[Federal Register: May 21, 2003 (Volume 68, Number 98)]
[Proposed Rules]
[Page 27757-27760]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21my03-8]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 613, 614, and 618
RIN 3052-AC06
Eligibility and Scope of Financing; Loan Policies and Operations;
General Provisions; Credit and Related Services
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA, we, our) proposes to
amend regulations governing domestic and international lending, certain
intra-Farm Credit System (FCS or System) agreements concerning similar
entity participation transactions, provisions of general financing
agreements, and related services. We are proposing amendments to
conform our regulations to recent changes in the Farm Credit Act of
1971, as amended (Act), to address comments we received requesting that
the FCA reduce regulatory burden, ensure compliance with the Act, and
clarify certain regulations.
DATES: Please send your comments to the FCA by June 20, 2003.
ADDRESSES: You may send comments by electronic mail to ``reg-
comm@fca.gov,'' through the Pending Regulations section of FCA's Web
site, ``http://www.fca.gov,'' or through the government-wide ``http://www.regulations.gov
Donnelly, Acting Director, Regulation and Policy Division, Office of
Policy and Analysis, Farm Credit Administration, 1501 Farm Credit
Drive, McLean, Virginia 22102-5090 or by facsimile to (703) 734-5784.
You may review copies of all comments we receive at our office in
McLean, Virginia.
FOR FURTHER INFORMATION CONTACT:
Dale Aultman, Policy Analyst, Office of Policy and Analysis, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4498; TTY (703)
883-4434; or
James Morris, Senior Counsel, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
The primary objectives of our proposal are to conform our
regulations to recent statutory amendments and to reduce regulatory
burden imposed on System institutions, while ensuring compliance with
the Act and FCA regulations. We expect our amendments to improve the
flow of credit to System customers, make similar entity participation
transactions less burdensome, and help ensure compliance with the Act
and FCA regulations.
II. Background
We are proposing these amendments for three reasons: (1) To address
comments we received in response to our request that the public
identify ways we could reduce regulatory burden;\1\ (2) to conform our
regulations to the Act, as amended by the Farm Security and Rural
Investment Act (Pub. L. 107-171) (2002 Farm Bill or FSRIA); and (3) to
help ensure that FCS association lending complies with the Act and our
regulations.
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\1\ On August 18, 1998, we published a document in the Federal
Register inviting the public to identify existing FCA regulations
and policies that impose unnecessary burdens on the System. See 63
FR 44176.
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A. Reducing Regulatory Burden
In response to our regulatory burden solicitation discussed above,
CoBank, ACB (CoBank), requested that we address several issues
concerning regulations governing title III banks.
1. Domestic Title III Lending
CoBank requested that we amend Sec. 613.3100 that pertains to
eligibility and scope of financing for domestic borrowers because Sec.
613.3100(c)(1) appears to prohibit loans to subsidiaries of
subsidiaries of certain eligible borrowers. Because the Act does not
prohibit financing subsidiaries or other entities in which an eligible
utility or an eligible cooperative has an ownership interest, we
propose to clarify our regulations to permit a title III bank to
provide limited financing to such entities. The financing provided
shall not exceed the percentage of ownership attributable to the
eligible cooperative or utility, multiplied by the value of the total
assets of such entity.
In addition, CoBank asked that we amend Sec. 613.3100(c)(2) to
clarify that it authorizes financing activities broader than those
permitted under the Rural Electrification Act. The legislative history
of the Farm Credit Act of 1971, as amended, clearly demonstrates that
Congress intended for banks for cooperatives (BCs) and agricultural
credit banks (ACBs) to provide financing for ``non act'' purposes.\2\
This legislative history is discussed in the preamble proposing the
existing rule. See 61 FR 42092, August 13, 1996. We propose amending
this section to clarify that a subsidiary that is eligible to borrow
under Sec. 613.3100(c)(1)(iii) may also obtain financing for energy-
related or public utility-related purposes that cannot be financed by
the lenders referred to in Sec. 613.3100(c)(1)(ii). Operation of a
licensed cable television utility is one example of such purpose.
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\2\ ``Non act'' purpose means a purpose that is ineligible for
financing by the Rural Utilities Service (RUS) or the Rural
Telephone Bank (RTB) as described in paragraph Sec.
