with specific loans is assumed may be entered into by or among System 
banks and associations.

[49 FR 48910, Dec. 17, 1984, as amended at 54 FR 1151, Jan. 12, 1989; 54 
FR 50736, Dec. 11, 1989]



                  Subpart J_Lending and Leasing Limits

    Source: 58 FR 40321, July 28, 1993, unless otherwise noted.

[[Page 125]]



Sec. 614.4350  Definitions.

    For purposes of this subpart, the following definitions shall apply:
    (a) Borrower means an individual, partnership, joint venture, trust, 
corporation, or other business entity to which an institution has made a 
loan or a commitment to make a loan either directly or indirectly. 
Excluded are a Farm Credit System association or other financing 
institution that comply with the criteria in section 1.7(b) of the Act 
and the regulations in subpart P of this part. For the purposes of this 
subpart, the term ``borrower'' includes any customer to whom an 
institution has made a lease or a commitment to make a lease.
    (b) Commitment means a legally binding obligation to extend credit, 
enter into lease financing, purchase or participate in loans or leases, 
or pay the obligation of another, which becomes effective at the time 
such commitment is made.
    (c) Loan means any extension of, or commitment to extend, credit 
authorized under the Act whether it results from direct negotiations 
between a lender and a borrower or is purchased from or discounted for 
another lender. This includes participation interests. The term ``loan'' 
includes loans and leases outstanding, obligated but undisbursed 
commitments to lend or lease, contracts of sale, notes receivable, other 
similar obligations, guarantees, and all types of leases. An institution 
``makes a loan or lease'' when it enters into a commitment to lend or 
lease, advances new funds, substitutes a different borrower or lessee 
for a borrower or lessee who is released, or where any other person's 
liability is added to the outstanding loan, lease or commitment.
    (d) Primary liability means an obligation to repay that is not 
conditioned upon an unsuccessful prior demand on another party.
    (e) Secondary liability means an obligation to repay that only 
arises after an unsuccessful demand on another party.

[58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999]



Sec. 614.4351  Computation of lending and leasing limit base.

    (a) Lending and leasing limit base. An institution's lending and 
leasing limit base is composed of the permanent capital of the 
institution, as defined in Sec. 615.5201(l) of this chapter, with 
adjustments provided for in Sec. 615.5210(d), (e)(1), (e)(2), (e)(3), 
(e)(4), and (e)(6) of this chapter, and with the following further 
adjustments:
    (1) Where one institution invests in another institution in 
connection with the sale of a loan participation interest, the amount of 
investment in the institution purchasing this participation interest 
that is owned by the institution originating the loan shall be counted 
in the lending and leasing limit base of the originating institution and 
shall not be counted in the lending and leasing limit base of the 
purchasing institution.
    (2) Stock protected under section 4.9A of the Act may be included in 
the lending and leasing limit base until January 1, 1998.
    (b) Timing of calculation. The lending limit base will be calculated 
on a monthly basis as of the preceding month end.

[58 FR 40321, July 28, 1993, as amended at 59 FR 37403, July 22, 1994; 
64 FR 34517, June 28, 1999]



Sec. 614.4352  Farm Credit Banks and agricultural credit banks.

    (a) Farm Credit Banks. No Farm Credit Bank may make or discount a 
loan to a borrower, if the consolidated amount of all loans outstanding 
and undisbursed commitments to that borrower exceed 25 percent of the 
bank's lending and leasing limit base.
    (b) Agricultural credit banks. (1) No agricultural credit bank may 
make or discount a loan to a borrower under the authority of title I of 
the Act, if the consolidated amount of all loans outstanding and 
undisbursed commitments to that borrower exceeds 25 percent of the 
bank's lending and leasing limit base.
    (2) No agricultural credit bank may make or discount a loan to a 
borrower under the authority of title III of the Act, if the 
consolidated amount of all loans outstanding and undisbursed commitments 
to that borrower exceeds

[[Page 126]]

the lending and leasing limits prescribed in Sec. 614.4355 of this 
subpart.

[58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999]



Sec. 614.4353  Direct lender associations.

    No association may make a loan to a borrower, if the consolidated 
amount of all loans outstanding and undisbursed commitments to that 
borrower exceeds 25 percent of the association's lending and leasing 
limit base.

[58 FR 40321, July 28, 1999, as amended at 64 FR 34517, June 28, 1999]



Sec. 614.4354  Federal land bank associations.

    No Federal land bank association may assume endorsement liability on 
any loan if the total amount of the association's endorsement liability 
on loans outstanding and undisbursed commitments to that borrower would 
exceed 25 percent of the association's lending and leasing limit base.

[58 FR 40321, July 28, 1999, as amended at 64 FR 34517, June 28, 1999]



Sec. 614.4355  Banks for cooperatives.

    No bank for cooperatives may make a loan if the consolidated amount 
of all loans outstanding and undisbursed commitments to that borrower 
exceeds the following percentages of the lending and leasing limit base 
of the bank:
    (a) Basic limit. (1) Term loans to eligible cooperatives: 25 
percent.
    (2) Term loans to foreign and domestic parties: 10 percent.
    (3) Lease loans qualifying under Sec. 614.4020(a)(3) and applying 
to the lessee: 25 percent.
    (4) Standby letters of credit qualifying under Sec. 614.4810: 35 
percent.
    (5) Guarantees qualifying under Sec. 614.4800: 35 percent.
    (6) Seasonal loans exclusive of commodity loans qualifying under 
Sec. 614.4231: 35 percent.
    (7) Foreign trade receivables qualifying under Sec. 614.4700: 50 
percent.
    (8) Bankers' acceptances held qualifying under Sec. 614.4710 and 
commodity loans qualifying under Sec. 614.4231: 50 percent.
    (9) Export and import letters of credit qualifying under Sec. 
614.4321: 50 percent.
    (b) Total limit. (1) The sum of term and seasonal loans exclusive of 
commodity loans qualifying under Sec. 614.4231: 35 percent.
    (2) The sum of paragraphs (a)(1) through (a)(9) of this section: 50 
percent.

[58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997; 
64 FR 34517, June 28, 1999]



Sec. 614.4356  Farm Credit Leasing Services Corporation.

    The Farm Credit Leasing Services Corporation may enter into a lease 
agreement with a lessee if the consolidated amount of all leases and 
undisbursed commitments to that lessee or any related entities does not 
exceed 25 percent of its lending and leasing limit base.

[64 FR 34517, June 28, 1999]



Sec. 614.4357  Banks for cooperatives look-through notes.

    Where a bank for cooperatives makes a loan to an eligible borrower 
that is secured by notes of individuals or business entities, the basic 
lending limits provided in Sec. 614.4355 may be applied to each 
original notemaker rather than to the loan to the eligible borrower, if:
    (a) Each note is current and carries a full recourse endorsement or 
unconditional guarantee by the borrower;
    (b) The bank determines the financial condition, repayment capacity, 
and other credit factors of the loan to the original maker reasonably 
justify the credit granted by the endorser; and
    (c) The loans are fully supported by documented loan files, which 
include, at a minimum:
    (1) A credit report supporting the bank's finding that the financial 
condition, repayment capacity, and other factors of the maker of the 
notes being pledged justify the credit extended by the bank and/or 
endorser;
    (2) A certification by a bank officer designated for that purpose by 
the loan or executive committee that the financial responsibility of the 
original notemaker has been evaluated by the loan committee and the bank 
is relying primarily on each such maker for the payment of the 
obligation; and

[[Page 127]]

    (3) Other credit information normally required of a borrower when 
making and administering a loan.

[58 FR 40321, July 28, 1993. Redesignated at 64 FR 34517, June 28, 1999]



Sec. 614.4358  Computation of obligations.

    (a) Inclusions. The computation of total loans to each borrower for 
the purpose of computing their lending and leasing limit shall include:
    (1) The total unpaid principal of all loans and lease balances 
outstanding and the total amount of undisbursed commitments except as 
excluded by paragraph (b) of this section. This amount shall include 
loans that have been charged off on the books of the institution in 
whole or in part but have not been collected, except to the extent that 
such amounts are not legally collectible;
    (2) Purchased interests in loans, including participation interests, 
to the extent of the amount of the purchased interest, including any 
undisbursed commitment;
    (3) Loans attributed to a borrower in accordance with Sec. 
614.4359.
    (b) Exclusions. The following loans when adequately documented in 
the loan file, may be excluded from loans to a borrower subject to the 
lending and leasing limit:
    (1) Any loan or portion of a loan that carries a full faith and 
credit performance guaranty or surety of any department, agency, bureau, 
board, commission, or establishment of the United States government, 
provided there is no evidence to suggest that the guaranty has become 
unenforceable and the institution can demonstrate that it is in 
compliance with the terms and conditions of the guaranty.
    (2) Any loan or portion of a loan guaranteed by a Farm Credit System 
institution, pursuant to the provisions of Sec. 614.4345 on guaranty 
agreements. This exclusion does not apply to the institution providing 
the guaranty.
    (3) Any loan or portion of a loan that is secured by bonds, notes, 
certificates of indebtedness, or Treasury bills of the United States or 
by other obligations guaranteed as to principal and interest by the 
United States government, provided the loans are fully secured by the 
current market value of such obligations. If the market value of the 
collateral declines to below the balance of the loan, and the entire 
loan, individually, or when combined with other loans and undisbursed 
commitments to or attributed to the borrower, causes the borrower's 
total indebtedness to exceed the institution's lending limit, the 
institution shall have 5 business days to bring the loan into 
conformance before it shall be deemed to be in violation of the lending 
limit.
    (4) Interests in loans sold, including participation interests, when 
the sale agreement meets the following requirements:
    (i) The interest must be sold without recourse; and
    (ii) The agreement under which the interest is sold must provide for 
the sharing of all payments of principal, collection expenses, 
collateral proceeds, and risk of loss on a pro rata basis according to 
the percentage interest in the principal amount of the loan. Agreements 
that provide for the pro rata sharing to commence at the time of default 
or similar event, as defined in the agreement under which the interest 
is sold, shall be considered to be pro rata agreements, notwithstanding 
the fact that advances are made and payments are distributed on a basis 
other than pro rata prior to that time.
    (5) Interests in leases sold when the sale agreement provides that:
    (i) The interest sold must be:
    (A) An undivided interest in all the lease payments or the residual 
value of all the leased property; or
    (B) A fractional undivided interest in the total lease transaction;
    (ii) The interest must be sold without recourse; and
    (iii) Sharing of all lease payments must be on a pro rata basis 
according to the percentage interest in the lease payments.
    (6) Loans sold in their entirety to a pooler certified by the 
Federal Agricultural Mortgage Corporation, if an interest in a pool of 
subordinated participation interests is purchased to satisfy

[[Page 128]]

the requirements of title VIII of the Act.

[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, 
June 28, 1999; 67 FR 1285, Jan. 10, 2002]



Sec. 614.4359  Attribution rules.

    (a) For the purpose of applying the lending and leasing limit to the 
indebtedness of a borrower, loans to a related borrower shall be 
combined with loans outstanding to the borrower and attributed to the 
borrower when any one of the following three conditions exist:
    (1) Liability. (i) The borrower has primary or secondary liability 
on a loan made to the related borrower. The amount of such loan 
attributable to the borrower is limited to the amount of the borrower's 
liability.
    (ii) This section does not require attribution of a guarantee taken 
out of an abundance of caution. To qualify for the abundance of caution 
exception to the requirements of this subpart, the institution must 
document in the loan file that the loan, when evaluated under the loan 
underwriting standards adopted pursuant to Sec. 614.4150 of this part 
without considering the guarantee, would support the credit decision 
under the same basic terms and conditions.
    (iii) For the banks for cooperatives and agricultural credit banks 
operating under title III authorities of the Act, look-through notes are 
exempt from the lending limit provisions provided they meet the criteria 
of Sec. 614.4357.
    (2) Financial interdependence. The operations of a borrower and 
related borrower are financially interdependent. Financial 
interdependence exists if the borrower is the primary source of 
repayment for a related borrower's loan, or if the operations of the 
borrower and the related borrower are commingled.
    (i) The borrower shall be considered the primary source of repayment 
on the loan to the related borrower if the borrower is obligated to 
supply 50 percent or more of the related borrower's annual gross 
receipts, and reliance on the income from one another is such that, 
regardless of the solvency and liquidity of the borrower's operations, 
the debt service obligation of the related borrower could not be met if 
income flow from the borrower is interrupted or terminated. For the 
purpose of this paragraph, gross receipts include, but are not limited 
to, revenues, intercompany loans, dividends and capital contributions.
    (ii) The assets or operations of the borrower and related borrower 
are considered to be commingled if they cannot be separated without 
materially impacting the economic survival of the individual operations 
and their ability to repay their loans.
    (3) Control. The borrower directly or indirectly controls the 
related borrower. A borrower is deemed to control a related borrower if 
either paragraph (a)(3)(i) or (a)(3)(ii) of this section exist:
    (i) The borrower, directly or acting through one or more other 
persons, owns 50 percent or more of the stock of the related borrower; 
or
    (ii) The borrower, directly or acting through one or more other 
persons, owns or has the power to vote 25 percent or more of the voting 
stock of a related borrower, and meets at least one of the following 
three conditions:
    (A) The borrower shares a common directorate or management with a 
related borrower. A common directorate is deemed to exist when a 
majority of the directors, trustees, or other persons performing similar 
functions of one borrower also serves the other borrower in a like 
capacity. A common management is deemed to exist if any employee of the 
borrower holds the position of chief executive officer, chief operating 
officer, chief financial officer, or an equivalent position in the 
related borrower's organization.
    (B) The borrower controls in any manner the election of a majority 
of directors of a related borrower.
    (C) The borrower exercises or has the power to exercise a 
controlling influence over management of a related borrower's operations 
through the provisions of management placement or marketing agreements, 
or providing services such as insurance carrier or bookkeeping.
    (b) Each institution shall make provisions for appropriately 
designating loans to a related borrower that are combined with the 
borrower's loan and attributed to the borrower to ensure

[[Page 129]]

that loans to the borrower are within the lending and leasing limits.
    (c) Attribution rules table. For the purposes of applying the 
lending and leasing limit to the indebtedness of a borrower, loans to a 
related borrower shall be combined with loans outstanding to the 
borrower and attributed to the borrower when any one of three 
attribution rules are met as outlined in Table 1.

                                 Table 1
------------------------------------------------------------------------
                                    Criteria per Sec.
        Attribution rule                614.4359            Attribute
------------------------------------------------------------------------
(A) Liability..................  Borrower has primary    Yes.*
                                  or secondary
                                  liability.
*to the extent of the            Borrower's liability    No.*
 borrower's liability.            is taken out of an
                                  abundance of caution.
                                 Look-through notes (BC  No.
                                  only).
(B) Financial Interdependence..  Source of Repayment:
(Economic survival of the        Borrower is obligated   Yes.
 borrower's operation will        to supply 50 percent
 materially impact economic       or more of related
 survival of the related          borrower's annual
 borrowers operation).            gross receipts, and
                                  reliance on the
                                  income from one
                                  another is such that
                                  the debt service of
                                  the related borrower
                                  could not be met if
                                  income flow from the
                                  borrower is
                                  interrupted or
                                  terminated.
                                 Commingled Operations:
                                 Assets or operations    Yes.
                                  of the borrowers are
                                  commingled and cannot
                                  be separated without
                                  materially impacting
                                  the borrowers'
                                  repayment capacity
(C) Control....................  The borrower owns 50    Yes.
                                  percent or more of
                                  the stock of the
                                  related borrower.
(The borrower, directly or       The borrower owns or    Yes.
 indirectly, controls the         has the power to vote
 related borrower).               25 percent or more of
                                  the voting stock of a
                                  related borrower, and
                                 (1) Shares a common
                                  directorate or
                                  management with a
                                  related borrower, or.
                                 (2) Controls the
                                  election of a
                                  majority of directors
                                  of a related
                                  borrower, or.
                                 (3) Exercises a
                                  controlling influence
                                  over management of a
                                  related borrower's
                                  operations through
                                  the provisions of
                                  management placement
                                  or marketing
                                  agreements, or
                                  providing services
                                  such as insurance
                                  carrier or
                                  bookkeeping.
------------------------------------------------------------------------


[58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997. 
Redesignated and amended at 64 FR 34517, June 28, 1999]



Sec. 614.4360  Lending and leasing limit violations.

    (a) Each loan, except loans that are grandfathered under the 
provisions of Sec. 614.4361, shall be in compliance with the lending 
and leasing limit on the date the loan is made, and at all times 
thereafter. Except as provided for in paragraph (b) of this section, 
loans which are in violation of the lending and leasing limit shall 
comply with the provisions of Sec. 615.5090 of this chapter.
    (b) Under the following conditions a loan that violates the lending 
and leasing limit shall be exempt from the provisions of Sec. 615.5090 
of this chapter:
    (1) A loan in which the total amount of principal outstanding and 
undisbursed commitments exceed the lending and leasing limit because of 
a decline in permanent capital after the loan was made.
    (2) Loans on which funds are advanced pursuant to a commitment that 
was within the lending and leasing limit at the time the commitment was 
made, even if the lending and leasing limit subsequently declines.
    (3) A loan that exceeds the lending and leasing limit as a result of 
the consolidation of the debt of two or more borrowers as a consequence 
of a merger or the acquisition of one borrower's operations by another 
borrower. Such a loan may be extended or renewed, for a period not to 
exceed 1 year from the date of such merger or acquisition, during which 
period the institution may advance and/or readvance funds not to exceed 
the greater of:
    (i) 110 percent of the advances to the borrower in the prior 
calendar year; or
    (ii) 110 percent of the average of the advances to the borrower in 
the past 3 calendar years.
    (c) For all lending and leasing limit violations except those 
exempted under Sec. 614.4360(b)(3), within 90 days of the

[[Page 130]]

identification of the violation, the institution must develop a written 
plan prescribing the specific actions that will be taken by the 
institution to bring the total amount of loans and commitments 
outstanding or attributed to that borrower within the new lending and 
leasing limit, and must document the plan in the loan file.
    (d) All leases, except those permitted under Sec. 614.4361, reading 
``effective date of this subpart'' in Sec. 614.4361(a) and ``effective 
date of these regulations'' in Sec. 614.4361(b) as ``effective date of 
this amendment,'' must comply with the lending and leasing limit on the 
date the lease is made, and at all times after that.
    (e) Nothing in this section limits the authority of the FCA to take 
administrative action, including, but not limited to, monetary 
penalties, as a result of lending and leasing limit violations.

[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, 
June 28, 1999]



Sec. 614.4361  Transition.

    (a) A loan (not including a commitment) made or attributed to a 
borrower prior to the effective date of this subpart, which does not 
comply with the limits contained in this subpart, will not be considered 
a violation of the lending and leasing limits during the existing 
contract terms of such loans. A new loan must conform with the rules set 
forth in this subpart. A new loan includes but is not limited to:
    (1) Funds advanced in excess of existing commitment;
    (2) A different borrower is substituted for a borrower who is 
subsequently released; or
    (3) An additional person becomes an obligor on the loan.
    (b) A commitment made prior to the effective date of these 
regulations which exceeds the lending and leasing limit may be funded to 
the full extent of the legal commitment. Any advances that exceed the 
lending and leasing limit are subject to the provisions prescribed in 
Sec. 614.4360.

[58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, 
34518, June 28, 1999]

Subparts K-L [Reserved]



                  Subpart M_Loan Approval Requirements



Sec. 614.4450  General requirements.

    Authority for loan approval is vested in the Farm Credit banks and 
associations.

[51 FR 41947, Nov. 20, 1986]



Sec. 614.4460  Loan approval responsibility.

    Approval of the following loans is the responsibility of each 
district board of directors. The responsibility may be discharged by 
prior approval of such loans by the appropriate bank board, or 
establishment of a policy under which the authority to approve such 
loans is delegated to bank management (except paragraphs (d) and (e) of 
this section which cannot be delegated to management). If the approval 
of such loans is to be delegated to bank management, the loans are to be 
submitted promptly for post review by the bank board and a report 
disclosing all material facts relating to the credit relationship 
involved shall be submitted annually by bank management to the district 
board.
    (a) Loans to a member of the Farm Credit Administration Board.
    (b) Loans to a member of the district board.
    (c) Loans to a cooperative of which a member of a bank board of 
directors is a member of the board of directors, an officer, or 
employee.
    (d) Loans to the president of a Farm Credit bank.
    (e) Loans to employees of the Farm Credit Administration.
    (f) Loans where directors, officers or employees designated above:
    (1) Are to receive proceeds of the loan in excess of an amount 
prescribed by an appropriate bank board, or
    (2) Are stockholders or owners of equity in a legal entity to which 
the loan is to be made wherein they have a significant personal or 
beneficial interest in the loan proceeds thereof or the security, or

[[Page 131]]

    (3) Are endorsers, guarantors or co-makers in excess of an amount 
prescribed by an appropriate bank board.

[38 FR 27837, Oct. 9, 1973, as amended at 39 FR 29585, Aug. 16, 1974. 
Redesignated at 46 FR 51878, Oct. 22, 1981, and amended at 51 FR 41947, 
Nov. 20, 1986; 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989; 56 
FR 2674, Jan. 24, 1991]



Sec. 614.4470  Loans subject to bank approval.

    (a) The following loans (unless such loans are of a type prohibited 
under part 612) shall be subject to prior approval of the bank 
supervising the association in which the loan application originates:
    (1) Loans to a director of the association.
    (2) Loans to a director of an association which is under joint 
management when the application originates in one of the associations.
    (3) Loans to an employee of the association.
    (4) Loans to an employee of an association which is under joint 
management when the application originates in one of the associations.
    (5) Loans to bank employees when the application originates in one 
of the associations supervised by the employing bank.
    (b) Loans to any borrower shall be subject to the prior approval of 
the bank supervising the association in which the loan application 
originates whenever a director or an employee of the association or an 
employee of the bank supervising the association:
    (1) Will receive proceeds of the loan in excess of the amount 
prescribed by the supervising bank board, or
    (2) Has a significant personal or beneficial interest in the loan, 
the proceeds, or the security, or controls the borrower, or
    (3) Is an endorser, guarantor, or comaker with respect to the loan 
in excess of an amount prescribed by the supervising bank board.
    (c) Any loan which will result in any one borrower being obligated 
(as defined in subpart J of this part) in excess of an amount 
established by the supervising bank under its policies for delegation of 
authority to associations shall be subject to prior approval of the 
supervising bank.

[47 FR 49832, Nov. 3, 1982, as amended at 58 FR 40324, July 28, 1993; 60 
FR 20010, Apr. 24, 1995]



Subpart N_Loan Servicing Requirements; State Agricultural Loan Mediation 
                    Programs; Right of First Refusal



Sec. 614.4510  General.

    Direct lenders shall be responsible for the servicing of the loans 
that they make. However, loan participation agreements may designate 
specific loan servicing efforts to be accomplished by a participating 
institution. Each direct lender shall adopt loan servicing policies and 
procedures to assure that loans will be serviced fairly and equitably 
for the borrower while minimizing the risk for the lender. Procedures 
shall include specific plans that help preserve the quality of sound 
loans and that help correct credit deficiencies as they develop.
    (a) The Farm Credit Bank shall provide guidelines for the servicing 
of loans by the Federal land bank associations. The servicing may be 
accomplished either under the direct supervision of the bank or under 
delegated authority.
    (b) The servicing of loans which are participated in by Farm Credit 
System institutions shall be in accordance with Sec. 614.4325.
    (c) In the development of loan servicing policies and procedures, 
the following criteria shall be included:
    (1) Term loans. The objective shall be to provide borrowers with 
prompt and efficient service with respect to actions in such areas as 
personal liability, partial release of security, insurance requirements 
or adjustments, loan divisions or transfers, or conditional payments. 
Procedures shall provide for adequate inspections, reanalyses, 
reappraisals, controls on payment of insurance and taxes (and for 
payment when necessary), and prompt exercise of legal options to 
preserve the lender's collateral position or guard against loss. Loan 
servicing policies for rural

[[Page 132]]

home loans shall recognize the inherent differences between agricultural 
and rural home lending.
    (2) Operating loans. The objective shall be to service such loans to 
assure disbursement in accordance with the basis of approval, repayment 
from the sources obligated or pledged, and to minimize risk exposure to 
the lender. Procedures shall require:
    (i) The procurement of periodic operating data essential for 
maintaining control, for the proper analysis of such data, and prompt 
action as needed;
    (ii) Inspections, reappraisals, and borrower visits appropriate to 
the nature and quality of the loan; and
    (iii) Controls on insurance, margin requirements, warehousing, and 
the prompt exercise of legal options to preserve the lender's collateral 
position and guard against loss.
    (3) Legal entity loans. In addition to the foregoing servicing 
objectives for term and operating loans, procedures for servicing these 
loans shall require procurement of data on changes in ownership, 
control, and management; review of business objectives, financing 
programs, organizational structure, and operating methods, and 
appropriate analysis of such changes with provision for action as 
needed.

[37 FR 11424, June 7, 1972, as amended at 40 FR 17745, Apr. 22, 1975. 
Redesignated at 46 FR 51878, Oct. 22, 1981 and amended at 48 FR 54475, 
Dec. 5, 1983; 51 FR 39502, Oct. 28, 1986; 57 FR 38250, Aug. 24, 1992; 61 
FR 67187, Dec. 20, 1996]



Sec. 614.4511  Federal land bank association compensation.

    Bank financial policies on Federal land bank association 
compensation are subject to the approval of the bank board. Compensation 
may be paid to associations in an amount which reflects the value of the 
services being rendered for the bank and other financial policies and 
objectives. Compensation plans and changes thereto shall be approved by 
the bank board.

[47 FR 12146, Mar. 22, 1982, as amended at 54 FR 1151, Jan. 12, 1989; 54 
FR 50736, Dec. 11, 1989]



Sec. 614.4512  Definitions.

    For the purposes of this subpart, the following definitions apply:
    (a) Application for restructuring means a written request--
    (1) From a borrower for the restructuring of a distressed loan in 
accordance with a preliminary restructuring plan proposed by the 
borrower as a part of the application;
    (2) Submitted on the appropriate forms prescribed by the qualified 
lender; and
    (3) Accompanied by sufficient financial information and repayment 
projections, where appropriate, as required by the qualified lender to 
support a sound credit decision.
    (b) Certified lender means a qualified lender that has been 
certified for financial assistance under section 6.4 of the Act.
    (c) Cost of foreclosure means:
    (1) The difference between the outstanding balance due as provided 
by the loan documents on a loan made by a qualified lender and the 
liquidation value of the loan, taking into consideration the borrower's 
repayment capacity and the liquidation value of the collateral used to 
secure the loan;
    (2) The estimated cost of maintaining a loan classified as a high-
risk asset;
    (3) The estimated cost of administrative and legal actions necessary 
to foreclose a loan and dispose of property acquired as the result of 
the foreclosure, including attorneys' fees and court costs;
    (4) The estimated cost of changes in the value of collateral used to 
secure a loan during the period beginning on the date of the initiation 
of an action to foreclose or liquidate the loan and ending on the date 
of the disposition of the collateral; and
    (5) All other costs incurred as the result of the foreclosure or 
liquidation of a loan.
    (d) Distressed loan means a loan for which the borrower does not 
have the financial capacity, as determined by the lender, to pay 
according to its terms and which exhibits one or more of the following 
characteristics:
    (1) The borrower is demonstrating adverse financial and repayment 
trends;
    (2) The loan is delinquent or past due under the terms of the loan 
contract;
    (3) One or both of the factors listed in paragraphs (d) (1) and (2) 
of this section, together with inadequate

[[Page 133]]

collateralization, present a high probability of loss to the lender.
    (e) Foreclosure proceeding means:
    (1) A foreclosure or similar legal proceeding to enforce a lien on 
property, whether real or personal, that secures a noninterest-earning 
asset or distressed loan; or
    (2) The seizing of and realizing on non-real property collateral, 
other than collateral subject to a statutory lien arising under title I 
or II of the Act to effect collection of a nonaccrual or distressed 
loan.
    (f) Loan means a loan made to a farmer, rancher, or producer or 
harvester of aquatic products, for any agricultural or aquatic purpose 
and other credit needs of the borrower, including financing for basic 
processing and marketing directly related to the borrower's operations 
and those of other eligible farmers, ranchers, and producers or 
harvesters of aquatic products.
    (g) Qualified lender means:
    (1) A System institution that makes loans (as defined in paragraph 
(f) of this section) except a bank for cooperatives; and
    (2) Each bank, institution, corporation, company, union, and 
association described in section 1.7(b)(1)(B) of the Act, but only with 
respect to loans discounted or pledged under section 1.7(b)(1) of the 
Act.
    (h) Restructure or restructuring means rescheduling, reamortization, 
renewal, deferral of principal or interest, monetary concessions, and 
the taking of any other action to modify the terms of, or forbear on, a 
loan in any way that will make it probable that the operations of the 
borrower will become financially viable.

[53 FR 35454, Sept. 14, 1988, as amended at 58 FR 48791, Sept. 20, 1993]



Sec. 614.4513  Uninsured voluntary and involuntary accounts.

    (a) Borrowers may make voluntary advance payments on their loans or, 
under agreement with a System institution, may make voluntary advance 
conditional payments intended to be applied to future maturities. The 
monies in the advance conditional payment accounts may be available for 
return to the borrower in lieu of increasing his loan. System 
institutions may pay interest on advance conditional payments for the 
time the funds are held unapplied at a rate not to exceed the rate 
charged on the related loan(s). System institutions shall hold any 
advance conditional payments received in accordance with this section in 
voluntary advance payment accounts.
    (b) System institutions may establish involuntary payment accounts 
including, but not limited to, funds held for the borrower, such as loan 
proceeds to be disbursed for which the borrower is obligated; the 
unapplied insurance proceeds arising from any insured loss; and total 
insurance premiums and applicable taxes collected in advance in 
connection with any loan.

[53 FR 35454, Sept. 14, 1988]



                   Subpart O_Special Lending Programs



Sec. 614.4525  General.

    (a) To provide the best possible credit service to farmers, 
ranchers, and producers or harvesters of aquatic products, bank and 
association boards may adopt policies permitting the bank or association 
to enter into agreements with agents, dealers, cooperatives, other 
lenders, and individuals to facilitate its making of loans to eligible 
farmers, ranchers, and producers or harvesters of aquatic products.
    (b) A bank or association, pursuant to its board policies, may enter 
into an agreement with third parties that will accrue to the benefit of 
the borrower and the lender to perform functions in the making or 
servicing of loans other than the evaluation and approval of loans. When 
such an agreement is developed, and the territory covered by the 
agreement extends outside the territorial limits of the originating 
association or bank, the written consent of all affected banks or 
associations is required. Reasonable compensation may be paid for 
services rendered.
    (c) Production credit associations and agricultural credit 
associations may enter into agreements with private dealers or 
cooperatives permitting them to take applications for loans from the 
association to purchase farm or aquatic equipment, supplies, and

[[Page 134]]

machinery. Such agreements shall normally be limited to persons or 
businesses selling to farmers, ranchers, or producers or harvesters of 
aquatic products and shall contain credit limits consistent with sound 
credit standards. When the sales territory of a dealer or cooperative 
extends outside the territory of the originating association or the Farm 
Credit district, written consent of each bank and association affected 
shall be obtained before making such loans. Reasonable compensation may 
be paid or charged to a dealer or cooperative for services rendered in 
connection with such programs.
    (d) Farm Credit System institutions that are direct lenders may 
enter into memoranda of understanding among themselves or with other 
lenders for the simultaneous processing and closing of loans to a mutual 
borrower. The basic policies and principles of each System lender shall 
apply.

[47 FR 12146, Mar. 22, 1982. Redesignated at 53 FR 35454, Sept. 14, 
1988, and amended at 55 FR 24886, June 19, 1990; 61 FR 67187, Dec. 20, 
1996]



Sec. 614.4530  Special loans, production credit associations and 
agricultural credit associations.

    Under policies approved by the bank board and procedures developed 
by the bank, production credit associations and agricultural credit 
associations may make the following special types of loans on 
commodities covered by price support programs. Notwithstanding the 
regulations covering other loans made by an association, loans may be 
made to members on any commodity for which a Commodity Credit 
Corporation price support program is in effect, at such rate of interest 
and upon such terms as the bank board may prescribe subject to the 
following conditions:
    (a) The commodity offered as security for the loan shall be eligible 
for price support under a Commodity Credit Corporation price support 
program and shall be stored in a bonded public warehouse, holding 
storage agreement for such commodity approved by Commodity Credit 
Corporation.
    (b) The member shall have complied with all Commodity Credit 
Corporation eligibility requirements.
    (c) The loan shall mature not later than 30 days prior to the 
expiration of the period during which the Commodity Credit Corporation 
loan or other price support may be obtained on the commodity and shall 
be secured by pledge of negotiable warehouse receipts covering the 
commodity.
    (d) The borrower shall appoint the association as his attorney-in-
fact to obtain a Commodity Credit Corporation loan (or other such price 
support as is available) in the event that the borrower fails to do so 
prior to maturity or repayment of the loan.

[37 FR 11424, June 7, 1972. Redesignated at 46 FR 51878, Oct. 22, 1981, 
and amended at 55 FR 24886, June 19, 1990]



  Subpart P_Farm Credit Bank and Agricultural Credit Bank Financing of 
                      Other Financing Institutions

    Source: 63 FR 36547, July 7, 1998, unless otherwise noted.



Sec. 614.4540  Other financing institution access to Farm Credit Banks 

and agricultural credit banks for funding, discount, and other similar 
financial assistance.

    (a) Basic criteria for access. Any national bank, State bank, trust 
company, agriculture credit corporation, incorporated livestock loan 
company, savings association, credit union, or any association of 
agricultural producers engaged in the making of loans to farmers and 
ranchers, and any corporation engaged in the making of loans to 
producers or harvesters of aquatic products may become an other 
financing institution (OFI) that funds, discounts, and obtains other 
similar financial assistance from a Farm Credit Bank or agricultural 
credit bank in order to extend short- and intermediate-term credit to 
eligible borrowers for authorized purposes pursuant to sections 1.10(b) 
and 2.4(a) and (b) of the Act. Each OFI shall be duly organized and 
qualified to make loans and leases under the laws of each jurisdiction 
in which it operates.

[[Page 135]]

    (b) Assured access. Each Farm Credit Bank or agricultural credit 
bank must fund, discount, or provide other similar financial assistance 
to any creditworthy OFI that:
    (1) Maintains at least 15 percent of its loan volume at a seasonal 
peak in loans and leases to farmers, ranchers, aquatic producers and 
harvesters. The Farm Credit Bank or agricultural credit bank shall not 
include the loan assets of the OFI's parent, affiliates, or subsidiaries 
when determining compliance with the requirement of this paragraph; and
    (2) Executes a general financing agreement with the Farm Credit Bank 
or agricultural credit bank that establishes a financing or discount 
relationship for at least 2 years.
    (c) Underwriting standards. Each Farm Credit Bank and agricultural 
credit bank shall establish objective policies, procedures, pricing 
guidelines, and loan underwriting standards for determining the 
creditworthiness of each OFI applicant. A copy of such policies, 
procedures, guidelines, and standards shall be made available, upon 
request to each OFI and OFI applicant.
    (d) Denial of OFI access. A Farm Credit Bank or an agricultural 
credit bank may deny the funding request of any creditworthy OFI that 
meets the conditions in paragraph (b) of this section only when such 
request would:
    (1) Adversely affect a Farm Credit Bank or agricultural credit 
bank's ability to:
    (i) Achieve and maintain established or projected capital levels; or
    (ii) Raise funds in the money markets; or
    (2) Otherwise expose the Farm Credit Bank or agricultural credit 
bank to safety and soundness risks.
    (e) Notice to applicants. Each Farm Credit Bank or agricultural 
credit bank shall render its decision on an OFI application in as 
expeditious a manner as is practicable. Upon reaching a decision on an 
application, the Farm Credit Bank or agricultural credit bank shall 
provide prompt written notice of its decision to the applicant. When the 
Farm Credit Bank or agricultural credit bank makes an adverse credit 
decision on an application, the written notice shall include the 
specific reason(s) for the decision.
    (f) Reports to the board of directors. Each Farm Credit Bank and 
agricultural credit bank shall provide its board of directors with a 
written annual report regarding the scope of OFI program activities 
during the preceding fiscal year.

[63 FR 36547, July 7, 1998, as amended at 69 FR 29862, May 26, 2004]



Sec. 614.4550  Place of discount.

    A Farm Credit Bank or agricultural credit bank may provide funding, 
discounting, or other similar financial assistance to any OFI applicant. 
However, a Farm Credit Bank or agricultural credit bank cannot fund, 
discount, or extend other similar financial assistance to an OFI that 
maintains its headquarters, or has more than 50 percent of its 
outstanding loan volume to eligible borrowers who conduct agricultural 
or aquatic operations in the chartered territory of another Farm Credit 
bank unless it notifies such bank in writing within five (5) business 
days of receiving the OFI's application for financing. Two or more Farm 
Credit banks cannot simultaneously fund the same OFI.

[69 FR 29863, May 26, 2004]



Sec. 614.4560  Requirements for OFI funding relationships.

    (a) As a condition for extending funding, discount and other similar 
financial assistance to an OFI, each Farm Credit Bank or agricultural 
credit bank shall require every OFI to:
    (1) Execute a general financing agreement pursuant to the 
regulations in subpart C of part 614; and
    (2) Purchase non-voting stock in its Farm Credit Bank or 
agricultural credit bank pursuant to the bank's bylaws.
    (b) A Farm Credit Bank or agricultural credit bank shall extend 
funding, discount and other similar financial assistance to an OFI only 
for purposes and terms authorized under sections 1.10(b) and 2.4(a) and 
(b) of the Act.
    (c) Rural home loans to borrowers who are not bona fide farmers, 
ranchers, and aquatic producers and harvesters are subject to the 
restrictions in Sec. 613.3030 of this chapter. Loans that

[[Page 136]]

an OFI makes to processing and marketing operators who supply less than 
20 percent of the throughput shall be included in the calculation that 
Sec. 613.3010(b)(1) of this chapter establishes for Farm Credit Banks 
and agricultural credit banks.
    (d) The borrower rights requirements in part C of title IV of the 
Act, and the regulations in part 617 of this chapter shall apply to all 
loans that an OFI funds or discounts through a Farm Credit Bank or 
agricultural credit bank, unless such loans are subject to the Truth-in-
Lending Act, 15 U.S.C. 1601 et seq.
    (e) As a condition for obtaining funding, discount and other similar 
financial assistance from a Farm Credit Bank or agricultural credit 
bank, all State banks, trust companies, or State-chartered savings 
associations shall execute a written consent that authorizes their State 
regulators to furnish examination reports to the Farm Credit 
Administration upon its request. Any OFI that is not a depository 
institution shall consent in writing to examination by the Farm Credit 
Administration as a condition precedent for obtaining funding, discount 
and other similar financial assistance from a Farm Credit Bank or 
agricultural credit bank, and file such consent with its Farm Credit 
funding bank.

[63 FR 36547, July 7, 1998, as amended at 69 FR 10906, Mar. 9, 2004; 69 
FR 29863, May 26, 2004]



Sec. 614.4570  Recourse and security.

    (a) Full recourse and guarantee. All obligations that are funded or 
discounted through a Farm Credit Bank or agricultural credit bank shall 
be endorsed with the full recourse or unconditional guarantee of the 
OFI.
    (b) General collateral. (1) Each Farm Credit Bank and agricultural 
credit bank shall take as collateral all notes, drafts, and other 
obligations that it funds or discounts for each OFI; and
    (2) Each Farm Credit Bank and agricultural credit bank shall 
perfect, in accordance with State law, a senior security interest in any 
and all obligations and the proceeds thereunder that the OFI pledges as 
collateral.
    (c) Supplemental collateral. (1) Each Farm Credit Bank and 
agricultural credit bank shall develop policies and loan underwriting 
standards that establish uniform and objective requirements to determine 
the need and amount of supplemental collateral or other credit 
enhancements that each OFI shall provide as a condition for obtaining 
funding, discount and other similar financial assistance from such Farm 
Credit bank.
    (2) The amount, type, and quality of supplemental collateral or 
other credit enhancements required for each OFI shall be established in 
the general financing agreement and shall be proportional to the level 
of risk that the OFI poses to the Farm Credit Bank or agricultural 
credit bank.



Sec. 614.4580  Limitation on the extension of funding, discount and 
other similar financial assistance to an OFI.

    (a) No obligation shall be purchased from or discounted for and no 
loan shall be made or other similar financial assistance extended by a 
Farm Credit Bank or agricultural credit bank to an OFI if the amount of 
such obligation added to the aggregate liabilities of such OFI, whether 
direct or contingent (other than bona fide deposit liabilities), exceeds 
ten times the paid-in and unimpaired capital and surplus of such OFI or 
the amount of such liabilities permitted under the laws of the 
jurisdiction creating such OFI, whichever is less.
    (b) It shall be unlawful for any national bank that is indebted to 
any Farm Credit Bank or agricultural credit bank, on paper discounted or 
purchased, to incur any additional indebtedness, if by virtue of such 
additional indebtedness its aggregate liabilities, direct or contingent, 
will exceed the limitation described in paragraph (a) of this section.



Sec. 614.4590  Equitable treatment of OFIs and Farm Credit System 
associations.

    (a) Each Farm Credit Bank and agricultural credit bank shall apply 
comparable and objective loan underwriting standards and pricing 
requirements to both OFIs and Farm Credit System direct lender 
associations.
    (b) The total charges that a Farm Credit Bank or agricultural credit

[[Page 137]]

bank assesses an OFI through capitalization requirements, interest 
rates, and fees shall be comparable to the charges that the same Farm 
Credit Bank or agricultural credit bank imposes on its direct lender 
associations. Any variation between the overall funding costs that OFIs 
and direct lender associations are charged by the same funding bank 
shall result from differences in credit risk and administrative costs to 
the Farm Credit Bank or agricultural credit bank.
    (c) Upon request, each Farm Credit Bank or agricultural credit bank 
must provide each OFI and OFI applicant, that has or is seeking to 
establish a funding relationship with the Farm Credit Bank or 
agricultural credit bank, a copy of its policies, procedures, loan 
underwriting standards, and pricing guidelines for OFIs. The pricing 
guidelines must identify the specific components that make up the cost 
of funds for OFIs, and the amount of these components expressed in basis 
points.
    (d) Upon request of any OFI or OFI applicant, that has or is seeking 
to establish a funding relationship with the Farm Credit Bank or 
agricultural credit bank, the bank must explain in writing the reasons 
for any variation in the overall funding costs it charges to OFIs and 
affiliated direct lender associations. The written explanation must 
compare the cost of funds that the Farm Credit Bank or agricultural 
credit bank charges the OFIs and affiliated direct lender associations. 
When possible, the written explanation shall compare the costs of 
funding that the bank charges several OFIs and Farm Credit associations 
that are similar in size. However, the Farm Credit Bank or agricultural 
credit bank must not disclose financial or confidential information 
about any individual Farm Credit association.

[63 FR 36547, July 7, 1998, as amended at 69 FR 29863, May 26, 2004]



Sec. 614.4595  Public disclosure about OFIs.

    A Farm Credit Bank or agricultural credit bank may disclose to 
members of the public the name, address, telephone number, and Internet 
Web site address of any affiliated OFI only if such OFI, through a duly 
authorized officer, consents in writing. Each Farm Credit Bank and 
agricultural credit bank must adopt policies and procedures for 
requesting, obtaining, and maintaining the consent of its OFIs and for 
disclosing this information to the public.

[69 FR 29863, May 26, 2004]



Sec. 614.4600  Insolvency of an OFI.

    If an OFI that is indebted to a Farm Credit Bank or agricultural 
credit bank becomes insolvent, is in process of liquidation, or fails to 
service its loans properly, the Farm Credit Bank or agricultural credit 
bank may take over such loans and other assets that the OFI pledged as 
collateral. Once the Farm Credit Bank or agricultural credit bank 
exercises its remedies, it shall have the authority to make additional 
advances, to grant renewals and extensions, and to take such other 
actions as may be necessary to collect and service loans to the OFI's 
borrower. The funding Farm Credit Bank or agricultural credit bank may 
also liquidate the OFI's loans and other assets in order to achieve 
repayment of the debt.



Subpart Q_Banks for Cooperatives and Agricultural Credit Banks Financing 
                           International Trade



Sec. 614.4700  Financing foreign trade receivables.

    (a) Banks for cooperatives and agricultural credit banks, under 
policies adopted by their boards of directors, are authorized to finance 
foreign trade receivables on behalf of eligible cooperatives to include 
the following:
    (1) Advances against collections;
    (2) Trade acceptances;
    (3) Factoring; and
    (4) Open accounts.
    (b) To reduce credit, political, and other risks associated with 
foreign trade receivable financing, the banks for cooperatives and 
agricultural credit banks 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

[[Page 138]]

States. Exceptions may be made where a prospective borrower has had a 
longstanding 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 and 
agricultural credit banks to be used as inputs in credit grading 
decisions.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24886, June 19, 1990; 
62 FR 4445, Jan. 30, 1997]



Sec. 614.4710  Bankers acceptance financing.

    The Funding Corporation is authorized to accept drafts or bills of 
exchange drawn upon banks for cooperatives and agricultural credit 
banks. 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 subpart J of this part and must be combined with any 
other loan to the account party by the banks for cooperatives and 
agricultural credit banks for the purpose of applying the lending and 
leasing limits of Sec. 614.4355 of this part.
    (a) Limitations. (1) The Funding Corporation is authorized to accept 
drafts or bills of exchange drawn upon a bank for cooperatives or an 
agricultural credit bank 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 into or out of the United States; or are 
derived from transactions involving the domestic shipment of goods that 
were produced from agriculture or commerical 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 bank

[[Page 139]]

for cooperatives or an agricultural credit bank as calculated on a 
monthly basis after eliminating from its net worth an amount equal to 
the total of the bank's investments made to capitalize participation 
interests purchased by other institutions. 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) of this section, exclusive of participations sold to 
others, issued to all borrowers shall not exceed 150 percent of the bank 
for cooperatives' or agricultural credit bank's net worth, but the 
aggregate of acceptances growing out of domestic transactions shall not 
exceed 50 percent of net worth calculated on a monthly basis.
    (2) The limit specified in paragraph (a)(1)(i) of this section is 
separate from and in addition to the lending and leasing limits of Sec. 
614.4355 of this part if the acceptances are rediscounted.
    (3) During any period within which a bank for cooperatives or an 
agricultural credit bank holds its own acceptance, having given value 
therefor, the amount thereof shall be included against the lending and 
leasing limits set forth in Sec. 614.4355 of this part 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 made under Sec. 614.4020(b) of this part.
    (5) When acceptances denominated in foreign currencies are not 
funded in the same currency, the bank for cooperatives or an 
agricultural credit bank shall take corresponding action to minimize 
foreign exchange risk.
    (b) Purchases of participations in bankers acceptances. (1) A bank 
for cooperatives or an agricultural credit bank shall determine limits 
on purchasing participations in discounted acceptances of another bank 
for cooperatives or an agricultural credit bank on the same basis as 
prescribed in Sec. 614.4355 of this part for purchasing participations 
in loans of another bank for cooperatives or an agricultural credit 
bank.
    (2) Participations in discounted acceptances shall be offered in 
accordance with Sec. 614.4020(b) of this part.
    (c) Funding Corporation. All acceptances created by the banks for 
cooperatives or agricultural credit banks shall be physically accepted 
by the Funding Corporation when intended for rediscount.

[55 FR 24886, June 19, 1990, as amended at 57 FR 38250, Aug. 24, 1992; 
58 FR 40324, July 28, 1993; 59 FR 37404, July 22, 1994; 62 FR 4445, Jan. 
30, 1997; 64 FR 34518, June 28, 1999]



Sec. 614.4720  Letters of credit.

    Banks for cooperatives and agricultural credit banks, under policies 
adopted by their boards of directors, 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. In addition, as a matter of 
sound banking practice, letters of credit shall be issued in conformity 
with the list which follows.
    (a) Each letter of credit shall be in writing and 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.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 
62 FR 4445, Jan. 30, 1997; 64 FR 43049, Aug. 9, 1999]

[[Page 140]]



Sec. 614.4800  Guarantees and contracts of suretyship.

    A bank for cooperatives or an agricultural credit bank, under a 
policy approved by the bank's board of directors, 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 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 of or nonconformance of shipping documents. The 
bank's customer shall have an unqualified obligation to reimburse the 
bank for payments made under a guarantee or surety.

[55 FR 24887, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997]



Sec. 614.4810  Standby letters of credit.

    (a) The banks for cooperatives and agricultural credit banks are 
authorized to issue on behalf of parties eligible for financing under 
regulations Sec. 614.4010(d) or Sec. 614.4020 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 
and agricultural credit banks shall evaluate applications for standby 
letters of credit on the basis of the loan underwriting standards 
adopted pursuant to Sec. 614.4150 of the regulations.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 
62 FR 4445, Jan. 30, 1997; 62 FR 51015, Sept. 30, 1997]



Sec. 614.4900  Foreign exchange.

    (a) Before a bank for cooperatives or an agricultural credit bank 
may engage in any financial transaction which transports monetary 
instruments from any place within the United States to or through any 
place outside the United States or to any place within the United 
States, the bank must have policies adopted by the bank's board of 
directors governing such transactions and must have established bank 
procedures to safeguard the interests of the stockholders of the bank in 
regard to such transactions.
    (b) Under policies adopted by the bank's board of directors, a bank 
for cooperatives or an agricultural credit bank 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 the 
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 or an agricultural credit bank 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.

[[Page 141]]

    (d) A bank for cooperatives or an agricultural credit bank 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 banks for cooperatives and agricultural credit banks shall 
use the Funding Corporation for purposes of trading foreign exchange. 
All foreign exchange transactions shall be made by the Funding 
Corporation on behalf of the banks consistent with instructions received 
from the respective banks.
    (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.

[46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 
62 FR 4445, Jan. 30, 1997]



                 Subpart R_Secondary Market Authorities



Sec. 614.4910  Basic authorities.

    (a) Any bank or association of the Farm Credit System, except a bank 
for cooperatives, with direct lending authority may originate 
agricultural real estate loans for sale to one or more certified 
agricultural mortgage marketing facilities under title VIII of the Act.
    (b) Any bank or association of the Farm Credit System, except a bank 
for cooperatives, may operate as an agricultural mortgage marketing 
facility under title VIII of the Act, either acting alone or jointly 
with other banks and/or associations, if so certified by the Federal 
Agricultural Mortgage Corporation.

[54 FR 1155, Jan. 12, 1989]



                 Subpart S_Flood Insurance Requirements

    Source: 61 FR 45711, Aug. 29, 1996, unless otherwise noted.



Sec. 614.4920  Purpose and scope.

    (a) Purpose. This subpart implements the requirements of the 
National Flood Insurance Act of 1968 (1968 Act), as amended, and the 
Flood Disaster Protection Act of 1973 (1973 Act), as amended (42 U.S.C. 
4001-4129).
    (b) Scope. This subpart, except for Sec. Sec. 614.4940 and 
614.4950, applies to loans of Farm Credit System (System) institutions 
that are secured by buildings or mobile homes located or to be located 
in areas determined by the Director of the Federal Emergency Management 
Agency to have special flood hazards. Sections 614.4940 and 614.4950 
apply to loans secured by buildings or mobile homes, regardless of 
location.

[[Page 142]]



Sec. 614.4925  Definitions.

    (a) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (b) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (c) Designated loan means a loan secured by a building or a mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the 1968 Act.
    (d) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (e) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use with 
or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational vehicle. 
For purposes of this subpart, the term mobile home means a mobile home 
on a permanent foundation. The term mobile home includes a manufactured 
home as that term is used in the NFIP.
    (f) NFIP means the National Flood Insurance Program authorized under 
the 1968 Act.
    (g) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (h) Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower under 
the terms of a loan, including amounts for taxes, insurance premiums, 
and other charges with respect to the property securing the loan; and
    (2) Making payments of principal and interest and any other payments 
from the amounts received from the borrower as may be required under the 
terms of the loan.
    (i) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director of FEMA.
    (j) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.



Sec. 614.4930  Requirement to purchase flood insurance where available.

