[Federal Register: September 15, 2003 (Volume 68, Number 178)]
[Proposed Rules]
[Page 53915-53925]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se03-14]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 614, 620, 630
RIN 3052-AC07
Loan Policies and Operations; Disclosure to Shareholders;
Disclosure to Investors in Systemwide and Consolidated Bank Debt
Obligations of the Farm Credit System
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA or agency) proposes to
amend its regulations governing the Farm Credit System's (System)
mission 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). Additionally,
the agency proposes to amend the System's disclosure to shareholders
and investors to include reporting on its service to YBS farmers and
ranchers.
DATES: You may send us comments by November 14, 2003.
ADDRESSES: Send us your comments by electronic mail to ``reg-
comm@fca.gov'' or through the Pending Regulations section of our Web
site, ``www.fca.gov'' or through the government-wide
``www.regulations.gov'' portal. You may also send written comments to
Robert Coleman, Director, Regulation and Policy Division, Office of
Policy and Analysis, Farm Credit Administration, 1501 Farm Credit
Drive, McLean, Virginia 22102-5090, or by facsimile transmission to
(703) 734-5784. You
[[Page 53916]]
may review copies of all comments we receive at our office in McLean,
Virginia.
FOR FURTHER INFORMATION CONTACT:
Robert E. Donnelly, Senior Policy Analyst, Office of Policy and
Analysis, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4498, TTY (703) 883-4434,
or
Wendy R. Laguarda, Senior Counsel, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703)
883-4020.
SUPPLEMENTARY INFORMATION:
I. Objective
The objective of the FCA's proposed rule is to ensure the System
provides sound and constructive credit and services \1\ to YBS farmers
and ranchers.\2\ To accomplish this objective, the agency proposes to
amend existing regulations to provide:
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\1\ The term ``services'' includes leases and related services
to YBS farmers and ranchers.
\2\ The Farm Credit Act of 1971 (1971 Act) gave the production
credit associations and the banks for cooperatives the authority to
finance ``producers or harvesters of aquatic products'' in addition
to financing ``farmers and ranchers.'' The 1980 amendments to the
1971 Act gave the Federal land banks expanded authority to finance
``producers or harvesters of aquatic products'' and put such
producers and harvesters on the same footing as ``farmers and
ranchers.'' Thus, in accordance with the amendments to the 1971 Act,
whenever we refer to ``YBS farmers and ranchers'' or ``YBS
borrowers'' in this proposed rule, we are including ``producers or
harvesters of aquatic products.''
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1. Clear, meaningful, and results-oriented guidelines for System
YBS policies and programs; and
2. Enhanced reporting and disclosure to the public on the System's
performance and compliance with its statutory YBS mission (YBS mission
or mission).
Through these amendments, the public will be able to measure the
System's performance in fulfilling its YBS mission.
II. Background
The FCA's mission is to ensure the System provides a dependable
source of credit and related services to agriculture and rural America
as authorized by Congress. The System has a special public purpose
concerning YBS farmers and ranchers. Since 1980, Congress has required
the System to prepare programs for furnishing sound and constructive
credit and services to YBS farmers and ranchers. Specifically, section
4.19(a) of the Farm Credit Act of 1971, as amended (Act) states:
Under policies of the district Farm Credit Bank board, each
Federal land bank association and production credit association
shall prepare a program for furnishing sound and constructive credit
and related services to young, beginning, and small farmers and
ranchers. Such programs shall assure that such credit and services
are available in coordination with other units of the Farm Credit
System serving the territory and with other governmental and private
sources of credit. Each program shall be subject to review and
approval by the supervising bank.
YBS farmers and ranchers, like all those in agriculture today, face
a wide range of challenges, including access to capital and credit; the
impact of rising costs on profitability; urbanization and the
availability of resources like land, water and labor; globalization;
and competition from larger or more established farms. While all
agricultural producers face these challenges, the hurdles that YBS
farmers and ranchers face are often greater. The System's YBS mission
is important to enable start-up farmers and ranchers to make a
successful entry into agricultural production. The YBS mission is also
critical to facilitate the transfer of agricultural operations from one
generation to the next. For all these reasons, the agency is committed
to ensuring that the System fulfills this important public purpose
mission.
