[Federal Register Volume 74, Number 205 (Monday, October 26, 2009)]
[Proposed Rules]
[Pages 54935-54940]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25668]


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FARM CREDIT ADMINISTRATION

12 CFR Chapter VI

RIN 3052-AC39


Statement on Regulatory Burden

AGENCY: Farm Credit Administration.

ACTION: Final notice of intent.

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SUMMARY: This notice of intent is part of the Farm Credit 
Administration's (FCA, Agency, or we) initiative to reduce regulatory 
burden for Farm Credit System (FCS or System) institutions. Several 
System institutions responded to our June 2008 notice of intent 
inviting comments on FCA regulations that may duplicate other 
requirements, are ineffective, or impose burdens that are greater than 
the benefits received. In response to some of those comments, we plan 
to publish a direct final rule separately in the Federal Register to 
make technical changes and corrections to some of our regulations. This 
notice of intent responds to the comments that address regulatory 
projects we have identified for FCA consideration and regulations we 
are not changing at this time.

FOR FURTHER INFORMATION, CONTACT: 

Jacqueline R. Melvin, Policy Analyst, Office of Regulatory Policy, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TTY (703) 
883-4434; or
Mary Alice Donner, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 
883-4020.

I. Background

    On June 23, 2008, we published a notice of intent in the Federal 
Register inviting the public to comment on FCA regulations that may 
duplicate other requirements, are ineffective, or impose burdens that 
are greater than the benefits received. See 73 FR 35361. We 
specifically requested comments on regulations concerning (1) 
assessment and apportionment of administrative expenses, (2) loan 
policies and

[[Page 54936]]

operations, (3) leasing, (4) borrower rights, (5) general provisions, 
and (6) nondiscrimination in lending. In addition, we received comments 
on regulations concerning (1) organization, (2) standards of conduct 
and referral of known and or suspected criminal violations, (3) 
eligibility and scope of financing, and (4) grounds for appointment of 
conservators and receivers.
    We received letters from AgFirst Farm Credit Bank (AgFirst); 
AgriBank, FCB (AgriBank); CoBank, ACB (CoBank); Farm Credit Bank of 
Texas (FCBT); and the Farm Credit Council (FCC) containing comments 
covering a range of FCA regulations. The purpose of this notice of 
intent is to inform the public of regulations commented on that will 
not be changed in connection with this regulatory burden project. Some 
of the regulations will be retained without amendment because they 
implement statutory requirements or safety and soundness measures that 
cannot be changed or need significant further evaluation before we can 
consider whether changes are appropriate. Many of these comments are 
the same or similar to those we received and considered (but did not 
implement) in the past. Other comments concern regulations that will 
not be changed as part of this regulatory initiative because they are 
the subject of other regulatory initiatives. For example, since June 
2008, we have published proposed rules on director elections and 
effective interest rates. Some comments concerning those issues will be 
considered by the Agency in the development of the respective final 
rule, but not in this regulatory burden notice. FCA's Regulatory 
Performance Plan (RPP) projects those rules going final in December 
2009 and January 2010, respectively. See http://www.fca.gov/law/perf_plan.html. Also, a number of the issues raised by commenters are the 
subject of other regulatory projects scheduled for consideration by the 
FCA as set forth in the RPP and FCA's semiannual Unified Agenda of 
Regulatory and Deregulatory Actions published at www.reginfo.gov. Those 
comments will be considered as part of the regulatory process of those 
projects.
    The following section summarizes the comments we received on 
regulations that (1) we cannot change or are not proposing to change at 
this time, or (2) we will consider in regulatory projects that have 
been identified by the FCA.

II. Regulations That We Are Not Proposing To Change at This Time

A. Organization--Director Elections

    Comments: AgriBank stated that our regulations governing director 
elections inappropriately create the impression that FCA, as an arm's-
length regulator, is the party most capable of determining how the 
owners of an institution should choose their representatives on a board 
of directors. Further, AgriBank stated that stockholders should be 
allowed to nominate and elect directors in any manner they deem 
appropriate, as provided in the Farm Credit Act of 1971, as amended 
(Act), so long as whatever process they choose provides for fair and 
equitable representation for all stockholders.
    FCA Response: The FCA published a proposed rule at 74 FR 17612 on 
April 16, 2009, that would amend FCA rules on System bank and 
association director elections and other voting procedures. The comment 
will be addressed in that rulemaking. We are planning to issue a final 
rule early next year.