    (a) In general. A System institution shall not make, increase, 
extend or renew any designated loan unless the building or mobile home 
and any personal property securing the loan are covered by flood 
insurance for the term of the loan. The amount of insurance must be at 
least equal to the outstanding principal balance of the designated loan 
or the maximum limit of coverage available for the particular type of 
property under the 1968 Act. Flood insurance coverage under the Act is 
limited to the overall value of the property securing the designated 
loan minus the value of the land on which the property is located.
    (b) Table funded loans. A System institution that acquires a loan 
from a mortgage broker or other entity through table funding shall be 
considered to be making a loan for purposes of this part.
    (c) Exemptions. The flood insurance requirement of paragraph (a) of 
this section does not apply with respect to:
    (1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (2) Property securing any loan with an original principal balance of 
$5,000 or less and a repayment term of one year or less.



Sec. 614.4935  Escrow requirement.

    If a System institution requires the escrow of taxes, insurance 
premiums, fees, or any other charges for a loan secured by residential 
improved real estate or a mobile home that is made, increased, extended 
or renewed on or after October 4, 1996, the institution shall also 
require the escrow of all premiums and fees for any flood insurance 
required under Sec. 614.4930. The institution, or a servicer acting on 
behalf of

[[Page 143]]

the institution, shall deposit the flood insurance premiums on behalf of 
the borrower in an escrow account. This escrow account will be subject 
to escrow requirements adopted pursuant to section 10 of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which 
generally limits the amount that may be maintained in escrow accounts 
for certain types of loans and requires escrow account statements for 
those accounts, only if the loan is otherwise subject to RESPA. 
Following receipt of a notice from the Director of FEMA or other 
provider of flood insurance that premiums are due, the institution, or a 
servicer acting on behalf of the institution, shall pay the amount owed 
to the insurance provider from the escrow account by the date when such 
premiums are due.



Sec. 614.4940  Required use of standard flood hazard determination form.

    (a) Use of form. System institutions must use the standard flood 
hazard determination form developed by the Director of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard area 
in which flood insurance is available under the 1968 Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A System institution may obtain the standard flood 
hazard determination form by written request to FEMA, P.O. Box 2012, 
Jessup, MD 20794-2012.
    (b) Retention of form. System institutions shall retain a copy of 
the completed standard flood hazard determination form, in either hard 
copy or electronic form, for the period of time the institution owns the 
loan.

[61 FR 45711, Aug. 29, 1996, as amended at 64 FR 71274, Dec. 21, 1999]



Sec. 614.4945  Forced placement of flood insurance.

    If a System institution, or a servicer acting on behalf of the 
institution, determines at any time during the term of a designated 
loan, that the building or mobile home and any personal property 
securing the designated loan are not covered by flood insurance or are 
covered by flood insurance in an amount less than the amount required 
under Sec. 614.4930(a), then the institution or its servicer shall 
notify the borrower that the borrower should obtain flood insurance, at 
the borrower's expense, in an amount at least equal to the amount 
required under Sec. 614.4930(a), for the remaining term of the loan. If 
the borrower fails to obtain flood insurance within 45 days after 
notification, then the institution or its servicer shall purchase 
insurance on the borrower's behalf. The institution or its servicer may 
charge the borrower for the cost of premiums and fees incurred in 
purchasing the insurance.



Sec. 614.4950  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than the 
1973 Act, any System institution, or a servicer acting on behalf of the 
institution, may charge a reasonable fee for determining whether the 
building or mobile home securing the loan is located or will be located 
in a special flood hazard area. A determination fee may also include, 
but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Director of FEMA, may reasonably 
require a determination whether the building or mobile home securing the 
loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage under Sec. 
614.4945.
    (c) Purchaser or transferee fee. The determination fee authorized by 
paragraph (a) of this section may be charged to the purchaser or 
transferee

[[Page 144]]

of a loan in the case of the sale or transfer of the loan.



Sec. 614.4955  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a System institution makes, increases, 
extends, or renews a loan secured by a building or a mobile home located 
or to be located in a special flood hazard area, the institution shall 
mail or deliver a written notice containing the information specified in 
paragraph (b) of this section to the borrower and to the servicer of the 
loan. Notice is required whether or not flood insurance is available 
under the 1968 Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the 1973 Act (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and also may be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or the mobile home 
caused by flooding in a Federally declared disaster.
    (c) Timing of notice. The institution shall provide the notice 
required by paragraph (a) of this section to the borrower within a 
reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the institution provides 
notice to the borrower and in any event no later than the time the 
institution provides other similar notices to the servicer concerning 
hazard insurance and taxes. Notice to the servicer may be made 
electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. Each institution shall retain a record of the 
receipt of the notices by the borrower and the servicer for the period 
of time the institution owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, an institution 
may obtain satisfactory written assurance from a seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The institution shall retain a record of the 
written assurance from the seller or lessor for the period of time the 
institution owns the loan.
    (f) Use of prescribed form of notice. An institution will be 
considered to be in compliance with the requirements of this section for 
notice to the borrower by providing written notice to the borrower 
containing the language presented in appendix A to this subpart within a 
reasonable time before the completion of the transaction. The notice 
presented in appendix A to this subpart satisfies the borrower notice 
requirements of the 1968 Act.



Sec. 614.4960  Notice of servicer's identity.

    (a) Notice requirement. When a System institution makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, the 
institution shall notify the Director of FEMA (or the Director's 
designee) in writing of the identity of the servicer of the loan. The 
Director of FEMA has designated the insurance provider to receive the 
institution's notice of the servicer's identity. This notice may be 
provided electronically if electronic transmission is satisfactory to 
the Director of FEMA's designee.
    (b) Transfer of servicing rights. The institution shall notify the 
Director of FEMA (or the Director's designee) of any change in the 
servicer of a loan described in paragraph (a) of this section within 60 
days after the effective date of the change. This notice may be provided 
electronically if electronic transmission is satisfactory to the 
Director of FEMA's designee. Upon any change in the servicing of a loan 
described in paragraph (a) of this section, the duty to provide notice 
under this paragraph (b) shall transfer to the transferee servicer.

[[Page 145]]

 Appendix A to Subpart S of Part 614--Sample Form of Notice of Special 
  Flood Hazards and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area using 
FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the 
following community: ----------------. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 30-
year mortgage loan, the risk of a 100-year flood in a special flood 
hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ------ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have applied 
for if you do not purchase flood insurance. The flood insurance must be 
maintained for the life of the loan. If you fail to purchase or renew 
flood insurance on the property, Federal law authorizes and requires us 
to purchase the flood insurance for you at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy either 
directly through the NFIP or through an insurance company that 
participates in the NFIP. Flood insurance also may be available from 
private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must 
cover the lesser of:
    (1) The outstanding principal balance of the loan; or
    (2) The maximum amount of coverage allowed for the type of property 
under the NFIP.
    Flood insurance coverage under the NFIP is limited to the overall 
value of the property securing the loan minus the value of the land on 
which the property is located.
     Federal disaster relief assistance (usually in 
the form of a low-interest loan) may be available for damages incurred 
in excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ------ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, if 
the non-participating community has been identified for at least one 
year as containing a special flood hazard area, properties located in 
the community will not be eligible for Federal disaster relief 
assistance in the event of a Federally-declared flood disaster.



PART 615_FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS--Table of Contents

                            Subpart A_Funding

Sec.
615.5000 General responsibilities.
615.5010 Funding Corporation.
615.5030 Borrowings from commercial banks.
615.5040 Borrowings from financial institutions other than commercial 
          banks.

                          Subpart B_Collateral

615.5045 Definitions.
615.5050 Collateral requirements.
615.5060 Special collateral requirement.
615.5090 Reduction in carrying value of collateral.

 Subpart C_Issuance of Bonds, Notes, Debentures and Similar Obligations

615.5100 Authority to issue.
615.5101 Requirements for issuance.
615.5102 Issuance of debt obligations through the Funding Corporation.
615.5103-615.5104 [Reserved]
615.5105 Consolidated Systemwide notes.

                         Subpart D_Other Funding

615.5110 Authority to issue (other funding).
615.5120 Purchase eligibility requirement.
615.5130 Procedures.

                     Subpart E_Investment Management

615.5131 Definitions.
615.5132 Investment purposes.
615.5133 Investment management.
615.5134 Liquidity reserve requirement.
615.5135 Management of interest rate risk.
615.5136 Emergencies impeding normal access of Farm Credit banks to 
          capital markets.
615.5140 Eligible investments.
615.5141 Stress tests for mortgage securities.

[[Page 146]]

615.5142 Association investments.
615.5143 Disposal of ineligible investments.
615.5144 Banks for cooperatives and agricultural credit banks.

     Subpart F_Property, Transfers of Capital, and Other Investments

615.5170 Real and personal property.
615.5171 Transfer of capital from banks to associations.
615.5172 Production credit association and agricultural credit 
          association investment in farmers' notes given to cooperatives 
          and dealers.
615.5173 Stock of the Federal Agricultural Mortgage Corporation.
615.5174 Farmer Mac securities.

                Subpart G_Risk Assessment and Management

615.5180 Interest rate risk management by banks--general.
615.5181 Bank interest rate risk management program.
615.5182 Interest rate risk management by associations and other Farm 
          Credit System institutions other than banks.

                       Subpart H_Capital Adequacy

615.5200 General.
615.5201 Definitions.
615.5205 Minimum permanent capital standards.
615.5210 Computation of the permanent capital ratio.
615.5215 Distribution of earnings.
615.5216 [Reserved]

                     Subpart I_Issuance of Equities

615.5220 Capitalization bylaws.
615.5230 Implementation of cooperative principles.
615.5240 Permanent capital requirements.
615.5250 Disclosure requirements.

                    Subpart J_Retirement of Equities

615.5260 Retirement of eligible borrower stock.
615.5270 Retirement of other equities.
615.5280 Retirement in event of default.
615.5290 Retirement of capital stock and participation certificates in 
          event of restructuring.

              Subpart K_Surplus and Collateral Requirements

615.5301 Definitions.
615.5330 Minimum surplus ratios.
615.5335 Bank net collateral ratio.
615.5336 Compliance and reporting.

  Subpart L_Establishment of Minimum Capital Ratios for an Individual 
                               institution

615.5350 General--Applicability.
615.5351 Standards for determination of appropriate individual 
          institution minimum capital ratios.
615.5352 Procedures.
615.5353 Relation to other actions.
615.5354 Enforcement.

                Subpart M_Issuance of a Capital Directive

615.5355 Purpose and scope.
615.5356 Notice of intent to issue a capital directive.
615.5357 Response to notice.
615.5358 Decision.
615.5359 Issuance of a capital directive.
615.5360 Reconsideration based on change in circumstances.
615.5361 Relation to other administrative actions.

Subpart N [Reserved]

       Subpart O_Book-Entry Procedures for Farm Credit Securities

615.5450 Definitions.
615.5451 Book-entry and definitive securities.
615.5452 Law governing rights and obligations of Federal Reserve Banks, 
          Farm Credit banks, and Funding Corporation; rights of any 
          person against Federal Reserve Banks, Farm Credit banks, and 
          Funding Corporation.
615.5453 Law governing other interests.
615.5454 Creation of participant's security entitlement; security 
          interests.
615.5455 Obligations of the Farm Credit banks and the Funding 
          Corporation; no adverse claims.
615.5456 Authority of Federal Reserve Banks.
615.5457 Withdrawal of eligible book-entry securities for conversion to 
          definitive form.
615.5458 Waiver of regulations.
615.5459 Liability of Farm Credit banks, Funding Corporation and Federal 
          Reserve Banks.
615.5460 Additional provisions.
615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit 
          securities, including coupons.
615.5462 Restrictive endorsement of bearer securities.

                    Subpart P_Global Debt Securities

615.5500 Definitions.
615.5502 Issuance of global debt securities.

                      Subpart Q_Bankers Acceptances

615.5550 Bankers acceptances.

[[Page 147]]

Subpart R_Farm Credit System Financial Assistance Corporation Securities

615.5560 Book-entry Procedure for Farm Credit System Financial 
          Assistance Corporation Securities.

     Subpart S_Federal Agricultural Mortgage Corporation Securities

615.5570 Book-entry procedures for Federal Agricultural Mortgage 
          Corporation securities.

    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, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit 
Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 
2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 
2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-7, 
2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233, 101 
Stat. 1568, 1608.



                            Subpart A_Funding



Sec. 615.5000  General responsibilities.

    (a) The System banks, acting through the Federal Farm Credit Banks 
Funding Corporation (Funding Corporation), have the primary 
responsibility for obtaining funds for the lending operations of the 
System institutions.
    (b) The System's funding operations have a significant impact upon 
the investment community, the general public, and the national economy 
in both the volume and the manner by which funds are raised. The Farm 
Credit Administration supervises compliance with the statutory 
collateral requirements for the debt obligations issued. The Chairman of 
the Farm Credit Administration, under policies adopted by the Board, 
consults with the Secretary of the Treasury concerning the System's 
funding activities, pursuant to section 5.10 of the Act.

[54 FR 1158, Jan. 12, 1989]



Sec. 615.5010  Funding Corporation.

    (a) The Funding Corporation shall issue, market, and handle the 
obligations of the banks issued under section 4.2(b) through (d) of the 
Act and interbank or intersystem flow of funds as may from time to time 
be required, and, upon request of the banks, shall handle investment 
portfolios. The Funding Corporation shall maintain accurate and timely 
records. The System banks shall provide for the sale of such obligations 
through the Funding Corporation by negotiation, offer, bid, or syndicate 
sale, and for the delivery of such obligations by book entry, wire 
transfer, or such other means as may be appropriate.
    (b) The interaction of the System with the financial community shall 
be conducted principally through the Funding Corporation. The Funding 
Corporation shall be subject to regulation and examination by the Farm 
Credit Administration.

[54 FR 1158, Jan. 12, 1989]



Sec. 615.5030  Borrowings from commercial banks.

    (a) Each System bank board, by resolution, shall authorize all 
commercial bank borrowings by that System bank.
    (b) The Financial Assistance Corporation may borrow from commercial 
banks with the approval of the Farm Credit Administration.

[54 FR 1159, Jan. 12, 1989]



Sec. 615.5040  Borrowings from financial institutions other than 
commercial banks.

    The Farm Credit banks may borrow from other financial institutions, 
such as insurance companies, Federal agencies, or Federal reserve banks.

[37 FR 11434, June 7, 1972, as amended at 54 FR 1151, Jan. 12, 1989; 54 
FR 50736, Dec. 11, 1989]



                          Subpart B_Collateral

    Source: 54 FR 1159, Jan. 12, 1989, unless otherwise noted.



Sec. 615.5045  Definitions.

    (a) Cost means the actual amount paid for any asset.
    (b) Market value means the price at which a willing seller would 
sell to a willing buyer, neither under any compulsion to buy or sell.
    (c) Unpaid balance means total principal and accrued interest owed.
    (d) Secured interbank loan means a loan from one Farm Credit System 
bank to another Farm Credit System bank, secured by assets of the 
borrowing Farm Credit System bank.

[[Page 148]]



Sec. 615.5050  Collateral requirements.

    (a) Each bank shall have on hand at the time of issuance of any 
notes, bonds, debentures, or other similar obligations, and at all times 
thereafter maintain, free from any lien or other pledge, assets 
consisting of notes and other obligations representing loans made under 
the authority of the Act, real or personal property acquired in 
connection with loans made under the Act, obligations of the United 
States or any agency thereof direct or fully guaranteed, other bank 
assets (including marketable securities) approved by the Farm Credit 
Administration, cash, or cash equivalents approved by the Farm Credit 
Administration, in an aggregate value equal to the total amount of 
notes, bonds, debentures, or other similar obligations outstanding for 
which the bank is primarily liable.
    (b) The collateral value of eligible investments (as defined in 
Sec. 615.5140) shall be the lower of cost or market value.
    (c)(1) Except as otherwise provided in this paragraph, the 
collateral value of notes and other obligations representing loans made 
under the authority of any Farm Credit Act shall be the unpaid balance 
of such loans adjusted for any allowance for loan losses (except as 
provided for in Sec. 615.5090).
    (2) The collateral value of loans in process of liquidation or 
foreclosure, judgments, and sales contracts shall be the unpaid balance 
of such loans, judgments, and contracts adjusted for any allowance for 
losses.
    (3) The collateral value of loans which have been restructured by 
any action, such as an extension, deferment, or partial release, shall 
be the new unpaid balance of the loans adjusted for any allowance for 
losses.
    (4) The collateral value of property acquired in the liquidation of 
loans shall be the book value of such property adjusted for any 
allowance for losses.
    (5) Collateral shall not include the amount of any loan that exceeds 
the maximum amount authorized under the Act or part 614 of these 
regulations.
    (6) Collateral may include the collateral value of secured interbank 
loans, computed as provided in Sec. 615.5050(c)(1), provided that the 
assets securing the loan could serve as collateral supporting the 
issuance of obligations under Sec. 615.5050(a). In computing its 
eligible collateral, the borrowing bank shall not count the assets 
securing such loan.
    (d) Each bank shall have procedures which will ensure that the bank 
is in compliance with the statutory requirements for maintenance of 
collateral. Such procedures shall include provisions for:
    (1) Adequate safekeeping facilities;
    (2) Methods to determine that debt instruments meet all requirements 
of law and regulations;
    (3) A report signed by an authorized bank officer at each regular 
meeting of the board of directors certifying the eligibility and the 
adequacy of collateral. Items to be reported will include but not be 
limited to the total amount of eligible collateral, amount of ineligible 
loans, amount of deductions, and the amount of excess collateral; and
    (4) Written procedures and practices to ensure that there will be a 
high degree of accuracy in protecting and accounting for the collateral.



Sec. 615.5060  Special collateral requirement.

    (a) An attorney lien certification need not be obtained at the time 
a note is accepted as collateral if the counsel for the bank or 
association has determined, in writing, that the bank or association 
procedures provide sufficient safeguards to ensure that a real estate 
mortgage loan, within the meaning of section 1.7(a) of the Act, made by 
the bank or association will be secured by a first lien or its 
equivalent on the borrower's interest in the primary real estate 
security. However, the note shall be withdrawn from collateral upon the 
expiration of 1 year from the date of the loan closing, unless, before 
the end of such period:
    (1) An attorney has certified that the bank or association has a 
first lien or its equivalent from a security standpoint in the primary 
real estate security for the loan; or
    (2) The bank or association has obtained a title insurance policy 
insuring that it has a first lien or its equivalent from a security 
standpoint in the primary real estate security for the loan,

[[Page 149]]

and all of the following requirements are satisfied:
    (i) The final policy was issued by a title insurance company that 
has been licensed to issue such policies by the appropriate state 
insurance regulatory body or bodies, has not been barred or suspended, 
and has been approved by the lending institution;
    (ii) The standard form on which the final policy was issued has been 
approved by the counsel for the lending institution;
    (iii) The final policy was issued for an amount at least equal to 
the balance outstanding on the real estate mortgage loan or, if separate 
policies are issued to insure separate tracts, the minimum amount 
insured by each policy shall bear the same ratio to the outstanding 
balance of the loan that the appraised value of the tract insured by 
that policy bears to the appraised value of all the real estate security 
for the loan; and
    (iv) Personnel meeting written standards of training and experience 
in real estate title matters prescribed by the counsel for the lending 
institution certified in writing that:
    (A) They reviewed the final policy and that the policy complies with 
standards prescribed by such counsel; and
    (B) The final policy insures that a first lien or its equivalent 
from a security standpoint has been obtained on the primary real estate 
security for the loan.
    (b) A loan participation agreement to which a System bank or 
association is a participant and involving a loan originated by another 
lender shall constitute an obligation meeting the collateral 
requirements of Sec. 615.5050(a).

[54 FR 1159, Jan. 12, 1989, as amended at 59 FR 3787, Jan. 27, 1994]



Sec. 615.5090  Reduction in carrying value of collateral.

    When the bank or Farm Credit Administration determines that a loan 
did not conform to the requirements of the law or regulations at the 
time the loan was closed, such loan shall be withdrawn from collateral 
until the cause of ineligibility is remedied. When a loan has been 
classified as a loss loan, the bank shall adjust the collateral value of 
the loan accordingly.



 Subpart C_Issuance of Bonds, Notes, Debentures and Similar Obligations



Sec. 615.5100  Authority to issue.

    The Act authorizes each bank of the System, subject to the 
collateral requirements of section 4.3(c) of the Act, to issue:
    (a) Notes, bonds, debentures, or other similar obligations;
    (b) Consolidated obligations, together with any or all banks 
organized and operating under the same title of the Act;
    (c) Systemwide obligations, together with other banks of the System; 
and
    (d) Investment bonds to the authorized purchasers subject to the 
limitations contained in the regulations set forth in subpart D.

[54 FR 1160, Jan. 12, 1989]



Sec. 615.5101  Requirements for issuance.

    Except as provided in section 4.2(e) of the Act, each debt 
obligation shall meet the following requirements:
    (a) Each debt obligation shall be issued through the Federal Farm 
Credit Banks Funding Corporation acting for System banks.
    (b) Each debt obligation shall be authorized by resolution of the 
board(s) of directors of the issuer(s). Each participating bank shall 
provide, in its authorizing resolution, for its primary liability on the 
portion of any consolidated or Systemwide obligation issued on its 
behalf and be jointly and severally liable for the payment of any 
additional sums as called upon by the Farm Credit Administration, in 
accordance with section 4.4 of the Act, in the event any bank primarily 
liable therefor is unable to pay.
    (c) Each issuance of debt obligations shall meet the collateral 
requirements set forth in subpart B.
    (d) Each issuance of debt obligations shall be approved by the Farm 
Credit Administration.
    (e)(1) Consultation with the Secretary of the Treasury required by 
31

[[Page 150]]

U.S.C. 9108 shall be conducted by System representatives and shall have 
occurred prior to each debt issuance.
    (2) Under policies adopted by the Board of the Farm Credit 
Administration, the Chairman will consult with the Secretary of the 
Treasury on a regular basis concerning the exercise by the System of the 
powers conferred under section 4.2 of the Act.

[54 FR 1160, Jan. 12, 1989]



Sec. 615.5102  Issuance of debt obligations through the Funding Corporation.

    (a) The amount, maturities, rates or interest, terms and conditions 
of participation by the System banks in each issue of joint, 
consolidated or Systemwide obligations shall be determined by the 
Funding Corporation established pursuant to section 4.9 of the Act, 
acting for the banks of the System, subject to the approval of the Farm 
Credit Administration in accordance with Sec. 615.5102.
    (b) The Funding Corporation shall plan and develop funding 
guidelines, priorities, and objectives based upon the asset/liability 
management policies of the System institutions and the requirements of 
the market. The guidelines, priorities, and objectives shall be designed 
to ensure that the debt marketing responsibilities of the Funding 
Corporation will continue to provide flexibility for the banks and are 
fiscally sound.
    (c) For all debt issuances conducted by the Funding Corporation, the 
specific prior approval of the Farm Credit Administration must be 
obtained prior to the distribution and sale of the obligation pursuant 
to section 4.9 of the Act.

[54 FR 1160, Jan. 12, 1989]



Sec. Sec. 615.5103-615.5104  [Reserved]



Sec. 615.5105  Consolidated Systemwide notes.

    Consolidated Systemwide notes authorized under Sec. 615.5100(b) 
shall be subject to the following provisions unless otherwise approved 
by the Farm Credit Administration:
    (a) Maturities shall be not less than five days nor more than 365 
days.
    (b) Prices shall be on a discount yield basis or as determined by 
the Funding Corporation.

[42 FR 32227, June 24, 1977, as amended at 47 FR 28609, July 1, 1982; 54 
FR 1160, Jan. 12, 1989; 60 FR 20011, Apr. 24, 1995]



                         Subpart D_Other Funding



Sec. 615.5110  Authority to issue (other funding).

    Any Farm Credit bank may issue Farm Credit Investment Bonds directly 
to those eligible as set forth in Sec. 615.5120(a). The bonds are 
subject to the limitations contained in the Federal Reserve Board's 
Regulation Q.

[43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978]



Sec. 615.5120  Purchase eligibility requirement.

    (a) Limitations. Eligibility to purchase Farm Credit Investment 
Bonds shall be limited to members and employees of the Farm Credit banks 
and associations, except any bank officers, directors, and employees who 
are involved in setting the term or rate, to retired employees who are 
beneficiaries of a pension or retirement program of the Farm Credit 
banks or associations, and to retired employees of the Farm Credit 
Administration. A member of a Farm Credit association or a bank for 
cooperatives need not be an active borrower to be eligible. A member of 
any Farm Credit institution may purchase investment bonds from any of 
the institutions in the district which offer the purchase program. 
Patrons, members, employees, or stockholder of other financing 
institutions discounting loans with a Farm Credit Bank or agricultural 
credit bank or of any legal entity which is a borrower from any Farm 
Credit institution as such are ineligible as they are not members of a 
Farm Credit institution. Stock or participation certificates shall not 
be sold merely to qualify a party for the purchase of Farm Credit 
Investment Bonds. For purposes of this section ``member'' means a 
stockholder or participation certificate holder who acquired stock or 
participation certificates to obtain a loan, to purchase stock for 
investment or to qualify for

[[Page 151]]

other services of the association or bank. A person who assumes a loan 
is not a member unless he becomes a stockholder or participation 
certificate holder in connection with that loan. Employee means a 
regular full-time employee of a Farm Credit bank or association. Retired 
employee means a retiree who is a direct beneficiary of a pension or 
retirement program of a Farm Credit bank or association or the Farm 
Credit Administration under civil service retirement.
    (b) Form and ownership. Farm Credit Investment Bonds are registered 
bonds issued in definitive or book-entry form depending on investor 
preference. The registration used must express the actual ownership of 
an interest in the bond and will be considered by the issuing 
institution as conclusive of such ownership and interest. No designation 
of an attorney, agent, or other representative to request or receive 
payment on behalf of the owner or coowner, nor any restriction on the 
right of the owner or coowner to receive payment of the bond or 
interest, except as provided in this section may be made in the 
registration or otherwise. Registrations requested in applications for 
the purchase shall be clear, accurate, complete, and conform with one of 
the registration provisions set forth in this section, and include the 
appropriate taxpayer identifying number. Registrations requested will be 
inscribed on the face of the bond if in definitive form or on the 
confirmation of investment if in book-entry form. The following 
provisions shall apply for registration of Farm Credit Investment Bonds:
    (1) In all cases the member's name (whether a natural person, 
fiduciary, or legal entity) or employee's name must appear as owner of 
the bond.
    (2) A bond may be registered in the name of a fiduciary only if the 
fiduciary is in fact the member.
    (3) A member or employee may not use a form of registration (such as 
a gift to a minor, irrevocable trust, etc.) which would divest himself 
of ownership. However, a minor may be named as coowner or beneficiary.
    (4) If a member is a natural person, a second natural person, member 
or nonmember, may be named as coowner or beneficiary. Coownership may 
not involve a fiduciary or private organization.
    (5) In the coownership form the connective ``or'' shall serve the 
same purpose as ``joint tenants with right of survivorship.''

[43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978, as amended at 
56 FR 2675, Jan. 24, 1991; 61 FR 67187, Dec. 20, 1996]



Sec. 615.5130  Procedures.

    Procedures relating to issuance, pricing, payment of interest, 
redemption, replacement of lost or stolen bonds and other matters shall 
be promulgated under the authority of this regulation as operating 
instructions to banks and associations.

[37 FR 11434, June 7, 1972]



                     Subpart E_Investment Management



Sec. 615.5131  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Asset-backed securities (ABS) mean investment securities that 
provide for ownership of a fractional undivided interest or collateral 
interests in specific assets of a trust that are sold and traded in the 
capital markets. For the purposes of this subpart, ABS exclude mortgage 
securities that are defined in Sec. 615.5131(i).
    (b) Bank means a Farm Credit Bank, agricultural credit bank, or bank 
for cooperatives.
    (c) Eurodollar time deposit means a non-negotiable deposit 
denominated in United States dollars and issued by an overseas branch of 
a United States bank or by a foreign bank outside the United States.
    (d) Final maturity means the last date on which the remaining 
principal amount of a security is due and payable (matures) to the 
registered owner. It does not mean the call date, the expected average 
life, the duration, or the weighted average maturity.
    (e) General obligations of a State or political subdivision means:
    (1) The full faith and credit obligations of a State, the District 
of Columbia, the Commonwealth of Puerto Rico, a territory or possession 
of the United

[[Page 152]]

States, or a political subdivision thereof that possesses general powers 
of taxation, including property taxation; or
    (2) An obligation that is unconditionally guaranteed by an obligor 
possessing general powers of taxation, including property taxation.
    (f) Liquid investments are assets that can be promptly converted 
into cash without significant loss to the investor. In the money market, 
a security is liquid if the spread between its bid and ask price is 
narrow and a reasonable amount can be sold at those prices.
    (g) Loans are defined by Sec. 621.2(f) of this chapter and they are 
calculated quarterly (as of the last day of March, June, September, and 
December) by using the average daily balance of loans during the 
quarter.
    (h) Market risk means the risk to the financial condition of your 
institution because the value of your holdings may decline if interest 
rates or market prices change. Exposure to market risk is measured by 
assessing the effect of changing rates and prices on either the earnings 
or economic value of an individual instrument, a portfolio, or the 
entire institution.
    (i) Mortgage securities means securities that are either:
    (1) Pass-through securities or participation certificates that 
represent ownership of a fractional undivided interest in a specified 
pool of residential (excluding home equity loans), multifamily or 
commercial mortgages, or
    (2) A multiclass security (including collateralized mortgage 
obligations and real estate mortgage investment conduits) that is backed 
by a pool of residential, multifamily or commercial real estate 
mortgages, pass-through mortgage securities, or other multiclass 
mortgage securities.
    (j) Nationally Recognized Statistical Rating Organization (NRSRO) 
means a rating organization that the Securities and Exchange Commission 
recognizes as an NRSRO.
    (k) Revenue bond means an obligation of a municipal government that 
finances a specific project or enterprise but it is not a full faith and 
credit obligation. The obligor pays a portion of the revenue generated 
by the project or enterprise to the bondholders.
    (l) Weighted average life (WAL) means the average time until the 
investor receives the principal on a security, weighted by the size of 
each principal payment and calculated under specified prepayment 
assumptions.
    (m) You means a Farm Credit bank, association, or service 
corporation.

[64 FR 28895, May 28, 1999]



Sec. 615.5132  Investment purposes.

    Farm Credit Banks, banks for cooperatives and agricultural credit 
banks are authorized to hold eligible investments, listed under Sec. 
615.5140, in an amount not to exceed 30 percent of the total outstanding 
loans of such banks, for the purposes of complying with the liquidity 
reserve requirement of Sec. 615.5134, managing surplus short-term 
funds, and for managing interest rate risk under Sec. 615.5135.

[58 FR 63056, Nov. 30, 1993]



Sec. 615.5133  Investment management.

    (a) Responsibilities of Board of Directors. Your board must adopt 
written policies for managing your investment activities. Your board of 
directors must also ensure that management complies with these policies 
and that appropriate internal controls are in place to prevent loss. 
Annually, the board of directors must review these investment policies 
and make any changes that are needed.
    (b) Investment policies. Your board's written investment policies 
must address the purposes and objectives of investments, risk tolerance, 
delegations of authority, and reporting requirements. Investment 
policies must be appropriate for the size, types, and risk 
characteristics of your investments.
    (c) Risk tolerance. Your investment policies must establish risk 
limits and diversification requirements for the various classes of 
eligible investments and for the entire investment portfolio. These 
policies must ensure that you maintain appropriate diversification of 
your investment portfolio. Risk limits must be based on your 
institutional objectives, capital position, and risk tolerance. Your 
policies must identify the types and quantity of investments that

[[Page 153]]

you will hold to achieve your objectives and control credit, market, 
liquidity, and operational risks. The policy of any association or 
service corporation that holds significant investments and each bank 
must establish risk limits for the following four types of risk.
    (1) Credit risk. Investment policies must establish:
    (i) Credit quality standards, limits on counterparty risk, and risk 
diversification standards that limit concentrations based on a single or 
related counterparty(ies), a geographical area, industries or 
obligations with similar characteristics.
    (ii) Criteria for selecting brokers, dealers, and investment bankers 
(collectively, securities firms). You must buy and sell eligible 
investments with more than one securities firm. As part of your annual 
review of your investment policies, your board of directors must review 
the criteria for selecting securities firms and determine whether to 
continue your existing relationships with them.
    (iii) Collateral margin requirements on repurchase agreements.
    (2) Market risk. Investment policies must set market risk limits for 
specific types of investments, the investment portfolio, or your 
institution. Your board of directors must establish market risk limits 
in accordance with these regulations and our other policies.
    (3) Liquidity risk. Investment policies must describe the liquidity 
characteristics of eligible investments that you will hold to meet your 
liquidity needs and institutional objectives.
    (4) Operational risk. Investment policies must address operational 
risks, including delegations of authority and internal controls in 
accordance with paragraphs (d) and (e) of this section.
    (d) Delegation of authority. All delegations of authority to 
specified personnel or committees must state the extent of management's 
authority and responsibilities for investments.
    (e) Internal controls. You must:
    (1) Establish appropriate internal controls to detect and prevent 
loss, fraud, embezzlement, conflicts of interest, and unauthorized 
investments.
    (2) Establish and maintain a separation of duties and supervision 
between personnel who execute investment transactions and personnel who 
approve, revaluate, and oversee investments.
    (3) Maintain management information systems that are appropriate for 
the level and complexity of your investment activities.
    (f) Securities valuation. (1) Before you purchase a security, you 
must evaluate its credit quality and its price sensitivity to changes in 
market interest rates. You must also verify the value of a security that 
you plan to purchase, other than a new issue, with a source that is 
independent of the broker, dealer, counterparty or other intermediary to 
the transaction.
    (2) You must determine the fair market value of each security in 
your portfolio and the fair market value of your whole investment 
portfolio at least monthly. You must also evaluate the credit quality 
and price sensitivity to change in market interest rates of all 
investments that you hold on an ongoing basis.
    (3) Before you sell a security, you must verify its value with a 
source that is independent of the broker, dealer, counterparty, or other 
intermediary to the transaction.
    (g) Reports to the board. Each quarter, management must report to 
the board of directors or a board committee on the performance and risk 
of each class of investments and the entire investment portfolio. These 
reports must identify all gains and losses that you incur during the 
quarter on individual securities that you sold before maturity. Reports 
must also identify potential risk exposure to changes in market interest 
rates and other factors that may affect the value of your bank's 
investment holdings. Management's report must discuss how investments 
affect your bank's overall financial condition and must evaluate whether 
the performance of the investment portfolio effectively achieves the 
board's objectives. Any deviations from the board's policies must be 
specifically identified in the report.

[64 FR 28895, May 28, 1999]

[[Page 154]]



Sec. 615.5134  Liquidity reserve requirement.

    (a) Each Farm Credit Bank, bank for cooperatives, and agricultural 
credit bank shall use cash and the eligible investments under Sec. 
615.5140 of this subpart to maintain liquidity sufficient to fund:
    (1) Fifty (50) percent of the bank's bonds, notes, Farm Credit 
Investment Bonds, and interest due within the next 90 days divided by 3;
    (2) Fifty (50) percent of the bank's discount notes due within the 
next 30 days; and
    (3) Fifty (50) percent of the bank's commercial bank borrowing due 
within the next 30 days.
    (b) All investments that the bank holds for the purpose of meeting 
the liquidity reserve requirement of this section must be free of lien.
    (c) The liquidity reserve requirement shall be calculated as of the 
last day of each month utilizing month end data.

[58 FR 63056, Nov. 30, 1993, as amended at 64 FR 28896, May 28, 1999]



Sec. 615.5135  Management of interest rate risk.

    The board of directors of each Farm Credit Bank, bank for 
cooperatives, and agricultural credit bank shall develop and implement 
an interest rate risk management program as set forth in subpart G of 
this part. The board of directors shall adopt an interest rate risk 
management section of an asset/liability management policy which 
establishes interest rate risk exposure limits as well as the criteria 
to determine compliance with these limits. At a minimum, the interest 
rate risk management section shall establish policies and procedures for 
the bank to:
    (a) Identify and analyze the causes of risks within its existing 
balance sheet structure;
    (b) Measure the potential impact of these risks on projected 
earnings and market values by conducting interest rate shock tests and 
simulations of multiple economic scenarios at least on a quarterly 
basis;
    (c) Explore and implement actions needed to obtain its desired risk 
management objectives;
    (d) Document the objectives that the bank is attempting to achieve 
by purchasing eligible investments that are authorized by Sec. 615.5140 
of this subpart;
    (e) Evaluate and document, at least quarterly, whether these 
investments have actually met the objectives stated under paragraph (d) 
of this section.

[58 FR 63056, Nov. 30, 1993, as amended at 63 FR 39225, July 22, 1998]



Sec. 615.5136  Emergencies impeding normal access of Farm Credit banks 
to capital markets.

    An emergency shall be deemed to exist whenever a financial, 
economic, agricultural or national defense crisis could impede the 
normal access of Farm Credit banks to the capital markets. Whenever the 
Farm Credit Administration determines after consultations with the 
Federal Farm Credit Banks Funding Corporation that such an emergency 
exists, the Farm Credit Administration Board shall, in its sole 
discretion, adopt a resolution that:
    (a) Increases the amount of eligible investments that Farm Credit 
Banks, banks for cooperatives and agricultural credit banks are 
authorized to hold pursuant to Sec. 615.5132 of this subpart; and/or
    (b) Modifies or waives the liquidity reserve requirement in Sec. 
615.5134 of this subpart.

[58 FR 63057, Nov. 30, 1993]



Sec. 615.5140  Eligible investments.

    (a) You may hold only the following types of investments listed in 
the Investment Eligibility Criteria Table. These investments must be 
denominated in United States dollars.

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[[Page 156]]


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    (b) Rating of foreign countries. Whenever the obligor or issuer of 
an eligible investment is located outside the United States, the host 
country must maintain the highest sovereign rating for political and 
economic stability by an NRSRO.

[[Page 157]]

    (c) Marketable securities. All eligible investments, except money 
market instruments, must be marketable. An eligible investment is 
marketable if you can sell it quickly at a price that closely reflects 
its fair value in an active and universally recognized secondary market.
    (d) Obligor limits. (1) You may not invest more than 20 percent of 
your total capital in eligible investments issued by any single 
institution, issuer, or obligor. This obligor limit does not apply to 
obligations, including mortgage securities, that are issued or 
guaranteed as to interest and principal by the United States, its 
agencies, instrumentalities, or corporations.
    (2) Obligor limits for your holdings in an investment company. You 
must count securities that you hold through an investment company 
towards the obligor limit of this section unless the investment 
company's holdings of the security of any one issuer do not exceed five 
(5) percent of the investment company's total portfolio.
    (e) Other investments approved by the FCA. You may purchase and hold 
other investments that we approve. Your request for our approval must 
explain the risk characteristics of the investment and your purpose and 
objectives for making the investment.

[64 FR 28896, May 28, 1999]



Sec. 615.5141  Stress tests for mortgage securities.

    Mortgage securities are not eligible investments unless they pass a 
stress test. You must perform stress tests to determine how interest 
rate changes will affect the cashflow and price of each mortgage 
security that you purchase and hold, except for adjustable rate 
securities that reprice at intervals of 12 months or less and are tied 
to an index. You must also use stress tests to gauge how interest rate 
fluctuations on mortgage securities affect your institution's capital 
and earnings. You may conduct the stress tests as described in either 
paragraph (a) or (b) of this section.
    (a) Mortgage securities must comply with the following three tests 
at the time of purchase and each following quarter:
    (1) Average Life Test. The expected WAL of the instrument does not 
exceed 5 years.
    (2) Average Life Sensitivity Test. The expected WAL does not extend 
for more than 2 years, assuming an immediate and sustained parallel 
shift in the yield curve of plus 300 basis points, nor shorten for more 
than 3 years, assuming an immediate and sustained parallel shift in the 
yield curve of minus 300 basis points.
    (3) Price Sensitivity Test. The estimated change in price is not 
more than thirteen (13) percent due to an immediate and sustained 
parallel shift in the yield curve of plus or minus 300 basis points.
    (4) Exemption. A floating rate mortgage security is subject only to 
the price sensitivity test in paragraph (a)(3) of this section if at the 
time of purchase and each quarter thereafter it bears a rate of interest 
that is below its contractual cap.
    (b) You may use an alternative stress test to evaluate the price 
sensitivity of your mortgage securities. An alternative stress test must 
be able to measure the price sensitivity of mortgage instruments over 
different interest rate/yield curve scenarios. The methodology that you 
use to analyze mortgage securities must be appropriate for the 
complexity of the instrument's structure and cashflows. Prior to 
purchase and each quarter thereafter, you must use the stress test to 
determine that the risk in the mortgage security is within the risk 
limits of your board's investment policies. The stress test must enable 
you to determine at the time of purchase and each subsequent quarter 
that the mortgage security does not expose your capital or earnings to 
excessive risks.
    (c) You must rely on verifiable information to support all your 
assumptions, including prepayment and interest rate volatility 
assumptions, when you apply the stress tests in either paragraph (a) or 
(b) of this section. You must document the basis for all assumptions 
that you use to evaluate the security and its underlying mortgages. You 
must also document all subsequent changes in your assumptions. If at any 
time after purchase, a mortgage

[[Page 158]]

security no longer complies with requirements in this section, you must 
divest it in accordance with Sec. 615.5143.

[64 FR 28899, May 28, 1999]



Sec. 615.5142  Association investments.

    An association may hold eligible investments listed in Sec. 
615.5140, with the approval of its funding bank, for the purposes of 
reducing interest rate risk and managing surplus short-term funds. Each 
bank must review annually the investment portfolio of every association 
that it funds.

[64 FR 28899, May 28, 1999]



Sec. 615.5143  Disposal of ineligible investments.

    You must dispose of an ineligible investment within 6 months unless 
we approve, in writing, a plan that authorizes you to divest the 
instrument over a longer period of time. An acceptable divestiture plan 
must require you to dispose of the ineligible investment as quickly as 
possible without substantial financial loss. Until you actually dispose 
of the ineligible investment, the managers of your investment portfolio 
must report at least quarterly to your board of directors about the 
status and performance of the ineligible instrument, the reasons why it 
remains ineligible, and the managers' progress in disposing of the 
investment.

[64 FR 28899, May 28, 1999]



Sec. 615.5144  Banks for cooperatives and agricultural credit banks.

    As may be authorized by the banks for cooperatives' or agricultural 
credit banks boards of directors ownership investment may be made in 
foreign business entities solely for the purpose of obtaining credit 
information and other services needed to facilitate transactions which 
may be financed under section 3.7(b) of the Farm Credit Act Amendments 
of 1980. Such an investment shall not exceed the level required to 
access credit and other services of the entity and shall not be made for 
earnings purposes. The business entity shall be deemed to be principally 
engaged in providing credit information to and performing such servicing 
functions for its members where such activities constitute a materially 
important line of business to its members. Also, investments must be 
made by a bank for cooperatives or agricultural credit bank for its own 
account and not on behalf of its members. The bank for cooperatives or 
agricultural credit bank shall use only those services provided by the 
business entity as necessary to facilitate transactions authorized by 
section 3.7(b) of the Farm Credit Act Amendments of 1980.

[46 FR 55088, Nov. 6, 1981, as amended at 54 FR 1151, Jan. 12, 1989; 54 
FR 50736, Dec. 11, 1989; 61 FR 67187, Dec. 20, 1996. Redesignated at 64 
FR 28899, May 28, 1999]



     Subpart F_Property, Transfers of Capital, and Other Investments



Sec. 615.5170  Real and personal property.

    Real estate and personal property may be acquired, held, or disposed 
of by any Farm Credit institution for the necessary and normal 
operations of its business. The purchase, lease, or construction of 
office quarters shall be limited to facilities reasonably necessary to 
meet the foreseeable requirements of the institution. Property shall not 
be acquired if it involves, or appears to involve, a bank or association 
in the real estate or other unrelated business.

[50 FR 48554, Nov. 26, 1985. Redesignated at 58 FR 63056, Nov. 30, 1993, 
and amended at 60 FR 20011, Apr. 24, 1995]



Sec. 615.5171  Transfer of capital from banks to associations.

    (a) Definitions for this section--(1) Transfer of capital means any 
payment or forbearance by a Farm Credit Bank or agricultural credit bank 
(collectively, bank) to an affiliated association, including but not 
limited to:
    (i) The purchase of nonvoting stock or participation certificates;
    (ii) The payment of cash;
    (iii) Debt forgiveness or reduction;
    (iv) Interest rate concessions or interest-free loans;
    (v) The transfer of loans at other than fair market value;
    (vi) The reduction or elimination of standard loan servicing or 
other fees; and

[[Page 159]]

    (vii) The assumption of operating or other expenses, such as legal 
fees or insurance premiums.
    (2) Preferential transfer of capital means a transfer of capital 
that is not available to all similarly situated affiliated associations.
    (3) Nonroutine transfer of capital means a transfer of capital that 
is not available in the ordinary course of business.
    (b) Considerations for preferential or nonroutine transfers of 
capital. Before authorizing a preferential or nonroutine transfer of 
capital, a bank board of directors must take into account and document 
whether:
    (1) The transfer of capital is in the best interests of all of the 
shareholders;
    (2) The bank will be able to achieve its capital adequacy and 
business plan goals after making the transfer of capital; and
    (3) The transfer of capital is the ``least cost'' alternative 
available and will enable the association to maintain sound, adequate, 
and constructive service to borrowers.
    (c) Notification requirements. At least 30 days before making a 
preferential or nonroutine transfer of capital to an affiliated 
association, banks must provide shareholders and the Chief Examiner of 
the Farm Credit Administration with a description of the transfer and 
the documentation required by paragraph (b) of this section.

[64 FR 49961, Sept. 15, 1999]



Sec. 615.5172  Production credit association and agricultural credit 
association investment in farmers' notes given to cooperatives and dealers.

    (a) In accordance with policies prescribed by the board of directors 
of the Farm Credit Bank or agricultural credit bank and each production 
credit association and agricultural credit association (hereinafter 
association(s)), such association(s) may invest in notes, conditional 
sales contracts, and other similar obligations given to cooperatives and 
private dealers by farmers and ranchers eligible to borrow from such 
associations.
    (b) Such notes and other obligations evidencing purchases of farm 
machinery, supplies, equipment, home appliances, and other items of a 
capital nature handled by cooperatives and private dealers will be 
eligible for purchase as investments.
    (c) The total amount which an association may invest in such 
obligations at any one time shall not exceed 15 percent of the balance 
of its loans outstanding at the close of the association's preceding 
fiscal year. In addition, the total amount which an association may 
invest in such obligations that are originated by any one cooperative or 
private dealer, at any one time, shall not exceed 50 percent of 
association capital and surplus.
    (d) All notes in which an association invests shall be endorsed with 
full recourse against the cooperative or dealer. The association shall 
contact each notemaker who meets the association's credit standards to 
encourage him to become a borrower.

[54 FR 1158, Jan. 12, 1989, as amended at 55 FR 24888, June 19, 1990; 55 
FR 38313, Sept. 18, 1990. Redesignated at 58 FR 63056, Nov. 30, 1993]



Sec. 615.5173  Stock of the Federal Agricultural Mortgage Corporation.

    Banks and associations of the Farm Credit System are authorized to 
purchase and hold Class B common stock of the Federal Agricultural 
Mortgage Corporation pursuant to section 8.4 of the Farm Credit Act.

[58 FR 63058, Nov. 30, 1993]



Sec. 615.5174  Farmer Mac securities.

    (a) General authority. You may purchase and hold mortgage securities 
that are issued or guaranteed as to both principal and interest by the 
Federal Agricultural Mortgage Corporation (Farmer Mac securities). You 
may purchase and hold Farmer Mac securities for the purposes of managing 
credit and interest rate risks, and furthering your mission to finance 
agriculture. The total value of your Farmer Mac securities cannot exceed 
your total outstanding loans, as defined by Sec. 615.5131(g).
    (b) Board and management responsibilities. Your board of directors 
must adopt written policies that will govern your investments in Farmer 
Mac securities. All delegations of authority to specified personnel or 
committees

[[Page 160]]

must state the extent of management's authority and responsibilities for 
managing your investments in Farmer Mac securities. The board of 
directors must also ensure that appropriate internal controls are in 
place to prevent loss, in accordance with Sec. 615.5133(e). Management 
must submit quarterly reports to the board of directors on the 
performance of all investments in Farmer Mac securities. Annually, your 
board of directors must review these policies and the performance of 
your Farmer Mac securities and make any changes that are needed.
    (c) Policies. Your board of directors must establish investment 
policies for Farmer Mac securities that include your:
    (1) Objectives for holding Farmer Mac securities.
    (2) Credit risk parameters including:
    (i) The quantities and types of Farmer Mac mortgage securities that 
are collateralized by qualified agricultural mortgages, rural home 
loans, and loans guaranteed by the Farm Service Agency.
    (ii) Product and geographic diversification for the loans that 
underlie the security; and
    (iii) Minimum pool size, minimum number of loans in each pool, and 
maximum allowable premiums or discounts on these securities.
    (3) Liquidity risk tolerance and the liquidity characteristics of 
Farmer Mac securities that are suitable to meet your institutional 
objectives. A bank may not include Farmer Mac mortgage securities in the 
liquidity reserve maintained to comply with Sec. 615.5134.
    (4) Market risk limits based on the effects that the Farmer Mac 
securities have on your capital and earnings.
    (d) Stress Test. You must perform stress tests on mortgage 
securities that are issued or guaranteed by Farmer Mac in accordance 
with the requirements of Sec. 615.5141(b) and (c). If a Farmer Mac 
security fails a stress test, you must divest it as required by Sec. 
615.5143.

[64 FR 28899, May 28, 1999]



                Subpart G_Risk Assessment and Management

    Source: 63 FR 39225, July 22, 1998, unless otherwise noted.



Sec. 615.5180  Interest rate risk management by banks--general.

    The board of directors of each Farm Credit Bank, bank for 
cooperatives, and agricultural credit bank shall develop and implement 
an interest rate risk management program tailored to the needs of the 
institution and consistent with the requirements set forth in Sec. 
615.5135 of this part. The program shall establish a risk management 
process that effectively identifies, measures, monitors, and controls 
interest rate risk.



Sec. 615.5181  Bank interest rate risk management program.

    (a) The board of directors of each Farm Credit Bank, bank for 
cooperatives, and agricultural credit bank is responsible for providing 
effective oversight to the interest rate risk management program and 
must be knowledgeable of the nature and level of interest rate risk 
taken by the institution.
    (b) Senior management is responsible for ensuring that interest rate 
risk is properly managed on both a long-range and a day-to-day basis.



Sec. 615.5182  Interest rate risk management by associations and 
other Farm Credit System institutions other than banks.

    Any association or other Farm Credit System institution other than 
banks, excluding the Federal Agricultural Mortgage Corporation, with 
interest rate risk that could lead to significant declines in net income 
or in the market value of capital shall comply with the requirements of 
Sec. Sec. 615.5180 and 615.5181. The interest rate risk management 
program required under Sec. 615.5181 shall be commensurate with the 
level of interest rate risk of the institution.



                       Subpart H_Capital Adequacy

    Source: 53 FR 39247, Oct. 6, 1988, unless otherwise noted.

[[Page 161]]



Sec. 615.5200  General.