A. FCA's Focus on YBS Lending
In 1998, the FCA Board adopted a policy statement that called for a
renewed commitment by the System to YBS lending; provided guiding
principles for enhanced service to YBS farmers and ranchers; and
revised definitions for ``young,'' ``beginning,'' and ``small'' farmers
and ranchers.\3\ To implement the policy statement, the FCA also issued
a bookletter that included the revised YBS definitions and YBS
reporting procedures.\4\ The revised reporting procedures were fully
phased in by January 1, 2001. FCA requires the System to submit each
year a report detailing its YBS program components.
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\3\ FCA-PS-75, Farm Credit System Service to Young, Beginning,
and Small Farmers and Ranchers, effective December 10, 1998,
available on the FCA Web site, www.fca.govder Legal Info., FCA
Handbook).
\4\ FCA BL-040, Policy and Reporting Changes for Young,
Beginning, and Small Farmers and Ranchers Programs, issued December
11, 1998, available on the FCA Web site, www.fca.gov (under Legal
Info., FCA Handbook).
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Since 1999, YBS lending programs have been a ``focus area'' of
agency examinations where, among other factors, the agency has looked
at System institutions' YBS board policies and procedures; YBS credit
enhancement programs and underwriting standards; YBS program
coordination with Federal, state, System or other credit sources;
demographic studies; marketing, advertising, and other outreach
programs; and the quality of YBS reporting to System institutions'
boards and FCA.
In addition to this examination focus area, for the past 2 years,
the FCA Board and staff have increased their focus on the System's
mission to serve YBS farmers and ranchers. The agency, for example,
recognized several System associations for their exemplary YBS
programs.\5\
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\5\ See remarks by the Honorable Michael M. Reyna before the
19th and 20th Annual Farm Credit Council meetings, January 22, 2002,
and January 20, 2003, respectively, available on the FCA Web site,
www.fca.gov (under About FCA, FCA Board, Testimony, Statements and
Speeches).
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B. Report by the General Accounting Office
On March 8, 2002, the General Accounting Office (GAO) issued a
report on the FCA's oversight of the System's mission to serve YBS
farmers and ranchers.\6\ The GAO, after conducting a review that began
in July 2001, recommended that the agency strengthen its oversight role
of the System's YBS lending, promote YBS compliance, and highlight the
System's efforts to provide services to YBS farmers and ranchers by:
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\6\ Farm Credit Administration: Oversight of Special Mission to
Serve Young, Beginning, and Small Farmers Needs to be Improved (GAO-
02-3040, available on the GAO Web site, www.gao.gov/cgi-bin/getrpt?GAO-02-304
.
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1. Promulgating a regulation that outlines specific activities and
standards that constitute an acceptable program to implement the YBS
statutory requirement;
2. Ensuring that examiners follow the guidance and complete the
appropriate examination procedures related to YBS and adequately
document the work performed and conclusions drawn during examinations;
and
3. Publicly disclosing the results of the examinations for YBS
compliance for individual System associations.
In its response to Congress, the FCA noted its commitment to
address the issues raised in the GAO report.
C. FCA Gathers Public Input
The FCA values public input and has therefore sought public comment
early in the rulemaking process in various ways. First, the agency
sought public input through an advance notice of proposed rulemaking
(ANPRM) seeking suggestions on possible YBS regulatory approaches and
policy initiatives.\7\ In response to the ANPRM, the agency received 65
comment letters on the
[[Page 53917]]
subject. Commenters included the Farm Credit Council (Council), System
institutions, the American Bankers Association (ABA), the Independent
Community Bankers of America (ICBA), and other associations or trade
groups involved in agriculture such as the Sustainable Agriculture
Coalition and the National Corn Growers Association. Second, the FCA
held a public meeting on November 13, 2002, in Kansas City, Missouri,
to hear about ways to enhance the System's service to YBS farmers and
ranchers. The agency heard from 24 different speakers at this public
meeting, including small farmers, agricultural lenders, farm advocates,
representatives of the academic community, and government officials.