613.3100(c)(1)(ii).
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Since the legislative history of the relevant language of section
3.8 of the Act indicates that the permissible ``non act'' purposes
usually involve providing of communication services such as cable
television facilities and cellular radio facilities, the permissible
purposes do not appear to be restricted to cable television or
communication services.
[[Page 27758]]
However, because title III generally authorizes lending to those that
provide energy or utility services, it is reasonable to interpret
section 3.8 of the Act to authorize financing for ``non act'' purposes,
provided they are energy-related or public utility-related.
2. Related Services
CoBank also requested that we clarify that it is able to provide
the same related services as Farm Credit Banks (FCBs) and BCs. We
amended Sec. Sec. 618.8000 and 618.8005 to clarify that CoBank has the
same authority to provide related services under title I of the Act as
FCBs and the same authorities to provide related services under title
III of the Act as BCs.
B. Conforming FCA Regulations To Reflect Recent Amendments to the Act
Enactment of the FSRIA amended the Act with respect to:
(1) International lending by BCs, and (2) similar entity
transactions.
1. International Lending
FSRIA amended section 3.7 of the Act to authorize a bank operating
under title III of the Act to finance certain international
transactions involving ``agricultural supplies.'' This section formerly
authorized a bank operating under title III of the Act to finance
certain transactions involving ``farm supplies.'' After the amendment
of section 3.7, CoBank can finance certain transactions involving
``agricultural supplies,'' which is statutorily defined to include a
farm supply, agriculture-related processing equipment, agriculture-
related machinery, and other capital goods related to the storage or
handling of agricultural commodities or products. Because of this
amendment, the definition of ``farm supplies'' in part 613 no longer
defines the limit of CoBank's authority. The proposed rule makes
conforming changes to part 613 to add a definition of ``agricultural
supply.''
2. Similar Entity Participations
FSRIA also amended sections 3.1(11)(B) and 4.18A of the Act so that
one type of FCS institution no longer needs approval from another type
of FCS institution when it participates with a non-FCS lender in
certain loans to a similar entity.\3\ These amendments to the Act have
eliminated the statutory basis for some approvals required by existing
FCA regulations.
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\3\ ``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.
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However, the FSRIA did not amend the requirement in section 3.1 for
approval to finance certain similar entities having System loan
commitments or who are System customers. The proposed regulation would
codify the remaining approval requirement. We note that System
institutions may enter into agreements on such terms and conditions as
they choose, including, where appropriate, annual agreements.
C. Ensure Loan Making Complies With the Act and Regulations
During examinations of some System institutions, we have identified
loans that fail to comply with various requirements of the Act and our
regulations. The Act provides FCA broad authorities and remedies with
respect to such ``ineligible'' loans. For example, FCA may require a
direct lender association to divest itself of the loan or cure the
ineligibility. In appropriate cases, FCA may use its cease and desist
or civil money penalty authorities. However, a review of general
financing agreements (GFAs) between FCBs and the ACB and their direct
lender associations has revealed that, while most GFAs address
ineligible loans in some fashion, they do not all expressly prohibit
funding ineligible loans.
Without in any way limiting FCA's other authorities or remedies
under the Act, the proposed regulations mandate that the GFA between
the funding bank and the direct lender association expressly require
that the calculation of financing available be based solely on loans
that comply with the Act and FCA regulations.
III. Section-by-Section Analysis
Subpart B--Financing for Banks Operating Under Title III of the Farm
Credit Act
Sections 613.3100(b)(2)(ii) and 613.3100(c)(1)(v)--Domestic Lending
We propose to clarify that a bank operating under title III may
finance a subsidiary or other entity in which eligible cooperatives or
certain eligible utilities have an ownership interest. Proposed Sec.
613.3100(b)(2)(ii) permits a title III bank to provide limited
financing to a subsidiary or other entity in which an eligible
cooperative has an ownership interest. Proposed Sec. 613.3100(c)(1)(v)
permits a title III bank to provide limited financing to a subsidiary
or other entity in which certain eligible utilities have an ownership
interest. If the eligible cooperative or eligible utility owns less
than 50 percent of the entity, then the financing provided may not
exceed the percentage of ownership attributable to the eligible
cooperative or utility, multiplied by the value of the total assets of
such entity.