    (a) The Board of Directors of each Farm Credit System institution 
shall determine the amount of total capital, core surplus, total 
surplus, and unallocated surplus needed to assure the institution's 
continued financial viability and to provide for growth necessary to 
meet the needs of its borrowers. The minimum capital standards specified 
in this part are not meant to be adopted as the optimal capital level in 
the institution's capital adequacy plan. Rather, the standards are 
intended to serve as minimum levels of capital that each institution 
must maintain to protect against the credit and other general risks 
inherent in its operations.
    (b) Each Board of Directors shall establish, adopt, and maintain a 
formal written capital adequacy plan as a part of the financial plan 
required by Sec. 618.8440 of this chapter. The plan shall include the 
capital targets that are necessary to achieve the institution's capital 
adequacy goals as well as the minimum permanent capital and surplus 
standards. The plan shall address any projected dividends, patronage 
distribution, equity requirements, or other action that may decrease the 
institution's capital or the components thereof for which minimum 
amounts are required by this part. The plan shall set forth the 
circumstances in which retirements or revolvements of stock or equities 
may occur. If the plan provides for retirement or revolvement of 
equities included in core surplus, in connection with a loan default or 
the death of a former borrower, the plan must require the institution to 
make a prior determination that such retirement or revolvement is in the 
best interest of the institution, and also require the institution to 
charge off an amount of the indebtedness on the loan equal to the amount 
of the equities that are retired or canceled. In addition to factors 
that must be considered in meeting the minimum standards, the board of 
directors shall also consider at least the following factors in 
developing the capital adequacy plan:
    (1) Capability of management;
    (2) Quality of operating policies, procedures, and internal 
controls;
    (3) Quality and quantity of earnings;
    (4) Asset quality and the adequacy of the allowance for losses to 
absorb potential loss within the loan and lease portfolios;
    (5) Sufficiency of liquid funds;
    (6) Needs of an institution's customer base; and
    (7) Any other risk-oriented activities, such as funding and interest 
rate risks, potential obligations under joint and several liability, 
contingent and off-balance-sheet liabilities or other conditions 
warranting additional capital.

[53 FR 39247, Oct. 6, 1988, as amended at 62 FR 4446, Jan. 30, 1997]



Sec. 615.5201  Definitions.

    For the purpose of this subpart, the following definitions shall 
apply:
    (a) Allocated investment means earnings allocated but not paid in 
cash by a System bank to an association or other recipient.
    (b) Commitment means any arrangement that legally obligates an 
institution to purchase loans or securities, to participate in loans or 
leases, to extend credit in the form of loans or leases, to pay the 
obligation of another, to provide overdraft, revolving credit or 
underwriting facilities, or to participate in similar transactions.
    (c) Credit conversion factor means that number by which an off-
balance-sheet item shall be multiplied to obtain a credit equivalent 
before placing the item in a risk-weight category.
    (d) Deferred-tax assets that are dependent on future income or 
future events means:
    (1) Deferred-tax assets arising from deductible temporary 
differences dependent upon future income that exceed the amount of taxes 
previously paid that could be recovered through loss carrybacks if 
existing temporary differences (both deductible and taxable and 
regardless of where the related tax-deferred effects are recorded on the 
institution's balance sheet) fully reverse;
    (2) Deferred-tax assets dependent upon future income arising from 
operating loss and tax carryforwards; or
    (3) Deferred-tax assets arising from temporary differences that 
could be recovered if existing temporary differences that are dependent 
upon other

[[Page 162]]

future events (both deductible and taxable and regardless of where the 
related tax-deferred effects are recorded on the institution's balance 
sheet) fully reverse.
    (e) Direct lender institution means an institution that extends 
credit in the form of loans or leases to eligible borrowers in its own 
right and carries such loan or lease assets on its books.
    (f) Government agency means an agency of the United States 
Government whose obligations are explicitly guaranteed by the United 
States Government or their successors.
    (g) Government-sponsored agency means agencies or instrumentalities 
chartered by the United States Congress to serve a public purpose whose 
debt obligations are not explicitly guaranteed by the United States 
Government.
    (h) Institution means a Farm Credit bank, Federal land bank 
association, Federal land credit association, production credit 
association, agricultural credit association, Farm Credit Leasing 
Corporation, bank for cooperatives, agricultural credit bank, and their 
successors.
    (i) Nonagreeing association means an association that does not have 
an allotment agreement in effect with a Farm Credit Bank or agricultural 
credit bank pursuant to Sec. 615.5210(e).
    (j) OECD means the group of countries that are full members of the 
Organization for Economic Cooperation and Development, regardless of 
entry date, as well as countries that have concluded special lending 
arrangements with the International Monetary Fund's General Arrangement 
to Borrow, excluding any country that has rescheduled its external 
sovereign debt within the previous 5 years.
    (k) Performance-based standby letter of credit means any letter of 
credit or similar arrangement that represents an irrevocable obligation 
to be beneficiary on the part of the issuer to make payment on any 
default by the account party in the performance of a nonfinancial or 
commercial obligation.
    (l) Permanent capital means--
    (1) Current year retained earnings;
    (2) Allocated and unallocated earnings (which, in the case of 
earnings allocated in any form by a System bank to any association or 
other recipient and retained by the bank, shall be considered, in whole 
or in part, permanent capital of the bank or of any such association or 
other recipient as provided under an agreement between the bank and each 
such association or other recipient);
    (3) All surplus;
    (4) Stock issued by a System institution, except--
    (i) Stock that may be retired by the holder of the stock on 
repayment of the holder's loan, or otherwise at the option or request of 
the holder;
    (ii) Stock that is protected under section 4.9A of the Act or is 
otherwise not at risk;
    (iii) Farm Credit Bank equities required to be purchased by Federal 
land bank associations in connection with stock issued to borrowers that 
is protected under section 4.9A of the Act;
    (iv) Capital subject to revolvement, unless:
    (A) The bylaws of the institution clearly provide that there is no 
express or implied right for such capital to be retired at the end of 
the revolvement cycle or at any other time; and
    (B) The institution clearly states in the notice of allocation that 
such capital may only be retired at the sole discretion of the board in 
accordance with statutory and regulatory requirements and that no 
express or implied right to have such capital retired at the end of the 
revolvement cycle or at any other time is thereby granted;
    (5) Term preferred stock with an original maturity of at least 5 
years and on which, if cumulative, the board of directors has the option 
to defer dividends, provided that, at the beginning of each of the last 
5 years of the term of the stock, the amount that is eligible to be 
counted as permanent capital is reduced by 20 percent of the original 
amount of the stock (net of redemptions);
    (6) Payments to, or obligations to pay, the Farm Credit System 
Financial Assistance Corporation to the extent permitted by section 
6.26(c)(5)(G) of the Act and Sec. 615.5210(d); and

[[Page 163]]

    (7) Financial assistance provided by the Farm Credit System 
Insurance Corporation that the Farm Credit Administration determines 
appropriate to be considered permanent capital.
    (8) Any other debt or equity instruments or other accounts the FCA 
has determined are appropriate to be considered permanent capital. The 
FCA may permit one or more institutions to include all or a portion of 
such instrument, entry, or account as permanent capital, permanently or 
on a temporary basis, for purposes of this part.
    (m) Qualifying bilateral netting contract means a bilateral netting 
contract that meets at least the following conditions:
    (1) The contract is in writing;
    (2) The contract is not subject to a walkaway clause, defined as a 
provision that permits a non-defaulting counterparty to make lower 
payments than it would make otherwise under the contract, or no payment 
at all, to a defaulter or to the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
contract;
    (3) The contract creates a single obligation either to pay or to 
receive the net amount of the sum of positive and negative mark-to-
market values for all derivative contracts subject to the qualifying 
bilateral netting contract;
    (4) The institution receives a legal opinion that represents, to a 
high degree of certainty, that in the event of legal challenge the 
relevant court and administrative authorities would find the 
institution's exposure to be the net amount;
    (5) The institution establishes a procedure to monitor relevant law 
and to ensure that the contracts continue to satisfy the requirements of 
this section; and
    (6) The institution maintains in its files adequate documentation to 
support the netting of a derivatives contract.
    (n) Risk-adjusted asset base means the total dollar amount of the 
institution's assets adjusted in accordance with Sec. 615.5210 (d) and 
(e) and weighted on the basis of risk in accordance with Sec. 
615.5210(f).
    (o) Standby letter of credit means any letter of credit or similar 
arrangement that represents an irrevocable obligation to the beneficiary 
on the part of the issuer:
    (1) To repay money borrowed by or 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, in the event the account party fails to fulfill its 
obligation to the beneficiary.
    (p) Stock means stock and participation certificates.
    (q) Total capital means assets minus liabilities, valued in 
accordance with generally accepted accounting principles (GAAP), except 
that liabilities shall not include obligations to retire stock protected 
under section 4.9A of the Act.

[53 FR 39247, Oct. 6, 1988, as amended at 56 FR 2675, Jan. 24, 1991; 59 
FR 37404, July 22, 1994; 62 FR 4446, Jan. 30, 1997; 63 FR 39225, July 
22, 1998; 68 FR 18534, Apr. 16, 2003]



Sec. 615.5205  Minimum permanent capital standards.

    Each institution shall at all times maintain permanent capital at a 
level of at least 7 percent of its risk-adjusted asset base.

[62 FR 4446, Jan. 30, 1997]



Sec. 615.5210  Computation of the permanent capital ratio.

    (a) The institution's permanent capital ratio shall be determined on 
the basis of the financial statements of the institution prepared in 
accordance with generally accepted accounting principles except that the 
obligations of the Farm Credit System Financial Assistance Corporation 
issued to repay banks in connection with the capital preservation and 
loss-sharing agreements described in section 6.9(e)(1) of the Act shall 
not be considered obligations of any institution subject to this 
regulation prior to their maturity.
    (b) The institution's asset base and permanent capital shall be 
computed using average daily balances for the most recent 3 months.
    (c) The institution's permanent capital ratio shall be calculated by 
dividing the institution's permanent capital, adjusted in accordance 
with paragraph (e) of this section (the numerator), by the risk-adjusted 
asset base

[[Page 164]]

(the denominator), to derive a ratio expressed as a percentage.
    (d) Until September 27, 2002, payments of assessments to the Farm 
Credit System Financial Assistance Corporation, and any part of the 
obligation to pay future assessments to the Farm Credit System Financial 
Assistance Corporation that is recognized as an expense on the books of 
a bank or association, shall be included in the capital of such bank or 
association for the purpose of determining its compliance with 
regulatory capital requirements, to the extent allowed by section 
6.26(c)(5)(G) of the Act. If the bank directly or indirectly passes on 
all or part of the payments to its affiliated associations pursuant to 
section 6.26(c)(5)(D) of the Act, such amounts shall be included in the 
capital of the associations and shall not be included in the capital of 
the bank. After September 27, 2002, no payments of assessments or 
obligations to pay future assessments may be included in the capital of 
the bank or association.
    (e) For the purpose of computing the institution's permanent capital 
ratio, the following adjustments shall be made prior to assigning assets 
to risk-weight categories and computing the ratio:
    (1) Where two Farm Credit System institutions have stock investments 
in each other, such reciprocal holdings shall be eliminated to the 
extent of the offset. If the investments are equal in amount, each 
institution shall deduct from its assets and its total capital an amount 
equal to the investment. If the investments are not equal in amount, 
each institution shall deduct from its total capital and its assets an 
amount equal to the smaller investment. The elimination of reciprocal 
holdings required by this paragraph shall be made prior to making the 
other adjustments required by this section.
    (2) Where a Farm Credit Bank or an agricultural credit bank is owned 
by one or more Farm Credit System institutions, the double counting of 
capital shall be eliminated in the following manner:
    (i) All equities of a Farm Credit Bank or agricultural credit bank 
that have been purchased by other Farm Credit institutions shall be 
considered to be permanent capital of the Farm Credit Bank or 
agricultural credit bank.
    (ii) Each Farm Credit Bank or agricultural credit bank and each of 
its affiliated associations may enter into an agreement that specifies, 
for the purpose of computing permanent capital only, a dollar amount 
and/or percentage allotment of the association's allocated investment 
between the bank and the association. The following conditions shall 
apply:
    (A) The agreement shall be for a term of 1 year or longer.
    (B) The agreement shall be entered into on or before its effective 
date.
    (C) The agreement may be amended according to its terms, but no more 
frequently than annually except in the event that a party to the 
agreement is merged or reorganized, or in the event of a reallotment 
pursuant to paragraph (e)(2)(ii)(G) of this section. The agreement shall 
include a provision addressing how the agreement will be amended if a 
reallotment is required by paragraph (e)(2)(ii)(G) of this section.
    (D) On or before the effective date of the agreement, a certified 
copy of the agreement, and any amendments thereto, shall be sent to the 
field office of the Farm Credit Administration responsible for examining 
the institution. A copy shall also be sent within 30 calendar days of 
adoption to the bank's other affiliated associations.
    (E) Unless the parties otherwise agree, if the bank and the 
association have not entered into a new agreement on or before the 
expiration of an existing agreement, the existing agreement shall 
automatically be extended for another 12 months, unless either party 
notifies the Farm Credit Administration in writing of its objection to 
the extension prior to the expiration of the existing agreement.
    (F) In the absence of an agreement between a Farm Credit Bank or an 
agricultural credit bank and one or more associations, or in the event 
that an agreement expires and at least one party has timely objected to 
the continuation of the terms of its agreement, the following formula 
shall be applied with respect to the allocated investments held by those 
associations with which there is no agreement (nonagreeing 
associations), and shall not be

[[Page 165]]

applied to the allocated investments held by those associations with 
which the bank has an agreement (agreeing associations):
    (1) The allotment formula shall be calculated annually.
    (2) The permanent capital ratio of the Farm Credit Bank or 
agricultural credit bank shall be computed as of the date that the 
existing agreement terminates, using a 3-month average daily balance, 
excluding the allocated investment from nonagreeing associations but 
including any allocated investments of agreeing associations that are 
allotted to the bank under applicable allocation agreements. The 
permanent capital ratio of each nonagreeing association shall be 
computed as of the same date using a 3-month average daily balance, and 
shall be computed excluding its allocated investment in the bank.
    (3) If the permanent capital ratio for the Farm Credit Bank or 
agricultural credit bank calculated in accordance with paragraph 
(e)(2)(ii)(F)(2) of this section is 7 percent or above, the allocated 
investment of each nonagreeing association whose permanent capital ratio 
calculated in accordance with paragraph (e)(2)(ii)(F)(2) of this section 
is 7 percent or above shall be allotted 50 percent to the bank and 50 
percent to the association.
    (4) If the permanent capital ratio of the Farm Credit Bank or 
agricultural credit bank calculated in accordance with paragraph 
(e)(2)(ii)(F)(2) of this section is 7 percent or above, the allocated 
investment of each nonagreeing association whose capital ratio is below 
7 percent shall be allotted to the association until the association's 
capital ratio reaches 7 percent or until all of the investment is 
allotted to the association, whichever occurs first. Any remaining 
unallotted allocated investment shall be allotted 50 percent to the bank 
and 50 percent to the association.
    (5) If the permanent capital ratio of the Farm Credit Bank or 
agricultural credit bank calculated in accordance with paragraph 
(e)(2)(ii)(F)(2) of this section is less than 7 percent, the amount of 
additional capital needed by the bank to reach a permanent capital ratio 
of 7 percent shall be determined, and an amount of the allocated 
investment of each nonagreeing association shall be allotted to the Farm 
Credit Bank or agricultural credit bank as follows:
    (i) If the total of the allocated investments of all nonagreeing 
associations is greater than the additional capital needed by the bank, 
the allocated investment of each nonagreeing association shall be 
multiplied by a fraction whose numerator is the amount of capital needed 
by the bank and whose denominator is the total amount of allocated 
investments of the nonagreeing associations, and such amount shall be 
allotted to the bank. Next, if the permanent capital ratio of any 
nonagreeing association is less than 7 percent, a sufficient amount of 
unallotted allocated investment shall then be allotted to each 
nonagreeing association, as necessary, to increase its permanent capital 
ratio to 7 percent, or until all such remaining investment is allotted 
to the association, whichever occurs first. Any unallotted allocated 
investment still remaining shall be allotted 50 percent to the bank and 
50 percent to the nonagreeing association.
    (ii) If the additional capital needed by the bank is greater than 
the total of the allocated investments of the nonagreeing associations, 
all of the remaining allocated investments of the nonagreeing 
associations shall be allotted to the bank.
    (G) If a payment or part of a payment to the Farm Credit System 
Financial Assistance Corporation pursuant to section 6.9(e)(3)(D)(ii) of 
the Act would cause a bank to fall below its minimum permanent capital 
requirement, the bank and one or more associations shall amend their 
allocation agreements to increase the allotment of the allocated 
investment to the bank sufficiently to enable the bank to make the 
payment to the Farm Credit System Financial Assistance Corporation, 
provided that the associations would continue to meet their minimum 
permanent capital requirement. In the case of a nonagreeing association, 
the Farm Credit Administration may require a revision of the allotment 
sufficient to enable the bank to make the payment to the Farm Credit 
System Financial Assistance Corporation, provided that the association 
would continue to meet

[[Page 166]]

its minimum permanent capital requirement. The Farm Credit 
Administration Board may, at the request of one or more of the 
institutions affected, waive the requirements of this paragraph 
(e)(2)(ii)(G) if the Board deems it is in the overall best interest of 
the institutions affected.
    (3) A Farm Credit Bank or agricultural credit bank and a recipient, 
other than an association, of allocated earnings from such bank may 
enter into an agreement specifying a dollar amount and/or percentage 
allotment of the recipient's allocated earnings in the bank between the 
bank and the recipient. Such agreement shall comply with the provisions 
of paragraph (e)(2) of this section, except that, in the absence of an 
agreement, the allocated investment shall be allotted 100 percent to the 
allocating bank and 0 percent to the recipient. All equities of the bank 
that are purchased by a recipient shall be considered as permanent 
capital of the issuing bank.
    (4) A bank for cooperatives and a recipient of allocated earnings 
from such bank may enter into an agreement specifying a dollar amount 
and/or percentage allotment of the recipient's allocated earnings in the 
bank between the bank and the recipient. Such agreement shall comply 
with the provisions of paragraph (e)(2) of this section, except that, in 
the absence of an agreement, the allocated investment shall be allotted 
100 percent to the allocating bank and 0 percent to the recipient. All 
equities of a bank that are purchased by a recipient shall be considered 
as permanent capital of the issuing bank.
    (5) Where a bank or association invests in an association to 
capitalize a loan participation interest, the investing institution 
shall deduct from its total capital an amount equal to its investment in 
the participating institution.
    (6) The double-counting of capital by a service corporation 
chartered under section 4.25 of the Act and its stockholder institutions 
shall be eliminated by deducting an amount equal to the institution's 
investment in the service corporation from its total capital.
    (7) Each institution shall deduct from its total capital an amount 
equal to all goodwill, whenever required.
    (8) To the extent an institution has deducted its investment in 
another Farm Credit institution from its total capital, the investment 
may be eliminated from its asset base.
    (9) Where a Farm Credit Bank and an association have an enforceable 
written agreement to share losses on specifically identified assets on a 
predetermined quantifiable basis, such assets shall be counted in each 
institution's risk-adjusted asset base in the same proportion as the 
institutions have agreed to share the loss.
    (10) The permanent capital of an institution shall exclude the net 
effect of all transactions covered by the definition of ``accumulated 
other comprehensive income'' contained in the Statement of Financial 
Accounting Standards No. 130, as promulgated by the Financial Accounting 
Standards Board.
    (11) For purposes of calculating capital ratios under this part, 
deferred-tax assets are subject to the conditions, limitations, and 
restrictions described in this paragraph.
    (i) Each institution shall deduct an amount of deferred-tax assets, 
net of any valuation allowance, from its assets and its total capital 
that is equal to the greater of:
    (A) The amount of deferred-tax assets that are dependent on future 
income or future events in excess of the amount that is reasonably 
expected to be realized within 1 year of the most recent calendar 
quarter-end date, based on financial projections for that year, or
    (B) The amount of deferred-tax assets that are dependent on future 
income or future events in excess of ten (10) percent of the amount of 
core surplus that exists before the deduction of any deferred-tax 
assets.
    (ii) For purposes of this calculation:
    (A) The amount of deferred-tax assets that can be realized from 
taxes paid in prior carryback years and from the reversal of existing 
taxable temporary differences shall not be deducted from assets and from 
equity capital.
    (B) All existing temporary differences should be assumed to fully 
reverse at the calculation date.

[[Page 167]]

    (C) Projected future taxable income should not include net operating 
loss carryforwards to be used within 1 year or the amount of existing 
temporary differences expected to reverse within that year.
    (D) Financial projections shall include the estimated effect of tax-
planning strategies that are expected to be implemented to minimize tax 
liabilities and realize tax benefits. Financial projections for the 
current fiscal year (adjusted for any significant changes that have 
occurred or are expected to occur) may be used when applying the capital 
limit at an interim date within the fiscal year.
    (E) The deferred tax effects of any unrealized holding gains and 
losses on available-for-sale debt securities may be excluded from the 
determination of the amount of deferred-tax assets that are dependent 
upon future taxable income and the calculation of the maximum allowable 
amount of such assets. If these deferred-tax effects are excluded, this 
treatment must be followed consistently over time.
    (f) The risk-adjusted asset base (denominator) shall be determined 
in the following manner:
    (1) Each asset on the institution's balance sheet and each off-
balance-sheet item, adjusted by the appropriate credit conversion factor 
in paragraph (f)(3) of this section, shall be assigned to one of five 
risk categories in accordance with this section. The aggregate dollar 
value of the assets in each category shall be multiplied by the 
percentage weight assigned to that category. The sum of the weighted 
dollar values from each of the five risk categories shall comprise the 
denominator for computation of the permanent capital ratio.
    (2) Balance sheet assets shall be assigned to the percentage risk 
categories as follows:
    (i) Category 1: 0 Percent.
    (A) Cash on hand and demand balances held in domestic or foreign 
banks.
    (B) Claims on Federal Reserve Banks.
    (C) Goodwill.
    (D) Direct claims on and portions of claims unconditionally 
guaranteed by the United States Treasury, United States Government 
agencies, or central governments in other OECD countries. A United 
States Government agency is defined as an instrumentality of the United 
States Government whose obligations are fully and explicitly guaranteed 
as to the timely repayment of principal and interest by the full faith 
and credit of the United States Government.
    (ii) Category 2: 20 Percent.
    (A) Portions of loans and other assets collateralized by United 
States Government-sponsored agency securities. A United States 
Government-sponsored agency is defined as an agency originally chartered 
or established to serve public purposes specified by the United States 
Congress but whose obligations are not explicitly guaranteed by the full 
faith and credit of the United States Government.
    (B) Portions of loans and other assets conditionally guaranteed by 
the United States Government or its agencies.
    (C) Portions of loans and other assets collateralized by securities 
issued or guaranteed (fully or partially) by the United States 
Government or its agencies (but only to the extent guaranteed).
    (D) Claims on domestic banks (exclusive of demand balances).
    (E) Claims on, or guarantees by, OECD banks.
    (F) Claims on non-OECD banks with a remaining maturity of 1 year or 
less.
    (G) Investments in State and local government obligations backed by 
the ``full faith and credit of State or local government.'' Other claims 
(including loans) and portions of claims guaranteed by the full faith 
and credit of a State government (but only to the extent guaranteed).
    (H) Claims on official multinational lending institutions or 
regional development institutions in which the United States Government 
is a shareholder or contributor.
    (I) Loans and other obligations of and investments in Farm Credit 
institutions.
    (J) Local currency claims on foreign central governments to the 
extent that the Farm Credit institution has local liabilities in that 
country.
    (K) Cash items in the process of collection.

[[Page 168]]

    (L) Asset- or mortgage-backed securities (not issued or guaranteed 
by the United States Government, a Government agency, or a Government-
sponsored agency).
    (M) Claims on other financing institutions provided that:
    (1) The other financing institution qualifies as an OECD bank or it 
is owned and controlled by an OECD bank that guarantees the claim, or
    (2) The other financing institution has a rating in one of the 
highest three investment-grade rating categories from a NRSRO or the 
claim is guaranteed by a parent company with such a rating, and
    (3) The other financing institution has endorsed all obligations it 
pledges to its funding Farm Credit bank with full recourse.
    (iii) Category 3: 50 Percent.
    (A) All other investment securities with maturities under 1 year.
    (B) Rural housing loans secured by first lien mortgages or deeds of 
trust.
    (C) Claims on other financing institutions that:
    (1) Are not covered by the provisions of paragraph (f)(2)(ii)(M) of 
this section, but otherwise meet similar capital, risk identification 
and control, and operational standards, or
    (2) Carry an investment-grade or higher NRSRO rating or the claim is 
guaranteed by a parent company with such a rating, and
    (3) The other financing institution has endorsed all obligations it 
pledges to its funding Farm Credit bank with full recourse.
    (iv) Category 4: 100 Percent.
    (A) All other claims on private obligors.
    (B) Claims on non-OECD banks with a remaining maturity greater than 
1 year.
    (C) All other assets not specified above, including but not limited 
to, leases, fixed assets, and receivables.
    (D) All non-local currency claims on foreign central governments, as 
well as local currency claims on foreign central governments that are 
not included in Category 2(J).
    (E) Claims on other financing institutions that do not otherwise 
qualify for a lower risk-weight category under this section.
    (3) Off-Balance-Sheet Items.
    (i) The dollar amount of off-balance-sheet items that shall be 
assigned to a risk-weight category for inclusion in the denominator 
shall be determined by multiplying the face amount of the item by the 
appropriate credit conversion factor set forth in paragraph (f)(3)(ii) 
of this section. The resulting amount shall be then assigned to the 
appropriate risk-weight category described in paragraph (f)(2) of this 
section on the basis of the type of obligor.
    (ii) Credit conversion factors shall be applied to off-balance-sheet 
items as follows:
    (A) 0 Percent.
    (1) Unused commitments with an original maturity of 14 months or 
less; or
    (2) Unused commitments with an original maturity of greater than 14 
months if:
    (B) 20 Percent
    (1) Short-term, self-liquidating, trade-related contingencies, 
including but not limited to, commercial letters of credit.
    (C) 50 Percent
    (1) Transaction-related contingencies (e.g. bid bonds, performance 
bonds, warranties, and performance-based standby letters of credit 
related to a particular transaction).
    (2) Unused loan commitments with an original maturity exceeding 14 
months, including underwriting commitments and commercial credit lines.
    (3) Revolving underwriting facilities (RUFs), note issuance 
facilities (NIFs) and other similar arrangements pursuant to which the 
institution's customer can issue short-term debt obligations in its own 
name, but for which the institution has a legally binding commitment to 
either:
    (i) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (ii) Advance funds to its customer if the obligations cannot be 
sold.
    (D) 100 Percent
    (1) Direct credit substitutes including financial-guarantee-type 
standby letters of credit that support financial claims on the account 
party. The face amount of a direct credit substitute shall be netted 
against any participations sold in that item. The amount

[[Page 169]]

not so sold shall be assigned to a risk-weight category using the 
criteria of Sec. 615.5210(f)(2).
    (2) Acquisitions of risk participations in bankers acceptances and 
participations in direct credit substitutes.
    (3) Sale and repurchase agreements and asset sales with recourse, if 
not already included on the balance sheet.
    (4) Forward agreements (i.e., contractual obligations) to purchase 
assets, including financing facilities with certain drawdown.
    (iii) Credit equivalents of interest rate contracts and foreign 
contracts. (A) Credit equivalents of interest rate contracts and foreign 
exchange contracts (except single currency floating/floating interest 
rate swaps) shall be determined by adding the replacement cost (mark-to-
market value, if positive) to the potential future credit exposure, 
determined by multiplying the notional principal amount by the following 
credit conversion factors as appropriate.

                        Conversion Factor Matrix
                              [In Percent]
------------------------------------------------------------------------
                                     Interest     Exchange
        Remaining maturity             rate         rate      Commodity
------------------------------------------------------------------------
1 year or less...................          0.0          1.0         10.0
Over 1 to 5 years................          0.5          5.0         12.0
Over 5 years.....................          1.5          7.5         15.0
------------------------------------------------------------------------

    (B) For any derivative contract that does not fall within one of the 
categories in the above table, the potential future credit exposure 
shall be calculated using the commodity conversion factors. The net 
current exposure for multiple derivative contracts with a single 
counterparty and subject to a qualifying bilateral netting contract 
shall be the net sum of all positive and negative mark-to-market values 
for each derivative contract. The positive sum of the net current 
exposure shall be added to the adjusted potential future credit exposure 
for the same multiple contracts with a single counterparty. The adjusted 
potential future credit exposure shall be computed as

Anet = (0.4 x Agross) + 0.6 (NGR x 
    Agross)

where:
(1) Anet is the adjusted potential future credit exposure;
(2) Agross is the sum of potential future credit exposures 
determined by multiplying the notional principal amount by the 
appropriate credit conversion factor; and
(3) NGR is the ratio of the net current credit exposure divided by the 
gross current credit exposure determined as the sum of only the positive 
mark-to-markets for each derivative contract with the single 
counterparty.

    (iv) Credit equivalents of single currency floating/floating 
interest rate swaps shall be determined by their replacement cost (mark-
to-market).

[53 FR 39247, Oct. 6, 1988, as amended at 54 FR 31323, July 28, 1989; 59 
FR 37404, July 22, 1994; 62 FR 4446, Jan. 30, 1997; 63 FR 39226, July 
22, 1998; 68 FR 15047, Mar. 28, 2003; 69 FR 29863, May 26, 2004]



Sec. 615.5215  Distribution of earnings.

    The boards of directors of System institutions may not reduce the 
permanent capital of the institution through the payment of patronage 
refunds or dividends, or the retirement of stock or allocated equities 
except retirements pursuant to Sec. Sec. 615.5280 and 615.5290 if, 
after or due to the action, the permanent capital of the institution 
would fail to meet the minimum permanent capital adequacy standard 
established under Sec. 615.5205 for that period. This limitation shall 
not apply to the payment of noncash patronage refunds by any institution 
exempt from Federal income tax if the entire refund paid qualifies as 
permanent capital at the issuing institution. Any System institution 
subject to Federal income tax may pay patronage refunds partially in 
cash if the cash portion of the refund is the minimum amount required to 
qualify the refund as a deductible patronage distribution for Federal 
income tax purposes and the remaining portion of

[[Page 170]]

the refund paid qualifies as permanent capital.

[53 FR 39247, Oct. 6, 1988, as amended at 53 FR 40046, Oct. 13, 1988]



Sec. 615.5216  [Reserved]



                     Subpart I_Issuance of Equities

    Source: 53 FR 40046, Oct. 13, 1988, unless otherwise noted.



Sec. 615.5220  Capitalization bylaws.

    (a) The board of directors of each System bank and association 
shall, pursuant to section 4.3A of the Farm Credit Act of 1971 (Act), 
adopt capitalization bylaws, subject to the approval of its voting 
shareholders that set forth:
    (1) Classes of equities and the manner in which they shall be 
issued, transferred, converted and retired;
    (2) For each class of equities, a description of the class(es) of 
persons to whom such stock may be issued, voting rights, dividend rights 
and preferences, and priority upon liquidation, including rights, if 
any, to share in the distribution of the residual estate;
    (3) The number of shares and par value of equities authorized to be 
issued for each class of equities. However, the bylaws need not state a 
number or value limit for these equities:
    (i) Equities that are required to be purchased as a condition of 
obtaining a loan, lease, or related service.
    (ii) Non-voting stock resulting from the conversion of voting stock 
due to repayment of a loan.
    (iii) Non-voting equities that are issued to an association's 
funding bank in conjunction with any agreement for a transfer of capital 
between the association and the bank.
    (iv) Equities resulting from the distribution of earnings.
    (4) For Farm Credit Banks, agricultural credit banks (with respect 
to loans other than to cooperatives), and associations, the percentage 
or dollar amount of equity investment (which may be expressed as a range 
within which the board of directors may from time to time determine the 
requirement) that will be required to be purchased as a condition for 
obtaining a loan, which shall be not less than, 2 percent of the loan 
amount or $1,000, whichever is less;
    (5) For banks for cooperatives and agricultural credit banks (with 
respect to loans to cooperatives), the percentage or dollar amount of 
equity or guaranty fund investment (which may be expressed as a range 
within which the board may from time to time determine the requirement) 
that serves as a target level of investment in the bank for patronage-
sourced business, which shall not be less than, 2 percent of the loan 
amount or $1,000, whichever is less;
    (6) The manner in which equities will be retired, including a 
provision stating that equities other than those protected under section 
4.9A of the Act are retirable at the sole discretion of the board, 
provided minimum permanent capital adequacy standards established in 
subpart H of this part are met;
    (7) The manner in which earnings will be allocated and distributed, 
including the basis on which patronage refunds will paid, which shall be 
in accord with cooperative principles; and
    (8) For Farm Credit banks, the manner in which the capitalization 
requirements of the Farm Credit Bank shall be allocated and equalized 
from time to time among its owners.
    (b) The board of directors of each service corporation (including 
the Farm Credit Leasing Services Corporation) shall adopt capitalization 
bylaws, subject to the approval of its voting shareholders, that set 
forth the requirements of paragraphs (a)(1), (a)(2), and (a)(3) of this 
section to the extent applicable. Such bylaws shall also set forth the 
manner in which equities will be retired and the manner in which 
earnings will be distributed.

[53 FR 40046, Oct. 13, 1988, as amended at 62 FR 4446, Jan. 30, 1997; 63 
FR 39227, July 22, 1998; 66 FR 16844, Mar. 28, 2001]



Sec. 615.5230  Implementation of cooperative principles.

    (a) Voting shareholders of Farm Credit banks and associations shall 
be accorded full voting rights in accordance with cooperative 
principles.
    (1) Voting shareholders of associations and banks for cooperatives 
shall:
    (i) Have only one vote, regardless of the number of shares owned or 
the

[[Page 171]]

number of loans outstanding, except as otherwise required by statute or 
regulation and except as modified by paragraph (b) of this section;
    (ii) Unless regional election of directors is provided for in the 
bylaws pursuant to Sec. 615.5230(a)(3), be accorded the right to vote 
in the election of each director (except for a director that is elected 
by the other directors);
    (iii) Unless regional election of directors is provided for in the 
bylaws, or unless otherwise provided in the bylaws, be allowed to 
cumulate such votes and distribute them among the candidates in the 
shareholder's discretion.
    (2) Each voting shareholder of a Farm Credit Bank shall:
    (i) Have one vote that is assigned a weight proportional to the 
number of the association's voting shareholders in a manner that does 
not discriminate against agricultural credit associations that have 
resulted from the merger or consolidation of Federal land bank 
associations and production credit associations; and
    (ii) Have the right to vote in the election of each director and be 
allowed to cumulate such votes and distribute them among the candidates 
in the shareholder's discretion, except that cumulative voting for 
directors may be eliminated if 75 percent of the associations that are 
shareholders of the Farm Credit Bank vote in favor of elimination. In a 
vote to eliminate cumulative voting, each association shall be accorded 
one vote.
    (3) Regional election of directors is permitted under the following 
conditions:
    (i) A bylaw establishing regional elections is approved by a 
majority of voting shareholders, voting in person or by proxy, prior to 
implementation;
    (ii) The bylaw provides that all voting shareholders of the 
institution, whether or not they reside in the director's region, have 
the right to vote in any shareholder vote to remove each director;
    (iii) There are an approximately equal number of voting shareholders 
in each of the institution's voting regions. The regions shall be deemed 
to have an approximately equal number of voting shareholders if no 
region contains more than 25 percent more voting shareholders than in 
any other region. At least once every 3 years, the institution shall 
count the number of voting shareholders in each region and, if the 
regions do not have an approximately equal number of shareholders, shall 
adjust the regional boundaries to achieve such result; and
    (iv) An institution may provide for more than one director to 
represent a region. In such case, for purposes of determining whether 
the regions have an approximately equal number of voting shareholders, 
the number of voting shareholders in the region with more than one 
director shall be divided by the number of director positions 
representing that region, and the resulting quotient shall be the number 
that is compared to the number of voting shareholders in other regions.
    (b) Each equityholder of each institution shall be equitably treated 
in the operation of the institution.
    (1) Each issuance of preferred stock (other than preferred stock 
outstanding on October 5, 1988, and stock into which such outstanding 
stock is converted that has substantially similar preferences) shall be 
approved by a majority of the shares of each class of equities affected 
by the preference, voting as a class, whether or not such classes are 
otherwise authorized to vote;
    (2) Any dividends paid to the holders of common stock and 
participation certificates shall be on a per share basis and without 
preference as to rate or priority of payment between classes of common 
stock, between classes of participation certificates, between classes of 
common stock and classes of participation certificates, or between 
holders of the same class of stock or participation certificates, except 
that any class of common stock or participation certificates that result 
from the conversion of allocated surplus may be subordinated to other 
classes of common stock and participation certificates in the payment of 
dividends.
    (3) Any patronage refunds that are paid shall be paid in accordance 
with cooperative principles, on an equitable

[[Page 172]]

and nondiscriminatory basis determined by the board of directors in 
accordance with the capitalization bylaws, provided that any earning 
pools that may be established for the payment of patronage shall be 
established on a rational and equitable basis that will ensure that each 
patron of the institution receives its fair share of the earnings of the 
institution and bears its fair share of the expenses of the institution.
    (4) All classes of common stock and participation certificates 
(except those resulting from a conversion of allocated surplus) must be 
accorded the same priority with respect to impairment and restoration of 
impairment and have the same rights and priority upon liquidation.
    (5) Each bank shall endeavor to assure that there is a choice of at 
least two nominees for each elective office to be filled and that the 
board represents as nearly as possible all types of agriculture in the 
district. If fewer than two nominees for each position are named, the 
efforts of the bank to locate two willing nominees shall be documented 
in the records of the bank. The bank shall also maintain a list of the 
type or types of agriculture engaged in by each director on its board.

[53 FR 40046, Oct. 13, 1988, as amended at 54 FR 6118, Feb. 8, 1989; 60 
FR 57921, Nov. 24, 1995; 62 FR 4446, Jan. 30, 1997; 62 FR 49908, Sept. 
24, 1997; 63 FR 39228, July 22, 1998]



Sec. 615.5240  Permanent capital requirements.

    (a) The capitalization bylaws shall enable the institution to meet 
the minimum permanent capital adequacy standards established under 
subparts H and K of this part and the total capital requirements 
established by the board of directors of the institution.
    (b) In order to qualify as permanent capital, equities issued under 
the bylaws must meet the following requirements:
    (1) For common stock and participation certificates--
    (i) Retirement must be solely at the discretion of the board of 
directors and not upon a date certain or upon the happening of any 
event, such as repayment of the loan, and not pursuant to any automatic 
retirement or revolvement plan;
    (ii) Retirement must be at not more than book value;
    (iii) Disclosure must have been made pursuant to Sec. 615.5250 of 
the nature of the investment and the terms and conditions under which it 
is issued, and the rights, if any, to share in any patronage 
distributions that may be made.
    (iv) Dividends must be payable only at the discretion of the board 
and must be noncumulative.
    (2) For perpetual preferred stock issued to persons other than the 
Farm Credit System Financial Assistance Corporation:
    (i) Retirement must be solely at the discretion of the board of 
directors and not upon a date certain or upon the happening of any 
event, such as repayment of the loan, and not pursuant to any automatic 
retirement or revolvement plan;
    (ii) Retirement must be at not more than book value;
    (iii) Dividends must be payable only in the discretion of the board, 
and may be cumulative; and
    (iv) Disclosure must have been made pursuant to Sec. 615.5250 of 
the nature of the investment and the terms and conditions under which it 
is issued.
    (3) For term preferred stock:
    (i) Retirement must be solely at the discretion of the board of 
directors and not upon a date certain, other than the original maturity 
date, or upon the happening of any event, such as repayment of the loan;
    (ii) Retirement must be at not more than book value;
    (iii) Dividends may be cumulative, but the board of directors must 
have the option to defer payment; and
    (iv) Disclosure must have been made pursuant to Sec. 615.5250 of 
the nature of the investment and the terms and conditions under which it 
is issued.
    (c) Once an institution's board of directors has made a 
determination that the institution's capital position is adequate, the 
institution's board of directors may delegate to management the decision 
whether to retire borrower stock, provided that:
    (1) Any such retirements are in accordance with the institution's 
capital

[[Page 173]]

adequacy plan or capital restoration plan;
    (2) The institution's permanent capital ratio will be in excess of 9 
percent after any such retirements;
    (3) The institution meets and maintains all applicable minimum 
surplus and collateral standards; and
    (4) The aggregate amount of stock purchases, retirements, and the 
net effect of such activities are reported to the board of directors 
each quarter.

[53 FR 40046, Oct. 13, 1988, as amended at 62 FR 4446, Jan. 30, 1997]



Sec. 615.5250  Disclosure requirements.

    (a) Equities purchased as a condition for obtaining a loan. Prior to 
loan closing, the institution shall provide the prospective borrower 
with the following:
    (1) The institution's most recent annual report filed under 12 CFR 
part 620;
    (2) The institution's most recent quarterly report filed under 12 
CFR part 620, if more recent than the annual report;
    (3) A copy of the institution's capitalization bylaws; and
    (4) A written description of the terms and conditions under which 
the equity is issued. In addition to specific terms and conditions, the 
description shall disclose:
    (i) That the equity is an at-risk investment and not a compensating 
balance;
    (ii) That the equity is retirable only at the discretion of the 
board of directors and only if minimum permanent capital standards 
established under subpart H of this part are met;
    (iii) Whether the institution presently meets its minimum permanent 
capital standards; and
    (iv) Whether the institution knows of any reason the institution may 
not meet its permanent capital standard on the next earnings 
distribution date.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
no materials previously provided to a purchaser need be provided again 
unless the purchaser requests, except the disclosure required by 
paragraph (a)(4) of this section.
    (c) Other equities. (1) No stock or participation certificates other 
than those required to be purchased as a condition of obtaining a loan 
may be offered for sale except pursuant to a disclosure statement 
containing all of the information required by 12 CFR part 620 in the 
annual report to shareholders as of a date within 135 days of the 
proposed sale, which disclosure statement must have been reviewed and 
cleared by the Farm Credit Administration. The most recent annual report 
to shareholders and the most recent quarterly report filed with the Farm 
Credit Administration may be incorporated by reference into the 
disclosure statement in satisfaction of this requirement. In addition, 
the disclosure statement shall include items in (3) and (4) of paragraph 
(a) of this section and a discussion of the intended use of the sale 
proceeds. No materials previously provided to the purchaser need be 
provided again unless the purchaser requests it, except the disclosure 
required by paragraph (a)(4) of this section and a discussion of the use 
of sale proceeds.
    (2) At least 45 days prior to the proposed sale of such equities, 
the institution shall submit the disclosure statement required by 
paragraph (c)(1) of this section to the Farm Credit Administration for 
review and clearance.
    (3) Within 30 days of the receipt of such disclosure statement and 
any clarifying information the Farm Credit Administration may request, 
the Farm Credit Administration shall inform the institution whether the 
Farm Credit Administration will consider the issuance permanent capital 
for the purpose of meeting the minimum permanent capital standards 
established under subpart H and shall inform the institution of any 
required changes or additions to the disclosure materials.
    (4) No officer, director, employee, or agent of a System institution 
shall make any disclosure, through the disclosure statement or 
otherwise, in connection with the sale of equities that is inaccurate or 
misleading, or omit to make any statement needed to make other 
disclosures made by such person not misleading.
    (5) For a class of stock, the FCA may waive any or all of the 
disclosure requirements of paragraph (c)(1) of this section when each 
investor acquires at

[[Page 174]]

least $100,000 of the stock if the sophistication of the purchaser 
warrants, provided that subsequent transfers of the stock in amounts of 
less than $100,000 must receive the prior written approval of the FCA.
    (d) The requirements of this section shall not apply to the sale of 
Farm Credit System institution equities to other Farm Credit System 
institutions, other financing institutions, or non-Farm Credit System 
lenders.

[53 FR 40046, Oct. 13, 1988, as amended at 56 FR 2675, Jan. 24, 1991; 61 
FR 67187, Dec. 20, 1996; 62 FR 4447, Jan. 30, 1997; 66 FR 16844, Mar. 
28, 2001; 68 FR 18534, Apr. 16, 2003]



                    Subpart J_Retirement of Equities



Sec. 615.5260  Retirement of eligible borrower stock.

    (a) Definitions. For the purposes of this subpart the following 
definitions shall apply:
    (1) Eligible borrowers stock means:
    (i) Stock, participation certificates or allocated equities 
outstanding on January 6, 1988, or purchased as a condition of obtaining 
a loan prior to the earlier of the date of shareholder approval of 
capitalization bylaws under section 4.3A of the Act or October 6, 1988; 
and
    (ii) Any stock, participation certificates or allocated equities for 
which such eligible borrower stock is exchanged in connection with a 
merger, consolidation, or other reorganization or a transfer of 
territory. Eligible borrower stock does not include equities for which 
eligible borrower stock is required to be exchanged pursuant to the 
bylaws adopted under section 4.3A or equities for which eligible 
borrower stock is voluntarily exchanged except in connection with a 
merger, consolidation or other reorganization or a transfer of 
territory.
    (2) Retirement in the ordinary course of business means:
    (i) Retirement upon repayment of a loan or under a retirement or 
revolvement plan in effect prior to January 6, 1988, and for eligible 
borrower stock issued after that date, at the time the loan was made; or
    (ii) Retirement pursuant to Sec. Sec. 615.5280 and 615.5290.
    (3) Par value means:
    (i) In the case of stock, par value;
    (ii) In the case of participation certificates and other equities, 
face or equivalent value; or
    (iii) In the case of participation certificates and allocated 
surplus subject to retirement under a revolving cycle and retired out or 
order pursuant to Sec. Sec. 615.5280 and 615.5290 or otherwise under 
the Act, par or face value discounted at a rate determined by the 
institution to reflect the present value of the equity as of the date of 
such retirement.
    (b) When an institution retires eligible borrower stock in the 
ordinary course of business, such equities shall be retired at par, even 
if book value is less than par.
    (c) When a Farm Credit Bank retires stock for the sole purpose of 
enabling an association to retire eligible borrower stock that was 
issued in connection with a long term real estate loan, such stock shall 
be retired at par even if its book value is less than par.

[53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 62 
FR 4447, Jan. 30, 1997; 63 FR 39228, July 22, 1998]



Sec. 615.5270  Retirement of other equities.

    (a) Equities other than eligible borrower stock shall be retired at 
not more than their book value.
    (b) No equities shall be retired, except pursuant to Sec. Sec. 
615.5280 and 615.5290, or term stock at its stated maturity unless after 
the retirement the institution would continue to meet the minimum 
permanent capital standards established under subpart H of this part.

[53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 62 
FR 4447, Jan. 30, 1997]



Sec. 615.5280  Retirement in event of default.

    (a) When the debt of a holder of eligible borrower stock issued by a 
production credit association, Federal land bank association, Federal 
land credit association or agricultural credit association is in 
default, such institution may, but shall not be required to, retire at 
par eligible borrower stock owned by such borrower on which the 
institution has a lien, in total or partial liquidation of the debt.

[[Page 175]]

    (b) When the debt of a holder of stock, participation certificates 
or other equities issued by a production credit association, Federal 
land bank association, Federal land credit association or agricultural 
credit association is in default, such institution may, but shall not be 
required to, retire at book value not to exceed par all or part of such 
equities, other than eligible borrower stock as defined in Sec. 
615.5260(a)(1), owned by such borrower on which the institution has a 
lien, in total or partial liquidation of the debt.
    (c) When the debt of a holder of equities or guaranty fund 
certificates issued by a bank for cooperatives or agricultural credit 
bank is in default the bank may, but shall not be required to, retire 
all or part of such equities qualify or guaranty fund investments owned 
by the borrower on which the bank has a lien, in total or partial 
liquidation of the debt. If such investments qualify as eligible 
borrower stock, it shall be retired at par, as defined in Sec. 
615.5260(a)(3). All other investments shall be retired at a rate 
determined by the institution to reflect its present value on the date 
of retirement.
    (d) When the debt of a holder of the equities of a Farm Credit Bank 
or agricultural credit bank is in default the bank may, but shall not be 
required to, retire all or part of such equities owned by the borrower 
on which the bank has a lien, in total or partial liquidation of the 
debt. If such equities qualify as eligible borrower stock or are retired 
solely to permit a Federal land bank association to retire eligible 
borrower stock under Sec. 615.5280(a), they shall be retired at par. 
All other equities shall be retired at book value not to exceed par.
    (e) Any retirements made under this section by a Federal land bank 
association shall be made only upon the specific approval of, or in 
accordance with, approval procedures issued by the association's funding 
bank.
    (f) Prior to making any retirement pursuant to this section, except 
retirements pursuant to paragraphs (c) and (d) of this section, the 
institution shall provide the borrower with written notice of the 
following matters;
    (1) A statement that the institution has declared the borrower's 
loan to be in default;
    (2) A statement that the institution will retire all or part of the 
equities of the borrower in total or partial liquidation of his or her 
loan;
    (3) A description of the effect of the retirement on the 
relationship of the borrower to the institution;
    (4) A statement of the amount of the outstanding debt that will be 
owed to the institution after the retirement of the borrower's equities; 
and
    (5) The date on which the institution will retire the equities of 
the borrower.
    (g) The notice required by this section shall be provided in person 
at least 10 days prior to the retirement of any equities of a holder, or 
by mailing a copy of the notice by first class mail to the last known 
address of the equity holder at least 13 days prior to the retirement of 
such person's equities.
    (h) The requirements of this section may be satisfied by notices 
given pursuant to Sec. Sec. 617.7405, 617.7410, 617.7420, and 617.7425 
of this chapter that contain the information required by this section.

[53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 61 
FR 67187, Dec. 20, 1996; 62 FR 13213, Mar. 19, 1997; 69 FR 10907, Mar. 
9, 2004]



Sec. 615.5290  Retirement of capital stock and participation 
certificates in event of restructuring.

    (a) If a Farm Credit Bank or agricultural credit bank forgives and 
writes off, under Sec. 617.7415, any of the principal outstanding on a 
loan made to any borrower, where appropriate the Federal land bank 
association of which the borrower is a member and stockholder shall 
cancel the same dollar amount of borrower stock held by the borrower in 
respect of the loan, up to the total amount of such stock, and to the 
extent provided for in the bylaws of the Bank relating to its 
capitalization, the Farm Credit Bank or agricultural credit bank shall 
retire an equal amount of stock owned by the Federal land bank 
association.
    (b) If a production credit association or merged association 
forgives and writes off, under Sec. 617.7415, any of the principal 
outstanding on a loan made

[[Page 176]]

to any borrower, the association shall cancel the same dollar amount of 
borrower stock held by the borrower in respect of the loan, up to the 
total amount of such loan.
    (c) Notwithstanding paragraphs (a) and (b) of this section, the 
borrower shall be entitled to retain at least one share of stock to 
maintain the borrower's membership and voting interest.

[53 FR 35457, Sept. 14, 1988, as amended at 61 FR 67188, Dec. 20, 1996; 
69 FR 10907, Mar. 9, 2004]



              Subpart K_Surplus and Collateral Requirements

    Source: 62 FR 4447, Jan. 30, 1997, unless otherwise noted.



Sec. 615.5301  Definitions.