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\7\ See 67 FR 59479, Sept. 23, 2002.
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III. Responses to Comments Received
The comment letters and testimony reflect a multitude of opinions
on the issue of whether the agency should provide more guidance to the
System on YBS policies and programs. Generally speaking, the comments
can be divided into two categories--those that oppose the issuance of a
revised YBS regulation and those that support additional regulatory
requirements.
A. Comments Advocating No Additional YBS Regulatory Requirements
Many commenters advocated that a revised regulation governing YBS
lending is unnecessary because the System is already successfully
fulfilling its YBS mission--a mission, they point out, that is only
part of the System's overall purpose to serve all of American
agriculture. These commenters noted that a revised regulation would not
be based in law; would be unduly burdensome and costly; would not
result in more YBS lending; and would be inconsistent with the agency's
limited oversight of the YBS mission as set forth in section 4.19 of
the Act.
We do not agree with the assertion by some commenters that a
revised regulation would be inconsistent with section 4.19 of the Act.
The agency has clear statutory authority to promulgate regulations to
implement section 4.19 of the Act. The agency's general rulemaking
authority under section 5.17(a)(9) of the Act authorizes FCA to
``prescribe rules and regulations necessary or appropriate'' for
carrying out the Act. In fact, since 1980, when Congress first added
section 4.19 to the Act, the agency has had regulatory and policy
guidance on the System's YBS mission to supplement the Act's general
YBS requirements for System banks and direct lender associations. We
continue to believe a YBS regulation and other supplemental guidance is
necessary and appropriate for the System's achievement of its YBS
mission and for the agency's effective oversight of the System in
carrying out this mission. Moreover, a significant number of
requirements in this proposed rule are similar to current agency YBS
policy guidance and reporting requirements. Therefore, we do not
believe the proposed rule creates significant additional burdens or
costs for the System in fulfilling its YBS mission. Finally, we believe
that this proposed rule will help the System achieve even greater
results in fulfilling its YBS mission.
Many of these same commenters noted that each System direct lender
association understands the needs of the YBS farmers and ranchers in
its territory. Such commenters advocated, therefore, that it is more
appropriate for each direct lender association, rather than the agency,
to develop its own YBS policies and programs. For this reason, many of
these commenters opposed a YBS regulation that would include specific
YBS targets or other quantitative guidelines, as well as special credit
treatment for loans to YBS borrowers. Some commenters claimed that such
YBS targets or other quantitative guidelines would limit an
association's ability to develop its own unique YBS programs. In
addition, other commenters noted that, because the risk-bearing
capacity of each direct lender association is different, one uniform
approach for YBS lending would not be reasonable.
The proposed rule does not prescribe a ``one size fits all'' YBS
program for all System associations. Instead, the agency gives each
direct lender association the flexibility to design its own program
tailored to the needs of the YBS farmers and ranchers in its territory.
However, the proposed rule provides more results-oriented direction for
System direct lender associations by setting forth minimum components
that must be included in their YBS programs. Such minimum components
will help ensure that System associations are making every effort
possible to achieve their YBS mission. The proposed rule also promotes
more transparency in YBS reporting, ensuring that the public is well
informed of the System's commitment to, and efforts in, fulfilling its
YBS mission.
Finally, the commenters noted that the agency can use its
enforcement powers rather than its regulatory authority to ensure the
System serves eligible YBS farmers and ranchers. Promulgating a
proposed rule, which requires notice and comment procedures, will
enhance the agency's ability to use its enforcement tools to ensure
that the System is fulfilling its YBS mission.