B. Standards of Conduct and Referral of Known or Suspected Criminal 
Violations--Joint Officers

    Comments: The FCC stated that the FCA should consider revising 
Sec.  612.2157 prohibiting employment of joint officers by a System 
bank and one of its affiliated associations because some System 
institutions have noted that there may be situations in which the best 
``business case'' practice for cost-effective operations could be the 
use of joint officers. AgriBank stated that Sec.  612.2157 prohibits 
joint officers of a Farm Credit bank and an association in the same 
district and that such a prohibition prevents a Farm Credit bank and 
association from voluntarily combining some or all of the operations of 
the two entities to achieve greater efficiency. AgriBank commented that 
this regulation prevents the members/owners of these institutions, and 
their elected directors, from determining the manner in which they 
choose to operate these interdependent institutions.
    FCA Response: On May 13, 1994, the FCA published a final rule at 59 
FR 24889 prohibiting bank officers from being employed by an 
association in its district to preserve the integrity and independence 
of the supervisory process. However, employees other than officers may 
serve jointly provided each institution appropriately reflects the 
expense of such employees in its financial statements. As illustrated 
in its Unified Agenda, the FCA is conducting a review of its Standard 
of Conduct regulations. In that review, we will consider whether and 
when waivers of certain standards of conduct provisions may be 
permitted. This comment will be considered as part of that review.

C. Eligibility and Scope of Financing--Financing for Farm-Related 
Service Businesses

    Comments: The FCC stated that we should consider a revision to 
Sec.  613.3020 regarding eligibility for farm-related service 
financing. The FCC believes that the Act allows FCA considerable 
discretion in defining the types of businesses eligible to be 
considered ``farm-related'' services and that the 50-percent 
requirement for full financing is too restrictive. To support its 
comment, the FCC stated that in many cases involving farm-related 
businesses the service component is so interwoven with the product 
being provided that an attempt to distinguish the service amount from 
the value of the product can be arbitrary. The FCC also stated that the 
FCA should include ``aquatic-related'' service providers as eligible 
for System financing and that the FCA should undertake a comprehensive 
review of the statutory authority, removing any impediments to 
eligibility for System financing that is not based on the Act.
    FCA Response: This request is beyond the scope of regulatory burden 
and, while we are not proposing any changes to our regulations at this 
time, we will consider this comment in any future reviews of Sec.  
613.3020.

D. Loan Policies and Operations

    Comments: We received numerous comments on part 614 regarding FCA 
regulations on loan policies and operations. The FCC stated that we 
should review Sec.  614.4040 in regard to the required amortization 
period for intermediate-term loans and that loan terms should be based 
on sound lending practices, the borrower's credit strength, and the 
cash flow analysis of the operation. AgriBank stated that while FCA 
regulations limit the amortization of intermediate-term loans to 15 
years, the Act does not. AgriBank added that prohibiting amortization 
over a period greater than 15 years prevents production credit 
associations (PCAs) from being able to meet the needs of creditworthy 
borrowers who desire such terms. AgriBank further stated that Sec.  
614.4040(a) provides that a PCA intermediate-term loan may not be made 
solely for the purpose of acquiring unimproved real estate, and that 
this restriction has no statutory basis and creates inconsistency in 
that it does not apply in situations where the real estate

[[Page 54937]]

