[Federal Register Volume 65, Number 80 (Tuesday, April 25, 2000)]
[Rules and Regulations]
[Pages 24101-24102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9955]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Rules
and Regulations
[[Page 24101]]
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052-AB87
Loan Policies and Operations; Participations
AGENCY: Farm Credit Administration (FCA).
ACTION: Final rule.
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SUMMARY: This final rule deletes requirements for a Farm Credit System
(Farm Credit or System) institution to provide notice to or seek
consent from other System institutions when it buys participation
interests in loans originated outside its chartered territory.
Repealing these notice and consent requirements can help increase the
flow and availability of agricultural credit and help diversify
geographic and industry concentrations in the loan portfolios of Farm
Credit banks and associations. As a result of this rule, a Farm Credit
bank or association will no longer need approval from other System
institutions when it buys participations in loans from non-System
lenders.
EFFECTIVE DATE: These regulations will become effective 30 days after
publication in the Federal Register during which either one or both
houses of Congress are in session. We will publish a notice of the
effective date in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
S. Robert Coleman, Senior Policy Analyst, Office of Policy and
Analysis, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4498, TDD (703) 883-4444; or
Richard A. Katz, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090. (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
I. Objective
Our objectives are to:
Increase the flow and availability of agricultural credit
to farmers, ranchers, and aquatic producers;
Diversify geographic and industry concentrations in the
loan portfolios of Farm Credit banks and associations; and
Remove notice and consent requirements for loan
participations purchased from non-System lenders.
II. Background
We repeal the notice and consent requirements that apply to loan
participations between Farm Credit and non-System lenders. As a result,
a System bank or association will no longer need approval from other
Farm Credit institutions when it buys participations in loans that non-
System lenders make outside of the purchaser's chartered territory.
This final rule does not affect loan participations between System
institutions. We have never required consent for intra-System
participations because the originating lender's consent is implicit
when it offers the participation.
On November 9, 1998, we published a proposal to repeal several
regulations that restrict your institution's authority to make loans,
buy loan participations, and offer related services outside your
chartered territory. See 63 FR 60219. On December 16, 1998, we
extended the comment period until May 10, 1999. See 63 FR 69229.
We received over 270 comment letters on the proposed rule. No
commenter cited any statutory provision that restricts the authority of
System banks and associations to participate in loans outside of their
chartered territory. Only one comment letter mentioned the statutory
authorities of System institutions to participate in loans.
Separately, three System associations asked us for permission to
participate in loans in the territory of other System institutions
without consent. These institutions wanted to diversify credit and
concentration risks in their loan portfolios and help farmers and
ranchers by increasing the liquidity of non-System lenders.
III. Removing Notice and Consent Requirements for Loan
Participations
Removing the geographic restrictions on loan participation
authorities will allow System lenders and non-System lenders to work
together at a time when the agricultural economy is experiencing
significant stress. Currently, farmers and ranchers are suffering from
weak commodity prices, depressed export markets, drought, and reduced
production.
Our final rule will benefit farmers, System institutions, and non-
System lenders such as commercial banks and the finance arms of farm
supply businesses and equipment dealers. Sound loan participation
programs can increase the availability of agricultural credit to
farmers and ranchers. System banks and associations can increase the
liquidity of community banks and independent finance companies by
purchasing participation interests in loans that these lenders make to
farmers and ranchers. System institutions can also diversify geographic
and industry concentrations in their loan portfolios by buying
participation interests in sound credits made in a larger geographic
territory. Cooperation among System and non-System lenders can increase
agricultural credit availability, particularly during downturns in the
economic cycle, such as the one that agriculture is currently
experiencing.
Our former regulations restricted out-of-territory loan
participations for policy reasons. Agriculture and financial markets
have changed dramatically over the past 20 years. Commercial lenders
have consolidated and are subject to few restrictions on their
authority to lend to farmers throughout the United States. As a result,
our former regulations are outdated because the System cannot
effectively work with non-System lenders to most efficiently deliver
credit to agriculture and rural America.
In recent years, we have eliminated non-statutory restrictions that
prevent System institutions from leasing and participating in similar
entity \1\ loans outside of their territories. This rule extends our
policy to loan participations purchased from non-System lenders. This
final rule creates a consistent policy that allows System banks and
associations to participate in loans that
[[Page 24102]]
non-System institutions make to both eligible borrowers and similar
entities that operate in the chartered territory of other System
institutions.