B. Comments Advocating Additional YBS Regulatory Requirements
In contrast to the foregoing comments, a significant number of
commenters noted a need for more regulatory direction on YBS credit and
services. These commenters suggest the System is not fulfilling its
public purpose as a Government-sponsored enterprise (GSE) because it is
not adequately providing credit and services to YBS farmers and
ranchers. Many of these commenters noted that serving the needs of YBS
farmers and ranchers is crucial for the future of American agriculture.
The agency believes the System's YBS mission is important, not only
to the System in its public purpose role as a GSE, but also in its
mission as a provider of sound, constructive, and dependable credit and
services to all of American agriculture. In the agency's effort to
ensure that the System remains focused on its important YBS mission,
the proposed rule provides enhanced requirements for YBS policies and
programs.
Many of these same commenters also noted that section 4.19 of the
Act, which requires the System to submit YBS reports to the agency, is
clear evidence that the agency has the authority to oversee and
regulate the System's YBS mission. Many of these commenters
recommended, therefore, that the agency issue a detailed rule to
improve the System's YBS service, data collection, and disclosure.
These commenters suggested that the agency adopt a ``hard target''
system that would require strict performance and reporting guidelines
and impose penalties when such guidelines were not met.
We agree with these commenters that section 4.19 of the Act, as
well as the agency's general rulemaking authority in section
5.17(a)(9), gives FCA the authority to oversee and regulate the
System's YBS mission. The proposed rule sets forth minimum components
for effective YBS policies and programs. Included in these components
are requirements for direct lender associations to establish
quantitative targets and qualitative goals within their risk-bearing
capacities. The proposed rule also requires such targets and goals to
be incorporated into an association's operational and strategic
business plan. Incorporating these components into regulatory
requirements will enhance the agency's ability to enforce each direct
lender association's establishment of YBS targets and goals. The
proposed rule also creates increased transparency
[[Page 53918]]
to the public by enhancing the System's reporting of YBS results.
Some commenters noted that the costs and risks associated with
entrance into agriculture are prohibitive. These commenters also noted
that the demographic data confirms that the pool of potential YBS
borrowers continues to shrink. Therefore, many of these commenters
recommended that a proposed rule require the System to provide special
credit treatment to YBS borrowers. The agency recognizes that YBS
farmers and ranchers often fall into a category of borrowers that have
low equity, limited cash flow, and little, if any, managerial and
business planning experience. The agency believes it is important for
the System to recognize the special needs of YBS farmers and ranchers
and to make every effort to provide special credit programs and
services for this group. However, the agency believes that each direct
lender association must decide for itself, within its risk-bearing
capacity, how best to meet the needs of the YBS farmers and ranchers in
its territory. This is a business judgment that should be exercised by
each association rather than the regulator. In meeting the special
credit needs of YBS farmers and ranchers and maintaining sound credit
management practices, the proposed rule suggests that associations can
make use of fee waivers, specialized loan underwriting standards, loan
guarantees, or loan participation programs.
Finally, several of these commenters suggested that a proposed YBS
rule include provisions that would prohibit the System from engaging in
predatory pricing or financing credit needs not closely related to
agriculture.\8\ Sections 1.8(b) and 2.4(c)(2) of the Act provide that
``it shall be the objective'' of System lenders to set interest rates
and other charges ``at the lowest reasonable cost \9\ on a sound
business basis'' taking into consideration the lender's cost of funds,
necessary reserves, and the cost of providing services to its members.
Through our examination process, the agency evaluates whether interest
rates charged are consistent with law, regulations, sound business
practices, and the institution's loan policies. In addition, the agency
ensures that interest rates charged are sufficient to cover the
institution's costs and adequately capitalize the institution, while
maintaining safety and soundness. With YBS farmers and ranchers facing
multiple economic challenges, the agency believes it is important for
this group of potential borrowers to have access to credit at
competitive rates. Moreover, the System is fulfilling its public
purpose under the Act when it provides interest rates at the lowest
reasonable cost on a sound business basis.