offered as security is presently owned by the borrower.
    FCA Response: The Act does not explicitly address amortization 
limits. The FCA may conduct a review to determine if its regulations 
concerning intermediate-term loans should be updated. If such a review 
is conducted, it would include FCA rules concerning amortization. 
However, we are not proposing any changes at this time.
    Comments: The FCBT stated that Sec.  614.4165(b) requires Farm 
Credit banks to develop policies that direct associations to establish 
young, beginning, and small (YBS) farmers and ranchers programs that 
ensure coordination with other System institutions and other 
governmental and private sources of credit and provide reports to the 
funding bank. Section 614.4165(c) requires YBS programs to contain 
other minimum components, including a mission statement, quantitative 
targets, qualitative goals, and methods to ensure safety and soundness. 
Paragraph (d) provides for the supervising bank to review association 
programs, but only with respect to the requirements of paragraph (c) 
and not those of paragraph (b). The FCBT comments that this distinction 
does not appear to be consistent with the Act, serves no apparent 
purpose, and results in a confusing and burdensome differentiation in 
the bank's approval process. The FCBT further stated that the bank's 
approval of the association's program should be based on compliance 
with the bank's policy as provided in the statute.
    FCA Response: We believe Congress intended that YBS programs be 
developed by the System lenders who have the most knowledge of their 
territories. The review and approval requirement is mandated by 
statute, and we developed this section to allow each direct lender 
association the maximum flexibility in creating a YBS program that 
takes into consideration the economy and demographics of its territory, 
as well as its risk-bearing capacity. The review and approval 
requirement was limited in response to comments from System 
institutions received during the notice and comment period for Sec.  
614.4165. The rule recognizes the changing relationship between the 
funding banks and their affiliated associations, and that associations 
operate much more independently from their funding banks. Therefore, we 
are not proposing any changes to our regulations at this time.
    Comments: AgriBank stated that our current definition of ``small'' 
farmers, ranchers, or producers or harvesters of aquatic products (as 
set forth in revised bookletter BL-040, issued on August 10, 2007) 
should be modified to be consistent with small borrower reporting 
utilized by the commercial lending industry, which is based on loan 
size rather than borrower annual gross farm sales. To support its 
comment, AgriBank stated that in adopting a loan size approach to small 
business and small farm reporting, the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, and the Federal 
Reserve Board concluded that the risk of inaccuracy is limited because 
loan size approximately correlates with the size of a business or farm 
borrower.
    FCA Response: The FCA has defined YBS borrowers in a manner to 
minimize burden on the System lenders by using characteristics such as 
age, number of years farming, and gross farm sales. These 
characteristics are most relevant to farming and are consistent with 
the definition of small farmer used by the United States Department of 
Agriculture. We believe our definition of small farmer is the least 
burdensome one to meet the purposes of, and measure performance under, 
section 4.19 of the Act. Therefore, we are not proposing any changes to 
our definition at this time.
    Comment: CoBank stated that the FCA should amend the definition of 
``interests in loans'' in Sec.  614.4325(a)(1) to make clear that it 
includes not only whole loans, but also participation interests since 
both types of interests qualify as ``interests in loans.''
    FCA Response: The FCA's definition of ``interests in loans'' is 
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. We specifically address loan 
participations in Sec.  614.4330, and to amend the definition of 
``interests in loans'' to include loan participations would create 
redundancies and overlap between the regulatory provisions that could 
lead to confusion and contribute to regulatory burden. Therefore, we 
are not proposing any changes to our regulations at this time.
    Comments: The FCC stated that the existing requirements in Sec.  
614.4325(e) for each institution to make an independent judgment on the 
creditworthiness of the borrower may not be cost-effective, and there 
may be alternative methods of making appropriate credit decisions 
regarding purchase of a participation, particularly in cases involving 
a pool of loans. AgriBank stated that System institutions should be 
permitted to underwrite loan participations on a composite analysis 
basis where the purchase of a group or pool of loans would determine 
the extent of analysis required. AgriBank stated that the analysis 
could entail evaluation of the originator's or lead lender's 
underwriting policies and loan-servicing procedures; assessment of 
financial and operating statements; and review of loan pool 
characteristics such as secured/unsecured, term, amortization, minimum/
maximum size, minimum ownership by pool administrator, industry 
concentrations, source of loans, pricing strategy, and reporting 
requirements.
    FCA Response: The overarching intent of this regulation remains 
safety and soundness of the System institutions. While we believe that 
the commenter's suggestion with respect to loan pools may be worthy of 
further review, more research is necessary; therefore, we are not 
proposing any changes to our regulations at this time.
    Comments: CoBank stated that the FCA should consider adding a 
provision in loan purchases and sales similar to Sec.  614.4325(h) that 
explicitly authorizes loan sales, including participations, through the 
use of agents as well. To support its comment, CoBank stated that the 
FCA has expressly allowed agency relationships where one System 
institution performs various functions (e.g., underwriting and 
approval) as agent for a second originating System institution if the 
loan is designated for sale to the agent and as long as they are based 
on standards set forth in board policies and in agreements between two 
System institutions.
    FCA Response: The authority of an FCS institution to purchase loans 
is not commensurate with its authority to sell loans. For example, 
section 1.5(16) of the Act authorizes a Farm Credit bank to sell 
interests in loans to non-System institutions, but authorizes the bank 
to purchase or sell interests in loans to System institutions. Further, 
a System institution has additional fiduciary responsibilities when it 
purchases loans. For example, Sec.  614.4325(e) requires a purchasing 
System institution to make an independent judgment on the 
creditworthiness of the borrower, which judgment may not be delegated 
to any person not employed by the institution. Section 614.4325(h) 
addresses the use of an agent to perform some of the unique 
responsibilities of the purchasing System institution. Because System 
institutions are not subject to the same regulatory and statutory 
requirements, or the same fiduciary responsibilities, when they sell 
loans, a provision parallel to Sec.  614.4325(h) for sales of loans is