    For the purposes of this subpart, the following definitions shall 
apply:
    (a) The terms deferred-tax assets that are dependent on future 
income or future events, institution, permanent capital, and total 
capital shall have the meanings set forth in Sec. 615.5201.
    (b) Core surplus. (1) Core surplus means:
    (i) Undistributed earnings/unallocated surplus less, for 
associations only, an amount equal to the net investment in the bank;
    (ii) Nonqualified allocated equities (including stock) that are not 
distributed according to an established plan or practice, provided that, 
in the event that a nonqualified patronage allocation is distributed, 
other than as required by section 4.14B of the Act, or in connection 
with a loan default or the death of an equityholder whose loan has been 
repaid (to the extent provided for in the institution's capital adequacy 
plan), any remaining nonqualified allocations that were allocated in the 
same year will be excluded from core surplus.
    (iii) Perpetual common or noncumulative perpetual preferred stock 
(other than allocated stock) that is not retired according to an 
established plan or practice, provided that, in the event that stock 
held by a borrower is retired, other than as required by section 4.14B 
of the Act or in connection with a loan default to the extent provided 
for in the institution's capital plan, the remaining perpetual stock of 
the same class or series shall be excluded from core surplus;
    (iv) A capital instrument or a particular balance sheet entry or 
account that the Farm Credit Administration has determined to be the 
functional equivalent of a component of core surplus. The Farm Credit 
Administration may permit an institution to include all or a portion of 
such instrument, entry, or account as core surplus, permanently or on a 
temporary basis, for purposes of this subpart.
    (2) For associations only, other allocated equities may also be 
included in the core surplus ratio to the extent permitted by Sec. 
615.5330(b) if the following conditions are met:
    (i) The allocated equities are includible in total surplus; and
    (ii) The allocated equities, if subject to a plan or practice of 
revolvement or retirement, are not scheduled or intended to be revolved 
or retired during the next 3 years, provided that, in the event that 
such allocated equities included in core surplus are retired, other than 
as required by section 4.14B of the Act, or in connection with a loan 
default or the death of an equityholder whose loan has been repaid (to 
the extent provided for in the institution's capital adequacy plan), any 
remaining such allocated equities that were allocated in the same year 
will be excluded from core surplus.
    (3) The deductions required to be made by an institution in the 
computation of its permanent capital pursuant to Sec. 615.5210(e) (6), 
(7), (9), and (11) shall also be made in the computation of its core 
surplus. Deductions required by Sec. 615.5210(e)(1) shall also be made 
to the extent that they do not duplicate deductions calculated pursuant 
to this section and required by Sec. 615.5330(b)(2).
    (4) Equities issued by System institutions and held by other System 
institutions shall not be included in the core surplus of the issuing 
institution or of the holder, unless approved pursuant to paragraph 
(b)(1)(iv) of this section, except that equities held in connection with 
a loan participation shall not be excluded by the holder. This paragraph 
shall not apply to investments by an

[[Page 177]]

association in its affiliated bank, which are governed by Sec. 
615.5301(b)(1)(i).
    (5) The core surplus of an institution shall exclude the net effect 
of all transactions covered by the definition of ``accumulated other 
comprehensive income'' contained in the Statement of Financial 
Accounting Standards No. 130, as promulgated by the Financial Accounting 
Standards Board.
    (6) The Farm Credit Administration may, if it finds that a 
particular component, balance sheet entry, or account has 
characteristics or terms that diminish its contribution to an 
institution's ability to absorb losses, require the deduction of all or 
a portion of such component, entry, or account from core surplus.
    (c) Net collateral means the value of a bank's collateral as defined 
by Sec. 615.5050 (except that eligible investments as described in 
Sec. 615.5140 are to be valued at their amortized cost), less an amount 
equal to that portion of the allocated investments of affiliated 
associations that is not counted as permanent capital by the bank.
    (d) Net collateral ratio means a bank's net collateral, divided by 
the bank's total liabilities.
    (e) Net investment in the bank means the total investment by an 
association in its affiliated bank, less reciprocal investments and 
investments resulting from a loan originating/service agency 
relationship, including participations.
    (f) Nonqualified allocated equities means allocations of earnings 
designated to the institution's members that are not deducted from the 
gross taxable income of the allocating institution at the time of 
allocation.
    (g) Perpetual stock or equity means stock or equity not having a 
maturity date, not redeemable at the option of the holder, and having no 
other provisions that will require the future redemption of the issue.
    (h) Qualified allocated equities means allocations of earnings that 
are deducted from the gross taxable income of the allocating institution 
and designated to the institution's members.
    (i) Total surplus means:
    (1) Undistributed earnings/unallocated surplus;
    (2) Allocated equities, including allocated surplus and stock, that 
are not subject to a plan or practice of revolvement or retirement of 5 
years or less and are eligible to be included in permanent capital 
pursuant to Sec. 615.5201(l)(4)(iv); and
    (3) Common and perpetual preferred stock (other than allocated 
stock) that is not purchased or held as a condition of obtaining a loan, 
provided that the institution has no established plan or practice of 
retiring such stock;
    (4) Term preferred stock that is not purchased or held as a 
condition of obtaining a loan, up to a maximum of 25 percent of the 
institution's permanent capital (as calculated after deductions required 
in the permanent capital ratio computation). The amount of includible 
term stock must be reduced by 20 percent (net of redemptions) at the 
beginning of each of the last 5 years of the term of the instrument;
    (5) The total surplus of an institution shall exclude the net effect 
of all transactions covered by the definition of ``accumulated other 
comprehensive income'' contained in the Statement of Financial 
Accounting Standards No. 130, as promulgated by the Financial Accounting 
Standards Board.
    (6) A capital instrument or a particular balance sheet entry or 
account that the Farm Credit Administration has determined to be the 
functional equivalent of a component of total surplus. The Farm Credit 
Administration may permit one or more institutions to include all or a 
portion of such instrument, entry, or account as total surplus, 
permanently or on a temporary basis, for purposes of this subpart.
    (7) The Farm Credit Administration may, if it finds that a 
particular component, balance sheet entry, or account has 
characteristics or terms that diminish its contribution to an 
institution's ability to absorb losses, require the deduction of all or 
a portion of such component, entry, or account from total surplus.
    (8) Any deductions made by an institution in the computation of its 
permanent capital pursuant to Sec. 615.5210(e) shall also be made in 
the computation of its total surplus.
    (j) Total liabilities means liabilities valued in accordance with 
generally accepted accounting principles

[[Page 178]]

(GAAP), except that total liabilities shall exclude the following:
    (1) As set forth in Statement of Financial Accounting Standards No. 
133, Accounting for Derivative Instruments and Hedging Activities, as 
promulgated by the Financial Accounting Standards Board--
    (i) Adjustments to the carrying amount of any liability designated 
as being hedged; and
    (ii) Any derivative recognized as a liability that is designated as 
a hedging instrument.
    (2) Term preferred stock to the extent such stock is included as 
total surplus in the computation of the bank's total surplus ratio 
pursuant to Sec. 615.5301(i).

[62 FR 4447, Jan. 30, 1997; 62 FR 19219, Apr. 21, 1997; 63 FR 39228, 
July 22, 1998; 68 FR 18534, Apr. 16, 2003]



Sec. 615.5330  Minimum surplus ratios.

    (a) Total surplus. (1) Each institution shall achieve and at all 
times maintain a ratio of a least 7 percent of total surplus to the 
risk-adjusted asset base.
    (2) The risk-adjusted asset base is the total dollar amount of the 
institution's assets adjusted in accordance with Sec. 615.5301(i)(7) 
and weighted on the basis of risk in accordance with Sec. 615.5210(f).
    (b) Core surplus. (1) Each institution shall achieve and at all 
times maintain a ratio of core surplus to the risk-adjusted asset base 
of a least 3.5 percent, of which no more than 2 percentage points may 
consist of allocated equities otherwise includible pursuant to Sec. 
615.5301(b).
    (2) Each association shall compute its core surplus ratio by 
deducting an amount equal to the net investment in the bank from its 
core surplus.
    (3) The risk-adjusted asset base is the total dollar amount of the 
institution's assets adjusted in accordance with Sec. Sec. 
615.5301(b)(3) and 615.5330(b)(2), and weighted on the basis of risk in 
accordance with Sec. 615.5210(f).
    (c) An institution shall compute its risk-adjusted asset base, total 
surplus, and core surplus ratios using average daily balances for the 
most recent 3 months.

[63 FR 39228, July 22, 1998]



Sec. 615.5335  Bank net collateral ratio.

    (a) Each bank shall achieve and at all times maintain a net 
collateral ratio of at least 103 percent.
    (b) At a minimum, a bank shall compute its net collateral ratio as 
of the end of each month. A bank shall have the capability to compute 
its net collateral ratio a day after the close of a business day using 
the daily balances outstanding for assets and liabilities for that date.

[63 FR 39229, July 22, 1998]



Sec. 615.5336  Compliance and reporting.

    (a) Noncompliance and reporting. An institution that meets the 
minimum applicable surplus ratios and net collateral ratio established 
in Sec. Sec. 615.5330 and 615.5335 at or after the end of the quarter 
in which these regulations become effective and subsequently falls below 
one or more minimum requirements shall be in violation of the applicable 
regulations. Such institution shall report its noncompliance to the Farm 
Credit Administration within 20 calendar days following the month end in 
which the institution initially determines that it is not in compliance 
with the requirements.
    (b) Initial compliance and reporting requirements.
    (1) An institution that fails to satisfy one or more of its minimum 
applicable surplus and net collateral ratios at the end of the quarter 
in which these regulations become effective shall report its initial 
noncompliance to the Farm Credit Administration within 20 days following 
such quarter end and shall also submit a capital restoration plan for 
achieving and maintaining the standards, demonstrating appropriate 
annual progress toward meeting the goal, to the Farm Credit 
Administration within 60 days following such quarter end. If the capital 
restoration plan is not approved by the Farm Credit Administration, the 
Agency shall inform the institution of the reasons for disapproval, and 
the institution shall submit a revised capital restoration plan within 
the time specified by the Farm Credit Administration.
    (2) Approval of compliance plans. In determining whether to approve 
a capital restoration plan submitted under this

[[Page 179]]

section, the FCA shall consider the following factors, as applicable:
    (i) The conditions or circumstances leading to the institution's 
falling below minimum levels, the exigency of those circumstances, and 
whether or not they were caused by actions of the institution or were 
beyond the institution's control;
    (ii) The overall condition, management strength, and future 
prospects of the institution and, if applicable, affiliated System 
institutions;
    (iii) The institution's capital, adverse assets (including 
nonaccrual and nonperforming loans), allowance for loss, and other 
ratios compared to the ratios of its peers or industry norms;
    (iv) How far an institution's ratios are below the minimum 
requirements;
    (v) The estimated rate at which the institution can reasonably be 
expected to generate additional earnings;
    (vi) The effect of the business changes required to increase 
capital;
    (vii) The institution's previous compliance practices, as 
appropriate;
    (viii) The views of the institution's directors and senior 
management regarding the plan; and
    (ix) Any other facts or circumstances that the FCA deems relevant.
    (3) An institution shall be deemed to be in compliance with the 
surplus and collateral requirements of this subpart if it is in 
compliance with a capital restoration plan that is approved by the Farm 
Credit Administration within 180 days following the end of the quarter 
in which these regulations become effective.



  Subpart L_Establishment of Minimum Capital Ratios for an Individual 
                               Institution

    Source: 62 FR 4448, Jan. 30, 1997, unless otherwise noted.



Sec. 615.5350  General--Applicability.

    (a) The rules and procedures specified in this subpart are 
applicable to a proceeding to establish required minimum capital ratios 
that would otherwise be applicable to an institution under Sec. Sec. 
615.5205, 615.5330, and 615.5335. The Farm Credit Administration is 
authorized to establish such minimum capital requirements for an 
institution as the Farm Credit Administration, in its discretion, deems 
to be necessary or appropriate in light of the particular circumstances 
of the institution. Proceedings under this subpart also may be initiated 
to require an institution having capital ratios greater than those set 
forth in Sec. Sec. 615.5205, 615.5330, or 615.5335 to continue to 
maintain those higher ratios.
    (b) The Farm Credit Administration may require higher minimum 
capital ratios for an individual institution in view of its 
circumstances. For example, higher capital ratios may be appropriate 
for:
    (1) An institution receiving special supervisory attention;
    (2) An institution that has, or is expected to have, losses 
resulting in capital inadequacy;
    (3) An institution with significant exposure due to operational 
risk, interest rate risk, the risks from concentrations of credit, 
certain risks arising from other products, services, or related 
activities, or management's overall inability to monitor and control 
financial risks presented by concentrations of credit and related 
services activities;
    (4) An institution exposed to a high volume of, or particularly 
severe, problem loans;
    (5) An institution that is growing rapidly; or
    (6) An institution that may be adversely affected by the activities 
or condition of System institutions with which it has significant 
business relationships or in which it has significant investments.
    (7) An institution with significant exposures to declines in net 
income or in the market value of its capital due to a change in interest 
rates and/or the exercising of embedded or explicit options.

[62 FR 4448, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998]



Sec. 615.5351  Standards for determination of appropriate individual 
institution minimum capital ratios.

    The appropriate minimum capital ratios for an individual institution 
cannot be determined solely through the application of a rigid 
mathematical formula or wholly objective criteria.

[[Page 180]]

The decision is necessarily based in part on subjective judgment 
grounded in Agency expertise. The factors to be considered in the 
determination will vary in each case and may include, for example:
    (a) The conditions or circumstances leading to the Farm Credit 
Administration's determination that higher minimum capital ratios are 
appropriate or necessary for the institution;
    (b) The exigency of those circumstances or potential problems;
    (c) The overall condition, management strength, and future prospects 
of the institution and, if applicable, affiliated institutions;
    (d) The institution's capital, adverse assets (including nonaccrual 
and nonperforming loans), allowance for loss, and other ratios compared 
to the ratios of its peers or industry norms; and
    (e) The views of the institution's directors and senior management.



Sec. 615.5352  Procedures.

    (a) Notice. When the Farm Credit Administration determines that 
minimum capital ratios greater than those set forth in Sec. Sec. 
615.5205, 615.5330, or 615.5335 are necessary or appropriate for a 
particular institution, the Farm Credit Administration will notify the 
institution in writing of the proposed minimum capital ratios and the 
date by which they should be reached (if applicable) and will provide an 
explanation of why the ratios proposed are considered necessary or 
appropriate for the institution.
    (b) Response. (1) The institution may respond to any or all of the 
items in the notice. The response should include any matters which the 
institution would have the Farm Credit Administration consider in 
deciding whether individual minimum capital ratios should be established 
for the institution, what those capital ratios should be, and, if 
applicable, when they should be achieved. The response must be in 
writing and delivered to the designated Farm Credit Administration 
official within 30 days after the date on which the institution received 
the notice. In its discretion, the Farm Credit Administration may extend 
the time period for good cause. The Farm Credit Administration may 
shorten the time period with the consent of the institution or when, in 
the opinion of the Farm Credit Administration, the condition of the 
institution so requires, provided that the institution is informed 
promptly of the new time period.
    (2) Failure to respond within 30 days or such other time period as 
may be specified by the Farm Credit Administration shall constitute a 
waiver of any objections to the proposed minimum capital ratios or the 
deadline for their achievement.
    (c) Decision. After the close of the institution's response period, 
the Farm Credit Administration will decide, based on a review of the 
institution's response and other information concerning the institution, 
whether individual minimum capital ratios should be established for the 
institution and, if so, the ratios and the date the requirements will 
become effective. The institution will be notified of the decision in 
writing. The notice will include an explanation of the decision, except 
for a decision not to establish individual minimum capital requirements 
for the institution.
    (d) Submission of plan. The decision may require the institution to 
develop and submit to the Farm Credit Administration, within a time 
period specified, an acceptable plan to reach the minimum capital ratios 
established for the institution by the date required.
    (e) Reconsideration based on change in circumstances. If, after the 
Farm Credit Administration's decision in paragraph (c) of this section, 
there is a change in the circumstances affecting the institution's 
capital adequacy or its ability to reach the required minimum capital 
ratios by the specified date, either the institution or the Farm Credit 
Administration may propose a change in the minimum capital ratios for 
the institution, the date when the minimums must be achieved, or the 
institution's plan (if applicable). The Farm Credit Administration may 
decline to consider proposals that are not based on a significant change 
in circumstances or are repetitive or frivolous. Pending a decision on 
reconsideration, the Farm Credit Administration's original decision and 
any plan required under that decision shall continue in full force and 
effect.

[[Page 181]]



Sec. 615.5353  Relation to other actions.

    In lieu of, or in addition to, the procedures in this subpart, the 
required minimum capital ratios for an institution may be established or 
revised through a written agreement or cease and desist proceedings 
under part C of title V of the Act, or as a condition for approval of an 
application.



Sec. 615.5354  Enforcement.

    An institution that does not have or maintain the minimum capital 
ratios applicable to it, whether required in subparts H and K of this 
part, in a decision pursuant to this subpart, in a written agreement or 
temporary or final order under part C of title V of the Act, or in a 
condition for approval of an application, or an institution that has 
failed to submit or comply with an acceptable plan to attain those 
ratios, will be subject to such administrative action or sanctions as 
the Farm Credit Administration considers appropriate. These sanctions 
may include the issuance of a capital directive pursuant to subpart M of 
this part or other enforcement action, assessment of civil money 
penalties, and/or the denial or condition of applications.



                Subpart M_Issuance of a Capital Directive

    Source: 62 FR 4449, Jan. 30, 1997, unless otherwise noted.



Sec. 615.5355  Purpose and scope.

    (a) This subpart is applicable to proceedings by the Farm Credit 
Administration to issue a capital directive under sections 4.3(b) and 
4.3A(e) of the Act. A capital directive is an order issued to an 
institution that does not have or maintain capital at or greater than 
the minimum ratios set forth in Sec. Sec. 615.5205, 615.5330, and 
615.5335; or established for the institution under subpart L, by a 
written agreement under part C of title V of the Act, or as a condition 
for approval of an application. A capital directive may order the 
institution to:
    (1) Achieve the minimum capital ratios applicable to it by a 
specified date;
    (2) Adhere to a previously submitted plan to achieve the applicable 
capital ratios;
    (3) Submit and adhere to a plan acceptable to the Farm Credit 
Administration describing the means and time schedule by which the 
institution shall achieve the applicable capital ratios;
    (4) Take other action, such as reduction of assets or the rate of 
growth of assets, restrictions on the payment of dividends or patronage, 
or restrictions on the retirement of stock, to achieve the applicable 
capital ratios, or reduce levels of interest rate and other risk 
exposures, or strengthen management expertise, or improve management 
information and measurement systems; or
    (5) A combination of any of these or similar actions.
    (b) A capital directive may also be issued to the board of directors 
of an institution, requiring such board to comply with the requirements 
of section 4.3A(d) of the Act prohibiting the reduction of permanent 
capital.
    (c) A capital directive issued under this rule, including a plan 
submitted under a capital directive, is enforceable in the same manner 
and to the same extent as an effective and outstanding cease and desist 
order which has become final as defined in section 5.25 of the Act. 
Violation of a capital directive may result in assessment of civil money 
penalties in accordance with section 5.32 of the Act.

[62 FR 4449, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998]



Sec. 615.5356  Notice of intent to issue a capital directive.

    The Farm Credit Administration will notify an institution in writing 
of its intention to issue a capital directive. The notice will state:
    (a) The reasons for issuance of the capital directive;
    (b) The proposed contents of the capital directive, including the 
proposed date for achieving the minimum capital requirement; and
    (c) Any other relevant information concerning the decision to issue 
a capital directive.

[[Page 182]]



Sec. 615.5357  Response to notice.

    (a) An institution may respond to the notice by stating why a 
capital directive should not be issued and/or by proposing alternative 
contents for the capital directive or seeking other appropriate relief. 
The response shall include any information, mitigating circumstances, 
documentation, or other relevant evidence that supports its position. 
The response may include a plan for achieving the minimum capital ratios 
applicable to the institution. The response must be in writing and 
delivered to the Farm Credit Administration within 30 days after the 
date on which the institution received the notice. In its discretion, 
the Farm Credit Administration may extend the time period for good 
cause. The Farm Credit Administration may shorten the 30-day time 
period:
    (1) When, in the opinion of the Farm Credit Administration, the 
condition of the institution so requires, provided that the institution 
shall be informed promptly of the new time period;
    (2) With the consent of the institution; or
    (3) When the institution already has advised the Farm Credit 
Administration that it cannot or will not achieve its applicable minimum 
capital ratios.
    (b) Failure to respond within 30 days or such other time period as 
may be specified by the Farm Credit Administration shall constitute a 
waiver of any objections to the proposed capital directive.



Sec. 615.5358  Decision.

    After the closing date of the institution's response period, or 
receipt of the institution's response, if earlier, the Farm Credit 
Administration may seek additional information or clarification of the 
response. Thereafter, the Farm Credit Administration will determine 
whether or not to issue a capital directive, and if one is to be issued, 
whether it should be as originally proposed or in modified form.



Sec. 615.5359  Issuance of a capital directive.

    (a) A capital directive will be served by delivery to the 
institution. It will include or be accompanied by a statement of reasons 
for its issuance.
    (b) A capital directive is effective immediately upon its receipt by 
the institution, or upon such later date as may be specified therein, 
and shall remain effective and enforceable until it is stayed, modified, 
or terminated by the Farm Credit Administration.



Sec. 615.5360  Reconsideration based on change in circumstances.

    Upon a change in circumstances, an institution may request the Farm 
Credit Administration to reconsider the terms of its capital directive 
or may propose changes in the plan to achieve the institution's 
applicable minimum capital ratios. The Farm Credit Administration also 
may take such action on its own motion. The Farm Credit Administration 
may decline to consider requests or proposals that are not based on a 
significant change in circumstances or are repetitive or frivolous. 
Pending a decision on reconsideration, the capital directive and plan 
shall continue in full force and effect.



Sec. 615.5361  Relation to other administrative actions.

    A capital directive may be issued in addition to, or in lieu of, any 
other action authorized by law, including cease and desist proceedings, 
civil money penalties, or the conditioning or denial of applications. 
The Farm Credit Administration also may, in its discretion, take any 
action authorized by law, in lieu of a capital directive, in response to 
an institution's failure to achieve or maintain the applicable minimum 
capital ratios.

Subpart N [Reserved]



       Subpart O_Book-Entry Procedures for Farm Credit Securities

    Source: 61 FR 67192, Dec. 20, 1996, unless otherwise noted.



Sec. 615.5450  Definitions.

    In this subpart, unless the context otherwise requires or indicates:
    (a) Adverse claim means a claim that a claimant has a property 
interest in a security and that it is a violation of

[[Page 183]]

the rights of the claimant for another person to hold, transfer, or deal 
with the security.
    (b) Book-entry security means a Farm Credit security issued or 
maintained in the Book-entry System.
    (c) Book-entry System means the automated book-entry system operated 
by the Federal Reserve Banks, acting as the fiscal agent for the Farm 
Credit banks, through which book-entry securities are issued, recorded, 
transferred and maintained in book-entry form.
    (d) Definitive Farm Credit security means a Farm Credit security in 
engraved or printed form, or that is otherwise represented by a 
certificate.
    (e) Eligible book-entry security means a book-entry security issued 
or maintained in the Book-entry System, which by the terms of its 
securities documentation, is eligible to be converted from book-entry 
into definitive form.
    (f) Entitlement Holder means a person to whose account an interest 
in a book-entry security is credited on the records of a securities 
intermediary.
    (g) Farm Credit banks means one or more Farm Credit Banks, 
agricultural credit banks, and banks for cooperatives.
    (h) Farm Credit securities means consolidated notes, bonds, 
debentures, or other similar obligations of the Farm Credit banks and 
Systemwide notes, bonds, debentures, or similar obligations of the Farm 
Credit banks issued under sections 4.2(c) and 4.2(d), respectively, of 
the Act, or laws repealed thereby.
    (i) Federal Reserve Bank means a Federal Reserve Bank or Branch 
acting as agent for the Farm Credit banks and the Funding Corporation.
    (j) Federal Reserve Bank Operating Circular means the publication 
issued by each Federal Reserve Bank that sets forth the terms and 
conditions under which the Federal Reserve Bank maintains book-entry 
securities accounts and transfers book-entry securities.
    (k) Funding Corporation means the Federal Farm Credit Banks Funding 
Corporation established pursuant to section 4.9 of the Act, which issues 
Farm Credit securities on behalf of the Farm Credit banks.
    (l) Funds Account means a reserve and/or clearing account at a 
Federal Reserve Bank to which debits or credits are posted for transfers 
against payment, book-entry securities transaction fees, or principal 
and interest payments.
    (m) Participant means a person that maintains a participant's 
securities account with a Federal Reserve Bank.
    (n) Participant's Securities Account means an account in the name of 
a participant at a Federal Reserve Bank to which book-entry securities 
held for a participant are or may be credited.
    (o) Person means an individual, corporation, company, governmental 
entity, association, firm, partnership, trust, estate, representative 
and any other similar organization, but does not mean the United States, 
a Farm Credit bank, the Funding Corporation or a Federal Reserve Bank.
    (p) Revised Article 8 means Uniform Commercial Code, Revised Article 
8, Investment Securities (with Conforming and Miscellaneous Amendments 
to Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text, and has the same 
meaning as in 31 CFR 357.2.
    (q) Securities Documentation means the applicable statement of 
terms, trust indenture, securities agreement, offering circular or other 
documents establishing the terms of a book-entry security.
    (r) Securities Intermediary means:
    (1) A person that is registered as a ``clearing agency'' under the 
Federal securities laws; a Federal Reserve Bank; any other person that 
provides clearance or settlement services with respect to a book-entry 
security that would require it to register as a clearing agency under 
the Federal securities laws but for an exclusion or exemption from the 
registration requirement, if its activities as a clearing corporation, 
including promulgation of rules, are subject to regulation by a Federal 
or State governmental authority; or
    (2) A person (other than an individual, unless such individual is 
registered as a broker or dealer under the Federal securities laws) 
including a bank or broker, that in the ordinary course of its business 
maintains securities accounts for others and is acting in that capacity.

[[Page 184]]

    (s) Security means a Farm Credit security as defined in paragraph 
(h) of this section.
    (t) Security Entitlement means the rights and property interest of 
an entitlement holder with respect to a book-entry security.
    (u) State means any State of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, or any other territory or 
possession of the United States.
    (v) Transfer Message means an instruction of a participant to a 
Federal Reserve Bank to effect a transfer of a book-entry security 
maintained in the Book-entry System, as set forth in Federal Reserve 
Bank Operating Circulars.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]



Sec. 615.5451  Book-entry and definitive securities.

    Subject to subpart C of this part:
    (a) Farm Credit banks operating under the same title of the Act may 
issue consolidated securities in book-entry form.
    (b) Farm Credit banks may issue Systemwide securities in book-entry 
form.
    (c) Consolidated and Systemwide securities also may be issued in 
either registered or bearer definitive form.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]



Sec. 615.5452  Law governing rights and obligations of Federal 

Reserve Banks, Farm Credit banks, and Funding Corporation; rights 
of any person against Federal Reserve Banks, Farm Credit banks, 
and Funding Corporation.

    (a) Except as provided in paragraph (b) of this section, the 
following are governed solely by the regulations contained in this 
subpart O, the securities documentation, and Federal Reserve Bank 
Operating Circulars:
    (1) The rights and obligations of the Farm Credit banks, the Funding 
Corporation, and the Federal Reserve Banks with respect to:
    (i) A book-entry security or security entitlement, and
    (ii) The operation of the Book-entry System as it applies to Farm 
Credit securities; and
    (2) The rights of any person, including a participant, against the 
Farm Credit banks, the Funding Corporation, and the Federal Reserve 
Banks with respect to:
    (i) A book-entry security or security entitlement, and
    (ii) The operation of the Book-entry System as it applies to Farm 
Credit securities.
    (b) A security interest in a security entitlement that is in favor 
of a Federal Reserve Bank from a participant and that is not recorded on 
the books of a Federal Reserve Bank pursuant to Sec. 615.5454(c)(1) of 
this subpart, is governed by the law (not including the conflict-of-law 
rules) of the jurisdiction where the head office of the Federal Reserve 
Bank maintaining the participant's securities account is located. A 
security interest in a security entitlement that is in favor of a 
Federal Reserve Bank from a person that is not a participant, and that 
is not recorded on the books of a Federal Reserve Bank pursuant to Sec. 
615.5454(c)(1)of this subpart, is governed by the law determined in the 
manner specified in Sec. 615.5453 of this subpart.
    (c) If the jurisdiction specified in the first sentence of paragraph 
(b) of this section is a State that has not adopted revised Article 8 
(see 31 CFR 357.2) then the law specified in paragraph (b) of this 
section shall be the law of that State as though revised Article 8 had 
been adopted by that State.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]



Sec. 615.5453  Law governing other interests.

    (a) To the extent not inconsistent with these regulations, the law 
(not including the conflict-of-law rules) of a securities intermediary's 
jurisdiction governs:
    (1) The acquisition of a security entitlement from the securities 
intermediary;
    (2) The rights and duties of the securities intermediary and 
entitlement holder arising out of a security entitlement;
    (3) Whether the securities intermediary owes any duties to an 
adverse claimant to a security entitlement;

[[Page 185]]

    (4) Whether an adverse claim can be asserted against a person who 
acquires a security entitlement from the securities intermediary or a 
person who purchases a security entitlement or interest therein from an 
entitlement holder; and
    (5) Except as otherwise provided in paragraph (c) of this section, 
the perfection, effect of perfection or non-perfection and priority of a 
security interest in a security entitlement.
    (b) The following rules determine a ``securities intermediary's 
jurisdiction'' for purposes of this section:
    (1) If an agreement between the securities intermediary and its 
entitlement holder specifies that it is governed by the law of a 
particular jurisdiction, that jurisdiction is the securities 
intermediary's jurisdiction.
    (2) If an agreement between the securities intermediary and its 
entitlement holder does not specify the governing law as provided in 
paragraph (b)(1) of this section, but expressly specifies that the 
securities account is maintained at an office in a particular 
jurisdiction, that jurisdiction is the securities intermediary's 
jurisdiction.
    (3) If an agreement between the securities intermediary and its 
entitlement holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section, the securities 
intermediary's jurisdiction is the jurisdiction in which is located the 
office identified in an account statement as the office serving the 
entitlement holder's account.
    (4) If an agreement between the securities intermediary and its 
entitlement holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section and an account statement does 
not identify an office serving the entitlement holder's account as 
provided in paragraph (b)(3) of this section, the securities 
intermediary's jurisdiction is the jurisdiction in which is located the 
chief executive office of the securities intermediary.
    (c) Notwithstanding the general rule in paragraph (a)(5) of this 
section, the law (but not the conflict-of-law rules) of the jurisdiction 
in which the person creating a security interest is located governs 
whether and how the security interest may be perfected automatically or 
by filing a financing statement.
    (d) If the jurisdiction specified in paragraph (b) of this section 
is a State that has not adopted revised Article 8 (see 31 CFR 357.2), 
then the law for the matters specified in paragraph (a) of this section 
shall be the law of that State as though revised Article 8 had been 
adopted by that State. For purposes of the application of the matters 
specified in paragraph (a) of this section, the Federal Reserve Bank 
maintaining the securities account is a clearing corporation, and the 
participant's interest in a book-entry security is a security 
entitlement.



Sec. 615.5454  Creation of participant's security entitlement; security 
interests.

    (a) A participant's security entitlement is created when a Federal 
Reserve Bank indicates by book entry that a book-entry security has been 
credited to a participant's securities account.
    (b) A security interest in a security entitlement of a participant 
in favor of the United States to secure deposits of public money, 
including without limitation deposits to the Treasury tax and loan 
accounts, or other security interest in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the securities. 
Where a security interest in favor of the United States in a security 
entitlement of a participant is marked on the books of a Federal Reserve 
Bank, such Federal Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the security. For purposes of this 
paragraph, an ``authorized representative of the United States'' is the 
official designated in the applicable regulations or agreement to which 
a Federal Reserve Bank is a party, governing the security interest.
    (c)(1) The Farm Credit Banks, the Funding Corporation, and the 
Federal Reserve Banks have no obligation to agree to act on behalf of 
any person or

[[Page 186]]

to recognize the interest of any transferee of a security interest or 
other limited interest in favor of any person except to the extent of 
any specific requirement of Federal law or regulation or to the extent 
set forth in any specific agreement with the Federal Reserve Bank on 
whose books the interest of the participant is recorded. To the extent 
required by such law or regulation or set forth in an agreement with a 
Federal Reserve Bank, or the Federal Reserve Bank Operating Circular, a 
security interest in a security entitlement that is in favor of a 
Federal Reserve Bank, a Farm Credit Bank, the Funding Corporation, or a 
person may be created and perfected by a Federal Reserve Bank marking 
its books to record the security interest. Except as provided in 
paragraph (b) of this section, a security interest in a security 
entitlement marked on the books of a Federal Reserve Bank shall have 
priority over any other interest in the securities.
    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest, including a security interest in favor of 
a Federal Reserve Bank, may be perfected by any method by which a 
security interest may be perfected under applicable law as described in 
Sec. 615.5452(b) or Sec. 615.5453 of this subpart. The perfection, 
effect of perfection or non-perfection and priority of a security 
interest are governed by that applicable law. A security interest in 
favor of a Federal Reserve Bank shall be treated as a security interest 
in favor of a clearing corporation in all respects under that law, 
including with respect to the effect of perfection and priority of the 
security interest. A Federal Reserve Bank Operating Circular shall be 
treated as a rule adopted by a clearing corporation for such purposes.

[62 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]



Sec. 615.5455  Obligations of the Farm Credit banks and the Funding 
Corporation; no adverse claims.

    (a) Except in the case of a security interest in favor of the United 
States or a Federal Reserve Bank or otherwise as provided in Sec. 
615.5454(c)(1), for the purposes of this subpart O, the Farm Credit 
banks, the Funding Corporation and the Federal Reserve Banks shall treat 
the participant to whose securities account an interest in a book-entry 
security has been credited as the person exclusively entitled to issue a 
transfer message, to receive interest and other payments with respect 
thereof and otherwise to exercise all the rights and powers with respect 
to such security, notwithstanding any information or notice to the 
contrary. The Federal Reserve Banks, the Farm Credit banks, and the 
Funding Corporation are not liable to a person asserting or having an 
adverse claim to a security entitlement or to a book-entry security in a 
participant's securities account, including any such claim arising as a 
result of the transfer or disposition of a book-entry security by a 
Federal Reserve Bank pursuant to a transfer message that the Federal 
Reserve Bank reasonably believes to be genuine.
    (b) The obligation of the Farm Credit banks and the Funding 
Corporation to make payments (including payments of interest and 
principal) with respect to book-entry securities is discharged at the 
time payment in the appropriate amount is made as follows:
    (1) Interest or other payments on book-entry securities are either 
credited by a Federal Reserve Bank to a funds account maintained at the 
Federal Reserve Bank or otherwise paid as directed by the participant.
    (2) Book-entry securities are redeemed in accordance with their 
terms by a Federal Reserve Bank withdrawing the securities from the 
participant's securities account in which they are maintained and by 
either crediting the amount of the redemption proceeds, including both 
principal and interest, where applicable, to a funds account at the 
Federal Reserve Bank or otherwise paying such principal and interest as 
directed by the participant. No action by the participant is required in 
connection with the redemption of a book-entry security.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997]

[[Page 187]]



Sec. 615.5456  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Farm Credit banks and the Funding Corporation to perform 
functions with respect to the issuance of book-entry securities offered 
and sold by the Farm Credit banks and the Funding Corporation to which 
this subpart applies, in accordance with the terms of the securities 
documentation and the provisions of this subpart:
    (1) To service and maintain book-entry securities in accounts 
established for such purposes;
    (2) To make payments of principal and interest, as directed by the 
Farm Credit banks and the Funding Corporation;
    (3) To effect transfer of book-entry securities between 
participants' securities accounts as directed by the participants;
    (4) To effect conversions between book-entry securities and 
definitive Farm Credit securities with respect to those securities as to 
which conversion rights are available pursuant to the applicable 
securities documentation; and
    (5) To perform such other duties as fiscal agent as may be requested 
by the Farm Credit banks and the Funding Corporation.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this subpart, governing the details of its handling of 
book-entry securities, security entitlements, and the operation of the 
Book-entry System under this subpart.



Sec. 615.5457  Withdrawal of eligible book-entry securities for 
conversion to definitive form.

    (a) Eligible book-entry securities may be withdrawn from the Book-
entry System by requesting delivery of like definitive Farm Credit 
securities.
    (b) A Federal Reserve Bank shall, upon receipt of appropriate 
instructions to withdraw eligible book-entry securities from book-entry 
in the Book-entry System, convert such securities into definitive Farm 
Credit securities and deliver them in accordance with such instructions.
    (c) Farm Credit securities which are to be delivered upon withdrawal 
may be issued in either registered or bearer form, to the extent 
permitted by the applicable securities documentation.
    (d) All requests for withdrawal of eligible book-entry securities 
must be made prior to the maturity or the applicable date of call of the 
Farm Credit securities.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997]



Sec. 615.5458  Waiver of regulations.

    The Farm Credit Administration reserves the right, in the Farm 
Credit Administration's discretion, to waive any provision(s) of the 
regulations in this subpart in any case or class of cases for the 
convenience of the Farm Credit banks and the Funding Corporation or in 
order to relieve any person(s) of unnecessary hardship, if such action 
is not inconsistent with law, does not adversely affect any substantial 
existing rights, and the Farm Credit Administration is satisfied that 
such action will not subject the Farm Credit banks and the Funding 
Corporation to any substantial expense or liability.



Sec. 615.5459  Liability of Farm Credit banks, Funding Corporation 
and Federal Reserve Banks.

    The Farm Credit banks, the Funding Corporation, and the Federal 
Reserve Banks may rely on the information provided in a transfer message 
or other transaction documentation, and are not required to verify the 
information. The Farm Credit banks, the Funding Corporation, and the 
Federal Reserve Banks shall not be liable for any action taken in 
accordance with the information set out in the transfer message, other 
transaction documentation, or evidence submitted in support thereof.



Sec. 615.5460  Additional provisions.

    (a) Additional requirements. In any case or any class of cases 
arising under the regulations in this subpart, the Farm Credit banks and 
the Funding Corporation may require such additional evidence and a bond 
of indemnity, with or without surety, as may in the judgment of the Farm 
Credit banks and the Funding Corporation be necessary for the protection 
of the interests of the Farm Credit banks and the Funding Corporation.

[[Page 188]]

    (b) Notice of attachment for Farm Credit securities in the Book-
entry System. The interest of a debtor in a security entitlement may be 
reached by a creditor only by legal process upon the securities 
intermediary with whom the debtor's securities account is maintained, 
except where a security entitlement is maintained in the name of a 
secured party, in which case the debtor's interest may be reached by 
legal process upon the secured party. These regulations do not purport 
to establish whether a Federal Reserve Bank is required to honor an 
order or other notice of attachment in any particular case or class of 
cases.
    (c) Conversion of definitive securities into book-entry securities. 
Definitive Farm Credit securities may be converted to book-entry form in 
accordance with the terms of the applicable securities documentation and 
Federal Reserve Operating Circular.

[61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997]



Sec. 615.5461  Lost, stolen, destroyed, mutilated or defaced Farm 
Credit securities, including coupons.

    (a) Relief on the account of the loss, theft, destruction, 
mutilation, or defacement of any definitive consolidated or Systemwide 
securities of the Farm Credit banks and coupons of such securities may 
be granted on the same basis and to the same extent as relief may be 
granted under the statutes of the United States and the regulations of 
the Department of the Treasury on the account of the loss, theft, 
destruction, mutilation, or defacement of United States securities and 
coupons of such securities.
    (b) Applicants for relief under paragraph (a) of this section, shall 
present claims and proof of loss:
    (1) To the Division of Special Investments, Bureau of the Public 
Debt, P.O. Box 396, Parkersburg, WV 26102-0396, in the case of 
consolidated or Systemwide securities of the Farm Credit banks issued 
prior to May 1, 1978; or
    (2) To the Federal Farm Credit Banks Funding Corporation, 10 
Exchange Place, Suite 1401, Jersey City, NJ 07302, in the case of 
consolidated or Systemwide securities issued on or after May 1, 1978.



Sec. 615.5462  Restrictive endorsement of bearer securities.

    When consolidated and Systemwide bearer securities of the Farm 
Credit banks are being presented to Federal Reserve Banks, for 
redemption, exchange, or conversion to book entry, such securities may 
be restrictively endorsed. The restrictive endorsement shall be placed 
thereon in substantially the same manner and with the same effects as 
prescribed in United States Treasury Department regulations, now or 
hereafter in force, governing like transactions in United States bonds; 
and consolidated or Systemwide securities of the Farm Credit banks so 
endorsed shall be prepared for shipment and shipped in the manner 
prescribed in such regulations for United States bearer securities. (See 
31 CFR part 328.)



                    Subpart P_Global Debt Securities



Sec. 615.5500  Definitions.

    In this subpart, unless the context otherwise requires or indicates:
    (a) Global debt securities means consolidated Systemwide debt 
securities issued by the Funding Corporation on behalf of the Farm 
Credit banks under section 4.2(d) of the Act through a fiscal agent or 
agents and distributed either exclusively outside the United States or 
simultaneously inside and outside the United States.
    (b) Global agent means any fiscal agent, other than the Federal 
Reserve Banks, used by the Funding Corporation to facilitate the sale of 
global debt securities.

[60 FR 57919, Nov. 24, 1995]



Sec. 615.5502  Issuance of global debt securities.

    (a) The Funding Corporation may provide for the sale of global debt 
securities on behalf of the Farm Credit banks through a global agent or 
agents by negotiation, offer, bid, or syndicate sale, and deliver such 
obligations by book-entry, wire transfer, or such other means as may be 
appropriate.
    (b) The Funding Corporation Board of Directors shall establish 
appropriate criteria for the selection of global

[[Page 189]]

agents and shall approve each global agent.

[60 FR 57919, Nov. 24, 1995]



                      Subpart Q_Bankers Acceptances



Sec. 615.5550  Bankers acceptances.

    Subject to the provisions of Sec. 614.4710, banks for cooperatives 
may rediscount with other purchasers the acceptances they have created. 
The bank for cooperatives' board of directors, under established 
policies, may delegate this authority to management.

[55 FR 24888, June 19, 1990]



Subpart R_Farm Credit System Financial Assistance Corporation Securities



Sec. 615.5560  Book-entry Procedure for Farm Credit System Financial 
Assistance Corporation Securities.

    (a) The Farm Credit System Financial Assistance Corporation 
(Financial Assistance Corporation) is a federally chartered 
instrumentality of the United States, and an institution of the Farm 
Credit System, subject to the examination and regulation of the Farm 
Credit Administration.
    (b) Subject to the approval of the Farm Credit System Assistance 
Board, the Financial Assistance Corporation is authorized by section 
6.26 of the Act to issue uncollateralized bonds, notes, debentures, and 
similar obligations, guaranteed as to the timely payment of principal 
and interest by the Secretary of the Treasury, for a term of 15 years 
(Financial Assistance Corporation securities). The Financial Assistance 
Corporation may prescribe the forms, the denominations, the rates of 
interest, the conditions, the manner of issuance and the prices of such 
Financial Assistance Corporation obligations.
    (c) Financial Assistance Corporation securities shall be governed by 
Sec. Sec. 615.5450, and 615.5452 through 615.5460. In interpreting 
those sections for purposes of this subpart, unless the context requires 
otherwise, the term ``Financial Assistance Corporation securities'' 
shall be read for ``Farm Credit securities,'' and ``Financial Assistance 
Corporation'' shall be read for ``Farm Credit banks'' and ``Funding 
Corporation.'' These terms shall be read as though modified where 
necessary to effectuate the application of the designated sections of 
subpart O of this part to the Financial Assistance Corporation.

[53 FR 12141, Apr. 13, 1988; 53 FR 27156, July 19, 1988, as amended at 
61 FR 67195, Dec. 20, 1996]



     Subpart S_Federal Agricultural Mortgage Corporation Securities



Sec. 615.5570  Book-entry procedures for Federal Agricultural Mortgage 
Corporation Securities.

    (a) The Federal Agricultural Mortgage Corporation (Farmer Mac) is a 
Federally chartered instrumentality of the United States and an 
institution of the Farm Credit System, subject to the examination and 
regulation of the Farm Credit Administration.
    (b) Farmer Mac, either in its own name or through an affiliate 
controlled or owned by Farmer Mac, is authorized by section 8.6 of the 
Act:
    (1) To issue and/or guarantee the timely payment of principal and 
interest on securities representing interests in or obligations backed 
by pools of agricultural real estate loans (guaranteed securities); and
    (2) To issue debt obligations (which, together with the guaranteed 
securities described in paragraph (b)(1) of this section, are referred 
to as Farmer Mac securities). Farmer Mac may prescribe the forms, the 
denominations, the rates of interest, the conditions, the manner of 
issuance, and the prices of Farmer Mac securities.
    (c) Farmer Mac securities shall be governed by Sec. Sec. 615.5450, 
and 615.5452 through 615.5460. In interpreting those sections for 
purposes of this subpart, unless the context requires otherwise, the 
term ``Farmer Mac securities'' shall be read for ``Farm Credit 
securities,'' and ``Farmer Mac'' shall be read for ``Farm Credit banks'' 
and ``Funding Corporation.'' These terms shall be read as though 
modified where necessary to effectuate the application of

[[Page 190]]

the designated sections of subpart O of this part to Farmer Mac.

[61 FR 31394, June 20, 1996, as amended at 61 FR 67195, Dec. 20, 1996]



PART 616_LEASING--Table of Contents

Sec.
616.6000 Definitions.
616.6100 Purchase and sale of interests in leases.
616.6200 Out-of-territory leasing.
616.6300 Leasing policies, procedures, and underwriting standards.
616.6400 Documentation.
616.6500 Investment in leased assets.
616.6600 Leasing limit.
616.6700 Stock purchase requirements.
616.6800 Disclosure requirements.

    Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 
2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.9, 3.10, 3.20, 
3.28, 4.3, 4.3A, 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 
4.18, 4.18A, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 
7.2, 7.3, 7.6, 7.8, 7.12, 7.13 of the Farm Credit Act (12 U.S.C. 2011, 
2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 
2094, 2097, 2121, 2122, 2124, 2128, 2129, 2130, 2131, 2141, 2149, 2154, 
2154a, 2199, 2200, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 
2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a-2, 
2279a-3, 2279b, 2279c-1, 2279f, 2279f-1).

    Source: 64 FR 34518, June 28, 1999, unless otherwise noted.



Sec. 616.600  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Interests in leases means ownership interests in any aspect of a 
lease transaction, including, but not limited to, servicing rights.
    (b) Lease means any contractual obligation to own and lease, or 
lease with the option to purchase, equipment or facilities used in the 
operations of persons eligible to borrow under part 613 of this chapter.
    (c) Sale with recourse means a sale of a lease or an interest in a 
lease in which the seller:
    (1) Retains some risk of loss from the transferred asset for any 
cause except the seller's breach of usual and customary warranties or 
representations designed to protect the purchaser against fraud or 
misrepresentation; or
    (2) Has an obligation to make payments to any party resulting from:
    (i) Default on the lease by the lessee or guarantor or any other 
deficiencies in the lessee's performance;
    (ii) Changes in the market value of the assets after transfer;
    (iii) Any contractual relationship between the seller and purchaser 
incident to the transfer that, by its terms, could continue even after 
final payment, default, or other termination of the assets transferred; 
or
    (iv) Any other cause, except that the retention of servicing rights 
alone shall not constitute recourse.



Sec. 616.6100  Purchase and sale of interests in leases.

    (a) Authority to buy interests in leases. A Farm Credit System 
institution may buy leases and interests in leases.
    (b) Policies. Each Farm Credit System institution that sells or buys 
interests in leases must do so only under a policy adopted by its board 
of directors that addresses the following:
    (1) The types of leases in which the institution may buy or sell an 
interest and the types of interests which may be bought or sold;
    (2) The underwriting standards for the purchase of interests in 
leases;
    (3) Such limits on the aggregate lease payments and residual amount 
of interests in leases that the institution may buy from a single 
institution as are necessary to diversify risk, and such limits on the 
aggregate amounts the institution may buy from all institutions as are 
necessary to assure that service to the territory is not impeded;
    (4) Identification and reporting of leases in which interests are 
sold or bought;
    (5) Requirements for securing from the selling lessor in a timely 
manner adequate financial and other information about the lessee needed 
to make an independent judgment; and
    (6) Any limits or conditions to which sales or purchases are subject 
that the board considers appropriate, including arbitration.
    (c) Purchase and sale agreements. Each agreement to buy or sell an 
interest in a lease must, at a minimum:
    (1) Identify the particular lease(s) to be covered by the agreement;

[[Page 191]]

    (2) Provide for the transfer of lessee information on a timely and 
continuing basis;
    (3) Identify the nature of the interest(s) sold or bought;
    (4) Specify the rights and obligations of the parties and the terms 
and conditions of the sale;
    (5) Contain any terms necessary for the appropriate administration 
of the lease, including lease servicing and monitoring of the servicer 
and authorization and conditions for action in the event of lessee 
distress or default;
    (6) Provide for a method of resolution of disagreements arising 
under the agreement;
    (7) Specify whether the contract is assignable by either party; and
    (8) In the case of lease transactions through agents, comply with 
Sec. 614.4325(h) of this chapter, reading the term ``lease'' or 
``leases'' in place of the term ``loan'' or ``loans,'' as applicable.
    (d) Independent judgment. Each institution that buys an interest in 
a lease must make a judgment on the payment ability of the lessee that 
is independent of the originating or lead lessor and any intermediary 
seller or broker. This must occur before the purchase of the interest 
and before any servicing action that alters the terms of the original 
agreement. The institution must not delegate such judgment to any 
person(s) not employed by the institution. A Farm Credit System 
institution that buys a lease or any interest in a lease may use 
information, such as appraisals or inspections, provided by the 
originating or lead lessor, or any intermediary seller or broker; 
however, the buying Farm Credit System institution must independently 
evaluate such information when exercising its judgment. The independent 
judgment must be documented by a payment analysis that considers factors 
set forth in Sec. 616.6300. The payment analysis must consider such 
financial and other lessee information as would be required by a prudent 
lessor and must include an evaluation of the capacity and reliability of 
the servicer. Boards of directors of jointly managed institutions must 
adopt procedures to ensure the interests of their respective 
shareholders are protected in participation between such institutions.
    (e) Sales with recourse. When a lease or interest in a lease is sold 
with recourse:
    (1) For the purpose of determining the lending and leasing limit in 
subpart J of part 614 of this chapter, the lease must be considered, to 
the extent of the recourse or guaranty, a lease by the buyer to the 
seller, and in addition, the seller must aggregate the lease with other 
obligations of the lessee; and
    (2) The lease subject to the recourse agreement must be considered 
an asset sold with recourse for the purpose of computing capital ratios.
    (f) Similar entity lease transactions. The provisions of Sec. 
613.3300 of this chapter that apply to interests in loans made to 
similar entities apply to interests in leases made to similar entities. 
In applying these provisions, the term ``loan'' shall be read to include 
the term ``lease'' and the term ``principal amount'' shall be read to 
include the term ``lease amount.''



Sec. 616.6200  Out-of-territory leasing.

    A System institution may make leases outside its chartered 
territory.



Sec. 616.6300  Leasing policies, procedures, and underwriting 
standards.

    The board of each institution engaged in lease underwriting must 
adopt a written policy (or policies). Management, at the direction of 
the board, must develop procedures that reflect lease practices that 
control risk and comply with all applicable laws and regulations. Any 
leasing activity must comply with the lending policies and loan 
underwriting requirements in Sec. 614.4150 of this chapter. An 
institution engaged in the making, buying, or syndicating of leases also 
must adopt written policies and procedures that address the additional 
risks associated with leasing. Written policies and procedures must 
address the following, if applicable:
    (a) Appropriateness of the lease amount, purpose, and terms and 
conditions, including the residual value established at the inception of 
the lease;
    (b) Process for estimating the leased asset's market value during 
the lease term;

[[Page 192]]

    (c) Types of equipment and facilities the institution will lease;
    (d) Remarketing of leased property and associated risks;
    (e) Property tax and sales tax reporting;
    (f) Title and ownership of leased assets;
    (g) Title and licensing for motor vehicles;
    (h) Liability associated with ownership, including any environmental 
hazards or risks;
    (i) Insurance requirements for both the lessor and lessee;
    (j) Classification of leases in accordance with generally accepted 
accounting principles; and
    (k) Tax treatment of lease transactions and associated risks.



Sec. 616.6400  Documentation.

    Each institution must document that any asset it leases is within 
its statutory authority.



Sec. 616.6500  Investment in leased assets.

    An institution may acquire property to be leased that is consistent 
with current or planned leasing programs.



Sec. 616.6600  Leasing limit.

    All leases made by Farm Credit System institutions shall be subject 
to the lending and leasing limit in subpart J of part 614 of this 
chapter.



Sec. 616.6700  Stock purchase requirements.

    (a) Each System institution, except the Farm Credit Leasing Services 
Corporation, making an equipment lease under titles II or III of the Act 
must require the lessee to buy or own at least one share of stock or one 
participation certificate in the institution making the lease, in 
accordance with its bylaws.
    (b) The disclosure requirements of Sec. 615.5250(a) and (b) of this 
chapter apply to stock (or participation certificates) bought as a 
condition for obtaining a lease.



Sec. 616.6800  Disclosure requirements.

    (a) Each System institution must give to each lessee a copy of all 
lease documents signed by the lessee within a reasonable time following 
lease closing.
    (b) Each System institution must make its decision on a lease 
application as soon as possible and provide prompt written notice of its 
decision to the applicant.



PART 617_BORROWER RIGHTS--Table of Contents

                            Subpart A_General

Sec.
617.7000 Definitions
617.7005 When may electronic communications be used in the borrower 
          rights process?
617.7010 May borrower rights be waived?
617.7015 What happens to borrower rights when a loan is sold?