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\8\ The commenter does not define the term ``predatory pricing''
and this term is not used in the Act. The agency notes there is no
uniform national law that defines what is meant by predatory pricing
and such a term is open to widely differing interpretations.
\9\ The word ``cost'' is used in the singular only in section
2.4(c)(2) of the Act.
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C. YBS Services and Coordination
Commenters offered suggestions on how to enhance services and
coordination with other System institutions and other governmental and
private sources of credit for YBS farmers and ranchers. Many commenters
suggested that System institutions take greater advantage of Farm
Service Agency loan guarantees, aggie bonds, and other risk-pooling
programs as a means of providing credit to YBS borrowers while reducing
exposure to risk. Other commenters noted the System is currently doing
a good job coordinating with these programs and no further guidance on
this issue is needed. Many of these same commenters supported
collaborative efforts among System institutions, government agencies,
non-profit organizations, and other lenders as a means of reaching and
serving YBS borrowers. These commenters also suggested that outreach
efforts include partnerships with sustainable agriculture and
alternative agriculture production programs. Several commenters
emphasized the need for outreach programs designed to connect YBS
farmers and ranchers with existing lending and support programs. Many
commenters also noted the System could do a better job of advertising
its services and credit programs to YBS farmers and ranchers. Several
commenters also recommended that the System better facilitate
intergenerational transfers where land or farm equipment is passed from
retiring farmers or ranchers to YBS farmers or ranchers. Several of
these same commenters recommended that the System establish mentoring
programs to connect seasoned farmers and ranchers with young or
beginning farmers and ranchers.
Section 4.19 of the Act requires System direct lender associations
to develop YBS programs that assure that credit and services to YBS
farmers and ranchers are available in coordination with other System
institutions and other governmental and private sources of credit. In
accordance with the Act, the agency believes the System should be
making every effort possible to ensure that its YBS credit and service
programs are made in coordination with others. To this end, we have
included in the proposed rule a YBS program component that requires
each direct lender association to establish qualitative YBS goals. Such
goals include offering directly, or in coordination with others, credit
programs and services and undertaking outreach efforts, including
educational programs and advertising campaigns.
One commenter recommended that the agency prevent System
institutions from distributing patronage refunds until some of the
System's profits are used to fund special low interest programs to YBS
farmers and ranchers. Congress established the System as a cooperative
structure in which System borrowers are also the owners. The agency
believes it would be contrary to Congressional intent to prevent a
System institution, operating safely and soundly, from exercising a
fundamental principle of cooperatives, namely the distribution of
patronage dividends.
Another commenter suggested the agency create an Affordable Farming
Program modeled after the Affordable Housing Program of the Federal
Home Loan Bank System. The program suggested by the commenter is
required by the Federal Home Loan Bank Act. There is no authority under
the Act for the agency to require the System to establish a similar
program. Absent such statutory authority, the agency believes this idea
is best left to the consideration of System institutions using their
sound business judgment.
Another commenter noted the need for more educational programs for
socially disadvantaged farmers and ranchers, particularly, women
farmers and ranchers. Section 1.1(a) of the Act declares the policy of
Congress that System institutions improve the income and well being of
American farmers and ranchers. Although the Act does not contain
explicit provisions for the System to serve socially disadvantaged or
minority farmers, the System's mission is to serve all American farmers
and ranchers. Moreover, service to YBS farmers and ranchers often
includes service to socially disadvantaged and minority farmers and
ranchers. Thus, the results-oriented direction in this proposed rule
should also enhance the System's service to socially disadvantaged and
minority farmers and ranchers.
Finally, some commenters noted that FCA should articulate a strong
policy on the System's YBS mission and do a better job of recognizing
strong YBS programs. The FCA believes that
[[Page 53919]]
through this proposed rule and previous guidance on YBS policies and
programs, the agency has articulated its strong commitment to ensuring
that the System fulfills its YBS mission. In addition, the proposed
rule requires each direct lender association to articulate its YBS
policy by including it in a mission statement, which is now a required
component of each association's YBS program. For the past two years,
the agency also has recognized those System associations with exemplary
YBS programs in order to highlight successful efforts and provide model
programs for other System institutions to emulate.