[[Page 54938]]

unwarranted. Loans and interests in loans may be sold in accordance 
with each institution's lending authorities as set forth in part 614, 
subpart A. Use of an agent in the sale of loans would be permissible 
subject to subpart A and to the institution's own lending authorities 
and policies. Therefore, we believe that additional regulations 
addressing the use of agents in the sale of loans are unnecessary.
    Comments: AgriBank stated that FCA should remove the provision in 
Sec.  614.4325(h) that obligates a funding bank that serves as agent in 
a transaction to purchase all loans from the association if the 
association determines that the loan does not comply with the terms of 
the agency agreement or the association's loan-underwriting standards. 
AgriBank commented that the purchase obligation creates a perpetual 
contingent liability on the funding bank's balance sheet and that it 
serves no useful purpose and imposes an unacceptable burden. AgriBank 
suggested that, in the alternative, the regulation should be amended to 
require the association's exercise of this ``put'' option within a 
specified period or not more than 12 months, sufficient time to allow 
the association to make its determination.
    FCA Response: Section 614.4325(h)(4) provides that if an 
association's funding bank serves as its agent, the agency agreement 
must provide that the association can terminate the agreement upon no 
more than 60 days notice to the bank and that 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. This provision ensures safety and soundness by 
providing a remedy to an association injured by a bank's breach of the 
agency agreement and minimizes any possible effect of an unequal 
bargaining position between a bank and an association. While we are not 
proposing any changes to the regulations at this time, we may consider 
future rulemaking or guidance that would put a time limit on the 
exercise of the ``buyback'' option if it would facilitate the 
accounting of the selling bank.
    Comments: CoBank stated that Sec.  614.4335(b) should be amended to 
address the stock purchase requirement that impacts loans designated at 
closing for sale (either a 100-percent whole or a 100-percent 
participation interest, including loans closed under an agency 
agreement under which the FCS agent would purchase a 100-percent 
participation or whole loan immediately after loan closing). CoBank 
also stated that the regulation should be amended to permit bylaws to 
provide that the minimum stock purchase requirement shall not apply to 
these types of transactions (similar to how secondary market sales are 
addressed). CoBank commented that such an amendment would address the 
administrative burden of requiring a $1,000 purchase of an originating 
lender's equity by customers whose only contact with the originating 
lender thereafter will be minimal or nonexistent.
    FCA Response: Section 4.3A(f)(1) of the Act allows a bank or 
association's bylaws to provide, in the case of a loan that is 
designated, at the time the loan is made, for sale into a secondary 
market, that no voting stock or participation certificate purchase 
requirement shall apply to the borrower for the loan. The regulatory 
language is parallel to the statutory authority, and to make the change 
suggested would require further inquiry and notice and comment 
rulemaking. It is beyond the scope of this regulatory burden 
initiative, and while we may consider this change in future guidance or 
rulemaking, we are not proposing any changes to our regulations at this 
time.
    Comment: CoBank commented that the FCA should amend Sec.  
614.4337(a) to permit the disclosure to borrowers to be made by the 
purchasing institution with the written consent of the selling 
institution. In the alternative, CoBank suggested that the regulations 
should require the selling institution to copy the purchasing 
institution on its disclosure to the borrower to ensure that the 
purchasing institution can meet its obligations.
    FCA Response: The originator of a loan is accountable to the 
borrower for the disclosure requirements of Sec.  614.4337(a). The Act 
requires that System banks and associations issue voting stock or 
participation certificates to borrowers and that System ``qualified 
lender'' institutions provide borrower rights to certain borrowers. 
These institutions are in the best position to explain the impact of 
the sale on these matters. The selling and purchasing institutions can 
work out notice requirements in the purchase agreement as they deem 
appropriate. Therefore, we are not proposing any changes to this 
regulation at this time.
    Comments: The FCC commented that existing rules regarding loan 
approval authority should be re-evaluated (Sec. Sec.  614.4460-4470) to 
reflect both structural changes in the System (reference to the 
``district board''), as well as the relationship between banks and 
affiliated associations. The FCC further commented that direct lender 
associations already have extensive procedures for ``official'' loans, 
in terms of loan underwriting, credit administration, and internal 
review and reporting, and that a regulatory requirement for bank 
approval of these loans conflicts with the debtor-creditor relationship 
between the bank and an association. AgriBank commented that System 
banks should be removed from the loan approval process for loans made 
by an association to designated parties because, as direct lenders, 
associations are fully capable of administering their own loan approval 
processes and implementing appropriate internal controls, including 
reporting of loan approval actions to their boards of directors.
    FCA Response: Sections 614.4460 and 614.4470 of our regulations 
require a funding bank to approve all loans that it and its 
associations make to designated parties. On April 24, 1995, the FCA 
issued a rulemaking eliminating certain prior approvals by the FCA as 
an arm's-length regulator. See 60 FR 20008. Given the passage of time, 
it may be appropriate to update this section and review the loan 
approval process in general. This effort would take place in the 
context of guidance or a rulemaking and is beyond the scope of this 
regulatory burden initiative.
    Comments: CoBank stated that the requirement in Sec.  614.4550 that 
prohibits banks from funding an ``other financing institution (OFI)'' 
outside of its chartered territory unless proper notification is 
granted to the bank chartered to serve the territory is unnecessarily 
restrictive. CoBank also stated that because it is not always clear 
when an ``application'' is received (could be in stages, withdrawn, 
resubmitted later, etc.), a dispute could result between the two banks 
as to whether the notice was properly and timely given. CoBank further 
states that a fairer and much more workable standard would be that a 
bank could not enter into a funding relationship with an OFI outside of 
its territory until 45 days after notification of its intent to 
commence funding to allow ample time for the ``in territory'' bank to 
seek its business.
    FCA Response: Section 614.4550 states that 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