            Subpart B_Disclosure of Effective Interest Rates

617.7100 Who must make and who is entitled to receive an effective 
          interest rate disclosure?
617.7105 When must a qualified lender disclose the effective interest 
          rate to a borrower?
617.7110 How should a qualified lender disclose the cost of borrower 
          stock or participation certificates?
617.7115 How should a qualified lender disclose loan origination 
          charges?
617.7120 How should a qualified lender present the disclosures to a 
          borrower?
617.7125 How should a qualified lender determine the effective interest 
          rate?
617.7130 What initial disclosures must a qualified lender make to a 
          borrower?
617.7135 What subsequent disclosures must a qualified lender make to a 
          borrower?

           Subpart C_Disclosure of Differential Interest Rates

617.7200 What disclosures must a qualified lender make to a borrower on 
          loans offered with more than one rate of interest?

      Subpart D_Actions on Applications; Review of Credit Decisions

617.7300 When acting on a loan application, what are the notice 
          requirements and review rights?
617.7305 What is a CRC and who are the members?
617.7310 What is the review process of the CRC?

[[Page 193]]

617.7315 What records must the qualified lender maintain on behalf of 
          the CRC?

    Subpart E_Distressed Loan Restructuring; State Agricultural Loan 
                           Mediation Programs

617.7400 What protections exist for borrowers who meet all loan 
          obligations?
617.7405 On what policies are loan restructurings based?
617.7410 When and how does a qualified lender notify a borrower of the 
          right to seek loan restructuring?
617.7415 How does a qualified lender decide to restructure a loan?
617.7420 How will a decision on an application for restructuring be 
          issued?
617.7425 What type of notice should be given to a borrower before 
          foreclosure?
617.7430 Are institutions required to participate in state agricultural 
          loan mediation programs?

            Subpart F_Distressed Loan Restructuring Directive

617.7500 What is a directive used for and what may it require?
617.7505 How will the qualified lender know when FCA is considering 
          issuing a distressed loan restructuring directive?
617.7510 What should the qualified lender do when it receives notice of 
          a distressed loan restructuring directive?
617.7515 How does the FCA decide whether to issue a directive?
617.7520 How does the FCA issue a directive and when will it be 
          effective?
617.7525 May FCA use other enforcement actions?

                    Subpart G_Right of First Refusal

617.7600 What are the definitions used in this subpart?
617.7605 How should System institutions document whether the borrower 
          had the financial resources to avoid foreclosure?
617.7610 What should the System institution do when it decides to sell 
          acquired agricultural real estate?
617.7615 What should the System institution do when it decides to lease 
          acquired agricultural real estate?
617.7620 What should the System institution do when it decides to sell 
          acquired agricultural real estate at a public auction?
617.7625 Whom should the System institution notify?
617.7630 Does this Federal requirement affect any state property laws?

    Authority: Secs. 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 
4.14E, 4.36, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2199, 2200, 
2201, 2202, 2202a, 2202c, 2202d, 2202e, 2219a, 2243, 2252).

    Source: 69 FR 10907, 10908, Mar. 9, 2004, unless otherwise noted.



                            Subpart A_General



Sec. 617.7000  Definitions.

    For the purposes of this part, the following terms apply:
    Adjustable rate loan means a loan where the interest rate payable 
over the term of the loan may change. This includes adjustable rate, 
variable rate, or other similarly designated loans.
    Adverse credit decision means a credit decision where a qualified 
lender:
    (1) Decides not to make a loan to an applicant;
    (2) Approves a loan in an amount less than the applicant requested; 
or
    (3) Denies an application for restructuring.
    Applicant means any person who completes and executes a loan 
application from a qualified lender.
    Application for restructuring means a written request from a 
borrower to restructure a distressed loan. The request must be submitted 
on the appropriate forms prescribed by the qualified lender and 
accompanied by sufficient financial information and repayment 
projections, where appropriate, as required by the qualified lender to 
support a sound credit decision.
    Distressed loan means a loan that the borrower does not have the 
financial capacity to pay according to its terms, as determined by the 
qualified lender, and exhibits one or more of the following 
characteristics:
    (1) The borrower is demonstrating adverse financial and repayment 
trends.
    (2) The loan is delinquent or past due under the terms of the loan 
contract.
    (3) One or both of the factors listed in paragraphs (1) and (2) of 
this section, together with inadequate collateralization, present a high 
probability of loss to the qualified lender.
    Effective interest rate means a measure of the cost of credit, 
expressed as an annual percentage rate, that shows the effect of the 
following costs, if any, on the interest rate on a loan charged by a 
qualified lender to a borrower:
    (1) The amount of any stock or participation certificates that a 
borrower is required to buy to obtain the loan; and

[[Page 194]]

    (2) Any loan origination charges paid by a borrower to a qualified 
lender to obtain the loan.
    Foreclosure proceeding means:
    (1) A foreclosure or similar legal proceeding to enforce a lien on 
property, whether real or personal, that secures a non-interest-earning 
asset or distressed loan; or
    (2) The seizing of and realizing on non-real property collateral, 
other than collateral subject to a statutory lien arising under titles I 
and II of the Act, to effect collection of a nonaccrual or distressed 
loan.
    Independent evaluator means an individual who is a qualified 
evaluator and who satisfies the standards of Sec. 614.4260, subpart F 
of this chapter, and the standards set by the qualified lender for the 
type of property to be evaluated. The independent evaluator may not be 
an employee or agent of a qualified lender or have a relationship with 
the lender or any of its officers or directors in contravention of part 
612 of this chapter.
    Interest rate means the stated contract rate of interest.
    Loan means an extension of credit made to a farmer, rancher, or 
producer or harvester of aquatic products, for any agricultural or 
aquatic purpose and other credit needs of the borrower, including 
financing for basic processing and marketing that directly relates to 
the borrower's operations and those of other eligible farmers, ranchers, 
and producers or harvesters of aquatic products.
    Loan application means a complete oral or written request for an 
extension of credit made in accordance with a qualified lender's 
procedures for the type of credit requested. An application is complete 
when the qualified lender receives all the information normally obtained 
and used in evaluating applications for credit. This information may 
include credit reports, supporting information for the credit requested, 
and reports by governmental agencies or other persons necessary to 
guarantee, insure, or provide security for the credit or collateral.
    Qualified lender means:
    (1) A System institution, except a bank for cooperatives, that makes 
loans as defined in this section; and
    (2) Each bank, institution, corporation, company, credit union, and 
association described in section 1.7(b)(1)(B) of the Act (commonly 
referred to as an other financing institution), but only with respect to 
loans discounted or pledged under section 1.7(b)(1).
    Restructure and restructuring of a loan means a reamortization, 
renewal, deferral of principal or interest, monetary concessions, or the 
taking of any other action to modify the terms of, or forbear on, a 
loan.

[69 FR 10907, 10908, Mar. 9, 2004, as amended at 69 FR 16459, Mar. 30, 
2004]



Sec. 617.7005  When may electronic communications be used in the 
borrower rights process?

    Qualified lenders may use, with the parties' agreement, electronic 
commerce (E-commerce), including electronic communications for borrower 
rights disclosures. Part 609 of this chapter addresses when a qualified 
lender may use E-commerce. Consistent with these rules, a qualified 
lender should interpret part 617 broadly to allow electronic 
transmissions, communications, records, and submissions. However, 
electronic communications may not be used for a notice of default, 
acceleration, repossession, foreclosure, eviction, or the right to cure 
when a borrower's primary residence secures the loan. In these 
instances, a qualified lender must use paper disclosures.



Sec. 617.7010  May borrower rights be waived?

    (a) A qualified lender may not obtain a waiver of borrower rights, 
except as indicated in paragraph (b) of this section.
    (b) A borrower may waive rights relating to distressed loan 
restructuring, credit reviews, and the right of first refusal as 
follows:
    (1) When a loan is guaranteed by the Small Business Administration.
    (2) In connection with a loan sale as provided in Sec. 617.7015.
    (c) All waivers must be voluntary and in writing. The document 
evidencing the waiver must clearly explain the rights the borrower is 
being asked to waive and provide an explanation of such rights.

[[Page 195]]



Sec. 617.7015  What happens to borrower rights when a loan is sold?

    (a) What happens when a qualified lender sells a loan to another 
qualified lender? A loan made by a qualified lender and subsequently 
sold, in whole or in part, to another qualified lender is subject to the 
borrower rights provisions of title IV of the Act.
    (b) What happens when a qualified lender sells a loan into the 
secondary market?
    (1) Except as provided in paragraph (b)(2) of this section, the 
borrower rights provisions of sections 4.14, 4.14A, 4.14B, 4.14C, 4.14D, 
and 4.36 of the Act do not apply to a loan made on or after February 10, 
1996, and designated for sale into a secondary market at the time the 
loan was made.
    (2) Borrower rights apply to a loan designated for sale under 
paragraph (b)(1) of this section but not sold into a secondary market 
during the 180-day period that begins on the date of designation. The 
provisions of paragraph (b)(1) of this section will subsequently apply 
on the date of sale if the loan is later sold into a secondary market.
    (c) What happens when a qualified lender sells a loan to a 
nonqualified lender?
    (1) Except for loans sold to another qualified lender or designated 
for sale into a secondary market, a qualified lender must comply with 
one of the following requirements before selling a loan or interest in a 
loan subject to borrower rights:
    (i) The qualified lender and borrower must agree to include 
provisions in the loan contract with the borrower, or a written 
modification thereto, that ensure that the buyer of the loan will be 
obligated to provide the borrower the same rights a qualified lender 
must provide; or
    (ii) The qualified lender must obtain from the borrower a signed 
written consent to the sale, which clearly states the borrower waives 
statutory borrower rights.
    (2) Before the qualified lender obtains the borrower's consent to 
the sale of the loan and the waiver of borrower rights under paragraph 
(c)(1)(ii) of this section, the qualified lender must disclose in 
writing to the borrower:
    (i) A complete description of the statutory rights the borrower will 
waive;
    (ii) Any changes in the loan terms or conditions that will occur if 
the qualified lender does not sell the loan;
    (iii) That waiving borrower rights will not become effective unless 
the qualified lender sells the loan; and
    (iv) That borrower rights will become effective again if any 
qualified lender repurchases the loan or any interest in the loan.
    (3) The consent to the loan sale and waiver of borrower rights shall 
have no effect until the qualified lender sells the loan. Borrower 
rights become effective again if any qualified lender repurchases the 
loan or any interest in the loan.
    (4) A qualified lender may not make a loan conditioned on the 
borrower consenting to the loan's sale and a waiver of borrower rights.



            Subpart B_Disclosure of Effective Interest Rates

    Source: 69 FR 16459, Mar. 30, 2004, unless otherwise noted.



Sec. 617.7100  Who must make and who is entitled to receive an effective 
interest rate disclosure?

    (a) A qualified lender must make the disclosures required by 
subparts B and C of this part to borrowers for all loans not subject to 
the Truth in Lending Act.
    (b) For a single loan involving more than one borrower, a qualified 
lender is required to provide only one set of disclosures to borrowers. 
All borrowers may designate, in writing, one person who will receive the 
effective interest rate disclosure. If the borrowers do not designate a 
particular recipient, the lender may provide the disclosure to at least 
one of the borrowers who is primarily liable for repayment of the loan.



Sec. 617.7105  When must a qualified lender disclose the effective 
interest rate to a borrower?

    (a) Disclosure to prospective borrowers. A qualified lender must 
provide written effective interest rate disclosure for

[[Page 196]]

each loan no later than the time of loan closing.
    (b) Disclosure to existing borrowers.
    (1) A qualified lender must provide a new effective interest rate 
disclosure to an existing borrower on or before the date:
    (i) The borrower executes a new promissory note or other comparable 
evidence of indebtedness;
    (ii) The borrower purchases additional stock or participation 
certificates as a condition of obtaining new funds from the qualified 
lender; or
    (iii) The borrower pays an additional loan origination charge to the 
qualified lender as a condition of obtaining new funds.
    (2) A qualified lender is not required to provide a new effective 
interest rate disclosure when it advances new funds to an existing 
borrower if none of the conditions of paragraph (b)(1) of this section 
apply and the advance is made pursuant to a preexisting contract that 
specifically provides for future advances.



Sec. 617.7110  How should a qualified lender disclose the cost of 
borrower stock or participation certificates?

    The cost of borrower stock or participation certificates must be 
included in the effective interest rate calculation at the time the 
stock or participation certificate is purchased in connection with a 
loan transaction. For subsequent loans to existing borrowers, only the 
cost of new stock or participation certificates, if any, purchased in 
connection with a new loan or advance of new funds must be included in 
the effective interest rate calculation for the transaction.



Sec. 617.7115  How should a qualified lender disclose loan origination 
charges?

    Any one-time charge paid by a borrower to a qualified lender in 
consideration for making a loan must be included in the effective 
interest rate as a loan origination charge. These include, but are not 
limited to, loan origination fees, application fees, and conversion 
fees. Loan origination charges also include any payments made by a 
borrower to a qualified lender to reduce the interest rate that would 
otherwise be charged, including any charges designated as ``points.''



Sec. 617.7120  How should a qualified lender present the disclosures 
to a borrower?

    A qualified lender must:
    (a) Disclose the effective interest rate and other information 
required by subparts B and C of this part clearly and conspicuously in 
writing, in a form that is easy to read and understand and that the 
borrower may keep; and
    (b) Not combine the disclosures with any information not directly 
related to the information required by Sec. Sec. 617.7130 and 617.7135.



Sec. 617.7125  How should a qualified lender determine the effective 
interest rate?

    (a) A qualified lender must calculate the effective interest rate on 
a loan using the discounted cash flow method showing the effect of the 
time value of money.
    (b) For all loans, the cash flow stream used for calculating the 
effective interest rate of a loan must include:
    (1) Principal and interest;
    (2) The cost of stock or participation certificates that a borrower 
is required to purchase in connection with the loan; and
    (3) Loan origination charges described in Sec. 617.7115.
    (c) A qualified lender must establish policies and procedures for 
EIR disclosures that clearly show the effect of the cost of borrower 
stock (or participation certificates) and loan origination charges on 
the interest rate of a loan. A qualified lender must also establish 
policies and procedures for determining major assumptions used in 
calculating the effective interest rate, e.g., criteria on how the cost 
of borrower stock (or participation certificates) and loan origination 
charges are assigned or allocated among multiple loans obtained by a 
borrower simultaneously.



Sec. 617.7130  What initial disclosures must a qualified lender make 
to a borrower?

    (a) Required disclosures--in general. A qualified lender must 
disclose in writing:

[[Page 197]]

    (1) The interest rate on the loan;
    (2) The effective interest rate of the loan;
    (3) The amount of stock or participation certificates that a 
borrower is required to purchase in connection with the loan and 
included in the calculation of the effective interest rate of the loan;
    (4) All loan origination charges included in the effective interest 
rate;
    (5) That stock or participation certificates that borrowers are 
required to purchase are at risk and may only be retired at the 
discretion of the board of the institution; and
    (6) The various types of loan options available to borrowers, with 
an explanation of the terms and borrower rights that apply to each type 
of loan.
    (b) Adjustable rate loans. A lender must provide the following 
information for adjustable rate loans in addition to the requirements of 
paragraph (a) of this section:
    (1) The circumstances under which the rate can be adjusted;
    (2) How much the rate can be adjusted at any one time and how much 
the rate can be adjusted during the term of the loan;
    (3) How often the rate can be adjusted;
    (4) Any limitations on the amount or frequency of adjustments; and
    (5) The specific factors that the qualified lender may take into 
account in making adjustments to the interest rate on the loan.



Sec. 617.7135  What subsequent disclosures must a qualified lender 
make to a borrower?

    (a) Notice of interest rate change.
    (1) A qualified lender must provide written notice to a borrower of 
any change in interest rate on the borrower's existing loan, containing 
the following information:
    (i) The new interest rate on the loan;
    (ii) The date on which the new rate is effective; and
    (iii) The factors used to adjust the interest rate on the loan.
    (2) If the borrower's interest rate is directly tied to a widely 
publicized external index, a qualified lender must provide written 
notice to the borrower of the rate change within forty-five (45) days 
after the effective date of the change.
    (3) If the borrower's interest rate is not directly tied to a widely 
publicized external index, a qualified lender must send written notice 
to the borrower of the rate change within ten (10) days after the 
effective date of the change.
    (b) Notice of increase in stock purchase requirement. If a qualified 
lender increases the amount of stock (or participation certificates) a 
borrower must own during the term of a loan, the lender must send a 
written notice to the borrower at least ten (10) days prior to the 
effective date of the increase. The notice must state:
    (1) The new effective interest rate on the outstanding balance for 
the remaining term of the borrower's loan;
    (2) The date on which the new rate is effective; and
    (3) The reason for the increase in the borrower stock (or 
participation certificates) purchase requirement.



           Subpart C_Disclosure of Differential Interest Rates



Sec. 617.7200  What disclosures must a qualified lender make to a 
borrower on loans offered with more than one rate of interest?

    A qualified lender that offers more than one rate of interest to 
borrowers must notify each borrower of the right to request a review of 
the interest rate charged on his or her loan no later than the time of 
loan closing. At the request of a borrower, the lender must:
    (a) Provide a review of the loan to determine if the proper interest 
rate has been established;
    (b) Explain to the borrower in writing the basis for the interest 
rate charged; and
    (c) Explain to the borrower in writing how the credit status of the 
borrower may be improved to receive a lower interest rate on the loan.

[69 FR 16459, Mar. 30, 2004]

[[Page 198]]



      Subpart D_Actions on Applications; Review of Credit Decisions



Sec. 617.7300  When acting on a loan application, what are the notice 
requirements and review rights?

    Each qualified lender must make its decision on a loan application 
as quickly as possible. The qualified lender must provide prompt written 
notice of its decision to the applicant. The qualified lender is 
required to notify all primary applicants. If a loan application has 
more than one primary applicant, the qualified lender may send the 
original notice to the applicant designated to receive notices and may 
send copies to all other applicants. If the qualified lender makes an 
adverse credit decision on a loan application, the notice must include:
    (a) The specific reasons for the qualified lender's decision;
    (b) A statement that the applicant may request a review of the 
decision;
    (c) A statement that a written request for review must be made 
within 30 days after the applicant receives the qualified lender's 
notice; and
    (d) A brief explanation of the process for seeking review of the 
decision, including the independent collateral evaluation review 
process, whom to contact for access to information, and the applicant's 
right to appear in person before the credit review committee (CRC).



Sec. 617.7305  What is a CRC and who are the members?

    The board of directors of each qualified lender must establish one 
or more CRCs to review adverse credit decisions made by a qualified 
lender. The CRC may only review adverse credit decisions at the request 
of the applicant or borrower. The CRC has the ultimate decision-making 
authority on the loan or application under review. CRC members are 
selected by the board of directors of each qualified lender and must 
include at least one of the qualified lender's farmer-elected board 
members. The loan officer involved in the adverse credit decision being 
reviewed may not serve on the CRC when it reviews that loan.



Sec. 617.7310  What is the review process of the CRC?

    (a) How will an applicant or borrower know when the CRC will 
consider the review request? The qualified lender must inform the 
applicant or borrower 15 days in advance of the CRC meeting where the 
applicant or borrower's request will be reviewed.
    (b) Who may make a personal appearance before the CRC? Each 
applicant or borrower who has requested a review may appear in person 
before the CRC. The applicant or borrower may be accompanied by counsel 
or other representative when seeking a reversal of a decision on a loan 
or an application for restructuring.
    (c) What documents may the CRC consider? An applicant or borrower 
may submit any documents or other evidence to support the information 
contained in the loan or application for restructuring. The documents 
should demonstrate that the application for a loan or restructuring 
satisfies the credit standards of the qualified lender and is an 
eligible loan or application for restructuring. Additionally, the 
applicant or borrower is entitled to a copy of each independent 
collateral evaluation used by the qualified lender.
    (d) May an applicant obtain a new collateral evaluation even if 
collateral was not a reason for the adverse credit decision? As part of 
a CRC review, an applicant may request an independent collateral 
evaluation of the agricultural real estate securing the loan or being 
offered as security, regardless of whether collateral was an identified 
reason for the adverse credit decision. The independent collateral 
evaluation may be for any interest(s) in the property securing the loan, 
except stock or participation certificates issued by the qualified 
lender and held by the applicant or borrower.
    (1) Who may conduct an independent collateral evaluation? The 
independent collateral evaluation must be conducted by an independent 
evaluator. The CRC must provide the applicant or borrower with a list of 
three independent evaluators approved by the qualified lender within 30 
days of the request for an independent collateral evaluation. The 
applicant or borrower must select and engage the services of

[[Page 199]]

an evaluator from the list. The evaluation must comply with the 
collateral evaluation requirements of part 614, subpart F, of this 
chapter. The qualified lender must provide the applicant or borrower a 
copy of part 614, subpart F, for presentation to the selected 
independent evaluator. A copy of part 614, subpart F, signed by the 
evaluator is a required exhibit in the subsequent evaluation report.
    (2) When must an applicant or borrower obtain the independent 
collateral evaluation and who pays for the evaluation? The applicant or 
borrower must enter into a contractual arrangement for evaluation 
services within 30 days of receiving the names of three approved 
independent evaluators. The contractual arrangement must be a written 
contract for services that complies with the lender's appraisal 
standards. The evaluation must be completed within a reasonable period 
of time, taking into consideration any extenuating circumstance. The 
applicant or borrower is responsible for the costs of the independent 
evaluation.
    (3) How does the CRC use an independent collateral evaluation when 
making a decision? The CRC will consider the results of any independent 
collateral evaluation before making a final determination with respect 
to the loan or restructuring, except the CRC is not required to consider 
a collateral evaluation that does not conform to the collateral 
evaluation standards described in part 614, subpart F, of this chapter.
    (e) When must the CRC issue a decision? The CRC must reach a 
decision, and it must be the final decision of the qualified lender, not 
later than 30 days after the meeting on the request under review. The 
CRC must make every reasonable effort to conduct reviews and render 
decisions in as expeditious a manner as possible. After making its 
decision, the committee must promptly notify the applicant or borrower 
in writing of the decision and the reasons for the decision.



Sec. 617.7315  What records must the qualified lender maintain on behalf 
of the CRC?

    A qualified lender must maintain a complete file of all requests for 
CRC reviews, including participation in state mediation programs, the 
minutes of each CRC meeting, and the disposition of each review by the 
CRC.



    Subpart E_Distressed Loan Restructuring; State Agricultural Loan 
                           Mediation Programs



Sec. 617.7400  What protections exist for borrowers who meet all loan 
obligations?

    (a) A qualified lender may not foreclose on a loan because the 
borrower failed to post additional collateral when the borrower has made 
all accrued payments of principal, interest, and penalties on the loan.
    (b) A qualified lender may not require a borrower to reduce the 
outstanding principal balance of a loan by any amount that exceeds the 
regularly scheduled principal installment when due and payable, unless:
    (1) The borrower sells or otherwise disposes of part, or all, of the 
collateral without the prior approval of the qualified lender and the 
proceeds from the sale or disposition are not applied to the loan; or
    (2) The parties agree otherwise in writing.
    (c) After a borrower has made all accrued payments of principal, 
interest, and penalties on a loan, the qualified lender may not enforce 
acceleration of the borrower's repayment schedule due to the borrower's 
untimely payment of those principal, interest, or penalty payments.
    (d) If a qualified lender places a loan in non-interest-earning 
status and this results in an adverse action being taken against the 
borrower, such as revoking any undisbursed loan commitment, the lender 
must document the change of status and promptly notify the borrower in 
writing of the action and the reasons for taking it. If the borrower was 
not delinquent on any principal, interest, or penalty payment at the 
time of such action and the borrower's request to have the loan placed 
back into accrual status is denied, the borrower may obtain a review of 
the denial before the CRC pursuant to Sec. 617.7310 of this part. The 
borrower must request this review within 30 days after receiving the 
lender's notice.

[[Page 200]]



Sec. 617.7405  On what policies are loan restructurings based?

    Loan restructurings must be made in accordance with the policy 
adopted by the supervising bank board of directors under section 
4.14A(g) of the Act.



Sec. 617.7410  When and how does a qualified lender notify a borrower 
of the right to seek loan restructuring?

    (a) What are the notice requirements?
    When a qualified lender determines that a loan is, or has become, 
distressed, the lender must provide one of the following written notices 
to the borrower stating that the loan may be suitable for restructuring.
    (1) A notice stating that the loan has been identified as distressed 
and that the borrower has the right to request a restructuring of the 
loan (nonforeclosure notice).
    (2) A notice that the loan has been identified as distressed, that 
the borrower has the right to request a restructuring of the loan, and 
that the alternative to restructuring may be foreclosure (45-day 
notice). The qualified lender must provide this notice to the borrower 
no later than 45 days before the qualified lender begins foreclosure 
proceedings with respect to any loan outstanding to the borrower. This 
notice must specifically state that if the loan is restructured and the 
borrower does not perform under the restructure agreement (as described 
in Sec. 617.7410(e)), the qualified lender may initiate foreclosure 
proceedings without further notice.
    (b) What should each notice include?
    (1) A copy of the policy the qualified lender established governing 
the treatment of distressed loans; and
    (2) All materials necessary for the borrower to submit an 
application for restructuring.
    (c) What notice should a qualified lender send to a borrower who is 
a debtor in a bankruptcy proceeding? The qualified lender should send a 
notice that identifies the loan as distressed and the statutory right to 
file an application for a restructuring. The notice may also restate the 
language from the automatic stay provision to emphasize that the notice 
is not intended as an attempt to collect, assess, or recover a claim.
    (d) Whom should the qualified lender notify? The qualified lender is 
required to notify all primary obligors. If the obligors identify one 
party to receive notices, the qualified lender should send the original 
notice to that person and send copies to the other obligors. For 
borrowers in a bankruptcy proceeding, the qualified lender should send 
the notice to the borrower and, if retained, the borrower's counsel.
    (e) When is a qualified lender required to send another restructure 
notice to a borrower whose loan was previously restructured? A qualified 
lender must notify a borrower of the right to file another application 
to restructure the loan if the qualified lender sent the nonforeclosure 
notice to the borrower and the borrower has performed on the previous 
restructure agreement. Performance means that a borrower has made six 
consecutive monthly payments, four consecutive quarterly payments, three 
consecutive semiannual payments, or two consecutive annual payments. 
However, a qualified lender is not required to send another notice if 
they previously sent a 45-day notice, as described in Sec. 
617.7410(a)(2), and a borrower did not perform under a restructure 
agreement, as described above.
    (f) Does the borrower have the opportunity to meet with the 
qualified lender after receiving the restructure notice? The qualified 
lender must provide any borrower to whom a notice has been sent with a 
reasonable opportunity to meet personally with a representative of the 
lender. The borrower and lender may meet to review the status of the 
loan, the financial condition of the borrower, and the suitability of 
the loan for restructuring. A meeting to discuss a loan that is in a 
non-interest-earning status may also involve developing a plan for 
restructuring, if the qualified lender determines the loan is suitable 
for restructuring.
    (g) May the qualified lender voluntarily consider restructuring for 
a borrower who did not submit a restructuring application? A qualified 
lender may, in the absence of an application for restructuring from a 
borrower, propose restructuring to an individual borrower.

[[Page 201]]



Sec. 617.7415  How does a qualified lender decide to restructure a loan?

    (a) What criteria does a qualified lender use to evaluate an 
application for restructuring? The qualified lender should consider the 
following:
    (1) Whether the cost to the lender of restructuring the loan is 
equal to or less than the cost of foreclosure, considering all relevant 
criteria. These criteria include:
    (i) The present value of interest and principal foregone by the 
lender in carrying out the application for restructuring;
    (ii) Reasonable and necessary administrative expenses involved in 
working with the borrower to finalize and implement the application for 
restructuring;
    (iii) Whether the borrower's application for restructuring included 
a preliminary restructuring plan and cash flow analysis, taking into 
account income from all sources to be applied to the debt and all assets 
to be pledged, that show a reasonable probability that orderly debt 
retirement will occur as a result of the proposed restructuring; and
    (iv) Whether the borrower has furnished, or is willing to furnish, 
complete and current financial statements in a form acceptable to the 
qualified lender.
    (2) Whether the borrower is applying all income over and above 
necessary and reasonable living and operating expenses to the payment of 
primary obligations;
    (3) Whether the borrower has the financial capacity and the 
management skills to protect the collateral from diversion, dissipation, 
or deterioration;
    (4) Whether the borrower is capable of working out existing 
financial difficulties, taking into consideration any prior 
restructuring of the loan, reestablishing a viable operation, and 
repaying the loan on a rescheduled basis; and
    (5) In the case of a distressed loan that is not delinquent, whether 
restructuring consistent with sound lending practices may be taken to 
reasonably ensure that the loan will not have to be placed into non-
interest-earning status in the future.
    (b) What should be included in determining the cost of foreclosure?
    (1) The difference between the outstanding balance due, as provided 
by the loan documents, and the liquidation value of the loan, taking 
into consideration the borrower's repayment capacity and the liquidation 
value of the collateral used to secure the loan;
    (2) The estimated cost of maintaining a loan classified as a high-
risk asset;
    (3) The estimated cost of administrative and legal actions necessary 
to foreclose a loan and dispose of property acquired as the result of 
the foreclosure, including attorneys' fees and court costs;
    (4) The estimated cost of value changes in collateral used to secure 
a loan during the period beginning on the date of the initiation of an 
action to foreclose or liquidate the loan and ending on the date of the 
disposition of the collateral; and
    (5) All other costs incurred as the result of the foreclosure or 
liquidation of a loan.
    (c) What should the qualified lender do if the borrower and the 
qualified lender cannot agree on the financial projections used in the 
application for restructuring? If the borrower and lender are not able 
to agree on supportable or realistic financial projections, the lender 
may use benchmarks to determine the operational input costs and chattel 
security values. These benchmarks may include, but are not limited to, 
the borrower's 5-year production average; averages in the county where 
the farming operation is located, based on data from United States 
Department of Agriculture, local colleges or universities, or other 
recognized authority; and other such reasonable sources.
    (d) How does the qualified lender decide whether to restructure or 
foreclose? If a qualified lender determines the potential cost to the 
lender of restructuring the loan as proposed in the application for 
restructuring is less than or equal to the potential cost of 
foreclosure, the qualified lender must restructure the loan. If two or 
more restructuring alternatives are available, the qualified lender must 
restructure the loan using the alternative that results in the least 
cost to the lender.

[[Page 202]]

    (e) What documentation should the qualified lender retain? In the 
event that an application for restructuring is denied, a qualified 
lender must maintain sufficient documentation to demonstrate compliance 
with paragraphs (a), (b), and (c) of this section, as applicable.



Sec. 617.7420  How will a decision on an application for restructuring 
be issued?

    (a) When must a qualified lender make a decision on an application 
for restructuring? Each qualified lender must provide a written decision 
on an application for restructuring and provide this decision to the 
borrower within 15 days from the conclusion of the negotiations used to 
develop the application for restructuring.
    (b) How does a qualified lender notify the borrower of the decision? 
On reaching a decision on an application for restructuring, the 
qualified lender must provide written notice in any manner that requires 
a primary obligor to acknowledge receipt of the lender's decision. In 
the case of a loan involving one or more primary obligors, the original 
notice may be provided to the primary obligor identified to receive such 
notice, with copies provided by regular mail to the other obligors.
    (c) What notice is required if the restructuring request is denied? 
When an application for restructuring is denied, the notice must 
include:
    (1) The specific reason(s) for the denial and any critical 
assumptions and relevant information on which the specific reasons are 
based, except that any confidential information shall not be disclosed;
    (2) A statement that the borrower may request a review of the 
denial;
    (3) A statement that any request for review must be made in writing 
within 7 days after receiving such notice.
    (4) A brief explanation of the process for seeking review of the 
denial, including the appraisal review process and the right to appear 
before the CRC, pursuant to Sec. 617.7310 of this part, accompanied by 
counsel or any other representative, if the borrower chooses.



Sec. 617.7425  What type of notice should be given to a borrower before 
foreclosure?

    The qualified lender must send the 45-day notice, as described in 
Sec. 617.7410(a)(2), no later than 45 days before any qualified lender 
begins foreclosure proceedings. The notice informs the borrower in 
writing that the loan may be suitable for restructuring and that the 
qualified lender will review any suitable loan for possible 
restructuring. The 45-day notice must include a copy of the policy and 
the materials described in Sec. 617.7410(b). The notice must also state 
that if the loan is restructured, the borrower must perform under this 
restructure agreement. If the borrower does not perform, the qualified 
lender may initiate foreclosure.
    (a) Does the notice have to inform the borrower that foreclosure is 
possible? The notice must inform the borrower that the alternative to 
restructuring may be foreclosure. If the notice does not inform the 
borrower of potential foreclosure, then the qualified lender must send a 
second notice at least 45 days before foreclosure is initiated.
    (b) How are borrowers who are debtors in a bankruptcy proceeding 
notified? A qualified lender must restate the language from the 
automatic stay provision to emphasize that the notice is not intended to 
be an attempt to collect, assess, or recover a claim. The qualified 
lender should send the notice to the borrower and, if retained, the 
borrower's counsel.
    (c) May a qualified lender foreclose on a loan when there is a 
restructuring application on file? No qualified lender may foreclose or 
continue any foreclosure proceeding with respect to a distressed loan 
before the lender has completed consideration of any pending application 
for restructuring and CRC consideration, if applicable. This section 
does not prevent a lender from taking any action necessary to avoid the 
dissipation of assets or the diversion, dissipation, or deterioration of 
collateral if the lender has reasonable grounds to believe that such 
diversion, dissipation, or deterioration may occur.

[[Page 203]]



Sec. 617.7430  Are institutions required to participate in state 
agricultural loan mediation programs?

    (a) If initiated by a borrower, System institutions must participate 
in state mediation programs certified under section 501 of the 
Agricultural Credit Act of 1987 and present and explore debt 
restructuring proposals advanced in the course of such mediation. If 
provided in the certified program, System institutions may initiate 
mediation at any time.
    (b) System institutions must cooperate in good faith with requests 
for information or analysis of information made in the course of 
mediation under any loan mediation program.
    (c) No System institution may make a loan secured by a mortgage or 
lien on agricultural property to a borrower on the condition that the 
borrower waive any right under the agricultural loan mediation program 
of any state.
    (d) A state mediation may proceed at the same time as the loan 
restructuring process of Sec. 617.7415 or at any other appropriate 
time.



            Subpart F_Distressed Loan Restructuring Directive



Sec. 617.7500  What is a directive used for and what may it require?

    (a) A distressed loan restructuring directive is an order issued to 
a qualified lender when FCA has determined that the lender has violated 
section 4.14A of the Act.
    (b) A distressed loan restructuring directive requires the qualified 
lender to comply with the specific distressed loan restructuring 
requirements in the Act.
    (c) A distressed loan restructuring directive is enforceable in the 
same manner and to the same extent as an effective and outstanding cease 
and desist order that has become final. Any violation of a distressed 
loan restructuring directive may result in FCA assessing civil money 
penalties or seeking a court order pursuant to section 5.31 or 5.32 of 
the Act.



Sec. 617.7505  How will the qualified lender know when FCA is considering 
issuing a distressed loan restructuring directive?

    When FCA intends to issue a distressed loan restructuring directive, 
it will notify the qualified lender in writing. The notice will state:
    (a) The reasons FCA intends to issue a distressed loan restructuring 
directive;
    (b) The proposed contents of the distressed loan restructuring 
directive; and
    (c) Any other relevant information.



Sec. 617.7510  What should the qualified lender do when it receives 
notice of a distressed loan restructuring directive?

    (a) A qualified lender should respond to the notice by stating why 
FCA should not issue a distressed loan restructuring directive, by 
proposing changes to the directive, or by seeking other suitable relief. 
The response must include any information, documentation, or other 
relevant evidence that supports the qualified lender's position. The 
response may include a plan for achieving compliance with the distressed 
loan restructuring requirements of the Act. The response must be in 
writing and delivered to FCA within 30 days after the date on which the 
qualified lender received the notice. In its discretion, FCA may extend 
the time period for good cause. FCA may shorten the 30-day period with 
the consent of the qualified lender or when FCA determines that 
providing the full 30 days would result in a borrower not receiving 
distressed loan restructuring rights.
    (b) If the qualified lender fails to respond within 30 days or such 
other time period specified by FCA, this failure will constitute a 
waiver of any objections to the proposed distressed loan restructuring 
directive.



Sec. 617.7515  How does the FCA decide whether to issue a directive?

    After the closing date of the qualified lender's response period, or 
following receipt of the qualified lender's response, FCA must decide if 
there is sufficient information to support the issuance of a directive 
or if additional

[[Page 204]]

information is necessary. Once FCA has received sufficient information, 
it must decide whether to issue a directive as originally proposed or as 
modified.



Sec. 617.7520  How does the FCA issue a directive and when will it be 
effective?

    A distressed loan restructuring directive is effective immediately 
on receipt by the qualified lender, or on such later date as may be 
specified by FCA, and will remain effective and enforceable until it is 
stayed, modified, or terminated by FCA.



Sec. 617.7525  May FCA use other enforcement actions?

    FCA may issue a distressed loan restructuring directive in addition 
to, or instead of, any other action allowed by law, including cease and 
desist proceedings, civil money penalties, or the granting or 
conditioning of any application or other requests by the System 
institution.



                    Subpart G_Right of First Refusal



Sec. 617.7600  What are the definitions used in this subpart?

    In addition to the definitions in Sec. 617.7000, the following 
definitions apply to this subpart.
    Acquired agricultural real estate or property means agricultural 
real estate acquired by a System institution as a result of a loan 
foreclosure or a voluntary conveyance by a borrower who, as determined 
by the institution, does not have the financial resources to avoid 
foreclosure.
    Previous owner means:
    (1) The prior record owner who was a borrower from a System 
institution and did not have the financial resources, as determined by 
the institution, to avoid foreclosure on acquired agricultural real 
estate; or
    (2) The prior record owner who is not a borrower and whose acquired 
agricultural real estate was used as collateral for a loan to a System 
borrower.
    System institution means a Farm Credit System institution, except a 
bank for cooperatives, which makes loans as defined in Sec. 617.7000.



Sec. 617.7605  How should System institutions document whether the 
borrower had the financial resources to avoid foreclosure?

    The right of first refusal applies only to borrowers who did not 
have the financial resources to avoid foreclosure or voluntary 
conveyance. A System institution must clearly document in its files 
whether the borrower had the resources to avoid foreclosure or voluntary 
conveyance.



Sec. 617.7610  What should the System institution do when it decides 
to sell acquired agricultural real estate?

    (a) Notify the previous owner,
    (1) Within 15 days of the System institution's decision to sell 
acquired agricultural real estate, it must notify the previous owner, by 
certified mail, of the property's appraised fair market value as 
established by an accredited appraiser and of the previous owner's right 
to:
    (i) Buy the property at the appraised fair market value, or
    (ii) Offer to buy the property at a price less than the appraised 
value.
    (2) That any offer must be received within 30 days of receipt of the 
notice.
    (b) Act on an offer to buy the acquired agricultural real estate at 
the appraised value. Within 15 days after the receipt of the previous 
owner's offer to buy the acquired agricultural real estate at the 
appraised value, the System institution must accept the offer and sell 
the property to the previous owner if the offer was received within 30 
days of the notice required in paragraph (a)(2) of this section.
    (c) Act on an offer to buy the acquired agricultural real estate at 
less than the appraised value.
    (1) The System institution must consider the offer if it was 
received within 30 days of the notice required in paragraph (a)(2) of 
this section.
    (2) If the System institution accepts this offer, it must notify the 
previous owner of the decision and sell the acquired agricultural real 
estate to the previous owner within 15 days of receiving the offer to 
buy the acquired agricultural real estate at a value less than the 
appraised value.
    (3) If the System institution rejects this offer, it must notify the 
previous

[[Page 205]]

owner of the decision within 15 days of receiving the offer to buy the 
acquired agricultural real estate at a value less than the appraised 
value. The previous owner has 15 days from receipt of the notice to 
submit an offer to buy at such price or under such terms and conditions. 
The System institution may not sell the acquired agricultural real 
estate to any other person:
    (i) At a price equal to, or less than, that offered by the previous 
owner; or
    (ii) On different terms or conditions than those extended to the 
previous owner without first notifying the previous owner by certified 
mail and providing an opportunity to buy the property at such price or 
under such terms and conditions.
    (d) For purposes of this section, financing by the System 
institution is not a term or condition of the sale of acquired 
agricultural real estate. A System institution is not required to 
provide financing to the previous owner for purchase of acquired 
agricultural real estate.



Sec. 617.7615  What should the System institution do when it decides 
to lease acquired agricultural real estate?

    (a) Notify the previous owner,
    (1) Within 15 days of the System institution's decision to lease 
acquired agricultural real estate, it must notify the previous owner, by 
certified mail, of the property's appraised rental value, as established 
by an accredited appraiser, and of the previous owner's right to:
    (i) Lease the property at a rate equivalent to the appraised rental 
value of the property, or
    (ii) Offer to lease the property at rate that is less than the 
appraised rental value of the property.
    (2) That any offer must be received within 15 days of receipt of the 
notice.
    (b) Act on an offer to lease the acquired agricultural real estate 
at a rate equivalent to the appraised rental value of the property.
    (1) Within 15 days after receipt of such offer, the System 
institution may accept the offer to lease the property at the appraised 
rental value and lease the property to the previous owner, or
    (2) Within 15 days after receipt of such offer, the System 
institution may reject the offer to lease the property at the appraised 
rental value when the institution determines that the previous owner:
    (i) Does not have the resources available to conduct a successful 
farming or ranching operation; or
    (ii) Cannot meet all the payments, terms, and conditions of such 
lease.
    (c) Act on an offer to lease the acquired agricultural real estate 
at a rate that is less than the appraised rental value of the property.
    (1) The System institution must consider the offer to lease the 
property at a rate that is less than the appraised rental value of the 
property. Notice of the decision to accept or reject such offer must be 
provided to the previous owner within 15 days of receipt of the offer.
    (2) If the System institution accepts the offer to lease the 
property at less than the appraised rental value, it must notify the 
previous owner and lease the property to the previous owner.
    (3) If the institution rejects the offer, the System institution 
must notify the previous owner of this decision. The previous owner has 
15 days after receipt of the notice in which to agree to lease the 
property at such rate or under such terms and conditions. The System 
institution may not lease the property to any other person:
    (i) At a rate equal to or less than that offered by the previous 
owner; or
    (ii) On different terms and conditions than those that were extended 
to the previous owner without first informing the previous owner by 
certified mail and providing an opportunity to lease the property at 
such rate or under such terms and conditions.



Sec. 617.7620  What should the System institution do when it decides 
to sell acquired agricultural real estate at a public auction?

    System institutions electing to sell or lease acquired agricultural 
real estate or a portion of it through a public auction, competitive 
bidding process, or other similar public offering must:
    (a) Notify the previous owner, by certified mail, of the 
availability of such property. The notice must contain the minimum 
amount, if any, required to

[[Page 206]]

qualify a bid as acceptable to the institution and any terms or 
conditions to which such sale or lease will be subject;
    (b) Accept the offer by the previous owner if the System institution 
receives two or more qualified bids in the same amount, the bids are the 
highest received, and one of the qualified bids is from the previous 
owner; and
    (c) Not discriminate against a previous owner in these proceedings.



Sec. 617.7625  Whom should the System institution notify?

    Each certified mail notice requirement in this section is fully 
satisfied by mailing one certified mail notice to the last known address 
of the previous owner or owners.



Sec. 617.7630  Does this Federal requirement affect any state property 
laws?

    The rights provided under section 4.36 of the Act and this section 
do not affect any right of first refusal under the law of the state in 
which the property is located.



PART 618_GENERAL PROVISIONS--Table of Contents

                       Subpart A_Related Services

Sec.
618.8000 Definitions.
618.8005 Eligibility.
618.8010 Related services authorization process.
618.8015 Policy guidelines.
618.8020 Feasibility requirements.
618.8025 Feasibility reviews.
618.8030 Out-of-territory related services.

                       Subpart B_Member Insurance

618.8040 Authorized insurance services.

Subparts C-F [Reserved]

                     Subpart G_Releasing Information

618.8300 General regulation.
618.8310 Lists of borrowers and stockholders.
618.8320 Data regarding borrowers and loan applicants.
618.8325 Disclosure of loan documents.
618.8330 Production of documents and testimony during litigation.
618.8340 [Reserved]

                Subpart H_Disposition of Obsolete Records

618.8360 [Reserved]
618.8370 [Reserved]

Subpart I [Reserved]

                       Subpart J_Internal Controls

618.8430 Internal controls.
618.8440 Planning.

    Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7, 
4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act (12 
U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183, 2200, 
2211, 2218, 2243, 2244, 2252).



                       Subpart A_Related Services

    Source: 60 FR 34099, June 30, 1995, unless otherwise noted.



Sec. 618.8000  Definitions.

    For the purposes of this subpart, the following definitions shall 
apply:
    (a) Program means the method or procedures used to deliver a related 
service. This distinguishes the particulars of how a related service 
will be provided from the type of activity or concept.
    (b) Related service means any service or type of activity provided 
by a System bank or association that is appropriate to the recipient's 
operations, including control of related financial matters. The term 
``related service'' includes, but is not limited to, technical 
assistance, financial assistance, financially related services and 
insurance, but does not include lending or leasing activities.
    (c) System banks and associations means Farm Credit Banks, 
agricultural credit banks, banks for cooperatives, agricultural credit 
associations, production credit associations, Federal land bank 
associations, Federal land credit associations, and service corporations 
formed pursuant to section 4.25 of the Act.

[60 FR 34099, June 30, 1995, as amended at 69 FR 43514, July 21, 2004



Sec. 618.8005  Eligibility.

    (a) Farm Credit Banks and associations may offer related services 
appropriate to on-farm and aquatic operations to persons eligible to 
borrow as

[[Page 207]]

defined in Sec. Sec. 613.3000 (a) and (b), 613.3010, and 613.3300 of 
this chapter.
    (b) Banks for cooperatives may offer related services to entities 
eligible to borrow as defined in Sec. Sec. 613.3100, 613.3200, and 
613.3300 of this chapter.
    (c) Agricultural credit banks may offer related services appropriate 
to on-farm and aquatic operations of persons eligible to borrow 
specified in paragraph (a) of this section and may offer related 
services to entities eligible to borrow as specified in paragraph (b) of 
this section.
    (d) Service corporations formed pursuant to section 4.25 of the Act 
may offer related services to persons eligible to borrow from the owners 
of the service corporation, pursuant to paragraphs (a), (b), (c), and 
(e) of this section.
    (e) System banks and associations may provide related services to 
recipients that do not otherwise meet the requirements of this section 
in connection with loan applications, loan servicing, and other 
transactions between these recipients and persons eligible to borrow as 
defined in paragraphs (a), (b), or (c) of this section, as long as the 
service provided is requested by an eligible borrower or necessary to 
the transaction between the parties. Such services include, but are not 
limited to, fee appraisals of agricultural assets provided to any 
Federal agency, commercial banks, and other lenders.

[60 FR 34099, June 30, 1995, as amended at 62 FR 4450, Jan. 30, 1997; 69 
FR 43514, July 21, 2004]



Sec. 618.8010  Related services authorization process.

    (a) Authorities. System banks and associations may only offer 
related services that meet the criteria specified in this regulation and 
are authorized by the FCA.
    (b) New service proposals. (1) A System bank or association that 
proposes or intends to offer a related service that the FCA has not 
previously authorized must submit to the FCA, in writing, a proposal 
that includes a description of the service, a statement of how it meets 
the regulatory definition of ``related services'' in Sec. 618.8000(b), 
and the risk analysis cited in Sec. 618.8020(b)(3). The FCA will 
evaluate the proposed service based on the information submitted, and 
may also consider whether there are extenuating circumstances or other 
compelling reasons that justify the proposed service or support a 
determination that the service is not authorized. This evaluation will 
focus primarily on Systemwide issues rather than on institution or 
program-specific factors.
    (2) When authorizing a proposed related service, at its discretion, 
the FCA may impose special conditions or limitations on any related 
service or program to offer a related service.
    (3) At its discretion the FCA may, at any time during its evaluation 
of a proposed related service, publish the proposed related service in 
the Federal Register for public comment.
    (4) Within 60 days of the FCA receiving a completed proposal, 
including any additional information the FCA may require, the FCA will 
act on the request to authorize a new service. The FCA shall approve the 
request, deny the request, or publish the service for public comment in 
the Federal Register. For good cause and prior to the expiration of the 
60 days, the FCA may extend this period for an additional 60 days.
    (5) Within the time period established in paragraph (b)(4) of this 
section, the FCA shall notify the requesting institution of its actions. 
Following notification of the requesting institution, the FCA will 
notify all System banks and associations of its determination on the 
proposed service by bookletter or other means. If a service is not 
authorized, the reasons for denial will be included in the notifications 
to the System and the requesting institution.
    (c) Previously authorized services. (1) For related services that 
have been authorized by the FCA, any System bank or association may 
develop a program and subsequently offer the related service to eligible 
recipients, subject to any special conditions or institutional limits 
placed by the FCA. These programs will be subject to review and 
evaluation during the examination and enforcement process.
    (2) The FCA shall make available to all System banks and 
associations a list of such related services (``related

[[Page 208]]

services list'' or ``list'') and will update the list in accordance with 
paragraph (b)(5) of this section. The list will contain the following:
    (i) A description of each related service; and
    (ii) The types of institutions authorized to offer each type of 
related service;
    (iii) Identification of any special conditions on how the related 
service may be offered. The special conditions and description of the 
service will be fully detailed in FCA's notice to System institutions 
under paragraph (b)(5) of this section.
    (3) At least 10 business days prior to implementing a related 
service program already on the list, the System bank or association must 
notify the FCA Office of Examination field office responsible for 
examining that institution in writing and provide it with a description 
of the proposed related service program.



Sec. 618.8015  Policy guidelines.

    (a) The board of directors of each System bank or association 
providing related services must adopt a policy addressing related 
services. The policy shall include clearly stated purposes, objectives, 
and operating parameters for offering related services and a requirement 
that each service offered be consistent with the institution's business 
plan and long-term strategic goals. Such policy shall also be subject to 
review under an appropriate internal control policy.
    (b) All related services must be offered to recipients on an 
optional basis. If the institution requires a related service as a 
condition to borrow, it must inform the recipient that the related 
service can be obtained from the institution or from any other person or 
entity offering the same or similar related services.
    (c) All fees for related services must be separately identified from 
loan interest charges and disclosed to the recipient of the service 
prior to providing or implementing the service.



Sec. 618.8020  Feasibility requirements.

    For every related service program a System bank or association 
provides, it must document program feasibility. The feasibility analysis 
shall include the following:
    (a) Support for the determination that the related service is 
authorized; and
    (b) An overall cost-benefit analysis that demonstrates program 
feasibility, taking into consideration the following items:
    (1) An analysis of how the program relates to or promotes the 
institution's business plan and strategic goals, and whether offering 
the service is consistent with the long-term goals described in its 
capital plan;
    (2) An analysis of the expected financial returns of the program 
which, at a minimum, must include an evaluation of market, pricing, 
competition issues, and expected profitability. This analysis should 
include an explanation of how the program will contribute to the overall 
financial health of the institution; and
    (3) An analysis of the risk in the program, including:
    (i) An evaluation of the operational costs and risks involved in 
offering the program, such as management and personnel requirements, 
training requirements, and capital outlays;
    (ii) An evaluation of the financial liability that may be incurred 
as a result of offering the program and any insurance or other measures 
that are necessary to minimize these risks; and
    (iii) An evaluation of the conflicts of interest, whether real or 
perceived, that may arise as a result of offering the program and any 
steps that are necessary to eliminate or appropriately manage these 
conflicts.



Sec. 618.8025  Feasibility reviews.

    (a) Prior to an association offering a related service program for 
the first time or offering a service that it did not offer during the 
most recently completed business cycle (generally 1 year), the board of 
directors of the funding bank must verify that the association has 
performed a feasibility analysis pursuant to Sec. 618.8020. The bank 
review is limited to a determination that the feasibility analysis is 
complete and that the analysis establishes that it is feasible for the 
association to provide the program. Any conclusion by the bank that the 
feasibility

[[Page 209]]

analysis is incomplete or fails to demonstrate program feasibility must 
be fully supported and communicated to the association in writing within 
60 days of its submission to the bank.
    (b) Prior to a service corporation offering a service for the first 
time or offering a service that it did not offer during the most 
recently completed business cycle (generally 1 year), the owners of the 
service corporation must verify that the service corporation has 
performed a feasibility analysis pursuant to Sec. 618.8020. If the 
owners all agree, one bank with a significant ownership interest can be 
delegated this responsibility.