D. Measuring the System's YBS Performance
In response to how the agency should measure the System's YBS
performance, a significant number of commenters indicated that
nationwide performance measures would be inappropriate, unworkable, and
ineffective; that Congress did not authorize the agency to establish
YBS performance measures; and that no YBS performance system is
necessary because the agency already collects adequate information to
measure the System's performance. Several commenters advocated that the
agency establish a formal rating program for the System's YBS
performance to measure not only each direct lender association's
performance against the YBS demographics in its territory, but also how
well each association's YBS performance compares to other System
associations.
The agency believes it is important to measure the System's YBS
performance. The proposed rule provides the public with a complete and
accurate picture of the System's YBS performance through enhanced
reporting requirements. The reporting requirements will provide the
public with an understanding of each association's YBS performance as
compared to the YBS demographics in its territory. The agency believes
the reporting requirements will provide a sound understanding of each
direct lender association's YBS performance.
In addition to the enhanced YBS reporting requirements for the
System, the agency will also complete a rating for each direct lender
association's overall YBS program. The YBS program performance rating
will be based on a review of the direct lender association's YBS
program components, as discussed in the proposed rule. The examination
of an association's YBS program will be the result of an enhanced
examination assessment and will normally be completed during regular
safety and soundness examination activities. The FCA's rating will
identify the association's YBS program performance as either ``Pass''
or ``Fail.'' The FCA Board will publicly disclose the results of the
System's YBS compliance.
Finally, many commenters noted problems with measuring the System's
YBS performance based on the YBS demographic data available to the
System, including the limited applicability and accuracy of the data.
Many commenters also noted the prohibitive costs associated with
conducting independent YBS demographic studies. Other commenters noted
that a conflict of interest exists if System institutions are allowed
to conduct their own demographic studies. Still other commenters
suggested that System institutions hire independent researchers to
study the YBS demographics of their lending territories.
One of the minimum components for YBS programs set forth in the
proposed rule requires that each direct lender association develop
quantitative targets based on the YBS demographic data in its
territory. The agency recognizes that YBS demographic data available to
the System has limitations. The agency also recognizes that it could be
costly and burdensome for System associations to conduct their own
studies, or hire an independent source to complete such studies, when
reasonably reliable census data exists. In recognition of these
limitations, the proposed rule permits direct lender associations to
use existing YBS demographic data to establish quantitative targets for
their YBS lending as long as they can support that such data is
reasonably reliable. In addition to demographic data reliability, it is
just as important for direct lender associations to ensure that their
quantitative targets reasonably reflect the YBS demographics in their
territory and to be able to explain any inconsistencies between the YBS
demographics in their territory and their association's YBS data. For
example, if the demographic is based on the number of potential YBS
borrowers in the territory and an association's quantitative target is
based on some variation of loans, an association must disclose this
difference when reporting its YBS data.
E. Reporting and Disclosure of YBS Performance
A significant group of commenters stated that current reporting and
disclosure requirements are adequate with no additional changes needed.
Many of these commenters pointed out that information on the System's
YBS performance is already available to the public through the FCA's
annual report. Many of these commenters also believe that FCA lacks
authority to require more reporting and disclosure than what is already
set forth in section 4.19 of the Act.\10\ Many of these commenters also
noted that YBS disclosure by individual direct lender associations
would be misleading to the public because of territorial differences.
Several commenters argued that additional reporting would only serve to
increase costs that would be passed on to the borrower with no positive
effect on YBS lending. Finally, several commenters expressed concern
over the possibility of publicly disclosing individual examination
reports on YBS performance.
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\10\ Section 4.19(b) of the Act sets forth YBS reporting
requirements for Farm Credit System banks and associations.