[[Page 54939]]

another Farm Credit bank unless it notifies such bank in writing within 
5 business days of receiving the OFI's application for financing. The 
FCA has previously received similar comments from System institutions 
concerning the 5-day written notice requirement. As we have previously 
responded, the 5-day notice requirement has no relationship to the 
credit approval process, and providing written notice to another bank 
within 5 days should not be costly or difficult for any bank that 
receives applications from OFIs outside its chartered territory. We 
would expect a bank to make a good faith effort to determine when 
notification should be made, and although we may consider future 
guidance to this effect, we are not proposing any changes to the 
regulation at this time.
    Comment: CoBank states that it sees no reason for a prohibition on 
two or more Farm Credit banks simultaneously funding an OFI.
    FCA Response: In the past, we acknowledged that System arguments 
against this ban may have some merit, but determined that policy 
concerns justify the FCA's decision to retain it. Generally, each FCS 
association receives all its funding from one Farm Credit bank, and 
therefore, the ban on two or more Farm Credit banks simultaneously 
funding the same OFI is consistent. Further consideration of this issue 
is outside the scope of regulatory burden.

E. Leasing--Stock Purchase Requirements

    Comment: CoBank requested that the stock purchase requirement 
exception in Sec.  616.6700 be amended to apply to the Farm Credit 
Leasing Services Corporation (Leasing Corporation) or its legal 
successor, upon merger or dissolution of the Leasing Corporation. The 
Leasing Corporation is wholly owned by CoBank, and CoBank has 
considered other structures for it.
    FCA Response: Section 616.6700 provides each System institution 
making an equipment lease must require the lessee to buy or own stock 
or a participation certificate in the institution making the lease, but 
provides an exception from this requirement for the Leasing 
Corporation. The FCA agrees that the exception may also apply to the 
Leasing Corporation's legal successor, but will make that determination 
if and when the Leasing Corporation's structure is changed.