Section 613.3100(c)(2)--Purposes for Financing Electric and
Telecommunication Utilities
We propose to clarify that a BC or ACB may provide financing for
subsidiaries of cooperatives or other entities that are eligible under
Sec. 613.3100(c)(1)(ii) for energy-related or public utility-related
purposes even if such purposes would be ineligible for financing by the
RUS or the RTB. Section 3.8(b)(1)(A) of the Act authorizes BCs and ACBs
to finance rural utilities that are eligible to borrow from the RUS or
RTB, and their subsidiaries. Although the Rural Electrification Act
prohibits the RUS or RTB from financing the activities of certain
subsidiaries, section 3.8(b)(1)(A) of the Act expressly authorizes a BC
or ACB to extend credit to the same subsidiaries. As FCA discussed in
its preamble when the present Sec. 613.3100 was proposed in 1996, the
legislative history makes it clear the present language of section 3.8
of the Act was intended to authorize title III banks to finance
activities that are ineligible for RUS or RTB loans. See 61 FR 42092,
August 13, 1996. Because the present language of Sec. 613.3100(c)(2)
could be narrowly read to limit such financing to subsidiaries that
``operate a licensed cable television utility,'' FCA is now proposing
an amendment to clarify that banks operating under title III may
provide such financing for any energy-related or public utility-related
purpose. We believe it is important for the System to be able to
finance these operations that provide valuable services to rural
consumers and essential revenues for rural utility systems.
Section 613.3200--International Lending
We propose to conform our regulations to recent changes in section
3.7 of the Act made by FSRIA that authorize a bank operating under
title III of the Act to finance certain international transactions
involving ``agricultural supplies.'' We propose to amend Sec.
613.3200(a) by adding a definition of ``agricultural supply.'' The
proposed definition of ``agricultural supply'' in Sec. 613.3200(a)(1)
includes a farm supply, agriculture-related processing equipment,
agriculture-related machinery, and other capital
[[Page 27759]]
goods related to the storage or handling of agricultural commodities or
products. The term ``farm supply,'' which is included in the new
definition of ``agricultural supply,'' is defined in Sec.
613.3200(a)(2).
Subpart C--Similar Entity Authority Under Sections 3.1(11)(B) and 4.18A
of the Act
Section 613.3300--Participations and Other Interests in Loans to
Similar Entities
We propose to amend our regulations to conform them to changes the
2002 Farm Bill made in sections 3.1(11)(B) and 4.18A of the Act
regarding similar entity transactions. Because of these changes, FCS
institutions are no longer required to obtain the approvals now
required by present Sec. 613.3300(d). Although the FSRIA removed the
statutory provisions that were the basis of the Sec. 613.3300(d)
approval requirements, it did not remove the statutory requirement that
a bank operating under title III not participate in a loan to a similar
entity under section 3.1 if the similar entity has a loan or loan
commitment outstanding with an FCB or association, unless agreed to by
the FCB or association. Therefore, while we propose deleting present
Sec. 613.3100(d) to reflect the elimination of other statutory
approval requirements, we propose adding a new section to reflect this
statutory requirement. Proposed Sec. 613.3100(d) requires a bank
operating under title III to obtain the agreement of an FCB or
association in order to participate in a loan to a similar entity under
section 3.1 if the similar entity has a loan, or a loan commitment
outstanding, with the FCB or association. System institutions may
structure the terms and conditions of the agreement to accommodate
their specific situations. For example, they may grant approvals on an
annual basis allowing similar entity participations in their chartered
territory.
Subpart C--Bank/Association Lending Relationship
Section 614.4125--Funding and Discount Relationships Between Farm
Credit Banks or Agricultural Credit Banks and Direct Lender
Associations
Direct lender associations may not make or hold any loan that does
not comply with the Act and FCA regulations, including, without
limitation, part 613. We propose to amend Sec. 614.4125(a) to mandate
that each GFA require that the calculation of financing available be
based solely on loans that are in compliance. Without limiting FCA's
other authorities or remedies, proposed Sec. 614.4125(a) would
expressly state that if financing under a GFA is based on a loan that
FCA determines does not comply with the Act and these regulations, then
the financing available must be recalculated without that loan. We
emphasize that the remedies described in this section do not limit our
other authorities or remedies under the Act.