Specifically, section 4.19(b) provides: The Farm Credit Bank for
each district shall annually obtain from associations under its
supervision reports of activities under programs developed pursuant
to subsection (a) of this section and progress toward program
objectives. On the basis of such reports, the bank shall provide to
the FCA an annual report summarizing the operations and achievements
in its district under such programs.
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Another group of commenters noted that increased YBS reporting and
disclosure would be beneficial. These commenters articulated that
increased reporting and disclosure would apply pressure on System
institutions to enhance their YBS lending. Specifically, many of these
commenters suggested that YBS reporting be included in the System's
annual reports to shareholders. Other commenters noted that the
System's status as a GSE compels more reporting and public disclosure
of the System's YBS performance. These same commenters suggested that
YBS examination results be published in each direct lender
association's annual reports.
The agency believes enhanced YBS reporting and disclosure would be
beneficial to the public and the System. Additional reporting and
disclosure would help the System focus on its YBS performance to better
fulfill its YBS mission. In turn, additional YBS reporting and
disclosure will give the public a better understanding of the System's
YBS performance. The agency has authority to require, in its oversight
and regulatory role, the reporting and disclosure we believe necessary
for the System's fulfillment of its YBS mission. Further, we do not
believe the enhanced reporting requirements in the proposed rule add
significant burdens or costs to System banks or direct lender
associations.
The proposed rule requires each direct lender association to
report, in its
[[Page 53920]]
annual report to shareholders, on each component of its YBS program. As
many commenters recommended, the proposed rule also requires both
System banks and direct lender associations to include YBS performance
results in their annual reports to shareholders. The proposed rule also
requires System banks to include, in their annual reports to investors,
consolidated, quantitative YBS performance results for their affiliated
direct lender associations.
Finally, some commenters expressed concern over disclosing
individual examination reports on YBS performance. We believe it is not
necessary to disclose confidential examination report information. We
believe the additional transparency provided by the enhanced reporting
and disclosure requirements in the proposed rule will give the public a
sound understanding of the System's YBS performance results and will
therefore preclude the need for disclosing FCA examination reports on
System YBS performance.
F. YBS Data Collection Issues
In response to whether the agency should count the number of YBS
borrowers or loans, many commenters expressed a preference for counting
loans while others expressed a preference for counting borrowers. Many
other commenters said the issue of consistency in data collection was a
key issue rather than whether the agency counts YBS loans or borrowers.
Other commenters stated the System should not be allowed to inflate its
YBS numbers by allowing the same loan to be counted separately in each
applicable YBS category.
In 1998, the agency announced it would collect YBS data from the
System based on the number of loans that benefit ``young,''
``beginning,'' or ``small'' farmers and ranchers rather than the number
of borrowers. This change was consistent with the new definitions the
agency developed in 1998, which captured more complete information on
loans to partners and family members and thus made it more difficult to
track borrowers. The agency believes, along with many of the
commenters, that the key issue in YBS data collection is consistency.
We believe the reasons for changing our data collection procedures from
borrowers to loans in 1998 are still valid, making it unnecessary to
change our approach once again.
In 1998, the agency also changed how the System should categorize
loans to YBS borrowers. The agency previously required reporting a YBS
borrower in one of four mutually exclusive categories: Young borrowers;
beginning borrowers; small borrowers; and borrowers that met at least
two of the definitions. The agency now requires System banks and direct
lender associations to report a loan in each applicable YBS category.
If a loan is made to a borrower who is young, beginning, and small, it
is reported in each category. This practice is consistent with other
GSE mission-related reporting, such as Fannie Mae and Freddie Mac
reports on their annual housing goals.\11\
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\11\ The annual housing goals are established and supervised by
the Department of Housing and Urban Development, Fannie Mae's and
Freddie Mac's mission regulator.