[60 FR 34099, June 30, 1995; 60 FR 42029, Aug. 15, 1995]



Sec. 618.8030  Out-of-territory related services.

    (a) System banks and associations may offer related services outside 
their chartered territories subject to the following conditions:
    (1) The System bank or association obtains consent from all 
chartered institutions currently offering the same type of service in 
the territory in which the service is to be provided; or
    (2) If no System bank or association is currently offering the same 
type of service in the territory, then the out-of-territory institution 
must obtain the consent of at least one direct lender institution 
chartered in the territory in which the related service is to be 
provided.
    (3) The consent obtained pursuant to paragraphs (a)(1) and (a)(2) of 
this section shall be in the form of a written agreement with specific 
terms and conditions including timeframes.
    (b) System banks and associations providing out-of-territory 
services must fulfill all requirements of subparts A and B of this part 
618.
    (c) An institution that consents to another bank or association 
providing a related service in its chartered territory must meet the 
requirements of this section, but need not comply with the other 
requirements of subparts A and B of this part 618, unless the program 
consented to imposes a financial obligation on the consenting 
institution. If a financial obligation exists, then the consenting 
institution must comply with Sec. Sec. 618.8015, 618.8020 and 618.8025.
    (d) Service corporations must follow the requirements of this 
section in offering related services out-of-territory. A service 
corporation cannot consent to an out-of-territory institution providing 
services in its chartered territory.



                       Subpart B_Member Insurance



Sec. 618.8040  Authorized insurance services.

    (a) Farm Credit System banks (excluding banks for cooperatives) 
(hereinafter banks) and associations may sell to their members and 
borrowers, on an optional basis, credit or term life and credit 
disability insurance appropriate to protect the loan commitment in the 
event of death or disability of the debtors. The sale of other insurance 
necessary to protect a member's or borrower's farm or aquatic unit is 
permitted, but limited to hail and multiple-peril crop insurance, title 
insurance, and insurance necessary to protect the facilities and 
equipment of aquatic members and borrowers. A member or borrower shall 
have the option, without coercion from the bank or association, to 
accept or reject such insurance.
    (b) Bank and association board policies governing the provision of 
member insurance programs shall be established within the following 
general guidelines:
    (1) A System bank or association may provide credit or term-life or 
credit-disability insurance only to persons who have a loan or lease 
with any System bank or association, without regard to whether such 
institution is the provider. Term-life insurance coverage may continue 
after the loan has been repaid or the lease terminated, provided the 
member can reasonably be expected to borrow again within 2 years, and 
provided the continuation of insurance is not contrary to state law.
    (2) A debtor-creditor relationship is not required for the sale of 
other insurance specified in paragraph (a) of this section, as long as 
purchasers are members of a System bank or association. For the purposes 
of this section, ``member'' means someone eligible to

[[Page 210]]

borrow who is a stockholder or participation certificate holder and who 
acquired stock or participation certificates to obtain a loan, for 
investment purposes, or to qualify for other services of the association 
or bank.
    (3) In making insurance available through private insurers, each 
bank shall approve the programs of more than two insurers for each type 
of insurance offered in the bank's chartered territory, provided that 
more than two insurers for each type of insurance have proposed programs 
to the bank that will, in all likelihood, have long-term viability, and 
meet the requirements of Sec. 618.8040(b)(4)(i) of this section. The 
banks shall make a reasonable and good faith effort to attract more than 
two qualified insurers for each insurance program offered to borrowers 
in all States of the bank's chartered territory. Where the bank is 
unable to approve more than two insurers, the bank shall document its 
efforts to attract additional qualified insurers for the affected 
insurance program and State. The banks may provide comparative 
information relating to costs and quality of approved programs and the 
financial condition of approved companies.
    (4) Member insurance services may be offered only if:
    (i) The insurance program has been approved by the bank or 
association from among eligible programs made available to it by 
insurers--
    (A) Meeting reasonable financial and quality of service standards 
prescribed by the bank; and
    (B) Licensed under State law to do business in the State(s) in which 
the insurance is offered:
    (ii) The bank or association has the capacity to render authorized 
insurance services in an effective and efficient manner;
    (iii) There exists the probability that the service will generate 
sufficient revenue to cover all costs;
    (iv) Rendering the insurance service will not have an adverse effect 
on the credit or other operations of the bank or association; and
    (v) In making insurance available through approved insurers, the 
board of directors of the bank or association shall make a reasonable 
and good faith effort to select and offer at least two approved insurers 
for each type of insurance made available to the members and borrowers. 
In the event that the bank or association has selected less than two 
insurers for any insurance program, such bank or association shall 
document the reasons why it is unable to offer members and borrowers 
additional insurers for the affected insurance program.
    (5) All costs to members and borrowers for insurance services 
provided shall be disclosed separately from interest charges.
    (6) Bank and association personnel shall not benefit from insurance 
sales by receipt of commissions or gifts from underwriting insurance 
companies. However, employees may participate in an incentive plan under 
which incentive compensation is provided based on the sale of insurance.
    (i) In any single year, for all employees except full-time insurance 
personnel or full-time supervisors or managers of insurance departments, 
incentive compensation attributable to sales of all types of insurance 
cannot exceed an amount equivalent to 5 percent of the recipient's 
annual base salary.
    (ii) In any single year, for full-time insurance personnel and full-
time supervisors and managers of insurance departments, incentive 
compensation for sales of credit life and similar types of insurance 
(i.e. insurance that pays on a loan or mortgage upon the death or 
disability of the debtor) cannot exceed an amount equivalent to 5 
percent of the recipient's annual base salary.
    (iii) No incentive compensation limit applies to sales of other 
insurance (crop, title, etc.) by full-time insurance personnel or full-
time supervisors or managers of insurance departments.
    (7) Term insurance may be written for the amount of coverage desired 
by the member or borrower, but in no case may the amount of term 
insurance, credit life insurance, or a combination of the two with an 
institution of the System, be in excess of total loan commitments to the 
member or borrower by the institution writing the insurance.
    (8) The banks may, only by agreement with an insurer, offer services 
traditionally furnished by insurers to

[[Page 211]]

the Farm Credit System. This shall include master marketers when 
considering the sale of Federal crop insurance. The banks shall not 
underwrite insurance, adjust claim payments or settlements, or train and 
school or service adjustors or insurance agents.
    (9) No bank or association shall, directly or indirectly, condition 
the extension of credit or provision of other service on the purchase of 
insurance sold or endorsed by a bank or association. At the time 
insurance sold or endorsed by a bank or association is offered to a 
member or borrower, a bank or association shall present a written notice 
that the service is optional. The notice shall be in prominent type and 
separately signed by the member or borrower. The bank or association 
shall explain to the member or borrower that purchase of insurance from 
the association is optional and that the member or borrower will not be 
discriminated against for obtaining the insurance elsewhere.
    (10) No bank or association shall, directly or indirectly, 
discriminate in any manner against any agent, broker, or insurer that is 
not affiliated with such bank or association, or against any party who 
purchases insurance through any such nonaffiliated insurance agent, 
broker, or insurer.
    (11) Bank supervision shall ensure that insurance services offered 
by approved insurers consistently provide members or borrowers with a 
high quality and cost-effective service as prescribed by policies of the 
bank's board of directors, but such supervision shall be without any 
coercion or suasion from any bank in favor of any agent or insurer.
    (12) Records must be maintained by banks and associations in 
sufficient detail to facilitate the review and supervision required 
herein.

[47 FR 38867, Sept. 3, 1982, as amended at 53 FR 35305, Sept. 13, 1988; 
56 FR 65990, Dec. 20, 1991. Redesignated and amended at 60 FR 34099, 
34101, June 30, 1995]

Subparts C-F [Reserved]



                     Subpart G_Releasing Information



Sec. 618.8300  General regulation.

    Except as necessary in performing official duties or as authorized 
in the following paragraphs, no director or employee of a bank, 
association, or agency thereof shall disclose information of a type not 
ordinarily contained in published reports or press releases regarding 
any such banks or associations or their borrowers or members.

[37 FR 11442, June 7, 1972. Redesignated at 47 FR 12151, Mar. 22, 1982]



Sec. 618.8310  Lists of borrowers and stockholders.

    (a) Any System institution, for the purpose of protecting the 
security position of the institution, may provide lists of borrowers to 
buyers, warehousemen, and others who deal in produce or livestock of the 
kind that secures such loans, except to the extent such actions are 
prohibited by State laws adopted in accordance with the Food Security 
Act of 1985, Pub. L. 99-198, 99 Stat. 1354. Lists of borrowers or 
stockholders shall not otherwise be released by any bank or association 
except in accordance with paragraph (b) of this section.
    (b)(1) Within 7 days after receipt of a written request by a 
stockholder, each agricultural credit bank, bank for cooperatives, 
Federal land bank association, production credit association, merged 
association, or Farm Credit Bank shall provide a current list of its 
stockholders to such requesting stockholder. As a condition to providing 
the list, the bank or association may require that the stockholder agree 
and certify in writing that the stockholder will:
    (i) Utilize the list exclusively for communicating with stockholders 
for permissible purposes; and
    (ii) Not make the list available to any person, other than the 
stockholder's attorney or accountant, without first obtaining the 
written consent of the institution.
    (2) As an alternative to receiving a list of stockholders, a 
stockholder may request the institution to mail or otherwise furnish to 
each stockholder a

[[Page 212]]

communication for a permissible purpose on behalf of the requesting 
stockholder. This alternative may be used at the discretion of the 
requesting stockholder, provided that the requester agrees to defray the 
reasonable costs of the communication. In the event the requester 
decides to exercise this option, the institution shall provide the 
requester with a written estimate of the costs of handling and mailing 
the communication as soon as practicable after receipt of the 
stockholder's request to furnish a communication.
    (3) For purposes of paragraph (b) of this section ``permissible 
purpose'' is defined to mean matters relating to the business operations 
of the bank or association. This shall include matters relating to the 
effectiveness of management, the use of corporate assets, and the 
performance of directors and officers. This shall not include 
communications involving commercial, social, political, or charitable 
causes, communications relating to the enforcement of a personal claim 
or the redress of a personal grievance, or proposals advocating that the 
bank or association violate any Federal, State, or local law or 
regulation.

[51 FR 39503, Oct. 28, 1986, as amended at 53 FR 35457, Sept. 14, 1988; 
61 FR 67188, Dec. 20, 1996]



Sec. 618.8320  Data regarding borrowers and loan applicants.

    (a) Except as provided in paragraph (b) of this section, the 
directors, officers, and employees of every bank and association shall 
hold in strict confidence all information regarding the character, 
credit standing, and property of borrowers and applicants for loans. 
They shall not exhibit or quote the following documents: Loan 
applications; supplementary statements by applicants; letters and 
statements relative to the character, credit standing, and property of 
borrowers and applicants; recommendations of loan committees; and 
reports of inspectors, fieldmen, investigators, and appraisers.
    (b) The requirements of paragraph (a) of this section are subject to 
the following exceptions.
    (1) Examiners and other authorized representatives of the Farm 
Credit Administration and the bank concerned shall have free access to 
all information, records, and files.
    (2) In connection with a legitimate law enforcement inquiry, 
accredited representatives of any agency or department of the United 
States may be given access to information upon presentation of official 
identification and a written request specifying:
    (i) The particular information desired; and
    (ii) That the information is relevant to the law enforcement inquiry 
and will be used only for the purpose for which it is sought.
    (3) The chairman of the presidents committees and the presidents of 
the banks may supply statistical and other impersonal information 
pertaining to groups of borrowers, applicants, and loans, in response to 
requests from any department or independent office of the Government of 
the United States, or responsible private organizations, with the 
understanding that the information will not be published.
    (4) Information concerning borrowers may be given for the 
confidential use of any Farm Credit institution in contemplation of the 
extension of credit or the collection of loans.
    (5) Impersonal information based solely on transactions or 
experience with a borrower, such as amounts of loans, terms, and payment 
records, may be given by a bank or association to any reliable 
organization for its confidential use in contemplation of the extension 
of credit or to a consumer reporting agency.
    (6) Credit information concerning any borrower may be given when 
such borrower consents thereto in writing.
    (7) An unsuccessful applicant for credit which primarily is for 
personal, family, or household purposes, if his application was rejected 
either wholly or partly because of information contained in a consumer 
report from a consumer reporting agency shall be advised as required in 
section 615(a) of the Fair Credit Reporting Act (84 Stat. 1133), and if 
his application was rejected either wholly or partly because of 
information obtained from a person other than a consumer reporting 
agency shall be advised as required in section 615(b) thereof.

[[Page 213]]

    (8)(i) Any information or analysis of information requested during 
the course of mediation by a State agency, governor's office or mediator 
under any State mediation program certified under section 501 of the 
Agricultural Credit Act of 1987, may be provided to the State agency, 
governor's office or mediator, with the approval of the borrower.
    (ii) Information concerning borrowers contained in an appraisal 
report may be given by a Farm Credit institution to any State agency 
certifying and licensing real estate appraisers provided that the Farm 
Credit institution:
    (A) Certifies that the information is required in connection with an 
employee's application for certification and licensure and that the 
institution has taken appropriate steps to protect the confidentiality 
of any borrower information that is not essential to the State's 
evaluation of the application; and
    (B) Determines that the State certification and licensing program 
makes reasonable provisions for protecting the confidentiality of the 
borrower information contained in the appraisal report.
    (9) Collateral evaluation reports may be released to a loan 
applicant, when required by the Equal Credit Opportunity Act or related 
regulations.
    (c) The exceptions in paragraph (b) of this section shall be 
exercised by Farm Credit institutions with full awareness of the 
requirements of the Fair Credit Reporting Act.

[37 FR 11442, June 7, 1972. Redesignated at 47 FR 12151, Mar. 22, 1982, 
and amended at 53 FR 35457, Sept. 14, 1988; 56 FR 2675, Jan. 24, 1991; 
58 FR 51994, Oct. 6, 1993; 59 FR 46734, Sept. 12, 1994; 61 FR 67188, 
Dec. 20, 1996; 62 FR 25831, May 12, 1997; 64 FR 43049, Aug. 9, 1999]



Sec. 618.8325  Disclosure of loan documents.

    (a) For purposes of this section, the following definitions shall 
apply:
    (1) Borrower means any signatory to a loan contract who is either 
primarily or secondarily liable on such contract, including guarantors, 
endorsers, cosigners or the like.
    (2) Execution of the loan means the time at which the borrower and 
the qualified lender have entered into a legal, binding, and enforceable 
loan contract and any subsequent amendment or modification of such 
contract.
    (3) Loan means a loan made to a farmer, rancher, or producer or 
harvester of aquatic products, for any agricultural or aquatic purpose 
and other credit needs of the borrower, including financing for basic 
processing and marketing directly related to the borrower's operations 
and those of other eligible farmers, ranchers, and producers or 
harvesters of aquatic products.
    (4) Loan contract means any written agreement under which a 
qualified lender lends or agrees to lend funds to a borrower in 
consideration for, among other things, the borrower's promise to repay 
the loaned funds at an agreed-upon rate of interest.
    (5) Loan document means any form, application, agreement, contract, 
instrument, or other writing to which a borrower affixes his signature 
or seal and which the qualified lender intends to retain in its files as 
evidence relating to the loan contract entered into between it and the 
borrower, but shall not include any document related to a loan which the 
borrower has not signed.
    (6) Qualified lender means:
    (i) A System institution that makes loans (as defined in paragraph 
(a)(3) of this section) except a bank for cooperatives; and
    (ii) Each bank, institution, corporation, company, union, and 
association described in section 1.7(b)(1)(B) of the Act, but only with 
respect to loans discounted or pledged under section 1.7(b)(1) of the 
Act.
    (b) Each qualified lender shall provide a copy of all loan documents 
to the borrower or the borrower's legal representative at the execution 
of the loan. Subsequently, upon written request of a borrower or a 
borrower's legal representative, a qualified lender shall provide, as 
soon as practicable, a copy of any loan documents signed by the 
borrower, a copy of other documents delivered by such borrower to that 
qualified lender, and a copy of each collateral evaluation of the 
borrower's assets made or used by the qualified lender. To the extent 
that a

[[Page 214]]

collateral evaluation may contain confidential third party information, 
the lender may protect such confidential third party information by 
withholding any information that would disclose identifying 
characteristics of the third party or his property. One copy shall be 
furnished free of charge. The lender may assess reasonable copying 
charges for any additional copies requested by the borrower.
    (c) Each System bank and association shall have available in its 
offices copies of the institution's articles of incorporation or charter 
and bylaws for inspection and shall furnish a copy of such documents to 
any owner of stock or participation certificates upon request.

[51 FR 39504, Oct. 28, 1986, as amended at 53 FR 35458, Sept. 14, 1988; 
56 FR 2675, Jan. 24, 1991; 59 FR 46734, Sept. 12, 1994; 61 FR 67188, 
Dec. 20, 1996]



Sec. 618.8330  Production of documents and testimony during litigation.

    (a) If your bank or association is a party to litigation with a 
borrower or a successor in interest, you or your directors, officers, or 
employees may disclose confidential information about that borrower or 
the successor in interest during the litigation.
    (b) If the Government or your bank or association is not a party to 
litigation, you or your directors, officers, or employees may produce 
confidential documents or testimony only if a court of competent 
jurisdiction issues a lawful order signed by a judge.

[64 FR 43049, Aug. 9, 1999]



Sec. 618.8340  [Reserved]



                Subpart H_Disposition of Obsolete Records



Sec. 618.8360  [Reserved]



Sec. 618.8370  [Reserved]

Subpart I [Reserved]



                       Subpart J_Internal Controls



Sec. 618.8430  Internal controls.

    Each Farm Credit institution's board of directors shall adopt an 
internal control policy which provides adequate direction to the 
institution in establishing effective control over and accountability 
for operations, programs, and resources. The policy shall include, at a 
minimum, the items enumerated in the list which follows:
    (a) Direction to management which assigns responsibility for the 
internal control function (financial, credit, credit review, collateral, 
and administrative) to an officer (or officers) of the institution.
    (b) Adoption of internal audit and control procedures that evidence 
responsibility for review and maintenance of comprehensive and effective 
internal controls.
    (c) Direction for the operation of a program to review and assess 
its assets. These policies shall include standards which address the 
administration of this program, described in the list which follows:
    (1) Loan, loan-related assets, and appraisal review standards, 
including standards for scope of review selection and standards for 
workpapers and supporting documentation.
    (2) Asset quality classification standards to be utilized in 
accordance with a standardized classification system consistent among 
associations within a district and their funding Farm Credit Bank or 
agricultural credit bank.
    (3) Standards for assessing credit administration, including the 
appraisal of collateral.
    (4) Standards for the training required to initiate the program.

[55 FR 24888, June 19, 1990]



Sec. 618.8440  Planning.

    (a) No later than 30 days after the commencement of each calendar 
year, the board of directors of each Farm Credit System institution 
shall adopt an operational and strategic business plan for at least the 
succeeding 3 years.
    (b) The plan shall include, at a minimum, the following:
    (1) A mission statement.
    (2) A review of the internal and external factors that are likely to 
affect the institution during the planning period.
    (3) Quantifiable goals and objectives.
    (4) Pro forma financial statements for each year of the plan.

[[Page 215]]

    (5) A detailed operating budget for the first year of the plan.
    (6) The capital adequacy plan adopted pursuant to Sec. Sec. 
615.5200(b), 615.5330 (c), and 615.5335(b).

[53 FR 39250, Oct. 6, 1988, as amended at 62 FR 4450, Jan. 30, 1997; 64 
FR 34519, June 28, 1999]



PART 619_DEFINITIONS--Table of Contents

Sec.
619.9000 The Act.
619.9010 Additional security.
619.9015 Agricultural credit associations.
619.9020 Agricultural credit banks.
619.9025 Agricultural land.
619.9050 Associations.
619.9060 Bank for cooperatives.
619.9110 Consolidation.
619.9130 Differential interest rates.
619.9135 Direct lender.
619.9140 Farm Credit bank(s).
619.9145 Farm Credit Bank.
619.9146 Farm Credit institutions.
619.9155 Federal land credit association.
619.9170 Fixed interest rate.
619.9180 Fixed interest spread.
619.9185 Funding Corporation.
619.9195 [Reserved]
619.9200 Loss-sharing agreements.
619.9210 Merger.
619.9230 Open-end mortgage loan plans.
619.9240 Participation agreement.
619.9250 Participation certificates.
619.9260 Primary security.
619.9330 Speculative purposes.
619.9340 Variable interest rate.

    Authority: Secs. 1.7, 2.4, 4.9, 5.9, 5.12, 5.17, 5.18, 7.0, 7.6, 
7.7, 7.8 of the Farm Credit Act; 12 U.S.C. 2015, 2075, 2160, 2243, 2246, 
2252, 2253, 2279a, 2279b, 2279b-1, 2279b-2.

    Source: 37 FR 11446, June 7, 1972, unless otherwise noted.



Sec. 619.9000  The Act.

    The Farm Credit Act of 1971; Pub. L. 92-181 and amendments.



Sec. 619.9010  Additional security.

    Supplementary collateral to the primary security taken in connection 
with the loan.



Sec. 619.9015  Agricultural credit associations.

    Agricultural credit associations are associations created by the 
merger of one or more Federal land bank associations or Federal land 
credit associations and one or more production credit associations and 
which have received a transfer of authority to make and participate in 
long-term real estate mortgage loans pursuant to section 7.6 of the Act.

[55 FR 24888, June 19, 1990]



Sec. 619.9020  Agricultural credit banks.

    Agricultural credit banks are those banks created by the merger of a 
Farm Credit Bank and a bank for cooperatives pursuant to section 7.0 of 
the Act.

[55 FR 24888, June 19, 1990]



Sec. 619.9025  Agricultural land.

    Land improved or unimproved which is devoted to or available for the 
production of crops and other products such as but not limited to fruits 
and timber or for the raising of livestock.

[37 FR 11446, June 7, 1972. Redesignated at 55 FR 24888, June 19, 1990]



Sec. 619.9050  Associations.

    The term associations includes (individually or collectively) 
Federal land bank associations, Federal land credit associations, 
production credit associations, and agricultural credit associations.

[55 FR 24888, June 19, 1990]



Sec. 619.9060  Bank for cooperatives.

    A bank for cooperatives is a bank that is operating under section 
3.0 of the Act.

[61 FR 67188, Dec. 20, 1996]



Sec. 619.9110  Consolidation.

    Creation of one new organizational entity from two or more existing 
entities or parts thereof.



Sec. 619.9130  Differential interest rates.

    An interest rate program under which different rates of interest may 
be made applicable to individual or classes of loans on the basis of 
type, purpose, amount, quality of loan, or a combination of these 
factors.



Sec. 619.9135  Direct lender.

    The term direct lender refers to Farm Credit banks and associations 
(production credit associations, agricultural credit associations, and 
Federal land credit associations) authorized to lend

[[Page 216]]

to eligible borrowers identified in Sec. 613.3000.

[55 FR 24889, June 19, 1990]



Sec. 619.9140  Farm Credit bank(s).

    Except as otherwise defined, the term Farm Credit bank(s) includes 
Farm Credit Banks, agricultural credit banks, and banks for 
cooperatives.

[55 FR 24889, June 19, 1990]



Sec. 619.9145  Farm Credit Bank.

    The term Farm Credit Bank refers to a bank resulting from the 
mandatory merger of the Federal land bank and the Federal intermediate 
credit bank in each Farm Credit district pursuant to section 410 of the 
Agricultural Credit Act of 1987, Pub. L. 100-233, or any bank resulting 
from a merger of two or more Farm Credit Banks.

[55 FR 24889, June 19, 1990]



Sec. 619.9146  Farm Credit institutions.

    Except as otherwise defined, the term Farm Credit institutions 
refers to all institutions chartered and regulated by the Farm Credit 
Administration as described in section 1.2 of the Act, and to the 
Funding Corporation.

[55 FR 24889, June 19, 1990, as amended at 56 FR 2675, Jan. 24, 1991]



Sec. 619.9155  Federal land credit association.

    The term Federal land credit association refers to a Federal land 
bank association that has received a transfer of direct long-term real 
estate lending authority pursuant to section 7.6 of the Act.

[55 FR 24889, June 19, 1990]



Sec. 619.9170  Fixed interest rate.

    The rate of interest specified in the note or loan document which 
will prevail as the maximum rate chargeable to the borrower during the 
period of the loan.



Sec. 619.9180  Fixed interest spread.

    A percentage to be added to the cost of money to the bank or 
association as the means of establishing a lending rate.



Sec. 619.9185  Funding Corporation.

    The term Funding Corporation refers to the Federal Farm Credit Banks 
Funding Corporation established pursuant to section 4.9 of the Act.

[55 FR 24889, June 19, 1990]



Sec. 619.9195  [Reserved]



Sec. 619.9200  Loss-sharing agreements.

    A contractual arrangement under which the parties agree to share 
losses associated with loans or otherwise, as may be provided for in the 
agreement.

[42 FR 20457, Apr. 20, 1977]



Sec. 619.9210  Merger.

    Combining of one or more organizational entities into another 
similar entity.



Sec. 619.9230  Open-end mortgage loan plans.

    A mortgage loan which permits the borrower to obtain additional sums 
during the term of the loan.



Sec. 619.9240  Participation agreement.

    A contract under which a lender agrees to sell a portion of a loan 
to one or more purchasers under specific terms set forth in the 
agreement.



Sec. 619.9250  Participation certificates.

    Evidence of investment in a bank or association to which all the 
rights and obligations of stock attach with the exception of the right 
to vote in the affairs of the institution.



Sec. 619.9260  Primary security.

    The basic collateral securing the loan.



Sec. 619.9330  Speculative purposes.

    To buy or sell with the expectation of profiting by fluctuations in 
price.

[40 FR 49078, Oct. 21, 1975]



Sec. 619.9340  Variable interest rate.

    An interest rate on the outstanding loan balances, which may be 
changed from time to time during the period of the loan, if provision is 
made in the note or loan document.

[[Page 217]]



PART 620_DISCLOSURE TO SHAREHOLDERS--Table of Contents

                            Subpart A_General

Sec.
620.1 Definitions.
620.2 Preparing and filing the reports.
620.3 Prohibition against incomplete, inaccurate, or misleading 
          disclosure.

                 Subpart B_Annual Report to Shareholders

620.4 Preparing and providing the annual report.
620.5 Contents of the annual report to shareholders.

                       Subpart C_Quarterly Report

620.10 Preparing the quarterly report.
620.11 Content of quarterly report to shareholders.

                    Subpart D_Notice to Shareholders

620.15 Notice.
620.17 Contents of the notice.

       Subpart E_Association Annual Meeting Information Statement

620.20 Preparing and providing the information statement.
620.21 Contents of the information statement and other information to be 
          furnished in connection with the annual meeting.

             Subpart F_Bank Director Disclosure Requirements

620.30 Disclosure statement for bank director candidates.
620.31 Contents of disclosure statements.

    Subpart G_Annual Report of Condition of the Federal Agricultural 
                          Mortgage Corporation

620.40 Content, timing, and providing of the Federal Agricultural 
          Mortgage Corporation's annual report of condition.

    Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12 U.S.C. 
2252, 2254, 2279aa-ll) sec. 424 of Pub. L. 100-233, 101 Stat. 1568, 
1656.



                            Subpart A_General



Sec. 620.1  Definitions.

    For the purpose of this part, the following definitions shall apply:
    (a) Affiliated organization means any organization, other than a 
Farm Credit organization, of which a director, senior officer or nominee 
for director of the reporting institution is a partner, officer, or 
majority shareholder.
    (b) Association means any of the associations as described in Sec. 
619.9050 of this chapter.
    (c) Bank means any of the Farm Credit banks as described in Sec. 
619.9140 of this chapter.
    (d) Direct lender association means any association that is a direct 
lender as described in Sec. 619.9135 of this chapter.
    (e) Immediate family means spouse, parents, siblings, children, 
mothers- and fathers-in-law, brothers- and sisters-in-law, and sons- and 
daughters-in-law.
    (f) Institution means any bank or association chartered by the Act.
    (g) Loan means any extension of credit or lease that is recorded as 
an asset of a reporting institution, whether made directly or purchased 
from another lender. The term ``loan'' includes, but is not limited to, 
loans originated through direct negotiations between the reporting 
institution and a borrower; purchased loans or interests in loans, 
including participation interests, retained subordinated participation 
interests in loans sold, interests in pools of subordinated 
participation interests that are held in lieu of retaining a 
subordinated participation interest in loans sold; contracts of sale; 
notes receivable; and other similar obligations and lease financings.
    (h) Material. The term material, when used to qualify a requirement 
to furnish information as to any subject, limits the information 
required to those matters to which there is a substantial likelihood 
that a reasonable person would attach importance in making shareholder 
decisions or determining the financial condition of the institution.
    (i) Normal risk of collectibility means the ordinary risk inherent 
in the lending operation. Loans that are deemed to have more than a 
normal risk of collectibility include, but are not limited to, any 
adversely classified loans.
    (j) Permanent capital shall have the same meaning as set forth in 
Sec. 615.5201(l) of this chapter.
    (k) Protected borrower capital means eligible borrower stock as 
defined in Sec. 615.5260 of this chapter.

[[Page 218]]

    (l) Related association means an association within the reporting 
bank's chartered territory that generates loans for the bank or whose 
operations the bank funds.
    (m) Related bank means a reporting association's funding bank or the 
bank for which it generates loans.
    (n) Related organization means any Farm Credit institution that is a 
shareholder of the reporting institution or in which the reporting 
institution has an ownership interest.
    (o) Report refers to the annual report, quarterly report, notice, or 
information statement, regardless of form, required by this part unless 
otherwise specified.
    (p) Senior officer means any person designated by the board of 
directors as responsible for a major management function.
    (q) Shareholder means a holder of any equity interest in an 
institution.
    (r) Signed, when referring to paper form, means a manual signature, 
and, when referring to electronic form, means marked in a manner that 
authenticates each signer's identity.
    (s) Significant event means any event that is likely to have a 
material impact on the reporting institution's financial condition, 
results of operations, cost of funds, or reliability of sources of 
funds. The term ``significant event'' includes, but is not limited to, 
actual or probable noncompliance with the regulatory minimum permanent 
capital standards or capital adequacy requirements, stock impairment, 
the imposition of or entering into enforcement actions, execution of 
financial assistance agreements with other institutions, collateral 
deficiencies that impact a bank's ability to obtain loan funds, or 
defaults on debt obligations.

[51 FR 8656, Mar. 13, 1986, as amended at 51 FR 42086, Nov. 21, 1986; 53 
FR 3337, Feb. 5, 1988; 56 FR 29421, June 27, 1991; 56 FR 42649, Aug. 28, 
1991; 58 FR 48791, Sept. 20, 1993; 59 FR 37406, July 22, 1994; 62 FR 
15092, Mar. 31, 1997; 63 FR 39229, July 22, 1998; 67 FR 16633, Apr. 8, 
2002]



Sec. 620.2  Preparing and filing the reports.

    For the purposes of this part, the following shall apply:
    (a) Copies of each report required by this section, including 
financial statements and related schedules, exhibits, and all other 
papers and documents that are a part of the report must be sent to the 
Chief Examiner, or to another office designated by the Chief Examiner. 
If sending paper copies, send three copies to Chief Examiner, Farm 
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090. If 
providing electronic copies, send according to our instructions to you. 
The Farm Credit Administration must receive the report the report within 
the period prescribed under applicable subpart sections. The reports 
shall be available for public inspection at the issuing institution and 
the farm Credit Administration office with which the reports are filed. 
Bank reports shall also be available for public inspection at each 
related association office.
    (b) At least one of the reports provided to the Farm Credit 
Administration shall be dated and manually signed on behalf of the 
institution by:
    (1) The person designated by the board of directors to certify the 
reports of condition and performance in accordance with Sec. 621.14 of 
this chapter;
    (2) The chief executive officer; and
    (3)(i) For each quarterly report or notice required under this 
section, each member of the board or one of the following board members 
formally designated by action of the board to certify reports of 
condition and performance on behalf of the individual board members: The 
chairperson of the board; the chairperson of the audit committee; or a 
board member designated by the chairperson of the board.
    (ii) For all other reports, each member of the board.

The name and position title of each person signing the report shall be 
printed beneath his or her signature. The statement to which the signers 
of the report shall attest shall read as follows:

    The undersigned certify that this report has been prepared in 
accordance with all applicable statutory and regulatory requirements and 
that the information contained herein is true, accurate, and complete to 
the best of his or her knowledge and belief.


If any officer or any member of the board is unable to or refuses to 
sign the

[[Page 219]]

report, the institution shall disclose the individual's name and 
position title and the reasons such individual is unable or refuses to 
sign the report.
    (c) The report sent to shareholders shall be signed and dated by and 
on behalf of the institution and its board of directors by its chief 
executive officer and the chairman of the board of directors. If any 
person required to sign the report submitted to the Farm Credit 
Administration pursuant to paragraph (b) of this section has not signed 
the report, the name and position title of the individual and the 
reasons such individual is unable or refuses to sign shall be disclosed 
in the report sent to shareholders.
    (d) Shareholders must agree to electronic disclosures of reports 
required by this part.
    (e) Information in any part of this report may be incorporated by 
reference in answer or partial answer to any other item of the report.
    (f) All items of essentially the same character as items required to 
be reported in the reports of condition and performance pursuant to part 
621 of this chapter shall be prepared in accordance with the rules set 
forth in part 621.
    (g) No disclosure required by subparts B and E of this part shall be 
deemed to violate any regulation of the Farm Credit Administration.
    (h) Each Farm Credit institution shall present its reports in 
accordance with generally accepted accounting principles and in a manner 
that provides the most meaningful disclosure to shareholders.
    (1) Any Farm Credit institution that presents its annual and 
quarterly financial statements on a combined or consolidated basis shall 
also include in the report the statement of condition and statement of 
income of the institution on a stand-alone basis. The stand-alone 
statements may be in summary form and shall disclose the basis of 
presentation if different from accounting policies of the combined or 
consolidated statements.
    (2) Any bank that prepares its financial statements on a stand-alone 
basis shall provide in the footnotes accompanying its annual report 
supplemental information containing a condensed statement of condition 
and statement of income for the bank's related associations on a 
combined basis. The condensed statements may be unaudited and shall 
disclose the basis of presentation if different from accounting policies 
of the bank-only statements.
    (i)(1) Each institution's annual report or notice must state, in a 
prominent location within the report or notice:
    (i) That the institution's quarterly reports are available free of 
charge on request;
    (ii) The approximate dates the quarterly reports will be available; 
and
    (iii) The telephone numbers and addresses (including information on 
any other distribution method the institution makes available) where 
shareholders can request or obtain copies of the quarterly reports.
    (2) Each association must state, in a prominent location within each 
report:
    (i) That the shareholders' investment in the association may be 
materially affected by the financial condition and results of operations 
of the related bank;
    (ii) That (if not otherwise provided) a copy of the bank's financial 
reports to shareholders will be made available free of charge on 
request; and
    (iii) The telephone numbers and addresses (including information on 
any other distribution method the association makes available) where 
shareholders can request or obtain copies of the related bank's 
financial reports.
    (3) Each institution shall, after receiving a request for a report, 
provide the report to the requestor. The first copy of the requested 
report shall be provided to the requestor free of charge.
    (j) Any events that have affected one or more related organizations 
of the reporting institution that are likely to have a material effect 
on the financial condition, results of operations, cost of funds, or 
reliability of sources of funds of the reporting institution shall be 
considered significant events for the reporting institution and shall be 
disclosed in the reports. Any significant event affecting the reporting 
institution that occurred during the preceding fiscal quarters that 
continues to have a material effect on the reporting institution shall 
be considered significant

[[Page 220]]

events of the current fiscal quarter and shall be disclosed in the 
reports.

[51 FR 8656, Mar. 13, 1986, as amended at 51 FR 21340, June 12, 1986; 56 
FR 29421, June 27, 1991; 58 FR 27923, May 12, 1993; 58 FR 48791, Sept. 
20, 1993; 62 FR 15092, Mar. 31, 1997; 66 FR 14301, Mar. 12, 2001; 67 FR 
16633, Apr. 8, 2002]



Sec. 620.3  Prohibition against incomplete, inaccurate, or misleading 
disclosure.

    No institution and no employee, officer, director, or nominee for 
director of the institution shall make any disclosure to shareholders or 
the general public concerning any matter required to be disclosed by 
this part that is incomplete, inaccurate, or misleading. When any such 
person makes disclosure that, in the judgment of the Farm Credit 
Administration, is incomplete, inaccurate, or misleading, whether or not 
such disclosure is made in disclosure statements required by this part, 
such institution or person shall make such additional or corrective 
disclosure as is necessary to provide shareholders and the general 
public with a full and fair disclosure.

[56 FR 29422, June 27, 1991]



                 Subpart B_Annual Report to Shareholders



Sec. 620.4  Preparing and providing the annual report.

    (a) Each institution of the Farm Credit System shall prepare and 
provide to its shareholders an annual report within 90 days of the end 
of its fiscal year.
    (b)(1) A bank must provide its annual report to the shareholders of 
all related associations if the bank experiences a significant event 
that has a material effect on those associations.
    (2) Any bank that is required by paragraph (b)(1) of this section to 
provide its annual report must coordinate its distribution with its 
related associations.
    (c) The report shall contain, at a minimum, the information required 
by Sec. 620.5 and, in addition, such other information as is necessary 
to make the required statements, in light of the circumstances under 
which they are made, not misleading.

[51 FR 8656, Mar. 13, 1986. Redesignated and amended at 56 FR 29421, 
29422, June 27, 1991; 62 FR 15093, Mar. 31, 1997; 66 FR 14301, Mar. 12, 
2001; 67 FR 16633, Apr. 8, 2002]



Sec. 620.5  Contents of the annual report to shareholders.

    The report shall contain the following items in substantially the 
same order:
    (a) Description of business. The description shall include a brief 
discussion of the following items:
    (1) The territory served;
    (2) The persons eligible to borrow;
    (3) The types of lending activities engaged in and related services 
offered. Each bank shall also briefly describe the lending and related 
services offered by its related associations, as well as related 
services offered to the borrowers in the bank's chartered territory by 
any service organization in which it has an ownership interest. Each 
association shall briefly describe the lending and related services 
offered by its related organizations or incorporate by reference 
relevant portions of the related bank's report, if such report is 
provided to association shareholders;
    (4) Any significant developments within the last 5 years that had or 
could have a material impact on earnings or interest rates to borrowers, 
including, but not limited to, changes in the reporting entity and 
financing assistance provided by or to the institution through loss-
sharing or capital preservation agreements or from any other source;
    (5) Any acquisition or disposition of material assets during the 
last fiscal year, other than in the ordinary course of business;
    (6) Any material change during the last fiscal year in the manner of 
conducting the business;
    (7) Any seasonal characteristics of the institution's business;
    (8) Any concentrations of more than 10 percent of its assets in 
particular commodities or particular types of agricultural activity or 
business, and the institution's dependence, if any, upon a single 
customer, or a few customers, including other financing institutions

[[Page 221]]

(OFIs), the loss of any one of which would have a material effect on the 
institution; and
    (9) A brief description of the business of any related Farm Credit 
institution, as described in Sec. 619.9146 of this chapter, and the 
nature of the institution's relationship with such organization.
    (10) For associations, in a separate section of the annual report, 
discuss the institution's financial and supervisory relationship with 
its funding bank. This separate section may incorporate by reference 
information from other sections of the annual report. At a minimum, the 
separate section must include the statement required by Sec. 
620.2(h)(2)(i) and the following information required elsewhere in this 
section, if applicable:
    (i) The association's obligation to borrow only from the bank unless 
the bank gives the association approval to borrow elsewhere;
    (ii) The major terms of any capital preservation, loss sharing, or 
financial assistance agreements between the association and the bank;
    (iii) Any statutory or bank bylaw provisions authorizing bank access 
to the capital of the association;
    (iv) The extent the bank assumed the association's exposure to 
interest rate risk; and
    (v) Any other material operational and financial conditions that may 
affect the interdependent relationship between the association and the 
bank.
    (b) Description of property. State the location of and briefly 
describe the principal offices, i.e., headquarters, and major facilities 
where the institution makes and services its loans, and other materially 
important physical properties (other than property acquired in the 
course of collecting a loan) of the institution. If any such property is 
not held in fee or is held subject to any major encumbrance, so state 
and describe briefly the terms and conditions of the agreement under 
which the property is used or occupied.
    (c) Legal proceedings and enforcement actions. (1) Describe briefly 
any material pending legal proceedings, other than ordinary routine 
litigation incidental to the business, to which the institution is a 
party, of which any of its property is the subject, or which involved 
claims that the institution may be required by contract or operation of 
law, to satisfy. Include the name of the court in which the proceedings 
are pending, the date instituted, the principal parties thereto, a 
description of the factual basis alleged to underlie the proceeding and 
the relief sought.
    (2) Describe the type of and reason for each enforcement action in 
effect, i.e., agreements, cease and desist orders, temporary cease and 
desist orders, prohibitions and removals of officers or directors, or 
civil money penalties, if any, imposed or assessed on the institution or 
its officers or directors and the amount of any civil money penalties 
assessed.
    (d) Description of capital structure. (1) Describe each class of 
stock and participation certificates the institution is authorized to 
issue and the rights, duties, and liabilities of each class. The 
description shall include:
    (i) The number of shares of each class outstanding;
    (ii) The par or face value;
    (iii) The voting and dividend rights;
    (iv) The order of priority upon impairment or liquidation;
    (v) The institution's retirement policies and restrictions on 
transfer;
    (vi) The statutory requirement that a borrower purchase stock as a 
condition to obtaining a loan;
    (vii) The manner in which the stock is purchased (i.e., promissory 
note to the issuer, or cash not advanced by issuing institution);
    (viii) The statutory authority of the institution to require 
additional capital contributions, if any; and
    (ix) The statutory and regulatory restriction regarding retirement 
of stock and distribution of earnings pursuant to Sec. 615.5215, and 
any requirements to add capital under a plan approved by the Farm Credit 
Administration pursuant to Sec. Sec. 615.5330, 615.5335, 615.5351, or 
615.5357.
    (2) Describe regulatory minimum capital standards, and the 
institution's compliance with such standards. For banks, also discuss 
any related associations that are not currently in compliance with the 
standards.
    (3) State whether the institution is currently prohibited from 
retiring stock or distributing earnings by the

[[Page 222]]

statutory and regulatory restrictions described in paragraph (d)(1)(ix) 
of this section, or knows of any reason such prohibitions may apply 
during the fiscal year subsequent to the fiscal year just ended.
    (4) Describe the institution's capital adequacy requirements and the 
minimum stock purchase requirement in effect.
    (e) Description of liabilities. (1) Describe separately the 
institution's insured and uninsured debt, indicating the type, amount, 
maturity, and interest rates of each category of obligations outstanding 
at the end of the fiscal year just ended. Describe the nature of the 
insurance provided under part E of title V of the Act. Describe any 
applicable statutory and regulatory restrictions on the institution's 
ability to incur debt.
    (2) Describe fully the institution's rights and obligations under 
any agreement, formal or informal, between the institution and any other 
person or entity having to do with capital preservation, loss sharing, 
or any other form of financing assistance.
    (3) Describe any statutory authorities or obligations to contribute 
to or on behalf of another institution of the Farm Credit System.
    (4) Describe the statutory responsibility of Farm Credit System 
institutions for repayment of obligations issued by the Farm Credit 
System Financial Assistance Corporation.
    (f) Selected financing data. Furnish in comparative columnar form 
for each of the last 5 fiscal years the following financing data:
    (1) For banks and direct lender associations.
    (i) Balance sheet.
    (A) Total assets.
    (B) Investments.
    (C) Loans.
    (D) Allowance for losses.
    (E) Net loans.
    (F) Other property owned.
    (G) Total liabilities.
    (H) Obligations with maturities less than 1 year.
    (I) Obligations with maturities longer than 1 year.
    (J) Protected borrower capital.
    (K) At-risk capital.
    (1) Stock and participation certificates.
    (2) Allocated surplus.
    (3) Unallocated surplus.
    (ii) Statement of income.
    (A) Net interest income.
    (B) Provision for loan losses.
    (C) Extraordinary items.
    (D) Net income.
    (iii) Key financing ratios.
    (A) Return on average assets.
    (B) Return on average protected borrower capital and at-risk 
capital.
    (C) Net interest margin as a percentage of average earning assets.
    (D) Protected and at-risk capital-to-total assets.
    (E) Net chargeoffs-to-average loans.
    (F) Allowance for loan losses-to-loans.
    (iv) Net income distributed.
    (A) Dividends.
    (B) Patronage refunds.
    (1) Cash.
    (2) Stock.
    (3) Allocated surplus.
    (2) For associations that are not direct lender associations.
    (i) Balance sheet.
    (A) Total assets.
    (B) Accrued obligation under loss-sharing agreement, if any.
    (C) Protected borrower capital.
    (D) At-risk capital.
    (ii) Statement of income.
    (A) Compensation from related bank.
    (B) Total operating expense.
    (C) Extraordinary items.
    (D) Provision for obligation under capital preservation or loss-
sharing agreement, if any.
    (E) Net income.
    (iii) Other.
    (A) Loans serviced for related bank.
    (B) Dividends paid.
    (C) Patronage refunds paid.
    (1) Cash.
    (2) Stock.
    (3) Allocated surplus.
    (D) Payments under loss-sharing agreement.
    (3) For all banks (on a bank-only basis):
    (i) Permanent capital ratio.
    (ii) Total surplus ratio.
    (iii) Core surplus ratio.
    (iv) Net collateral ratio.
    (4) For all associations:
    (i) Permanent capital ratio.

[[Page 223]]

    (ii) Total surplus ratio.
    (iii) Core surplus ratio.
    (g) Management's discussion and analysis of financing condition and 
results of operations. Fully discuss any material aspects of the 
institution's financing condition, changes in financing condition, and 
results of operations during the last 2 fiscal years, identifying 
favorable and unfavorable trends, and significant events or 
uncertainties. In addition to the items enumerated below, the discussion 
shall provide such other information as is necessary to an understanding 
of the institution's financing condition, changes in financing 
condition, and results of operations.
    (1) Loan portfolio. (i) Describe the types of loans in the portfolio 
by major category (e.g., agricultural real estate mortgage loans, rural 
home loans, agricultural production loans, processing and marketing 
loans, farm business loans, and international loans), indicating the 
approximate percentage of the total dollar portfolio represented by each 
major category. Associations that make agricultural production loans 
shall provide the information required for such loans by major 
subcategory (e.g., cash grains, field crops, livestock, dairy, poultry, 
and timber). For each category and subcategory, discuss any special 
features of the loans that may be material to the evaluation of risk and 
any economic or business conditions that have had or are likely to have 
a material impact on their collectibility. For banks, also disclose 
separately the aggregate amount of loans outstanding to related 
associations and other financing institutions.
    (ii) Describe the geographic distribution of the loan portfolio by 
State or other significant geographic division, if any.
    (iii) Purchases and sales of loans. (A) Describe any participation 
in the Federal Agricultural Mortgage Corporation program or origination 
of loans for resale.
    (B) Disclose the amount of purchased loans, loans sold with 
recourse, retained subordinated participation interests in loans sold, 
and interests in pools of subordinated participation interests that are 
held in lieu of retaining a subordinated participation interest in the 
loans sold.
    (iv) Risk exposure. For the periods covered by the financing 
statements provide:
    (A) An analysis of high-risk assets and loan performance categories, 
to include, but not limited to, a discussion of the nature and extent of 
significant potential credit risks within the loan portfolio, or other 
information that could adversely impact performance of the loan 
portfolio in the near future;
    (B) An analysis of the allowance for loan losses that includes the 
ratios of the allowance to loans and net chargeoffs to average loans, 
and a discussion of the adequacy of the allowance for losses to absorb 
the risk inherent in the institution's loan portfolio;
    (C) Financial assistance given or received under districtwide or 
Systemwide loss-sharing or capital preservation agreements or otherwise;
    (D) For banks, a description in the aggregate of the recent loss 
experience of related associations that are its shareholders, including 
the items enumerated in paragraphs (g)(1)(iv) (A), (B), and (C) of this 
section.
    (E) Describe any obligations with respect to loans sold and the 
amount of any contributions made in connection with loans sold into the 
secondary market pursuant to section 8.7 of the Act. Further disclose 
the amount of risk of loss associated with such obligations and the 
amount included in the allowance for losses to provide for such risk.
    (2) Results of operations. (i) Describe, on a comparative basis, 
changes in the major components of net interest income during the last 2 
fiscal years, describing significant factors that contributed to the 
changes and quantifying the amount of change(s) due to an increase in 
volume or the introduction of new services and the amount due to changes 
in interest rates earned and paid, based on averages for each period.
    (ii) Describe any unusual or infrequent events or transactions or 
any significant economic changes, including, but not limited to, 
financing assistance received or paid that materially affected reported 
income. In each

[[Page 224]]

case, indicate the extent to which income was so affected.
    (iii) Discuss the factors underlying the material changes, if any, 
in the return on average assets, the return on average protected 
borrower capital and at-risk capital, and the permanent capital ratio as 
determined in accordance with part 615, subpart H of this chapter. An 
explanation of the basis of the calculation of ratios relating to 
permanent capital and at-risk capital shall be included.
    (iv) Describe, on a comparative basis, the major components of 
operating expense, indicating the reasons for significant increases or 
decreases.
    (v) Describe any other significant components of income or expense, 
including, but not limited to, income from investments, that should be 
described in order to understand the institution's results of 
operations.
    (vi) Discuss any events affecting a related organization that are 
likely to have a material effect on the reporting institution's 
financing condition, results of operations, cost of funds, or 
reliability of sources of funds.
    (vii) Describe any known trends or uncertainties that have had, or 
that the institution reasonably expects will have, a material impact on 
net interest income or net income. Disclose any events known to 
management that will cause a material change in the relationship between 
costs and revenues.
    (3) Liquidity and funding sources. (i) Funding sources. (A) Describe 
the average and yearend amounts, maturities, and interest rates on 
outstanding consolidated Systemwide debt obligations or other bond 
obligations used to fund the institution's lending operations.
    (B) Describe existing lines of credit and their terms.
    (C) Describe the institution's capital accounts and other sources of 
lendable funds.
    (ii) Liquidity. (A) Discuss the institution's liquidity policy and 
the components of asset liquidity, including, but not limited to, cash, 
investment securities, and maturing loan repayments. Assess the ability 
of the institution to generate adequate amounts of cash to fund its 
operations and meet its obligations.
    (B) Discuss any known trends that are likely to result in a 
liquidity deficiency and the course of action management intends to take 
to resolve it. Discuss any material increase or decrease in liquidity 
that is likely to occur.
    (C) Discuss the institution's participation in the Federal 
Agricultural Mortgage Corporation secondary market programs authorized 
by title VIII of the Act and the origination of loans for resale under 
other authorities, if any.
    (iii) Funds management. (A) Discuss the institution's interest rate 
programs and the institution's ability to control interest rate margins.
    (B) Discuss changes in net interest margin (net interest income as a 
percentage of average earning assets), explaining the reasons therefor.
    (4) Capital resources. (i) Describe any material commitments to 
purchase capital assets and the anticipated sources of funding.
    (ii) Describe any material trends or changes in the mix and cost of 
debt and capital resources. The discussion shall consider changes in 
permanent capital, core and total surplus, and net collateral 
requirements, debt, and any off-balance-sheet financing arrangements.
    (iii) Describe any favorable or unfavorable trends in the 
institution's capital resources.
    (iv) Discuss and explain any material changes in capital ratios, 
noting any material adverse variances from regulatory guidelines.
    (v) Discuss the adequacy of the current capital position and any 
material changes in the capital plan adopted pursuant to Sec. 615.5200 
of this chapter, to the extent that such changes may have an effect on 
the institution's minimum stock purchase requirements and its ability to 
retire stock and distribute earnings.
    (vi) Discuss any trends, commitments, contingencies, or events that 
are reasonably likely to have a materially adverse effect upon the 
institution's ability to meet the regulatory minimum capital standards 
and capital adequacy requirements.