F. Borrower Rights

    Comments: The FCBT stated that the borrower rights requirements of 
Sec.  617.7015(c) regarding loan sales are unduly restrictive, 
particularly with respect to parties who have a junior lien or other 
interest in the loan. The FCBT further states that while the 
requirements of this regulation could perhaps be justified for some 
sales to third parties who have no prior interest in or liability on 
the loan, it is difficult to see how the policies of the Act are served 
by imposing borrower rights obligations to junior lien holders or 
family members who may have cosigned or furnished collateral for a 
borrower's loan.
    FCA Response: Borrower rights were created to protect the borrower 
from foreclosure by providing the borrower the opportunity to 
restructure a distressed loan. Borrower rights are part of the 
agricultural credit extended by the FCS and belong to the borrower, not 
the lender. It is therefore the borrower's choice whether to relinquish 
these rights to facilitate a loan sale. Thus, we do not believe the 
decision to waive or otherwise relinquish borrower rights should be 
made when the borrower is in an unequal bargaining position to the 
lender. As such, Sec. Sec.  617.7010 and 617.7015 provide limited 
circumstances when a borrower is in a sufficiently equal bargaining 
position in which to waive these rights. In the case of loan sales to 
nonqualified lenders, our rule requires the lender to either make 
provisions for the borrower to relinquish borrower rights at the time 
of loan making or to obtain the borrower's release before the loan is 
sold. We do not believe there is a basis for distinguishing junior lien 
holders or holders of other interests in the loan with regard to 
borrower rights.
    Comment: The FCC commented that the statutory requirements for 
disclosure of effective interest rates is less restrictive than the 
regulation and that the FCA should consider the use of standardized 
representative examples regarding the impact of stock purchase on 
effective interest rates.
    FCA Response: Section 4.13(a)(3) of the Act states that, at loan 
closing, the purchase of borrower stock must be disclosed as a cost of 
the credit in determining the effective rate of interest on a loan. 
Section 617.7125(a) states that a qualified lender must calculate the 
effective interest rate (EIR) on a loan using the discounted cash flow 
method, showing the effect of time on the value of money. Accordingly, 
we believe that in order for borrower disclosure to be ``meaningful,'' 
as is required by statute, the disclosure should take into account the 
specific loan for which the disclosure is being provided. The EIR 
disclosure should be derived from the interest rate and related charges 
applicable to the loan being made to the borrower. We are not proposing 
changes responsive to this comment at this time.
    Comments: The FCBT stated that the regulatory disclosure 
requirements in Sec.  617.7135(a) and (b) could be simplified for FCS 
institutions without materially harming the interest of borrowers if 
the notification of changes in the interest rate was the same for all 
loans, whether or not the rate is tied to an external index. The FCBT 
also stated that where an interest rate is based on a widely published 
external index plus a spread, disclosure of a change of rate should not 
be required merely when the index changes, but should be required only 
when the change of rate is caused by a change in the spread. AgFirst 
stated that where the loan transaction is priced with the use of an 
external index added to a set margin, no additional disclosure should 
be required as the lender has not modified the interest rate. AgFirst 
also stated that the cost of mailing the notifications places 
institutions at a competitive disadvantage relative to other lenders 
that are not required to disclose changes unless resulting from a 
modified margin. AgFirst further stated that the additional 
notification does not provide the borrower any more information than is 
already available in financial journals or news Web sites for the 
current value of the index. The FCC believes the disclosure procedures 
for rate change notices on loans with an external index can be 
streamlined.
    FCA Response: On June 19, 2009, we published a proposed rule 
amending our EIR regulation regarding interest rate changes. See 74 FR 
29143. Comments discussed above will be considered by the FCA during 
that rulemaking project.

G. General Provisions

    Comment: The FCBT stated that the requirement in Sec.  618.8025(a) 
for a Farm Credit bank's board of directors to verify that a System 
association has performed a feasibility analysis before offering a 
related service is beyond the Act, is burdensome, and accomplishes very 
little that could not be performed by FCA.
    FCA Response: Section 2.5 of the Act authorizes a PCA to offer 
related services as determined feasible by the board of directors of a 
Farm Credit bank. Section 2.12(15) of the Act authorizes a Federal land 
bank association to offer related services that it determines, with 
Farm Credit bank approval, are feasible. Thus, a Farm Credit bank has a 
statutory role in the determination of whether a related service 
program is feasible for an association to offer. Therefore, we are