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\1\ 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. See sections 3.1(11)(B)(ii) and 4.18A(a)(2)
of the Act.
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The final rule does not authorize direct lender associations to
exercise lending authority outside their chartered territory without
consent. Furthermore, buying out-of-territory loan participation does
not change the chartered territory of any System institution. In buying
participations in loans that non-System lenders originate, a System
institution is not lending outside its chartered territory.
We believe buying out-of-territory loan participations helps the
System to fulfill its mission to finance agriculture. Our rule enables
the System under section 1.1(a) of the Farm Credit Act of 1971, as
amended (Act) to improve ``the income and well-being of American
farmers and ranchers by furnishing sound, adequate, and constructive
credit * * * to them * * *.'' By eliminating artificial territorial
restrictions for loan participations, we promote cooperation among
creditors, which will in turn benefit farmers, ranchers, and rural
America.
We achieve these objectives by exercising our statutory power to
repeal regulations that restrict the free flow of credit to farmers and
ranchers. The Act specifically allows System banks and associations to
participate with commercial lenders in the types of loans that they can
make. In granting this broad authority, the Act places no geographic
restrictions on where System banks and associations may buy
participations in loans.
List of Subjects in 12 CFR Part 614
Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, part 614 of chapter VI,
title 12 of the Code of Federal Regulations is amended to read as
follows:
PART 614--LOAN POLICIES AND OPERATIONS
1. The authority citation for part 614 continues to read as
follows:
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,
4.13, 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, 2199, 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
Sec. 614.4000 [Amended]
2. Amend Sec. 614.000 as follows:
a. Remove paragraph (d)(2);
b. Remove the words ``and paragraph (d)(2) of this section'' from
paragraph (d)(1);
c. Redesignate paragraphs (d)(1), (d)(1)(i), and (d)(1)(ii) as
paragraphs (d) introductory text, (d)(1) and (d)(2), respectively;
d. Remove the ``:'' at the end of newly designated paragraph (d)(1)
and add ``; and''; and
e. Remove ``; and'' at the end of newly designated paragraph (d)(2)
and add ``.''.
Sec. 614.4010 [Amended]
3. Amend Sec. 614.4010 as follows:
a. Remove paragraph (e)(2);
b. Remove the words ``and paragraph (d)(2) of this section'' from
paragraph (e)(1);
c. Redesignate paragraphs (e)(1), (e)(1)(i), and (e)(1)(ii) as
paragraphs (e) introductory text, (e)(1) and (e)(2), respectively; and
d. Remove ``; and'' at the end of newly designated paragraph (e)(2)
and add ``.''.
Sec. 614.4030 [Amended]
4. Amend Sec. 614.4030 as follows:
a. Remove paragraph (b)(2);
b. Remove the words ``and paragraph (b)(2) of this section'' from
paragraph (b)(1); and
c. Redesignate paragraphs (b)(1), (b)(1)(i), and (b)(1)(ii) as
paragraphs (b) introductory text, (b)(1) and (b)(2), respectively; and
d. Remove the ``:'' at the end of newly designated paragraph (b)(1)
and add ``; and''; and
e. Remove ``; and'' at the end of newly designated paragraph (b)(2)
and add ``.''.
Sec. 614.4040 [Amended]
5. Amend Sec. 614.4040 as follows:
a. Remove paragraph (b)(2);
b. Remove the words ``and paragraph (b)(2) of this section'' from
paragraph (b)(1); and
c. Redesignate paragraphs (b)(1), (b)(1)(i), and (b)(1)(ii) as
paragraphs (b) introductory text, (b)(1) and (b)(2), respectively.
Sec. 614.4050 [Amended]
6. Amend Sec. 614.4050 as follows:
a. Remove paragraph (c)(2);
b. Remove the words ``and paragraph (c)(2) of this section'' from
paragraph (c)(1); and
c. Redesignate paragraphs (c)(1), (c)(1)(i), and (c)(1)(ii) as
paragraphs (c) introductory text, (c)(1) and (c)(2), respectively.
Dated: April 14, 2000.
Vivian L. Portis,
Secretary, Farm Credit Administration Board.
[FR Doc. 00-9955 Filed 4-24-00; 8:45 am]
BILLING CODE 6705-01-M