[[Page 225]]

    (h) Directors and senior officers. (1) List the names of all 
directors and senior officers of the institution, indicating the 
position title and term of office of each.
    (2) Briefly describe the business experience during the past 5 years 
of each director and senior officer, including each person's principal 
occupation and employment during the past 5 years.
    (3) For each director, list any other business entity on whose board 
the director serves and state the principal business in which it is 
engaged.
    (i) Compensation of directors and senior officers--(1) Director 
compensation. Describe the arrangements under which directors of the 
institution are compensated for all services as a director (including 
total cash compensation and any noncash compensation that exceeds 10 
percent of total compensation) and state the total cash compensation 
paid to all directors as a group during the last fiscal year. If 
applicable, describe any exceptional circumstances justifying the 
additional director compensation as authorized by Sec. 611.400(c)(1) of 
this chapter. For each director, state:
    (i) The number of days served at board meetings;
    (ii) The total number of days served in other official activities;
    (iii) The total compensation paid to each director during the last 
fiscal year.
    (2) Senior officer compensation. Disclose the information on senior 
officer compensation and compensation plans as required by this 
paragraph. Farm Credit System associations may disclose the information 
required by this paragraph in the Association Annual Meeting Information 
Statement (AAMIS), but must include a reference in the annual report 
stating that the senior officer compensation information is included in 
the AAMIS.
    (i) The institution shall disclose the total amount of compensation 
paid to senior officers in substantially the same manner as the tabular 
form specified in the following Summary Compensation Table (table):

                                           Summary Compensation Table
----------------------------------------------------------------------------------------------------------------
                                                                 Annual
  Name of individual or No. in                   --------------------------------------
             group                     Year                                Deferred/       Other        Total
                                                    Salary     Bonus      perquisites
(a)                              (b)                    (c)        (d)             (e)          (f)          (g)
--------------------------------
CEO............................  199X
                                 199X
                                 199X
Aggregate No. of Senior
 Officers
    (X)........................  199X
    (X)........................  199X
    (X)........................  199X
----------------------------------------------------------------------------------------------------------------

    (A) Report the total amount of compensation paid and the amount of 
each component of compensation paid to the institution's chief executive 
officer (CEO) for each of the last 3 completed fiscal years, naming the 
individual. If more than one person served in the capacity of CEO during 
any given fiscal year, individual compensation disclosures must be 
provided for each CEO. Except that, no disclosure need be provided for 
any CEO whose salary and bonus (or annualized salary and bonus, if the 
CEO served in that capacity less than a year) do not exceed $150,000, 
adjusted annually to reflect changes in the Consumer Price Index (CPI) 
for all urban consumers, as published by the Bureau of Labor Statistics. 
The threshold for individually disclosing CEO compensation information 
shall be adjusted in the following manner: Current year's compensation 
disclosure threshold = Prior year's compensation disclosure threshold 
adjusted by the prior year's annual average percent change in the CPI 
for all urban consumers. The 1994 calendar year shall serve as the base 
year for making subsequent CPI adjustments to the $150,000 compensation 
disclosure threshold.

[[Page 226]]

    (B) Report the aggregate amount of compensation paid and the 
components of compensation paid during each of the last 3 completed 
fiscal years to all senior officers as a group, stating the number of 
officers in the group without naming them. At a minimum, disclose the 
aggregate amount of compensation paid to the five most highly 
compensated officers, whether or not designated as a senior officer by 
the board.
    (C) Amounts shown as ``Salary'' (column (c)) and ``Bonus'' (column 
(d)) shall reflect the dollar value of salary and bonus earned by the 
senior officer during the fiscal year. Amounts contributed during the 
fiscal year by the senior officer pursuant to a plan established under 
section 401(k) of the Internal Revenue Code, or similar plan, shall be 
included in the salary column or bonus column, as appropriate. If the 
amount of salary or bonus earned during the fiscal year is not 
calculable by the time the report is prepared, the reporting institution 
shall provide its best estimate of the compensation amount(s) and 
disclose that fact in a footnote to the table.
    (D) Amounts shown as ``deferred/perquisites'' (column (e)) shall 
reflect the dollar value of other annual compensation not properly 
categorized as salary or bonus, including but not limited to:
    (1) Deferred compensation earned during the fiscal year, whether or 
not paid in cash; or
    (2) Perquisites and other personal benefits unless the aggregate 
value of such compensation is the lesser of either $25,000 or 10 percent 
of the total of annual salary and bonus reported for the senior officer 
in columns (c) and (d).
    (E) Compensation amounts reported under the category ``Other'' 
(column (f)) shall reflect the dollar value of all other compensation 
not properly reportable in any other column. Items reported in this 
column shall be specifically identified and described in a footnote to 
the table. Such compensation includes, but is not limited to:
    (1) The amount paid to the senior officer pursuant to a plan or 
arrangement in connection with the resignation, retirement, or 
termination of such officer's employment with the institution; or
    (2) The amount of contributions by the institution on behalf of the 
senior officer to a vested or unvested defined contribution plan unless 
the plan is made available to all employees on the same basis.
    (F) Amounts displayed under ``Total'' (column (g)) shall reflect the 
sum total of amounts reported in columns (c), (d), (e), and (f).
    (ii) Provide a description of all plans pursuant to which cash or 
noncash compensation was paid or distributed during the last fiscal 
year, or is proposed to be paid or distributed in the future for 
performance during the last fiscal year, to those individuals described 
in paragraph (i)(2)(i) of this section. The description of each plan 
must include, but not be limited to:
    (A) A summary of how the plan operates and who is covered by the 
plan;
    (B) The criteria used to determine amounts payable, including any 
performance formula or measure;
    (C) The time periods over which the measurement of compensation will 
be determined;
    (D) Payment schedules; and
    (E) Any material amendments to the plan during the last fiscal year.
    (iii) The annual report or AAMIS shall include a statement that 
disclosure of information on the total compensation paid during the last 
fiscal year to any senior officer or to any other officer included in 
the aggregate whose compensation exceeds $50,000 is available and will 
be disclosed to shareholders of the institution and shareholders of 
related associations (if applicable) upon request.
    (3) Travel, subsistence, and other related expenses. (i) Briefly 
describe your policy addressing reimbursements for travel, subsistence, 
and other related expenses as it applies to directors and senior 
officers. The report shall include a statement that a copy of the policy 
is available to shareholders of the institution and shareholders of 
related associations (if applicable) upon request.
    (ii) For each of the last 3 fiscal years, state the aggregate amount 
of reimbursement for travel, subsistence, and other related expenses for 
all directors as a group.
    (j) Transactions with senior officers and directors. (1) State the 
institution's

[[Page 227]]

policies, if any, on loans to and transactions with officers and 
directors of the institution.
    (2) Transactions other than loans. For each person who served as a 
senior officer or director on January 1 of the year following the fiscal 
year of which the report is filed, or at any time during the fiscal year 
just ended, describe briefly any transaction or series of transactions 
other than loans that occurred at any time since the last annual meeting 
between the institution and such person, any member of the immediate 
family of such person, or any organization with which such person is 
affiliated. State the name of the officer or director who entered into 
the transaction or whose immediate family member or affiliated 
organization entered into the transaction, the nature of the person's 
interest in the transaction, and the terms of the transaction. No 
information need be given where the purchase price, fees, or charges 
involved were determined by competitive bidding or where the amount 
involved in the transaction (including the total of all periodic 
payments) does not exceed $5,000, or the interest of the person arises 
solely as a result of his or her status as a stockholder of the 
institution and the benefit received is not a special or extra benefit 
not available to all stockholders.
    (3) Loans to senior officers and directors. (i) To the extent 
applicable, state that the institution (or in the case of an association 
that does not carry loans to its senior officers and directors on its 
books, its related bank) has had loans outstanding during the last full 
fiscal year to date to its senior officers and directors, their 
immediate family members, and any organizations with which such senior 
officers or directors are affiliated that:
    (A) Were made in the ordinary course of business; and
    (B) Were made on the same terms, including interest rate, 
amortization schedule, and collateral, as those prevailing at the time 
for comparable transactions with other persons.
    (ii) To the extent applicable, state that no loan to a senior 
officer or director, or to any organization affiliated with such person, 
or to any immediate family member who resides in the same household as 
such person or in whose loan or business operation such person has a 
material financing or legal interest, involved more than the normal risk 
of collectibility; provided that no such statement need be made with 
respect to any director or senior officer who has resigned before the 
time for filing the applicable report with the Farm Credit 
Administration (but in no case later than the actual filing), or whose 
term of office will expire or terminate no later than the date of the 
meeting of stockholders to which the report relates.
    (iii) If the conditions stated in paragraphs (j)(3)(i) and (ii) of 
this section do not apply to the loans of the persons or organizations 
specified therein, with respect to such loans state:
    (A) The name of the officer or director to whom the loan was made or 
to whose relative or affiliated organization the loan was made.
    (B) The largest aggregate amount of each indebtedness outstanding at 
any time during the last fiscal year.
    (C) The nature of the loan(s).
    (D) The amount outstanding as of the latest practicable date.
    (E) The reasons the loan does not comply with the criteria contained 
in paragraphs (j)(3)(i) and (j)(3)(ii) of this section.
    (F) If the loan does not comply with paragraph (j)(3)(i)(B) of this 
section, the rate of interest payable on the loan and the repayment 
terms.
    (G) If the loan does not comply with paragraph (j)(3)(ii) of this 
section, the amount past due, if any, and the reason the loan is deemed 
to involve more than a normal risk of collectibility.
    (k) Involvement in certain legal proceedings. Describe any of the 
following events that occurred during the past 5 years and that are 
material to an evaluation of the ability or integrity of any person who 
served as director or senior officer on January 1 of the year following 
the fiscal year for which the report is filed or at any time during the 
fiscal year just ended:
    (1) A petition under the Federal bankruptcy laws or any State 
insolvency law was filed by or against, or a receiver, fiscal agent, or 
similar officer

[[Page 228]]

was appointed by a court for the business or property of such person, or 
any partnership in which such person was a general partner at or within 
2 years before the time of such filing, or any corporation or business 
association of which such person was a senior officer at or within 2 
years before the time of such filing;
    (2) Such person was convicted in a criminal proceeding or is a named 
party in a pending criminal proceeding (excluding traffic violations and 
other misdemeanors);
    (3) Such person was the subject of any order, judgment, or decree, 
not subsequently reversed, suspended, or vacated, by any court of 
competent jurisdiction, permanently or temporarily enjoining or 
otherwise limiting such person from engaging in any type of business 
practice.
    (l) Relationship with independent public accountant. If a change or 
changes in accountants have taken place since the last annual report to 
shareholders or if a disagreement with an accountant has occurred that 
the institution would be required to report to the Farm Credit 
Administration under part 621 of this chapter, the information required 
by Sec. 621.4(c) and (d) of this chapter shall be disclosed.
    (m) Financial statements. (1) Furnish financing statements and 
related footnotes that have been prepared in accordance with generally 
accepted accounting principles and instructions and other requirements 
of the Farm Credit Administration and that have been audited in 
accordance with generally accepted auditing standards by a qualified 
public accountant, as defined in Sec. 621.2(i) of this chapter, and an 
opinion expressed thereon. The statements shall include the following 
statements and related footnotes for the last 3 fiscal years: balance 
sheet, statement of income, statement of changes in protected borrower 
capital and at-risk capital, and statement of cash flows.
    (2) The financing statements shall be accompanied by a letter 
manually signed, or if in electronic form, signed in a manner that 
authenticates each signer's identity by the chief executive officer and 
the chairman of the board representing that the financing statements, in 
the opinion of management, fairly present the financing condition of the 
institution, except as otherwise noted.
    (n) Credit and services to young, beginning, and small farmers and 
ranchers and producers or harvesters of aquatic products.
    (1) Each direct lender association must describe the YBS 
demographics in its territory and the source of the demographic data. If 
there are differences in the methods by which the demographic and YBS 
data are presented, these differences must be described.
    (2) Each direct lender association must provide a description of its 
YBS program, including a status report on each program component as set 
forth in Sec. 614.4165(c) of this chapter and the definitions of 
``young,'' ``beginning,'' and ``small'' farmers and ranchers. The 
discussion must provide such other information necessary for a 
comprehensive understanding of the direct lender association's YBS 
program and its results.
    (3) Each Farm Credit bank must include a summary report of the 
quantitative YBS data from its affiliated direct lender associations as 
described in FCA's instructions for the annual YBS yearend report. The 
report must include the definitions of ``young,'' ``beginning,'' and 
``small'' farmers and ranchers. A narrative report may be necessary for 
an ample understanding of the YBS mission results.

[51 FR 8656, Mar. 13, 1986, as amended at 69 FR 16471, Mar. 30, 2004]



                       Subpart C_Quarterly Report



Sec. 620.10  Preparing the quarterly report.

    (a) Each Farm Credit bank and direct lender association shall 
prepare a quarterly report within 45 days after the end of each fiscal 
quarter, except that no report need be prepared for the fiscal quarter 
that coincides with the end of the fiscal year of the institution.
    (b) The report shall contain, at a minimum, the information 
specified in Sec. 620.11 and, in addition, such other material 
information (including significant events) as is necessary to make the 
required disclosures, in light of the

[[Page 229]]

circumstances under which they are made, not misleading.

[62 FR 15093, Mar. 31, 1997]



Sec. 620.11  Content of quarterly report to shareholders.

    (a) General. The information required to be included in the 
quarterly report may be presented in any format deemed suitable by the 
institution, except as otherwise required by this section. The report 
must be organized in an easily understandable format and not presented 
in a manner that is misleading.
    (b) Rules for condensation. For purposes of this section, major 
captions to be provided in the financial statements are the same as 
those provided in the financial statements contained in the 
institution's annual report to shareholders, except that the financial 
statements included in the quarterly report may be condensed into major 
captions in accordance with the rules prescribed under this paragraph 
and paragraph (f) of this section.
    (1) Interim balance sheets. When any major balance sheet caption is 
less than 10 percent of total assets and the amount in the caption has 
not increased or decreased by more than 25 percent since the end of the 
preceding fiscal year, the caption may be combined with others.
    (2) Interim statements of income. When any major income statement 
caption is less than 15 percent of average net income for the 3 most 
recent fiscal years and the amount in the caption has not increased or 
decreased by more than 20 percent since the corresponding interim period 
of the preceding fiscal year, the caption may be combined with others. 
In calculating average net income, loss years should be excluded. If 
losses were incurred in each of the 3 most recent fiscal years, the 
average loss shall be used for purposes of this test.
    (3) The interim financial information shall include disclosure 
either on the face of the financial statements or in accompanying 
footnotes sufficient to make the interim information presented not 
misleading. Institutions may presume that users of the interim financial 
information have read or have access to the audited financial statements 
for the preceding fiscal year and the adequacy of additional disclosure 
needed for a fair presentation may be determined in that context. 
Accordingly, footnote disclosure that would substantially duplicate the 
disclosure contained in the most recent audited financial statements 
(such as a statement of significant accounting policies and practices), 
and details of accounts that have not changed significantly in amount or 
composition since the end of the most recent completed fiscal year may 
be omitted. However, disclosure shall be provided of events occurring 
subsequent to the end of the most recent fiscal year that have a 
material impact on the institution. Disclosures should encompass, for 
example, significant changes since the end of the most recently 
completed fiscal year in such items as accounting principles and 
practices; estimates inherent in the preparation of financial 
statements; status of long-term contracts; capitalization, including 
significant new indebtedness or modification of existing financing 
agreements; and the reporting entity resulting from business 
combinations or dispositions.
    (4) If, during the most recent interim period presented, the 
institution entered into a business combination treated for accounting 
purposes as a pooling of interests, the interim financial statements for 
both the current year and the preceding year shall reflect the combined 
results of the pooled businesses. Supplemental disclosure of the 
separate results of the combined entities for periods prior to the 
combination shall be given, with appropriate comments or comparisons 
between the separate and consolidated results.
    (5) If a material business combination accounted for as a purchase 
has occurred during the current fiscal year, pro forma disclosure shall 
be made of the results of operations for the current year up to the date 
of the most recent interim balance sheet provided (and for the 
corresponding period in the preceding year) as though the companies had 
combined at the beginning of that period. This pro forma information 
shall, at a minimum, show:
    (i) Total operating income.

[[Page 230]]

    (ii) Income before securities gains (losses), extraordinary items, 
and the cumulative effect of accounting changes.
    (iii) Net income.
    (6) In addition to meeting the reporting requirements specified by 
existing accounting pronouncements for accounting changes, the 
institution shall state the date of any material accounting change and 
the reasons for making it. In addition, a statement from the persons who 
verify the institution's financial statements shall be included as an 
exhibit, indicating whether or not the change is to an alternative 
principle which in their judgment is preferable under the circumstances, 
except that no such statement need be filed when the change is made in 
response to a standard adopted by the Financial Accounting Standards 
Board which requires such change.
    (7) Any material retroactive prior period adjustment made during any 
period covered by the interim financial statements shall be disclosed, 
together with its effect upon net income and upon the balance of 
undivided profits for any prior period included. If results of 
operations for any period presented have been adjusted retroactively by 
such an item subsequent to the initial reporting of such period, similar 
disclosure of the effect of the change shall be made.
    (8) The interim financial statements furnished shall reflect all 
adjustments that are, necessary to a fair statement of the results for 
the interim periods presented. A statement to that effect shall be 
included. Furnish any material information necessary to make the 
information called for not misleading, such as a statement that the 
results for interim periods are not necessarily indicative of results to 
be expected for the year.
    (c) Management's discussion and analysis of financial condition and 
results of operations. Discuss material changes, if any, to the 
information provided to shareholders pursuant to Sec. 620.5(g) that 
have occurred during the periods specified in paragraphs (d)(1) and (2) 
of this section. Such additional information as is needed to enable the 
reader to assess material changes in financial condition and results of 
operations between the periods specified in paragraphs (d)(1) and (2) of 
this section shall be provided.
    (1) Material changes in financial condition. Discuss any material 
changes in financial condition from the end of the preceding fiscal year 
to the date of the most recent interim balance sheet provided. If the 
interim financial statements include an interim balance sheet as of the 
corresponding interim date of the preceding fiscal year, any material 
changes in financial conditions from that date to the date of the most 
recent interim balance sheet provided also shall be discussed. If 
discussions of changes from both the end and the corresponding interim 
date of the preceding fiscal year are required, the discussions may be 
combined at the discretion of the institution.
    (2) Material changes in results of operations. Discuss any material 
changes in the institution's results of operations with respect to the 
most recent fiscal year-to-date period for which an income statement is 
provided and the corresponding year-to-date period of the preceding 
fiscal year. Such discussion also shall cover material changes with 
respect to that fiscal quarter and the corresponding fiscal quarter in 
the preceding fiscal year. In addition, if the institution has elected 
to provide an income statement for the 12-month period ended as of the 
date of the most recent interim balance sheet provided, the discussion 
also shall cover material changes with respect to that 12-month period 
and the 12-month period ended as of the corresponding interim balance 
sheet date of the preceding fiscal year.
    (d) Financial statements. The following financial statements shall 
be provided:
    (1) An interim balance sheet as of the end of the most recent fiscal 
quarter and as of the end of the preceding fiscal year. A balance sheet 
for the comparable quarter of the preceding fiscal year is optional.
    (2) Interim statements of income for the most recent fiscal quarter, 
for the period between the end of the preceding fiscal year and the end 
of the most recent fiscal quarter, and for the comparable periods for 
the previous fiscal year.
    (3) Interim statements of changes in protected borrower capital and 
at-risk capital for the period between the end

[[Page 231]]

of the preceding fiscal year and the end of the most recent fiscal 
quarter, and for the comparable period for the preceding fiscal year.
    (4) For banks, interim statements of cash flows for the period 
between the end of the preceding fiscal year and the end of the most 
recent fiscal quarter, and for the comparable period for the preceding 
fiscal year. For associations, interim statements of cash flows are 
optional.
    (e) Review by independent public accountant. The interim financial 
information need not be audited or reviewed by an independent public 
accountant prior to filing. If, however, a review of the data is made in 
accordance with the established professional standards and procedures 
for such a review, the institution may state that the independent 
accountant has performed such a review. If such a statement is made, the 
report of the independent accountant on such review shall accompany the 
interim financial information.
    (f) If any amount that would otherwise be required to be shown by 
this subpart with respect to any item is not material, it need not be 
separately shown. The combination of insignificant items is permitted.

[51 FR 21341, June 12, 1986, as amended at 53 FR 3337, Feb. 5, 1988. 
Redesignated and amended at 56 FR 29421, 29424, June 27, 1991; 67 FR 
16633, Apr. 8, 2002]



                    Subpart D_Notice to Shareholders

    Source: 62 FR 15093, Mar. 31, 1997, unless otherwise noted.



Sec. 620.15  Notice.

    (a) Each Farm Credit bank and direct lender association shall 
prepare and provide the Farm Credit Administration and shareholders a 
notice, within 30 days following the month end that the institution 
initially determines that it is not in compliance with the minimum 
permanent capital standard prescribed under Sec. 615.5205 of this 
chapter.
    (b) An institution that has given notice to shareholders pursuant to 
paragraph (a) of this section or subsequent notice pursuant to this 
paragraph shall also prepare and provide the Farm Credit Administration 
and shareholders a notice within 45 days following the end of any 
subsequent quarter at which the institution's permanent capital ratio 
decreases by one-half of 1 percent or more from the level reported in 
the most recent notice provided to shareholders.
    (c) Each institution required to prepare a notice under paragraphs 
(a) or (b) of this section shall provide the notice to shareholders or 
publish it in any publication with circulation wide enough to be 
reasonably assured that all of the institution's shareholders have 
access to the information in a timely manner.

[67 FR 16634, Apr. 8, 2002]



Sec. 620.17  Contents of the notice.

    (a) The information required to be in a notice must be conspicuous, 
easily understandable, and not misleading.
    (b) A notice, at a minimum, shall include:
    (1) A statement that:
    (i) Briefly describes the regulatory minimum permanent capital 
standard established by the Farm Credit Administration and the notice 
requirement of Sec. 620.15(a);
    (ii) Indicates the institution's current level of permanent capital; 
and
    (iii) Notifies shareholders that the institution's permanent capital 
is below the Farm Credit Administration regulatory minimum standard.
    (2) A statement of the effect that noncompliance has had on the 
institution and its shareholders, including whether the institution is 
currently prohibited by statute or regulation from retiring stock or 
distributing earnings or whether the Farm Credit Administration has 
issued a capital directive or other enforcement action to the 
institution.
    (3) A complete description of any event(s) that may have 
significantly contributed to the institution's noncompliance with the 
minimum permanent capital standard.
    (4) A statement that the institution is required by regulation to 
provide another notice to shareholders within 45

[[Page 232]]

days following the end of any subsequent quarter at which the 
institution's permanent capital ratio decreases by one half of one 
percent or more from the level reported in the notice.

[62 FR 15093, Mar. 31, 1997, as amended at 67 FR 16634, Apr. 8, 2002]



       Subpart E_Association Annual Meeting Information Statement

    Source: 51 FR 8656, Mar. 13, 1986, unless otherwise noted. 
Redesignated at 56 FR 29421, June 27, 1991, and further redesignated at 
62 FR 15093, Mar. 31, 1997.



Sec. 620.20  Preparing and providing the information statement.

    (a) Each association of the Farm Credit System shall prepare and 
provide to its shareholders at least 10 days prior to any meeting at 
which directors are to be elected an information statement 
(``statement'').
    (b) The statement shall incorporate by reference the annual report 
to shareholders required by subpart B of this part and contain the 
information specified in Sec. 620.21 and such other material 
information as is necessary to make the required statement, in light of 
the circumstances under which it is made, not misleading.

[51 FR 8656, Mar. 13, 1986, as amended at 53 FR 3337, Feb. 5, 1988. 
Redesignated and amended at 56 FR 29421, 29425, June 27, 1991; 62 FR 
15094, Mar. 31, 1997; 67 FR 16634, Apr. 8, 2002]



Sec. 620.21  Contents of the information statement and other information 
to be furnished in connection with the annual meeting.

    The statement shall address the following items:
    (a) Date, time, and place of the meeting(s).
    (b) Voting shareholders. For each class of stock entitled to vote at 
the meeting, state the number of shareholders entitled to vote, and, 
when shareholders are asked to vote on preferred stock, the number of 
shares entitled to vote. State the record date as of which the 
shareholders entitled to vote will be determined and the voting 
requirements for each matter to be voted upon.
    (c) Directors. (1) State the names and ages of persons currently 
serving as directors of the institution, their terms of office, and the 
periods during which such persons have served. No information need be 
given with respect to any director whose term of office as a director 
will not continue after the meeting to which the statement relates.
    (2) State the name of any incumbent director who attended fewer than 
75 percent of the total of board meetings and any board committee 
meeting of committees on which he or she served during the last fiscal 
year.
    (3) If any director resigned or declined to stand for reelection 
since the last annual meeting because of a policy disagreement with the 
board, and if the director has provide a notice requesting disclosure of 
the nature of the disagreement, state the date of the director's 
resignation and summarize the director's description of the 
disagreement. If the institution holds a different view of the 
disagreement, the institution's view may be summarized.
    (4) If any transactions between the institution and its senior 
officers and directors of the type required to be disclosed in the 
annual report to shareholders under Sec. 620.5(j), or any of the events 
required to be disclosed in the annual report to shareholders under 
Sec. 620.5 (k) have occurred since the end of the last fiscal year and 
were not disclosed in the annual report to shareholders, the disclosures 
required by Sec. 620.5 (j) and (k) shall be made with respect to such 
transactions or events in the annual information statement. If any 
material change in the matters disclosed in the annual report to 
shareholders pursuant to Sec. 620.5 (j) and (k) has occurred since the 
annual report to shareholders was prepared, disclosure shall be made of 
such change in the annual information statement.
    (d) Nominees. (1) If directors are nominated or elected by region, 
describe the regions and state the number of voting shareholders 
entitled to vote in each region. Any nominee from the floor must be an 
eligible candidate for the director position for which the person has 
been nominated.
    (2) If fewer than two nominees for each position are named, describe 
the

[[Page 233]]

efforts of the nominating committee to locate two willing nominees.
    (3) State that nominations shall be accepted from the floor.
    (i) If directors are not elected by region, the following shall 
apply:
    (A) If the annual meeting is to be held in more than one session and 
paper mail or electronic mail balloting will be conducted upon the 
conclusion of all sessions, state that nominations from the floor may be 
made at any session or, if the association's bylaws so provide, state 
that nominations from the floor shall be accepted only at the first 
session.
    (B) If shareholders will not vote solely by paper mail or electronic 
mail ballot upon conclusion of all sessions, state that nominations from 
the floor may be made only at the first session.
    (ii) If directors are elected by region, the following shall apply:
    (A) If more than one session of an annual meeting is held in a 
region, and if paper mail or electronic mail balloting will be conducted 
at the end of all sessions in a region, state that nominations from the 
floor may be made at any session in the region or, if the association's 
bylaws so provide, state that nominations from the floor shall be 
accepted only at the first session held in the region.
    (B) If shareholders will not vote solely by paper mail or electronic 
mail ballot upon conclusion of all sessions in a region, state that 
nominations from the floor may be made only at the first session held in 
the region.
    (4) For each nominee, state the nominee's name, age, and business 
experience during the last 5 years, including each person's principal 
occupation and employment during the past 5 years. List any business 
entities on whose board of directors the director serves and state the 
principal business in which the entity is engaged.
    (5) For each nominee who is not an incumbent director, except a 
nominee from the floor, provide the information referred to in Sec. 
620.5(j) and (k) and paragraph (d)(4) of this section. If shareholders 
will vote by paper mail or electronic mail ballot upon conclusion of all 
sessions, each floor nominee must provide the information referred to in 
Sec. 620.5(j) and (k) and paragraph (d)(4) of this section in paper or 
electronic form to the association within the time period prescribed by 
the association's bylaws. If the association's bylaws do not prescribe a 
time period, state that each floor nominee must provide the disclosure 
to the association within 5 business days of the nomination. The 
association shall ensure that the information is provided to the voting 
shareholders by delivering the ballots for the election of directors in 
the same format as the comparable information contained in the 
association's annual meeting information statement. If shareholders will 
not vote by paper mail or electronic mail ballot upon conclusion of all 
sessions, each floor nominee must provide the information referred to in 
Sec. 620.5(j) and (k) and paragraph (d)(4) of this section in paper or 
electronic form at the first session at which voting is held.
    (6) No person may be a nominee for director who does not make the 
disclosures required by this subpart.
    (e) Other shareholder action. (1) If shareholders are asked to vote 
on matters not normally required to be submitted to shareholders for 
approval, describe fully the material circumstances surrounding the 
matter, the reason shareholders are asked to vote, and the vote required 
for approval of the proposition.
    (2) The statement shall describe any other matter that will be 
discussed at the meeting upon which shareholder vote is not required.
    (f) Relationship with independent public accountant. If an 
institution of the Farm Credit System has had a change or changes in 
accountants since the last annual report to shareholders, or if a 
disagreement with an accountant has occurred, the institution shall 
disclose the information required by Sec. 621.4 (c) and (d) of this 
chapter.

[51 FR 8656, Mar. 13, 1986. Redesignated and amended at 56 FR 29421, 
29425, June 27, 1991; 56 FR 42649, Aug. 28, 1991; 58 FR 48791, Sept. 20, 
1993; 60 FR 20013, Apr. 24, 1995; 60 FR 57922, Nov. 24, 1995; 67 FR 
16634, Apr. 8, 2000]



             Subpart F_Bank Director Disclosure Requirements

    Source: 53 FR 50399, Dec. 15, 1988, unless otherwise noted. 
Redesignated at 56 FR 29421,

[[Page 234]]

June 27, 1991, and further redesignated at 62 FR 15093, Mar. 31, 1997.



Sec. 620.30  Disclosure statement for bank director candidates.

    Each bank shall adopt policies and procedures that assure that a 
disclosure statement is prepared by each candidate for election by the 
stockholders to the bank board. The banks shall provide a form providing 
for the information required and provide copies of completed and signed 
disclosure statements to stockholders with the election ballots. No 
person may be a candidate for bank director who does not make the 
disclosures required by this subpart.

[53 FR 50399, Dec. 15, 1988. Redesignated at 56 FR 29421, June 27, 1991, 
and further redesignated at 62 FR 15093, Mar. 31, 1997, as amended at 67 
FR 16634, Apr. 8, 2002]



Sec. 620.31  Contents of disclosure statements.

    Disclosure statements shall include the following information:
    (a) A statement of the institution's policies, if any, on loans to 
and transactions with directors of the bank.
    (b) Candidate's name, residential address, business address if any, 
citizenship, business experience during the last 5 years including 
principal occupation and employment during the last 5 years, a list of 
any business entities on whose board of directors the candidate serves 
and state the principal business in which the entities are engaged, and 
any information pertinent to the creation of a nepotistic relationship 
upon election to the bank board.
    (c) Transactions other than loans. The disclosure statement should 
describe briefly any transaction or series of transactions other than 
loans that occurred since the last annual meeting between the bank and 
the candidate, any member of the immediate family of such person, or any 
organization with which such person is affiliated, the nature of the 
person's interest in the transaction, and the terms of the transaction. 
No information need be given where the purchase price, fees, or charges 
involved were determined by competitive bidding or where the amount 
involved in the transaction (including the total of all periodic 
payments) does not exceed $5,000, or the interest of the person arises 
solely as a result of his or her status as a stockholder of the 
institution and the benefit received is not a special or extra benefit 
not available to all stockholders.
    (d) Loans to director candidates. (1) To the extent applicable, 
state that the bank has had loans outstanding during the last full 
fiscal year-to-date to the candidate, his or her immediate family 
members, and any organizations with which such persons are affiliated 
that:
    (i) Were made in the ordinary course of business;
    (ii) Were made on the same terms, including interest rate, 
amortization schedule, and collateral, as those prevailing at the time 
for comparable transactions with other persons.
    (2) To the extent applicable, state that no loan to a candidate, or 
to any organization affiliated with the candidate, or to any immediate 
family member who resides in the same household as the candidate or in 
whose loan or business operation the candidate has a material financial 
or legal interest, involved more than the normal risk of collectibility;
    (3) If the conditions stated in paragraphs (d) (1) and (2) of this 
section do not apply to the loan(s) of the candidates or organizations 
specified therein with respect to such loans, state:
    (i) The name of the candidate to whom the loan was made or to whose 
relative or affiliated organization the loan was made;
    (ii) The largest aggregate amount of each indebtedness outstanding 
at any time during the last fiscal year;
    (iii) The nature of the loan(s);
    (iv) The amount outstanding as of the latest practicable date;
    (v) The reasons the loan does not comply with the criteria contained 
in this section;
    (vi) If the loan does not comply with this section, the rate of 
interest payable on the loan and the repayment terms;
    (vii) If the loan does not comply with this section, the amount past 
due, if any, and the reason the loan is deemed to involve more than a 
normal risk of collectibility.

[[Page 235]]

    (e) Involvement in certain legal proceedings. The disclosure 
statement should describe any of the following events that occurred 
during the past 5 years and that are material to an evaluation of the 
ability or integrity of the candidate:
    (1) A petition under the Federal bankruptcy laws or any State 
insolvency law was filed by or against, or a receiver, fiscal agent, or 
similar officer was appointed by a court for the business or property of 
the candidate, or any partnership in which the candidate was a general 
partner at or within 2 years before the time of such filing, or any 
corporation or business association of which the candidate was a senior 
officer at or within 2 years before the time of such filing;
    (2) The candidate was convicted in a criminal proceeding or is a 
named party in a pending criminal proceeding (excluding traffic 
violations and other misdemeanors);
    (3) The candidate was the subject of any order, judgment, or decree, 
not subsequently reversed, suspended, or vacated, by any court of 
competent jurisdiction, permanently or temporarily enjoining or 
otherwise limiting the candidate from engaging in any type of business 
practice.



    Subpart G_Annual Report of Condition of the Federal Agricultural 
                          Mortgage Corporation

    Source: 58 FR 48791, Sept. 20, 1993, unless otherwise noted. 
Redesignated at 62 FR 15093, Mar. 31, 1997.



Sec. 620.40  Content, timing, and providing of the Federal Agricultural 
Mortgage Corporation's annual report of condition.

    (a) The Federal Agricultural Mortgage Corporation shall prepare and 
publish an annual report of its condition that is equivalent in content 
to the annual report to shareholders required by section 14 of the 
Securities and Exchange Act of 1934.
    (b) The Corporation shall provide the annual report of condition to 
its shareholders within 120 days of its fiscal year-end.
    (c) Upon receiving a request for an annual report of condition, the 
Corporation shall promptly provide the requester the most recent annual 
report described in this section.
    (d) The Corporation shall provide copies of the annual report of 
condition to the Farm Credit Administration's Office of Secondary Market 
Oversight within 120 days of its fiscal year-end. If providing paper 
copies, send three copies to Office of Secondary Market Oversight, Farm 
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090. If 
providing electronic copies, send according to our instructions to you.

[58 FR 48791, Sept. 20, 1993. Redesignated at 62 FR 15093, Mar. 31, 
1997, as amended at 67 FR 16634, Apr. 8, 2002]



PART 621_ACCOUNTING AND REPORTING REQUIREMENTS--Table of Contents

                    Subpart A_Purpose and Definitions

Sec.
621.1 Purpose and applicability.
621.2 Definitions.

                         Subpart B_General Rules

621.3 Application of generally accepted accounting principles.
621.4 Audit by qualified public accountant.
621.5 Accounting for the allowance for loan losses and chargeoffs.

           Subpart C_Loan Performance and Valuation Assessment

621.6 Performance categories and other property owned.
621.7 Rule of aggregation.
621.8 Application of payments and income recognition on nonaccrual 
          loans.
621.9 Reinstatement to accrual status.
621.10 Monitoring of performance categories and other property owned.

              Subpart D_Report of Condition and Performance

621.12 Applicability and general instructions.
621.13 Content and standards--general rules.
621.14 Certification of correctness.

   Subpart E_Reports Relating to Securities Activities of the Federal 
                    Agricultural Mortgage Corporation

621.20 Form and content.


[[Page 236]]


    Authority: Secs. 5.17, 8.11 of the Farm Credit Act (12 U.S.C. 2252, 
2279aa-11).

    Source: 58 FR 48786, Sept. 20, 1993, unless otherwise noted.



                    Subpart A_Purpose and Definitions



Sec. 621.1  Purpose and applicability.

    This part sets forth accounting and reporting requirements to be 
followed by all banks, associations, and service organizations chartered 
under the Act; the Federal Farm Credit Banks Funding Corporation; and, 
where specifically indicated, the Federal Agricultural Mortgage 
Corporation. The requirements set forth in this part are of both general 
and specific applicability. Certain requirements focus on areas of 
financial condition and operating performance that are of special 
importance for generating, presenting, and disclosing accurate and 
reliable information.



Sec. 621.2  Definitions.

    For the purposes of this part, the following definitions shall 
apply:
    (a) Accrual basis of accounting means the accounting method in which 
expenses are recorded when incurred, whether paid or unpaid, and income 
is reported when earned, whether received or not received.
    (b) Borrowing entity means the individual(s), partnership, joint 
venture, trust, corporation, or other business entity, or any 
combination thereof, that is primarily obligated on the loan instrument.
    (c) Generally accepted accounting principles means that body of 
conventions, rules, and procedures necessary to define accepted 
accounting practices at a particular time, as promulgated by the 
Financial Accounting Standards Board (FASB) and other authoritative 
sources recognized as setting standards for the accounting profession in 
the United States. Generally accepted accounting principles include not 
only broad guidelines of general application but also detailed practices 
and procedures that constitute standards by which financial 
presentations are evaluated.
    (d) Generally accepted auditing standards means the standards and 
guidelines adopted by the Auditing Standards Board of the American 
Institute of Certified Public Accountants (AICPA) to govern the overall 
quality of audit performance.
    (e) Institution means any bank, association, or service organization 
chartered under the Act; the Federal Farm Credit Banks Funding 
Corporation, and where specifically noted, the Federal Agricultural 
Mortgage Corporation.
    (f) Loan means any extension of credit or lease that is recorded as 
an asset of a reporting institution, whether made directly or purchased 
from another lender. The term ``loan'' includes, but is not limited to:
    (1) Loans originated through direct negotiations between the 
reporting institution and a borrower;
    (2) Purchased loans or interests in loans, including participation 
interests, retained subordinated participation interests in loans sold, 
and interests in pools of subordinated participation interests that are 
held in lieu of retaining a subordinated participation interest in loans 
sold;
    (3) Contracts of sale; notes receivable; and
    (4) Other similar obligations and lease financing.
    (g) Material means the magnitude of an omission or misstatement of 
accounting information that, in light of surrounding circumstances, 
makes it probable that the judgment of a reasonable person relying on 
the information would have been changed or influenced by the omission or 
misstatement.
    (h) Net realizable value means the net amount the lender would 
expect to be realized from the acquisition and subsequent sale or 
disposition of a loan's underlying collateral. Generally, net realizable 
value is equal to the estimated selling price in the ordinary course of 
business, less estimated costs of acquisition, completion, and disposal.
    (i) Qualified public accountant means a person who:
    (1) Holds a valid and unrevoked certificate, issued to such person 
by a legally constituted State authority, identifying such person as a 
certified public accountant;

[[Page 237]]

    (2) Is licensed to practice as a public accountant by an appropriate 
regulatory authority of a State or other political subdivision of the 
United States;
    (3) Is in good standing as a certified and licensed public 
accountant under the laws of the State or other political subdivision of 
the United States in which is located the home office or corporate 
office of the institution that is to be audited;
    (4) Is not suspended or otherwise barred from practice as an 
accountant or public accountant before the Securities and Exchange 
Commission (SEC) or any other appropriate Federal or State regulatory 
authority; and
    (5) Is independent of the institution that is to be audited. For the 
purposes of this definition the term ``independent'' shall have the same 
meaning as under the rules and interpretations of the AICPA.
    (j) Recorded investment means the face amount of the loan increased 
or decreased by applicable accrued interest and unamortized premium, 
discount, finance charges, or acquisition costs, and may also reflect a 
previous direct write-down of the investment.



                         Subpart B_General Rules



Sec. 621.3  Application of generally accepted accounting principles.

    Each institution shall:
    (a) Prepare and maintain, on an accrual basis, accurate and complete 
records of its business transactions as necessary to prepare financial 
statements and reports, including reports to the Farm Credit 
Administration, in accordance with generally accepted accounting 
principles, except as otherwise directed by statutory and regulatory 
requirements;
    (b) Prepare its financial statements and reports, including reports 
to the shareholders, investors, boards of directors, institution 
management and the Farm Credit Administration, in accordance with 
generally accepted accounting principles, except as otherwise directed 
by statutory and regulatory requirements; and
    (c) Prepare and maintain its books and records in such a manner as 
to facilitate reconciliation with financial statements and reports 
prepared from them.



Sec. 621.4  Audit by qualified public accountant.

    (a) Each institution shall, at least annually, have its financial 
statements audited by a qualified public accountant in accordance with 
generally accepted auditing standards.
    (b) The qualified public accountant's opinion of each institution's 
financial statements shall be included as a part of each annual report 
to shareholders.
    (c) If an institution disagrees with the opinion of a qualified 
public accountant required by paragraph (b) of this section, the 
following actions shall be taken immediately:
    (1) The institution shall prepare a brief but thorough written 
description of the scope and content of the disagreement, noting each 
point of disagreement and citing, in all cases, the specific provisions 
of generally accepted accounting principles and generally accepted 
auditing standards upon which the institution's position in the 
disagreement is based;
    (2) A copy of the institution's final description of the 
disagreement shall be given to the accountant who provided the opinion 
with which the institution disagrees;
    (3) The accountant shall have 10 business days to develop and 
provide a brief but thorough final response to the institution's 
description of the disagreement, including all items believed to be 
incorrect or incomplete, and citing, in all cases, the specific 
provisions of generally accepted accounting principles and generally 
accepted auditing standards upon which the accountant's position in the 
disagreement is based;
    (4) Both the institution's final description of the disagreement and 
the accountant's final response to it shall be included in the 
institution's annual report to shareholders directly following the 
accountant's opinion of the institution's financial statements; and
    (5) The institution shall immediately notify the Chief Examiner, 
Farm Credit Administration, of any disagreement with its accountant and 
shall furnish the Farm Credit Administration with the written 
documentation required by

[[Page 238]]

paragraphs (c) (1) through (4) of this section.
    (d) If an institution selects a qualified public accountant to audit 
its financial statements and provide an opinion thereon for its annual 
report who is different from the accountant whose opinion appeared in 
the institution's most recent annual report, the following items shall 
be sent to the Farm Credit Administration no later than 15 days after 
the end of the month in which the change took place and shall be 
included in the institution's annual meeting information statement and 
annual report to shareholders for the year in which the change of 
accountants took place:
    (1) The name and address of the accountant whose opinion appeared in 
the institution's most recent annual report to shareholders;
    (2) A brief but thorough statement of the reasons the accountant 
selected for the most recent annual report was not selected for the 
current annual report. If the change resulted from a disagreement with 
the accountant, the statement shall describe the institution's 
disagreement with the accountant's opinion and the accountant's final 
response to the institution's disagreement prepared pursuant to 
paragraph (c) of this section; and
    (3) The identification of the highest ranking officer, committee of 
officers, or board of directors, as appropriate, that recommended, 
approved, or otherwise made the decision to change qualified public 
accountants.



Sec. 621.5  Accounting for the allowance for loan losses and chargeoffs.

    Each institution shall:
    (a) Maintain at all times an allowance for loan losses that is 
adequate to absorb all probable and estimable losses that may reasonably 
be expected to exist in the loan portfolio.
    (b) Develop, adopt, and consistently apply policies and procedures 
governing the establishment and maintenance of the allowance for loan 
losses which, at a minimum, conform to the rules, definitions, and 
standards set forth in this part and any other applicable requirements.
    (c) Charge-off loans, wholly or partially, as appropriate, at the 
time they are determined to be uncollectible.
    (d) Ensure that when an institution or the Farm Credit 
Administration determines that the value of a loan or other asset 
recorded on its books and records exceeds the amount that can reasonably 
be expected to be collectible, or when the documentation supporting the 
recorded asset value is inadequate, the institution shall immediately 
charge off the asset in the amount determined to be uncollectible. If 
the amount determined to be uncollectible by the institution is 
different from the amount determined to be uncollectible by the Farm 
Credit Administration, the institution shall charge off such amount as 
the Farm Credit Administration shall direct.



           Subpart C_Loan Performance and Valuation Assessment



Sec. 621.6  Performance categories and other property owned.

    Each institution shall employ the following practices with respect 
to categorizing high-risk loans and loan-related assets. No loan shall 
be put into more than one performance category. At a minimum, loans 
meeting the criteria for both nonaccrual and another performance 
category shall be classified as nonaccrual.
    (a) Nonaccrual loans. A loan shall be considered nonaccrual if it 
meets any of the following conditions:
    (1) Collection of any amount of outstanding principal and all past 
and future interest accruals, considered over the full term of the 
asset, is not expected;
    (2) Any portion of the loan has been charged off, except in cases 
where the prior chargeoff was taken as part of a formal restructuring of 
the loan; or
    (3) The loan is 90 days past due and is not both adequately secured 
and in process of collection.
    (i) A loan is considered adequately secured only if:
    (A) It is secured by real or personal property having a net 
realizable value sufficient to discharge the debt in full; or

[[Page 239]]

    (B) It is guaranteed by a financially responsible party in an amount 
sufficient to discharge the debt in full.
    (ii) A loan is considered in process of collection only if 
collection efforts are proceeding in due course and, based on a probable 
and specific event, are expected to result in the prompt repayment of 
the debt or its restoration to current status. There must be documented 
evidence that collection in full of amounts due and unpaid is expected 
to occur within a reasonable time period, not to exceed 180 days from 
the date that payment was due. The commencement of collection efforts 
through legal action, including bankruptcy or foreclosure, or through 
collection efforts not involving legal action, including ongoing 
workouts and reamortizations, do not, in and of themselves, provide 
sufficient cause to keep a loan out of nonaccrual status. If full 
collection of the debt or its restoration to current status is dependent 
upon completion of any action by the borrower, the institution must 
obtain the borrower's written agreement to complete all such actions by 
the specific dates set forth in agreement.
    (b) Formally restructured loans. A loan is considered formally 
restructured if it meets the ``troubled debt restructuring'' definition 
set forth in Statement of Financial Accounting Standards No. 15, 
Accounting by Debtors and Creditors for Troubled Debt Restructurings, as 
promulgated by the FASB.
    (c) Loans 90 days past due still accruing interest. (1) Loans 90 
days past due still accruing interest means loans that are 90 days or 
more contractually past due, and that are both adequately secured and in 
process of collection, as described in this section.
    (2) A loan shall be considered contractually past due when any 
principal repayment or interest payment required by the loan instrument 
is not received on or before the due date. A loan shall remain 
contractually past due until it is formally restructured or until the 
entire amount past due, including principal, accrued interest, and 
penalty interest incurred as the result of past due status, is collected 
or otherwise discharged in full.
    (d) Other property owned means any real or personal property, other 
than an interest-earning asset, that has been acquired as a result of 
full or partial liquidation of a loan, through foreclosure, deed in lieu 
of foreclosure, or other means.



Sec. 621.7  Rule of aggregation.

    (a) When one loan to a borrower is placed in nonaccrual, an 
institution must immediately evaluate whether its other loans to that 
borrower, or related borrowers, should also be placed in nonaccrual. All 
loans on which a borrowing entity, or a component of a borrowing entity, 
is primarily obligated to the reporting institution shall be considered 
as one loan unless a review of all pertinent facts supports a reasonable 
determination that a particular loan constitutes an independent credit 
risk and such determination is adequately documented in the loan file.
    (1) A loan shall be considered an independent credit risk if a 
substantial portion of the loan is guaranteed as to principal and 
interest by a government agency.
    (2) Other loans shall be considered independent credit risks if and 
so long as:
    (i) The primary sources of repayment are independent for each loan;
    (ii) The loans are not cross-collateralized; and
    (iii) The principal obligors are different person(s) and/or 
entity(ies). Related loans will not be considered independent credit 
risks if the operations of a related borrower are so financially 
interdependent with the borrower's operations that the economic survival 
of one will materially affect the economic survival of the other, 
determined in accordance with Sec. 614.4359(a)(2) of this chapter.
    (b) If the evaluation required by paragraph (a) of this section 
results in a determination that the borrower's other loans with the 
institution do not represent an independent credit risk, and full 
collection of such loans is not expected, then all of the borrower's 
loans must be aggregated and classified as nonaccrual. If such other 
loans represent an independent credit risk and

[[Page 240]]

are fully collectible, then they may remain in their current performance 
category.
    (c) When an institution becomes aware that a borrower has a loan 
that has been classified nonaccrual by any other lender, the institution 
must re-evaluate the credit risk in its loan to the borrower and then 
determine whether an independent credit risk exists.

[58 FR 48786, Sept. 20, 1993, as amended at 64 FR 34519, June 28, 1999]



Sec. 621.8  Application of payments and income recognition on nonaccrual 
loans.

    Each institution shall employ the following practices with respect 
to application of cash payments on nonaccrual loans:
    (a) If the ultimate collectibility of the recorded investment, in 
whole or in part, is in doubt, any payment received on such loan shall 
be applied to reduce the recorded investment to the extent necessary to 
eliminate such doubt.
    (b) Once the ultimate collectibility of the recorded investment is 
no longer in doubt, payments received in cash on such loan may qualify 
for recognition as interest income if all of the following 
characteristics are met at the time the payment is received:
    (1) The loan does not have a remaining unrecovered prior chargeoff 
associated with it, except in cases where the prior chargeoff was taken 
as part of a formal restructuring of the loan;
    (2) The payment received has come from a source of repayment 
detailed in the plan of collection;
    (3) The loan, after considering the payment, is not contractually 
past due more than 90 days and is not expected to become 90 days past 
due, or a repayment pattern has been established that reasonably 
demonstrates future repayment capacity.
    (c) The institution shall employ the following practices with 
respect to earned but uncollected interest income on loans, leases, 
contracts, and similar assets that are determined not to be fully 
collectible:
    (1) Earned but uncollected interest income that was accrued in the 
current fiscal year and is determined to be uncollectible shall be 
reversed from interest income; and
    (2) Earned but uncollected interest income that was accrued in prior 
fiscal years and is determined to be uncollectible shall be charged off 
against the allowance for loan losses.



Sec. 621.9  Reinstatement to accrual status.

    A loan may be reinstated to accrual status, when each of the 
following criteria are met:
    (a) All contractual principal and interest due on the loan is paid 
and the loan is current;
    (b) Prior chargeoffs are recovered, except for troubled debt 
restructures;
    (c) No reasonable doubt remains regarding the willingness and 
ability of the borrower to perform in accordance with the contractual 
terms of the loan agreement; and
    (d) Reinstatement is supported by a period of sustained performance 
in accordance with the contractual terms of the note and/or loan 
agreement. Sustained performance will generally be demonstrated by 6 
consecutive monthly payments, 4 consecutive quarterly payments, 3 
consecutive semi-annual payments, or 2 consecutive annual payments.



Sec. 621.10  Monitoring of performance categories and other property owned.

    (a) Each institution shall:
    (1) Account for, report, and disclose to shareholders, investors, 
boards of directors, and the Farm Credit Administration all material 
items with respect to performance categories and other property owned in 
accordance with the rules and definitions set forth in this part and any 
other applicable requirements;
    (2) In accordance with Sec. 620.5(g)(1)(iv)(A) of this chapter, 
disclose to shareholders, investors, boards of directors, and the Farm 
Credit Administration the nature and extent of significant potential 
credit risks within the loan portfolio, or other information that could 
adversely impact performance of the loan portfolio in the near future;

[[Page 241]]

    (3) Develop, adopt, and consistently apply policies and procedures 
governing performance categories and other property owned, which, at a 
minimum, conform to the definitions, rules, and standards set forth in 
this part and such other requirements and procedures as may be required 
by the Farm Credit Administration;
    (4) Review the loan portfolio at least quarterly to ensure that all 
high-risk loans have been assigned the appropriate performance category; 
and
    (5) Review all high-risk loans in the loan portfolio at least 
quarterly to determine the collectibility of accrued but uncollected 
income, if any.
    (b) Measures taken to enhance the collectibility of a loan shall not 
be deemed to relieve an institution of the requirement to monitor and 
evaluate the loan for the purpose of determining its performance status.