[[Page 54940]]

not proposing any changes to our regulations at this time.
    Comment: The FCBT commented that the regulatory requirement in 
Sec.  618.8040(b)(9) is not required by the Act and may be viewed as an 
imposition on the borrower. Section 618.8040(b)(9) prohibits a bank or 
association from conditioning the extension of credit or other 
provision of service on the purchase of insurance sold or endorsed by a 
bank or association. At the time insurance is offered, a bank or 
association must present a written notice that the service is optional, 
and the borrower must sign the notice.
    FCA Response: Section 4.29(b)(1) of the Act requires FCA 
regulations to provide that in any case in which insurance is required 
as a condition for a loan or other financial assistance from a bank or 
association, notice be given that it is not necessary to purchase the 
insurance from the bank or association and that the borrower has the 
option of obtaining the insurance elsewhere. The signed notice gives 
effect to this statutory requirement and we do not believe it imposes 
an undue burden on the bank, association, or the borrower. Thus, the 
FCA believes it is important to continue this requirement and we are 
not proposing any changes in our regulations at this time.
    Comments: CoBank stated that FCA should amend Sec.  618.8330(b) to 
permit disclosure of confidential borrower documents upon the issuance 
of an administrative subpoena with the proviso that the FCS institution 
may insist on a judge's order if there is reason to believe that the 
request is inappropriate under the circumstances. AgFirst stated that 
the current process related to the production of documents during civil 
litigation creates unnecessary burdens of time and expense for an 
association, while affording no additional protection to the borrower. 
The FCC stated that in regard to the provisions of the regulations on 
confidentiality of borrower information, the Agency should revisit the 
requirements as they relate to issuing subpoenas.
    FCA Response: On August 9, 1999, the FCA published a direct final 
rule at 64 FR 43046 that allowed a bank or association that is a party 
to litigation with a borrower to disclose confidential information, and 
required that if the government, bank or association is not a party to 
litigation, confidential documents or testimony may be produced only 
under the lawful order of a court. We believe that this requirement is 
necessary to protect confidentiality of borrower information because 
only the judge can impartially decide whether the litigant needs the 
information in the institution's possession. Therefore, we do not 
believe this request warrants any change to our regulations at this 
time.

H. Disclosure to Shareholders

    Comment: The FCC stated that the FCA's regulations that allow 
associations the option of disclosing information regarding 
compensation of senior officers in either the annual report or in the 
annual meeting information statement should be reviewed because System 
banks should have the similar ability to disclose that information in 
some other manner to their stockholders.
    FCA Response: The FCA is currently conducting a review of 
compensation, retirement programs, and related benefits to consider 
changes addressing disclosure and compliance requirements for executive 
compensation, pension, and other benefit programs in the FCS. This 
comment will be considered in the course of that review.

I. Conservators, Receivers, and Voluntary Liquidations

    Comments: AgriBank stated that Sec.  627.2710(b) prohibits a 
funding bank from enforcing the terms of its general financing 
agreement (GFA) upon a default by an association without the prior 
approval of the FCA. AgriBank commented that this is an unwarranted 
infringement on the bank-association contractual relationship that 
places the bank in the precarious position of entering into a lending 
relationship with an association without the ability to collect the 
indebtedness due absent the approval of a third-party regulator.
    FCA Response: This regulation does not prevent or prohibit a 
funding bank from enforcing the terms of its GFA. The regulation does, 
however, provide that one of the grounds for appointment of a receiver 
or conservator is a default by the association on one or more terms of 
its GFA with its affiliated bank if the FCA determines the default to 
be material. As we stated in our July 22, 1998, rulemaking, the FCA, 
not the bank or the association, has the statutory authority for 
determining the grounds for appointing a conservator or receiver. See 
63 FR 39219. We cannot delegate that authority to a funding bank, and 
we will be the authority that determines whether a default of the GFA 
is materially sufficient to warrant appointment of a conservator or 
receiver. Due to the significance of a material default of the GFA to 
an association's financial condition and ability to continue 
operations, we believe that this is a material safety issue. Thus, we 
are not proposing any changes to our regulations at this time.

III. Future Efforts To Reduce Regulatory Burden on FCS Institutions

    As noted above, we will consider remaining regulatory burden issues 
raised during the comment period in separate regulatory projects. We 
will continue our efforts to remove regulatory burden. However, we will 
maintain those regulations that are necessary to implement the Act and 
that are critical for the safety and soundness of the System.

    Dated: October 20, 2009.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E9-25668 Filed 10-23-09; 8:45 am]
BILLING CODE 6705-01-P