Subpart A--Related Services
Section 618.8000--Definitions and Section 618.8005--Eligibility
We propose to amend Sec. Sec. 618.8000(b) and 618.8005(c) to
clarify that ACBs have the same authority to offer related services
under title III of the Act as BCs, and the same authority to offer
related services under title I of the Act as FCBs. Proposed Sec.
618.8000(b) deletes the phrase, ``that is appropriate to the
recipient's on-farm, aquatic, or cooperative operations'' in order to
eliminate any possible confusion about limitations on related services
offerings under title III. Similarly, proposed Sec. 618.8005(c)
deletes the phrase, ``appropriate to cooperative operations.''
In addition, proposed Sec. 618.8005(a) adds the phrase
``appropriate to on-farm and aquatic operations'' to the existing
paragraph, in order to reflect the statutory limitation on related
services offered under title I.
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the FCA hereby certifies that the proposed rule
will not have a significant economic impact on a substantial number of
small entities. Each of the banks in the System, considered together
with its affiliated associations, has assets and annual income in
excess of the amounts that would qualify them as small entities.
Therefore, System institutions are not ``small entities'' as defined in
the Regulatory Flexibility Act.
List of Subjects
12 CFR Part 613
Advertising, Aged, Agriculture, Banks, banking, Civil rights,
Credit, Fair housing, Marital status discrimination, Religious
discrimination, Rural areas, Sex discrimination, Signs and symbols.
12 CFR Part 614
Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 618
Agriculture, Archives and records, Banks, banking, Insurance,
Reporting and recordkeeping requirements, Rural areas, Technical
assistance.
For the reasons stated in the preamble, parts 613, 614, and 618 of
chapter VI, title 12 of the Code of Federal Regulations, are proposed
to be amended as follows:
PART 613--ELIGIBILITY AND SCOPE OF FINANCING
1. The authority citation for part 613 continues to read as
follows:
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 B--Financing for Banks Operating Under Title III of the
Farm Credit Act
2. Amend Sec. 613.3100 by revising paragraphs (b)(2)(ii),
(c)(1)(v), and (c)(2) to read as follows:
Sec. 613.3100 Domestic lending.
(b) * * *
* * * * *
(2) * * *
* * * * *
(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
* * * * *
(c) * * *
* * * * *
(1) * * *
* * * * *
(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
[[Page 27760]]
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.
* * * * *
3. Amend Sec. 613.3200 to read as follows:
a. Revise paragraph (a); and
b. Remove the words ``farm supplies'' and add in their place, the
words ``agricultural supplies'' each place they appear in paragraphs
(b) introductory text, (c) introductory text, and (c)(1).
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.
* * * * *
Subpart C--Similar Entity Authority Under Sections 3.1(11)(B) and
4.18A of the Act
4. Revise Sec. 613.3300(d) to read as follows:
Sec. 613.3300 Participations and other interests in loans to similar
entities.
* * * * *
(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.
PART 614--LOAN POLICIES AND OPERATIONS
5. 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,
4.13B, 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 C--Bank/Association Lending Relationship
6. Amend Sec. 614.4125(a) by adding a second sentence to read as
follows:
Sec. 614.4125 Funding and discount relationships between Farm Credit
Banks or agricultural credit banks and direct lender associations.
(a) * * * Each general financing agreement must require that the
amount of financing available to a direct lender association be based
solely on loans that comply with the Act and these regulations. If
financing under a general financing agreement is based on a loan that
FCA determines does not comply with the Act and these regulations, then
the amount of financing available must be reduced by the amount of the
ineligible loan.
* * * * *
PART 618--GENERAL PROVISIONS
7. The authority citation for part 618 continues to read as
follows:
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
8. Amend Sec. 618.8000(b) by revising the first sentence to read
as follows:
Sec. 618.8000 Definitions.
* * * * *
(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. * * *
* * * * *
Sec. 618.8005 [Amended]
9. Amend Sec. 618.8005 by:
a. Adding the phrase ``appropriate to on-farm and aquatic
operations'' after the word ``services'' in paragraph (a); and
b. Removing the phrase ``appropriate to cooperative operations of''
and adding in its place, the word ``to'' in paragraph (c).
Dated: May 15, 2003.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 03-12631 Filed 5-20-03; 8:45 am]
BILLING CODE 6705-01-P