              Subpart D_Report of Condition and Performance



Sec. 621.12  Applicability and general instructions.

    (a) Each institution, including the Federal Agricultural Mortgage 
Corporation, shall prepare and file such reports of condition and 
performance as may be required by the Farm Credit Administration.
    (b) Reports of condition and performance shall be filed four times 
each year, and at such other times as the Farm Credit Administration may 
require. The reports shall be prepared on the accrual basis of 
accounting and shall fairly represent the financial condition and 
performance of each institution at the end of, and over the period of, 
each calendar quarter, provided that such additional reports as may be 
necessary to ensure timely, complete, and accurate monitoring and 
evaluation of the affairs, condition, and performance of Farm Credit 
institutions may be required, as determined by the Chief Examiner, Farm 
Credit Administration.
    (c) All reports of condition and performance shall be filed with the 
Farm Credit Administration, Office of Examination, 1501 Farm Credit 
Drive, McLean, Virginia, 22102-5090.



Sec. 621.13  Content and standards--general rules.

    Each institution, including the Federal Agricultural Mortgage 
Corporation, shall prepare reports of condition and performance:
    (a) In accordance with all applicable laws, regulations, standards, 
and such instructions and specifications and on such media as may be 
prescribed by the Farm Credit Administration;
    (b) In accordance with generally accepted accounting principles and 
such other accounting requirements, standards, and procedures as may be 
prescribed by the Farm Credit Administration; and
    (c) In such manner as to facilitate their reconciliation with the 
books and records of reporting institutions.



Sec. 621.14  Certification of correctness.

    Each report of financial condition and performance filed with the 
Farm Credit Administration shall be certified as having been prepared in 
accordance with all applicable regulations and instructions and to be a 
true and accurate representation of the financial condition and 
performance of the institution to which it applies. The reports shall be 
certified by the officer of the reporting institution named for that 
purpose by action of the reporting institution's board of directors. If 
the board of directors of the institution has not acted to name an 
officer to certify the correctness of its reports of condition and 
performance, then the reports shall be certified by the president or 
chief executive officer of the reporting institution.



   Subpart E_Reports Relating to Securities Activities of the Federal 
                    Agricultural Mortgage Corporation



Sec. 621.20  Form and content.

    (a) The Federal Agricultural Mortgage Corporation (Corporation) 
shall provide the Office of Secondary Market Oversight with three copies 
of any filings made with the SEC pursuant to the Securities Act of 1933 
or the Securities and Exchange Act of 1934. Such copies shall be filed 
with the FCA no

[[Page 242]]

later than 1 business day after any SEC filing.
    (b) The Corporation shall make the following filings with the Office 
of Secondary Market Oversight for securities either issued or guaranteed 
by the Corporation that are not registered under the Securities Act of 
1933.
    (1) Three copies of any offering circular, private placement 
memorandum, or information statement prepared in connection with the 
securities offering shall be filed with the Office of Secondary Market 
Oversight at or before the time of the securities offering.
    (2) For securities backed by qualified loans as defined in section 
8.0(9)(A) of the Act, the Corporation shall file one copy of the 
following within 1 business day of the finalization of the transaction:
    (i) The private placement memoranda for securities sold to 
investors; and
    (ii) The pooling and servicing agreement when the security is 
purchased by the Corporation as authorized by section 8.6(g) of the Act.
    (3) For securities backed by qualified loans as defined in section 
8.0(9)(B) of the Act, the Corporation shall provide summary information 
on such securities issued during each calendar quarter in the form 
prescribed by the Office of Secondary Market Oversight. Such summary 
information shall be provided with each report of condition and 
performance filed pursuant to Sec. 621.12, and at such other times as 
the Office of Secondary Market Oversight may require.
    (c) The Corporation shall file with the Office of Secondary Market 
Oversight copies of all substantive correspondence between the 
Corporation and the Securities and Exchange Commission and the 
Department of the Treasury relating to securities activities or 
regulatory compliance. Such correspondence should be filed no later than 
the date of filing of the report of condition and performance for the 
calendar quarter in which the correspondence was received or sent.
    (d) The Corporation shall promptly notify the Office of Secondary 
Market Oversight if it becomes exempt or claims exemption from the 
filing requirements of the Securities and Exchange Act of 1934.

[58 FR 48786, Sept. 20, 1993]



PART 622_RULES OF PRACTICE AND PROCEDURE--Table of Contents

              Subpart A_Rules Applicable to Formal Hearings

Sec.
622.1 Scope of regulations.
622.2 Definitions.
622.3 Appearance and practice.
622.4 Commencement of proceedings.
622.5 Answer.
622.6 Opportunity for informal settlement.
622.7 Conduct of hearings.
622.8 Rules of evidence.
622.9 Subpoenas.
622.10 Depositions.
622.11 Motions.
622.12 Proposed findings and conclusions; recommended decision.
622.13 Exceptions.
622.14 Briefs.
622.15 Oral argument before the Board.
622.16 Notice of submission to the Board.
622.17 Decision of the Board.
622.18 Filing.
622.19 Service.
622.20 Documents in proceedings confidential.
622.21 Computing time.
622.22 Retained authority.
622.23-622.50 [Reserved]

 Subpart B_Rules and Procedures for Assessment and Collection of Civil 
                             Money Penalties

622.51 Definitions.
622.52 Purpose and scope.
622.53 Notification of alleged violations.
622.54 Relevant considerations.
622.55 Notice of assessment of civil money penalty.
622.56 Request for formal hearing on assessment.
622.57 Waiver of hearing; consent.
622.58 Hearing on assessment.
622.59 Assessment order.
622.60 Payment of civil money penalty.
622.61 Adjustment of civil money penalties by the rate of inflation 
          under the Federal Civil Penalties Inflation Adjustment Act of 
          1990, as amended.
622.62-622.75 [Reserved]

Subpart C_Rules and Procedures Applicable to Suspension or Removal of an 
          Individual Where Certain Crimes are Charged or Proven

622.76 Definitions.

[[Page 243]]

622.77 Purpose and scope.
622.78 Suspension, prohibition or removal.
622.79 Petition for informal hearing.
622.80 Informal hearing.
622.81 Default.
622.82 Decision of the Board.
622.83-622.100 [Reserved]

   Subpart D_Rules and Procedures Applicable to Formal Investigations

622.101 Definitions.
622.102 Scope.
622.103 Formal investigations are confidential.
622.104 Order to conduct formal investigation.
622.105 Conduct of investigation.
622.106 Service of subpoena and payment of witness fees.
622.107 Transcripts.

    Authority: Secs. 5.9, 5.10, 5.17, 5.25-5.37 of the Farm Credit Act 
(12 U.S.C. 2243, 2244, 2252, 2261-2273); 28 U.S.C. 2461 note.

    Source: 51 FR 21139, June 11, 1986, unless otherwise noted.



              Subpart A_Rules Applicable to Formal Hearings



Sec. 622.1  Scope of regulations.

    This subpart prescribes rules of practice and procedure in 
connection with any formal hearing before the Farm Credit Administration 
(FCA) that is required by the Farm Credit Act of 1971, as amended (Act) 
or is ordered for other reasons by the FCA. In connection with any 
particular matter, reference should also be made to any special 
requirements of practice and procedure that may be contained in 
applicable provisions of the Act or the rules adopted by the FCA in 
subpart B of this part, which special requirements are controlling. The 
rules in subpart A do not apply to the informal hearings described in 
subpart C of this part, to any other informal hearing that may be 
ordered by the FCA, or to formal investigations described in subpart D 
of this part.



Sec. 622.2  Definitions.

    As used in this part:
    (a) Act means the Farm Credit Act of 1971, as amended. 12 U.S.C. 
2001, et seq.
    (b) FCA means the Farm Credit Administration.
    (c) Board means the Farm Credit Administration Board.
    (d) The terms institution in the System, System institution and 
institution mean all institutions enumerated in section 1.2 of the Act, 
any institution chartered pursuant to or established by the Act, except 
for the Farm Credit System Assistance Board and the Farm Credit System 
Insurance Corporation, and any service organization chartered under part 
E of title IV of the Act.
    (e) Party means the FCA or a person or institution named as a party 
in any notice that commences a proceeding, or any person or institution 
who is admitted as a party or who has filed a written request and is 
entitled as of right to be a party.
    (f) Presiding officer means an administrative law judge or any FCA 
employee or other person designated by the Board to conduct a hearing.
    (g) Ex parte communication means an oral or written communication 
not on the record with respect to which reasonable prior notice to all 
parties is not given. It does not include requests for status reports.

[51 FR 21139, June 11, 1986, as amended at 53 FR 27284, July 19, 1988]



Sec. 622.3  Appearance and practice.

    (a) Appearance before the Board or a presiding officer--(1) By 
nonattorneys. An individual may appear in his or her own behalf; a 
member of a partnership may represent the partnership; a duly authorized 
officer or other agent of a corporation, trust association or other 
entity not specifically listed herein may represent the corporation, 
trust association, or other entity; and a duly authorized officer or 
employee of any government unit, agency or authority may represent that 
unit, agency or authority. Any person appearing in a representative 
capacity shall file a written notice of appearance with the Board which 
shall contain evidence of his or her authority to act in such capacity.
    (2) By attorneys. A party may be represented by an attorney who is a 
member in good standing of the bar of the highest court of any State, 
possession, territory, Commonwealth or the District of Columbia, and who 
has not been suspended or debarred from practice before the FCA in 
accordance with

[[Page 244]]

the provisions of part 623 of this chapter. Prior to appearing, an 
attorney representing a person in a proceeding shall file a written 
notice of appearance with the Board, which shall contain a declaration 
that he or she is currently qualified as provided by paragraph (a)(2) of 
this section and is authorized to represent the party on whose behalf he 
or she acts.
    (3) Representation of multiple interests. A person shall not 
represent more than one party without informing each party of any actual 
or potential conflict of interest that may be involved in such 
representation. Such person shall file a statement with the Board 
indicating that such disclosure has been made. The presiding officer has 
authority to take protective measures at any stage of a proceeding, 
including the authority to prohibit multiple representation when deemed 
appropriate.
    (b) Summary suspension. Dilatory, obstructionist, egregious, 
contemptuous, contumacious, or other unethical or improper conduct at 
any proceeding before the Board or a presiding officer shall be grounds 
for exclusion therefrom and suspension for the duration of the 
proceeding, or other appropriate action by the Board or presiding 
officer.



Sec. 622.4  Commencement of proceedings.

    Proceedings under this subpart are commenced by the issuance of a 
notice by the Board. Such notice shall state the time, place, and nature 
of the hearing, the name and address of the presiding officer if one has 
been designated, and a statement of the matters of fact and law 
constituting the grounds for the hearing. The matters of fact and law 
alleged in a notice may be amended by the Board at any stage of the 
proceeding and such amended notice may require an answer from the party 
or parties served and may set a new hearing date. A copy of any notice 
served by the FCA on any System association, director, officer or other 
person participating in the conduct of the affairs of the association 
will also be sent to the supervisory bank.



Sec. 622.5  Answer.

    (a) Answer is required. Unless a different period is specified by 
the Board, a party who does not wish to consent to a final order must 
file an answer within 20 days after being served with a notice that 
commences the proceeding. Any subsequent notice which contains amended 
allegations and by its terms requires an answer must similarly be 
answered within 20 days after service.
    (b) Requirements of answer; effect of failure to deny. An answer 
filed under this section shall concisely state any defenses and 
specifically admit or deny each allegation in the notice. A party who 
lacks information or knowledge sufficient to form a belief as to the 
truth of any particular allegation shall so state and this shall have 
the effect of a denial. Any allegation not denied shall be deemed to be 
admitted. A party who intends in good faith to deny only a part of or to 
qualify an allegation shall specify so much of it as is true and shall 
deny only the remainder.
    (c) Admitted allegations. If a party filing an answer under this 
section elects not to contest any of the allegations of fact set forth 
in the notice, the answer shall consist of a statement admitting all of 
the allegations to be true. Such answer constitutes a waiver of hearing 
as to the facts alleged in the notice, and together with the notice will 
provide a record basis on which the presiding officer shall file with 
the Board a recommended decision in accordance with 5 U.S.C. 557. The 
recommended decision shall be served on the party, who may file 
exceptions thereto within the time provided in Sec. 622.13.
    (d) Effect of failure to answer. Failure of a party to file an 
answer required by this section within the time provided constitutes a 
waiver of the party's right to appear and contest the allegations in the 
notice and authorizes the presiding officer, without further notice to 
the party, to find the facts to be as alleged in the notice and to file 
with the Board a recommended decision containing such findings and 
appropriate conclusions. The Board or the presiding officer may, for 
good cause shown, permit the filing of a delayed answer after the time 
for filing and the answer has expired.

[[Page 245]]



Sec. 622.6  Opportunity for informal settlement.

    Any interested party may at any time submit to the Board for 
consideration written offers or proposals for settlement of a 
proceeding, without prejudice to the rights of the parties. No offer or 
proposal shall be admissible into evidence over the objection of any 
party in any hearing in connection with such proceeding. The foregoing 
provisions of this section shall not preclude settlement of any 
proceeding through the regular adjudicatory process by the filing of an 
answer as provided in Sec. 622.5(c), or by submission of the case to 
the presiding officer on a stipulation of facts and an agreed order.



Sec. 622.7  Conduct of hearings.

    (a) Authority of presiding officer. All hearings governed by this 
subpart shall be conducted in accordance with the provisions of chapter 
5 of title 5 of the United States Code. The presiding officer designated 
by the Board to preside at any such hearing shall have complete charge 
of the hearing, shall have the duty to conduct it in a fair and 
impartial manner and shall take all necessary action to avoid delay in 
the disposition of the proceeding. Such officer shall have all powers 
necessary to that end, including the following:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas and subpoenas duces tecum, as authorized by 
law, and to revoke, quash, or modify any such subpoena;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold conferences for the settlement or simplification of 
issues or for any proper purpose; and
    (7) To consider and rule upon, as justice may require, all 
procedural and other motions appropriate in a proceeding under this 
subpart, except that a presiding officer shall not have power to decide 
any motion to dismiss the proceeding or other motion which results in a 
final determination of the merits of the proceeding. This power rests 
only with the Board. Without limitation on the foregoing, the presiding 
officer shall, subject to the provisions of this subpart, have all the 
authority set forth in 5 U.S.C. 556(c).
    (b) Prehearing conference. The presiding officer may, on his or her 
own initiative or at the request of any party, direct counsel for all 
parties to meet with him or her at a specified time and place prior to 
the hearing, or to submit suggestions to him or her in writing, for the 
purpose of considering any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact and of the contents and 
authenticity of documents;
    (3) Matters of which official notice will be taken; and
    (4) Such other matters as may aid in the orderly disposition of the 
proceeding.

At the conclusion of such conference(s) the presiding officer shall 
enter an order which recites the results of the conference. Such order 
shall include the presiding officer's rulings upon matters considered at 
the conference, together with appropriate directions, if any, to the 
parties. Such order shall control the subsequent course of the 
proceeding, unless modified at the hearing for good cause shown.
    (c) Exchange of information. Thirty (30) days prior to the hearing, 
parties shall exchange a list of the names of witnesses with a general 
description of their expected testimony, and a list and one copy of all 
documents or other physical exhibits which will be introduced in 
evidence in the course of the proceeding.
    (d) Attendance at hearings. All hearings shall be private and shall 
be attended only by the parties, their counsel or authorized 
representatives, witnesses while testifying, and other persons having an 
official interest in the proceeding. However, if the Board, in its 
discretion, after fully considering the views of the party afforded the 
hearing, determines that a public hearing is necessary to protect the 
public

[[Page 246]]

interest, the Board may in its sole discretion order that the hearing be 
public.
    (e) Transcript of testimony. Hearings shall be recorded. A copy of 
the transcript of the testimony taken at any hearing, duly certified by 
the reporter, together with all exhibits accepted into evidence shall be 
filed with the presiding officer. The presiding officer shall promptly 
serve notice upon all parties of such filing. The parties shall make 
their own arrangements with the person recording the testimony for 
copies of the testimony and exhibits. The presiding officer shall have 
authority to correct the record sua sponte with notice to all parties 
and to rule upon motions to correct the record. In the event the hearing 
is public, transcripts will be furnished to interested persons upon 
payment of the cost thereof.
    (f) Continuances and changes or extensions of time and changes of 
place of hearing. Except as otherwise provided by law, the presiding 
officer may extend time limits prescribed by these rules or by any 
notice or order issued in the proceedings, may change the time for 
beginning any hearing, continue or adjourn a hearing from time to time, 
and/or change the location of the hearing. Prior to the appointment of a 
presiding officer and after the filing of a recommended decision 
pursuant to Sec. 622.12, the Board may grant such extensions or 
changes. Subject to the approval of the presiding officer, the parties 
may by stipulation change the time limits specified by these rules or 
any notice or order issued hereunder.
    (g) Closing of hearing. The record of the hearing shall be closed by 
an announcement to that effect by the presiding officer when the taking 
of evidence has been concluded. In the discretion of the presiding 
officer, the record may be closed as of a future date in order to permit 
the admission into the record, under circumstances determined by the 
presiding officer, of exhibits to be prepared.
    (h) Call for further evidence, oral arguments, briefs, reopening of 
hearing. The presiding officer may call for the production of further 
evidence upon any issue, may permit oral argument and submission of 
briefs at the hearing and, upon appropriate notice, may reopen any 
hearing at any time prior to the filing of his or her recommended 
decision. The Board may reopen the record at anytime permitted by law.
    (i) Order of procedure. The FCA shall open and close.
    (j) Ex parte communications. (1) No person shall make or knowingly 
cause to be made an ex parte communication relevant to the merits of the 
proceeding to the presiding officer or anyone who is or may reasonably 
be expected to be involved in the decisional process.
    (2) No person who is or may reasonably be expected to be involved in 
the decisional process shall make or knowingly cause to be made an ex 
parte communication relevant to the merits of the proceeding to any 
person.
    (3) Except as authorized by law, the presiding officer shall not 
consult anyone on any fact in issue, unless upon notice and opportunity 
for all parties to participate. The presiding officer shall not be 
responsible to, or subject to the supervision or direction of, any 
officer, employee, or agent of the FCA engaged in the performance of 
investigative or prosecuting functions. An officer, employee or agent 
engaged in the performance of such functions in any case shall not, in 
that case or a factually related case, participate or advise in the 
decision of the presiding officer, except as a witness or counsel in the 
proceedings, or as otherwise authorized by law.
    (4) If an ex parte communication is made or knowingly caused to be 
made, all such communications, and any responses, shall be placed in the 
record.
    (5) Upon receipt of a communication knowingly made or caused to be 
made in violation of paragraph (j) of this section, the responsible 
party may be required to show cause why such party's claim or interest 
should not be dismissed, denied, or otherwise adversely affected. To the 
extent consistent with the interests of justice, a knowing violation of 
paragraph (j) of this section may be grounds for a decision adverse to a 
party in violation.
    (6) The prohibitions against ex parte communications apply from the 
time a proceeding is noticed for hearing. However, when the person 
responsible for

[[Page 247]]

the communication has knowledge that the proceeding will be noticed, the 
prohibitions apply from the time such knowledge is acquired.



Sec. 622.8  Rules of evidence.

    (a) Evidence. Every party shall have the right to present a case or 
defense by oral and documentary evidence, to submit rebuttal evidence, 
and to conduct such cross-examination as may be required for a full and 
true disclosure of the facts. Irrelevant, immaterial or unduly 
repetitious evidence shall be excluded.
    (b) Objections. Objections to the admission or exclusion of evidence 
shall be in short form, stating the grounds of objection relied upon but 
no argument thereon shall be permitted, except as ordered, allowed, or 
requested by the presiding officer. Rulings on such objections and all 
other matters shall be part of the transcript. Failure to object timely 
to the admission or exclusion of evidence or to any ruling constitutes a 
waiver of such objection.
    (c) Stipulations. Independently of the orders or rulings issued as 
provided by Sec. 622.7(b), the parties may stipulate as to any relevant 
matters of fact or the authenticity of any relevant documents. Such 
stipulations may be received in evidence at the hearing, and when so 
received shall be binding on the parties with respect to the matters 
therein stipulated.
    (d) Official notice. All matters officially noticed by the presiding 
officer shall appear on the record.



Sec. 622.9  Subpoenas.

    (a) Issuance. The presiding officer or, in the event he or she is 
unavailable, the Board may issue subpoenas and subpoena duces tecum at 
the request of any party requiring the attendance of witnesses or the 
production of documents at a designated place. The person seeking the 
subpoena may be required, as a condition precedent to the issuance of 
the subpoena, to show the general relevance and reasonable scope of the 
testimony or other evidence sought. Where it appears to the presiding 
officer that a subpoena may be unreasonable, oppressive, excessive in 
scope, unduly burdensome, or delay the proceeding, the presiding officer 
has discretion to refuse to issue a subpoena or to issue it only upon 
such conditions as fairness requires.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance but in no event more 
than 10 days after the date the subpoena was served, with notice to the 
party requesting the subpoena, apply to the presiding officer, or in the 
event he or she is unavailable to the Board, to quash or modify the 
subpoena, accompanying such application with a brief statement of the 
reasons therefor. The presiding officer may deny the application or, 
upon notice to the party on whose behalf the subpoena was issued and 
after affording that party an opportunity to reply, may quash or modify 
the subpoena or impose reasonable conditions including, in the case of a 
subpoena duces tecum, a requirement that the party on whose behalf the 
subpoena was issued pay in advance the reasonable cost of copying and 
transporting the documentary evidence to the designated place.
    (c) Service of subpoena. A subpoena may be served upon the person 
named therein by personal service or certified mail with a return 
receipt to the last known address of the person. The fees for one day's 
attendance and mileage as specified in paragraph (d) of this section 
must be tendered at the time of service unless the subpoena is issued on 
behalf of the FCA. If personal service is made by a U.S. marshal, a 
deputy U.S. marshal, or an employee of the FCA, such service shall be 
evidenced by the return thereon. If personal service is made by any 
other person, such person shall sign an affidavit describing the manner 
in which service is made, and return such affidavit with a copy of the 
subpoena. In case of failure to make service, reasons for the failure 
shall be stated on the original subpoena. The original or a copy of the 
subpoena, bearing or accompanied by the required return, affidavit, 
statement or return receipt, shall be returned without delay to the 
presiding officer.
    (d) Attendance of witnesses. The attendance of witnesses at a 
designated place may be required from any place in any State or 
territory subject to the

[[Page 248]]

jurisdiction of the United States. Witnesses who are subpoenaed shall be 
paid the same fees and mileage that are paid witnesses in the district 
courts of the United States. Fees required by this paragraph shall be 
paid by the party upon whose application the subpoena is issued.
    (e) Production of documents. The production of documents at a 
designated place may be required from any place in any State or 
territory subject to the jurisdiction of the United States. In lieu of 
an original document, a certified or authenticated copy may be produced. 
However, any party has the right to inspect the original document.



Sec. 622.10  Depositions.

    (a) Application to take deposition. Any party desiring to take the 
deposition of any person shall make written application to the presiding 
officer setting forth the name and address of the witness, the subject 
matter concerning which the witness is expected to testify, its 
relevance, the time and place of the deposition, and the reasons why 
such deposition should be taken. The application may include a request 
that specified documents be produced at the deposition. A copy of the 
application shall be served on the other parties at the same time the 
application is filed with the presiding officer.
    (b) Subpoena; notice to other parties. Upon a showing that the 
testimony or other evidence sought will be material, and the taking of 
the deposition will not result in any undue burden to the witness or any 
party or undue delay of the proceedings, the presiding officer may issue 
a subpoena or subpoena duces tecum. Notice of the issuance of such 
subpoena shall be served upon all parties at least 10 days in advance of 
the date set for deposition.
    (c) Deposition by notice. The requirements of paragraphs (a) and (b) 
of this section may be waived by agreement of the parties and the 
witness whose testimony or documentary evidence is sought. Such 
agreement shall be embodied in a stipulation which becomes part of the 
record and may provide for the taking of depositions upon notice without 
leave of the presiding officer.
    (d) Procedure on deposition. Depositions may be taken before any 
person having the power to administer oaths. Each witness whose 
testimony is taken by deposition shall be duly sworn before any question 
is propounded. Examination and cross-examination of deponents may 
proceed as permitted at the hearing. Objections to questions or 
documents shall be in short form, stating the grounds relief upon for 
the objection. Failure to object to questions or evidence is deemed a 
waiver if the ground of the objection is one which might have been 
obviated or removed if presented at that time. The questions propounded 
and the answers thereto, together with all objections made (but not 
including argument or debate) shall be recorded by or under the 
direction of the person before whom the deposition is taken. The 
deposition shall be signed by the witness, unless the parties by 
stipulation waive the signing or the witness is physically unable to 
sign, cannot be found, or refuses to sign. The deposition shall also be 
certified as a true and complete transcript by the person recording the 
testimony. If the deposition is not signed by the witness, the person 
recording the testimony shall state this fact and the reason therefor on 
the record. The person before whom the deposition is taken shall 
promptly file the transcript and all exhibits with the presiding 
officer. Interested parties shall make their own arrangements with the 
person recording the testimony for copies of the testimony and exhibits.
    (e) Introduction as evidence. Subject to appropriate rulings by the 
presiding officer on such objections and answers as were noted at the 
time the deposition was taken or as would be valid were the witness 
personally present and testifying at the hearing, the deposition or any 
part thereof may be received in evidence by the presiding officer in his 
or her discretion. Only such part of a deposition as is received in 
evidence at a hearing shall constitute a part of the record upon which a 
decision may be based.
    (f) Payment of fees. Deponents whose depositions are taken and the 
reporter taking the same shall be entitled to the same fees as are paid 
for like services in the district courts of the United States, which 
fees shall be paid by the

[[Page 249]]

party upon whose application the deposition is taken.



Sec. 622.11  Motions.

    (a) How made. An application or request for an order or ruling not 
otherwise specifically provided for in this subpart, unless made during 
a hearing, shall be made by written motion supported by a memorandum 
which concisely states the grounds therefor.
    (b) Opposition. Within 10 days after service of any written motion, 
or within such other period of time as may be fixed by the presiding 
officer, any party may file a memorandum in opposition thereto. The 
moving party has no right to reply except as permitted by the presiding 
officer. The presiding officer has discretion to waive the requirements 
of this section as to motions for extension of time and may rule upon 
such motions ex parte.
    (c) Oral argument. No oral argument will be heard on motions except 
as otherwise directed by the presiding officer or the Board.
    (d) Rulings and orders. Except as otherwise provided in this 
subpart, the presiding officer shall rule on all motions and may issue 
appropriate orders, except that motions may be referred to the Board if 
the presiding officer is unavailable or determines that such motion 
should be referred to the Board. Prior to the appointment of a presiding 
officer and after a recommended decision is filed pursuant to Sec. 
622.12, the Board shall rule on motions filed by the parties.
    (e) Appeal from rulings on motions. All answers, motions, objections 
and rulings shall become part of the record. Rulings of a presiding 
officer on any motion may not be appealed to the Board prior to its 
consideration of the presiding officer's recommended decision, except by 
special permission of the Board. However, such rulings shall be 
considered by the Board in reviewing the record. Requests to the Board 
for special permission to appeal from a ruling of the presiding officer 
shall be filed in writing within 5 days of the ruling, and shall briefly 
state the grounds relied on. The moving party shall immediately serve a 
copy thereof on every other party to the proceeding who may then respond 
to such request within 5 days after service.
    (f) Continuation of hearing. Unless otherwise ordered by the 
presiding officer or the Board, the hearing shall continue pending the 
determination of any request or motion by the Board.



Sec. 622.12  Proposed findings and conclusions; recommended decision.

    (a) Proposed findings and conclusions by parties. Within 30 days 
after the hearing transcript has been filed, any party may file proposed 
findings of fact and conclusions of law. Such proposals shall be 
supported by citation of such statutes, decisions, and other 
authorities, and by specific page references to such portions of the 
record as may be relevant. All such proposals shall become a part of the 
record.
    (b) Recommended decision by presiding officer. Within 30 days after 
the expiration of time allowed under paragraph (a) of this section, or 
within such further time as the Board for good cause allows, the 
presiding officer shall file the entire hearing record, including a 
recommended decision and findings and conclusions, the transcript, 
exhibits (including on request of any of the parties any exhibits 
excluded from evidence or tender of proof), exceptions, rulings and all 
briefs and memoranda filed in connection with the hearing. Promptly upon 
such filing, the presiding officer shall serve a copy of the recommended 
decision, findings and conclusions upon each party to the proceeding.
    (c) Board as presiding officer. In proceedings in which the Board or 
one or more of its members has presided at the reception of evidence, 
the presiding officer's recommended decision, findings of fact, and 
conclusions of law will be omitted. In such proceedings the proposed 
findings and conclusions, briefs, and other submissions permitted under 
paragraph (a) of this section shall be filed with the Board for 
consideration.



Sec. 622.13  Exceptions.

    (a) Filing. Within 15 days after service of the recommended decision 
of the presiding officer, any party may file exceptions thereto or to 
any portion

[[Page 250]]

thereof, or to the failure of the presiding officer to make any 
recommendation, finding, or conclusion, or to the admission or exclusion 
of evidence, or to any other ruling of the presiding officer.
    (b) Contents. Each exception shall be supported by a concise 
argument and by citation of such statutes, decisions and other 
authorities, and by page references to such portions of the record as 
may be relevant. If the exception relates to the admission or exclusion 
of evidence, the substance of the evidence admitted or excluded shall be 
set forth in the brief with appropriate references to the transcript.
    (c) Waiver. Failure of a party to file exceptions to those matters 
specified in paragraph (a) of this section within the time prescribed 
shall be a waiver of objection thereto.



Sec. 622.14  Briefs.

    (a) Contents. Any brief filed in a proceeding shall be confined to 
the particular matters in issue, citing statutes, decisions, and other 
authorities, and page references to such portions of the record or the 
recommended decision of the presiding officer as may be relevant.
    (b) Reply briefs. Reply briefs may be filed within 10 days after 
service of original briefs of opposing parties, and shall be confined to 
matters in such briefs. Further briefs may be filed only with permission 
of the presiding officer or the Board with respect to a matter before 
the Board.
    (c) Delayed filing. Briefs not filed on or before the time fixed in 
this subpart or by the presiding officer will be received only upon 
special permission of the Board.



Sec. 622.15  Oral argument before the Board.

    Upon its own initiative or upon written request by any party, the 
Board, in its discretion, may order the matter to be set down for oral 
argument before the Board or one or more members thereof. Any request 
for oral argument by a party filing exceptions shall be made within the 
time prescribed for filing such exceptions, or by any other party, 
within the time prescribed for the filing of a reply brief. Oral 
argument before the Board shall be recorded unless otherwise ordered by 
the Board.



Sec. 622.16  Notice of submission to the Board.

    Upon the filing of the record with the Board, and upon the 
expiration of the time for the filing of exceptions and all briefs, 
including reply briefs or any further briefs permitted by the presiding 
officer or the Board, and upon the hearing of oral argument by the 
Board, if ordered by the Board, the Board shall notify the parties in 
writing that the case has been submitted for final decision.



Sec. 622.17  Decision of the Board.

    Any person who has not engaged in the performance of investigative 
or prosecuting functions in the case, or in a factually related case, 
may advise and assist the Board in the consideration of the case. Copies 
of the decision and order of the Board shall be served upon the parties. 
A copy of the order will also be sent to the supervisory bank if the 
order relates to a System association, director, officer, or other 
person participating in the conduct of the affairs of the association.



Sec. 622.18  Filing.

    (a) Filing. Papers required or permitted to be filed with the Board 
shall be filed with the Chairman of the Board, FCA, 1501 Farm Credit 
Drive, McLean, VA 22102-5090 or with the person designated to receive 
papers for the agency in a proceeding. Papers sent by mail must be 
postmarked or received within the prescribed time limit for filing. 
Papers sent by any other means must be received within the prescribed 
time limit for filing.
    (b) Formal requirements. All filed papers shall be printed, 
typewritten, or otherwise reproduced, and copies shall be clear and 
legible. The original of all papers filed by a party shall be signed and 
dated as of the date of execution by the party filing the same, or a 
duly authorized agent or attorney. The signer's address and telephone 
number must appear on the original. Counsel for the FCA shall sign the 
original of all papers filed on behalf of the FCA.

[[Page 251]]

All papers filed must name in the heading or on a title page, the 
parties, the docket number and the subject of the papers.
    (c) Copies. Parties shall file an original and three copies of all 
documents and papers required or permitted to be filed under this 
subpart (except the transcript of testimony and exhibits), unless 
otherwise specifically provided by the Board.



Sec. 622.19  Service.

    (a) Service. Except as otherwise provided in these rules, each party 
who files papers is responsible for serving a copy thereof upon the 
presiding officer and upon every other party or the attorney or 
representative of record of that party. A copy of all papers filed by 
the presiding officer or the Board, except for the transcript of 
testimony and exhibits, shall be served upon each of the parties. 
Service may be by personal service, private delivery service, or by 
express, certified or regular first-class mail. If a party is not 
represented, service shall be made at the last known address of the 
party or an officer thereof as shown on the records of the FCA.
    (b) Proof of service. Proof of service of papers filed by a party 
shall be filed before action is to be taken thereon. The proof shall 
show the date and manner of service, and may be by written 
acknowledgment of service, by declaration of the person making service, 
or by certificate of an attorney or other representative of record. 
Failure to make proof of service shall not affect the validity of 
service. The presiding officer may allow the proof to be amended or 
supplied, unless to do so would result in material prejudice to a party.



Sec. 622.20  Documents in proceedings confidential.

    Unless otherwise ordered by the Board or required by law, the entire 
record in any proceeding under this subpart, including the notice of 
hearing, transcript, exhibits, proposed findings and conclusions, 
recommended decision of the presiding officer, exceptions thereto, 
decision and order of the Board, and any other papers which are filed in 
connection with the proceeding shall not be made public, and shall be 
for the confidential use only of the FCA and its staff, the presiding 
officer, the parties, and other appropriate supervisory authorities.



Sec. 622.21  Computing time.

    (a) General rule. In computing any period of time prescribed or 
allowed by this subpart, the date of the act or event from which the 
designated period of time begins to run is not to be included. The last 
day so computed shall be included, unless it is a Saturday, Sunday or 
Federal holiday, in which event the period shall run until the end of 
the next day which is not a Saturday, Sunday, or Federal holiday. When 
the period of time prescribed or allowed is 10 days or less, 
intermediate Saturdays, Sundays, and Federal holidays shall not be 
included in the computation.
    (b) Service by mail. Whenever any party has the right or is required 
to do some act within the period of time prescribed in this subpart 
after the service upon the party of any document or other paper of any 
kind, and such service is made by mail, three days shall be added to the 
prescribed period from the date when the matter served is deposited in 
the United States mail.



Sec. 622.22  Retained authority.

    Nothing is this part is in derogation of powers of examination and 
investigation conferred on the FCA by any provision of law.



Sec. Sec. 622.23-622.50  [Reserved]



 Subpart B_Rules and Procedures for Assessment and Collection of Civil 
                             Money Penalties

    Source: 53 FR 27284, July 19, 1988, unless otherwise noted.



Sec. 622.51  Definitions.

    Unless noted otherwise, the definitions set forth in Sec. 622.2 of 
subpart A shall apply to this subpart.

[[Page 252]]



Sec. 622.52  Purpose and scope.

    The rules and procedures specified in this subpart and in subpart A 
are applicable to proceedings by the FCA to assess and collect civil 
money penalties:
    (a) For a violation of the terms of a final cease and desist order 
issued under section 5.25 or 5.26 of the Act, or
    (b) For violation of any provision of the Act or any regulation 
issued under the Act.



Sec. 622.53  Notification of alleged violations.

    Before determining whether to assess a civil money penalty and 
determining the amount of such penalty, the FCA shall notify the 
institution or person to be assessed of the violation(s) alleged to have 
occurred or to be occurring, and shall solicit the written views of the 
institution or person regarding the imposition of such penalty.



Sec. 622.54  Relevant considerations.

    In determining the amount of any penalty assessed, the FCA shall 
consider the financial resources and good faith of the institution or 
person charged, the gravity of the violation, any previous violations, 
and such other matters as justice may require.



Sec. 622.55  Notice of assessment of civil money penalty.

    (a) Notice of assessment. After considering any written materials 
submitted in accordance with Sec. 622.53 and the factors stated in 
Sec. 622.54, the FCA shall commence a civil money penalty proceeding 
with the issuance of a notice of assessment of a civil money penalty. 
The notice of assessment shall state:
    (1) The legal authority for the assessment;
    (2) The amount of the civil money penalty being assessed;
    (3) The date by which the civil money penalty shall be paid;
    (4) The matter of fact or law constituting the grounds for 
assessment of the civil money penalty;
    (5) The right of the institution or person being assessed to a 
formal hearing to challenge the assessment in accordance with 12 U.S.C. 
2268(c) and (d);
    (6) That failure to request a hearing constitutes a waiver of the 
opportunity for a hearing and the notice of assessment shall constitute 
a final and unappealable order in accordance with 12 U.S.C. 2268(c); and
    (7) The time limit to request such a formal hearing.
    (b) Service. The notice of assessment may be served upon the 
institution or person being assessed by personal service or by certified 
mail with a return receipt to the institution's or the person's last 
known address. Such service constitutes issuance of the notice.



Sec. 622.56  Request for formal hearing on assessment.

    An institution or person being assessed may request a formal hearing 
to challenge the assessment of a civil money penalty. The request must 
be filed in writing, within 10 days of the issuance of the notice of 
assessment, with the Chairman of the Board, FCA, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.



Sec. 622.57  Waiver of hearing; consent.

    (a) Waiver. Failure to request a hearing pursuant to Sec. 622.56 
constitutes a waiver of the opportunity for a hearing and the notice of 
assessment issued pursuant to Sec. 622.55 shall constitute a final and 
unappealable order.
    (b) Consent. Any party afforded a hearing who does not appear at the 
hearing personally or by a duly authorized representative is deemed to 
have consented to the issuance of an assessment order.



Sec. 622.58  Hearing on assessment.

    (a) Time and place. An institution or person requesting a hearing 
shall be informed by order of the Board of the time and place set for 
hearing.
    (b) Answer; procedures. The hearing order may require the 
institution or person requesting the hearing to file an answer as 
prescribed in Sec. 622.5 of subpart A. The procedures of the 
Administrative Procedure Act (5 U.S.C. 554-557) and subpart A of these 
rules shall apply to the hearing.



Sec. 622.59  Assessment order.

    (a) Consent. In the event of consent of the parties concerned to an 
assessment, or if, upon the record made at a hearing ordered under this 
subpart, the Board finds that the grounds for having

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assessed the penalty have been established, the Board may issue an order 
of assessment of civil money penalty. In its assessment order, the Board 
may reduce the amount of the penalty specified in the notice of 
assessment.
    (b) Effective date and period. An assessment order is effective 
immediately upon issuance, or upon such other date as may be specified 
therein, and shall remain effective and enforceable unless it is stayed, 
modified, terminated, or set aside by action of the board or a reviewing 
court.
    (c) Service. An assessment order may be served by personal service 
or by certified mail with a return receipt to the last known address of 
the institution or person being assessed. Such service constitutes 
issuance of the order.



Sec. 622.60  Payment of civil money penalty.

    (a) Payment date. Generally, the date designated in the notice of 
assessment for payment of the civil money penalty will be 60 days from 
the issuance of the notice. If, however, the Board finds, in a specific 
case, that the purposes of the statute would be better served if the 60-
day period were changed, the Board may shorten or lengthen the period or 
make the civil money penalty payable immediately upon receipt of the 
notice of assessment. If a timely request for a formal hearing to 
challenge an assessment of a civil money penalty is filed, payment of 
the penalty shall not be required unless and until the Board issues a 
final order of assessment following the hearing. If an assessment order 
is issued, it will specify the date by which the civil money penalty is 
to be paid or collected.
    (b) Method of payment. Checks in payment of civil money penalties 
should be made payable to the ``Farm Credit Administration.'' Upon 
collection, the FCA shall forward the amount of the penalty to the 
Treasury of the United States.



Sec. 622.61  Adjustment of civil money penalties by the rate of 

inflation under the Federal Civil Penalties Inflation Adjustment 
Act of 1990, as amended.

    The maximum amount of each civil money penalty within FCA's 
jurisdiction is adjusted in accordance with the Federal Civil Penalties 
Inflation Adjustment Act of 1990, as amended (28 U.S.C. 2461 note), as 
follows:
    (a) Amount of civil money penalty imposed under section 5.32 of the 
Act for violation of a final order issued under section 5.25 or 5.26 of 
the Act: the maximum daily amount is $1,100.
    (b) Amount of civil money penalty for violation of the Act or 
regulations:

------------------------------------------------------------------------
                                             The maximum  daily  amount
        If the violation occurred--                     is--
------------------------------------------------------------------------
Before October 23, 1996...................  $500
On or after October 23, 1996..............  $550
------------------------------------------------------------------------


[67 FR 68932, Nov. 14, 2002]



Sec. Sec. 622.62-622.75  [Reserved]



Subpart C_Rules and Procedures Applicable to Suspension or Removal of an 
          Individual Where Certain Crimes Are Charged or Proven



Sec. 622.76  Definitions.

    Unless noted otherwise, the definitions set forth in Sec. 622.2 of 
subpart A shall apply to this subpart.



Sec. 622.77  Purpose and scope.

    The rules and procedures set forth in this subpart apply to informal 
hearings afforded to any officer, director, or other person 
participating in the conduct of the affairs of a System institution who 
has been suspended or removed from office or prohibited from further 
participation in any manner in the conduct of the institution's affairs 
by a notice or order issued by the Board upon the grounds set forth in 
section 5.29 of the Act.



Sec. 622.78  Suspension, prohibition or removal.

    (a) Content. The Board may serve a notice of suspension or 
prohibition or order of removal upon a director, officer or other person 
participating in the conduct of the affairs of an institution. A copy of 
such notice or order shall also be served upon the institution, 
whereupon the individual concerned shall immediately cease service to 
the institution or participation in the affairs of the institution. Any 
notice or

[[Page 254]]

order shall indicate the basis for the suspension, prohibition, or 
removal and shall inform the individual of the right to request in 
writing, within 30 days of being served with such notice or order, an 
opportunity to show at an informal hearing that continued service to or 
participation in the conduct of the affairs of the institution does not, 
or is not likely to, pose a threat to the interests of the institution's 
shareholders or the investors in Farm Credit System obligations or 
threaten to impair public confidence in the institution or the Farm 
Credit System.
    (b) Service. A notice or order of suspension, removal or prohibition 
may be served by personal service or by certified mail with a return 
receipt to the last known address of the person being served.



Sec. 622.79  Petition for informal hearing.

    (a) Filing. To obtain a hearing, the subject individual must file an 
original and three copies of a petition with the Board within 30 days of 
being served with the notice or order.
    (b) Content. The petition shall:
    (1) State whether the petitioner is requesting termination or 
modification of the notice or order;
    (2) State with particularity how the petitioner intends to show that 
his or her continued service to or participation in the conduct of the 
affairs of the institution would not, or is not likely to, pose a threat 
to the interests of the institution's shareholders or the investors in 
Farm Credit System obligations or threaten to impair public confidence 
in the institution or the Farm Credit System;
    (3) Include a request to present oral testimony or witnesses at the 
hearing, if the petitioner desires to do so. The request should specify 
the names of the witnesses and a summary of their expected testimony; 
and
    (4) Indicate whether the petitioner desires oral argument or elects 
to have the matter determined solely on the basis of written 
submissions.



Sec. 622.80  Informal hearing.

    (a) Time and place. Upon receipt of a timely petition for a hearing, 
the Board shall notify the petitioner of the time and place fixed for 
the hearing and shall designate one or more Board members or FCA 
employees to preside (``designated FCA representative''). The hearing 
shall be scheduled to be held no later than 30 days from the date a 
petition for hearing is received unless the time is extended at the 
request of the petitioner. Notice of the hearing shall also be sent to 
the FCA's Office of General Counsel.
    (b) Appearance. A petitioner may appear personally or through 
counsel to submit relevant written materials and oral argument. An 
attorney is subject to all the requirements and limitations imposed on 
attorneys in Sec. 622.3 of subpart A. A representative(s) of the FCA's 
Office of General Counsel may participate in the hearing to the extent 
such representative deems appropriate.
    (c) Written material. Any written material the petitioner wishes to 
have considered must be submitted to the designated FCA representative 
and the FCA's Office of General Counsel at least 10 days prior to the 
date of the hearing.
    (d) Oral testimony. Oral testimony may be presented only if 
expressly permitted by the Board in the notice of hearing. The 
designated FCA representative may ask questions of any witness.
    (e) Transcripts. Oral testimony, if any, and oral argument shall be 
recorded. A copy of the transcript shall be filed with the designated 
FCA representative, who shall have authority to correct the record sua 
sponte upon notice, or upon the motion of the petitioner or the 
representative of the FCA's Office of General Counsel. The designated 
FCA representative shall promptly serve notice upon the petitioner and 
the FCA's Office of General Counsel of such filing. Such parties shall 
make arrangements with the person recording the testimony or argument 
for copies of the transcript.
    (f) Closing of record. Upon the request of the petitioner or 
representative of the FCA's Office of General Counsel, the record shall 
remain open for a period of 5 business days following the hearing, 
during which time additional submissions for the record may be made. 
Thereafter, the record shall be closed.

[[Page 255]]

    (g) Rules of evidence and procedure. Neither the formal rules of 
evidence nor the adjudicative procedures of the Administrative Procedure 
Act (5 U.S.C. 554-557) or subpart A of these rules shall apply to the 
informal hearing ordered under this subpart unless the Board orders that 
they apply in whole or in part.



Sec. 622.81  Default.

    If the subject individual fails to file a petition for a hearing, or 
fails to appear at a hearing, either in person or by an attorney, or 
fails to submit a written argument where oral argument has been waived, 
the notice shall remain in effect until the information, indictment, or 
complaint is finally disposed of and the order shall remain in effect 
until terminated by the Board.



Sec. 622.82  Decision of the Board.

    (a) Recommended decision. Within 30 days of the hearing, the 
designated FCA representative shall make a recommendation with findings 
and conclusions to the Board concerning the notice or order of 
suspension, removal, or prohibition.
    (b) Final decision. Within 60 days of the hearing, the Board shall 
notify the subject individual and the FCA's Office of General Counsel 
whether the suspension or removal from office, or prohibition from 
participation in any manner in the affairs of the institution, will be 
continued, terminated, or otherwise modified. The Board's final 
decision, if adverse to the individual, shall contain a statement of the 
basis thereof. The Board may satisfy this requirement where it adopts 
the recommended decision of the designated FCA representative.
    (c) Guilt not an issue. In deciding upon any suspension of 
prohibition by notice, the ultimate question of the guilt or innocence 
of the individual with respect to the criminal charge that is 
outstanding will not be considered. A finding of not guilty or other 
disposition of the charge shall not preclude the Board from thereafter 
instituting removal proceedings pursuant to section 5.28 of the Act.
    (d) Effective period. A removal or prohibition by order remains in 
effect until terminated by the Board. A suspension or prohibition by 
notice remains in effect until the criminal charge is finally disposed 
of or until terminated by the Board.
    (e) Reconsideration. A suspended or removed individual may petition 
the Board to reconsider the decision any time after the expiration of a 
12-month period from the date of the decision, but no petition for 
reconsideration may be made within 12 months of a previous petition. A 
petition shall state with particularity the relief sought and the 
grounds therefor and may be accompanied by a supporting memorandum and 
any other documentation the petitioner wishes to have considered. No 
hearing need be granted on the petition for reconsideration.



Sec. Sec. 622.83-622.100  [Reserved]



   Subpart D_Rules and Procedures Applicable to Formal Investigations



Sec. 622.101  Definitions.

    Unless noted otherwise, the definitions set forth in Sec. 622.2 of 
subpart A shall apply to this subpart.



Sec. 622.102  Scope.

    The rules in this subpart apply to formal investigations initiated 
by order of the Board and pertain to the exercise of powers specified in 
section 5.37 of the Act. These rules do not restrict or in any way 
affect the authority of the FCA, including but not limited to the powers 
enumerated in section 5.37 of the Act, to conduct examinations of System 
institutions.



Sec. 622.103  Formal investigations are confidential.

    Information or documents obtained or testimony recorded in the 
course of a formal investigation shall be confidential and shall be 
disclosed only in accordance with the provisions of 12 CFR part 602.



Sec. 622.104  Order to conduct formal investigation.

    A formal investigation begins with the issuance of an order by the 
Board. The order shall designate the person or

[[Page 256]]

persons who will conduct the investigation, issue, revoke, quash or 
modify subpoenas and subpoenas duces tecum, take or cause to be taken 
depositions, administer oaths, and receive affirmations as to any matter 
under investigation by the FCA. Upon application and for good cause 
shown, the Board may limit, modify, or withdraw the order at any stage 
of the proceeding.



Sec. 622.105  Conduct of investigation.

    (a) Review of order. Any person who is compelled or requested to 
furnish testimony, documentary evidence, or other information with 
respect to any matter under formal investigation shall upon request be 
shown the order initiating such investigation.
    (b) Right to counsel. Any person who, in a formal investigation, is 
compelled to appear and testify or who appears and testifies by request 
or permission of the Board may be accompanied, represented, and advised 
by counsel. The right to be accompanied, represented, and advised by 
counsel shall mean the right of a person testifying to have an attorney 
present at all times while testifying and to have this attorney:
    (1) Advise such person before, during and after the conclusion of 
testimony;
    (2) Question such person briefly at the conclusion of testimony to 
clarify any of the answers given; and
    (3) Make summary notes during the testimony solely for the use of 
such person.
    (c) Appearance. The provisions of Sec. 622.3 are applicable to this 
subpart.
    (d) Exclusion. (1) Any person who has given or will give testimony, 
and counsel representing such person, may be excluded from the taking of 
testimony of any other witness in the discretion of the designated FCA 
representative conducting the investigation.
    (2) The designated FCA representative conducting the investigation 
shall report to the Board any instances where any person has been guilty 
of dilatory, obstructionist, egregious, contemptuous, contumacious or 
other unethical or improper conduct during the course of the proceeding 
or any other instance involving a violation of these rules. The Board 
may thereupon take such action as the circumstances may warrant, 
including exclusion of the offending individual or individual from 
participation in the proceeding.



Sec. 622.106  Service of subpoena and payment of witness fees.

    (a) Service. A subpoena may be served upon the person named therein 
by personal service or certified mail with a return receipt to the last 
known address of the person. Witnesses who are subpoenaed shall be paid 
the same fees and mileage that are paid witnesses in the district courts 
of the United States. The fees and mileage need not be tendered at the 
time a subpoena is served.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance, but in no event more 
than 5 days after the date of service of such subpoena, apply to the FCA 
representative authorized in the order, or if unavailable to the Board, 
to quash or modify such subpoena, accompanying such application with a 
brief statement of the reasons therefor. The FCA representative, or the 
Board, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
FCA representative or the Board, determines in his, her, or its 
discretion, to be just, reasonable, and proper.



Sec. 622.107  Transcripts.

    Transcripts, if any, of an investigative proceeding shall be 
recorded by any means authorized by the designated FCA representative 
conducting the investigation. A person who has given testimony in an 
investigative proceeding (or counsel for such person) upon proper 
identification shall have the right to inspect the transcript of the 
person's testimony but may not obtain a copy if the FCA's representative 
conducting the investigation has cause to believe that the contents 
should not be disclosed.



PART 623_PRACTICE BEFORE THE FARM CREDIT ADMINISTRATION--Table of Contents

Sec.
623.1 Scope of part.
623.2 Definitions.

[[Page 257]]

623.3 Who may practice.
623.4 Suspension and debarment.
623.5 Reinstatement.
623.6 Duty to file information concerning adverse judicial or 
          administrative action.
623.7