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In the agency's annual Performance and Accountability Report, the
information on the System's YBS lending explicitly states that YBS
categories are not mutually exclusive and therefore each category
cannot be added together for a total number of System YBS loans. We
believe that this method of categorizing and counting the System's YBS
loans provides the most accurate and complete picture of how the System
institutions are fulfilling their YBS mission. We also believe that
this method is consistent with the intent of Congress to report on the
System's service to each category of YBS farmers and ranchers.
G. Definitions
Many of the commenters expressed concerns about the current agency
definitions for ``young,'' ``beginning,'' and ``small'' farmers and
ranchers. Several commenters recommended tightening the parameters on
YBS definitions. These commenters suggested that FCA reduce the
``beginning'' farmer definition from the current 10 years to 5 years.
Current agency definitions for ``young,'' ``beginning,'' and
``small'' farmers and ranchers are set forth in 1998 FCA guidance.\12\
The guidance defines ``young'' as a farmer, rancher, or producer or
harvester of aquatic products who is age 35 or younger as of the loan
transaction date. The current guidance is a change from the previous
definition of ``less than 35 years old.'' The current definition
remains similar to the United States Department of Agriculture's
National Agricultural Statistics Service Census of Agriculture (USDA
Census of Agriculture), which defines a ``young'' farmer as being less
than 35 years old.
---------------------------------------------------------------------------
\12\ See supra note 4.
---------------------------------------------------------------------------
The current guidance defines ``beginning'' as a farmer, rancher, or
producer or harvester of aquatic products who has 10 years or less
farming or ranching experience as of the loan transaction date. Before
1998, the definition of beginning had been a ``farmer, rancher and
producer or harvester of aquatic products means one who is in the
process of establishing an agricultural operation and who has not
assumed the full control and risk of such an operation for longer than
5 years.'' The current definition of ``10 years or less'' is consistent
with section 343 of the Consolidated Farm and Rural Development Act, as
amended, which defines, in part, a ``qualified beginning farmer or
rancher'' as an applicant ``who has not operated a farm or ranch, or
who has operated a farm or ranch for not more than 10 years.'' \13\
---------------------------------------------------------------------------
\13\ 7 U.S.C. 1991.
---------------------------------------------------------------------------
Several commenters also recommended that FCA reduce the small
farmer definition from $250,000 in gross annual sales to something
less, such as $100,000 in gross annual sales. The guidance defines
``small'' as a farmer, rancher, or producer or harvester of aquatic
products who normally generates less than $250,000 in annual gross
sales of agricultural or aquatic products. Before 1998, the definition
of small was one who has ``sustained gross sales from agricultural or
aquatic production and a net worth as prescribed by the FCA.'' The
agency's current definition of ``small'' is significantly more
conservative than the definitions used by other Federal financial
regulatory agencies for Community Reinvestment Act \14\ reporting of
small farmer loans. The Small Business Administration considers most
agricultural production enterprises as ``small'' if their annual
receipts do not exceed $750,000.\15\ Commercial banks and savings
associations use thresholds of $1,000,000 for annual sales and a loan
size of less than $500,000 for small loans.\16\ The National Commission
on Small Farms \17\ (Commission) recommended that the United States
Department of Agriculture (USDA) focus its programs on farm operations
that generate less than $250,000 in annual gross agricultural sales.
The Commission believed such a level of income represents small farm
operators and, after expenses, is equivalent to the net disposable
income that the average non-farm family receives. As these various
definitions indicate, there is no
[[Page 53921]]
uniform description of a small farm. The agency adopted the most
conservative of these thresholds, $250,000 in annual gross agricultural
sales.
---------------------------------------------------------------------------
\14\ See, for example, 12 CFR 25.42(h)(1)(iv).
\15\ See section 3(a)(1) of the Small Business Act, Pub. L. 85-
536, as amended.
\16\ Depository lenders report on loans to small farm operators
as part of their compliance with the Community Reinvestment Act.
\17\ USDA, A Report to the USDA National Commission on Small
Farms, January 1998.
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Several commenters recommended that FCA exclude loans that are
$5,000 or less from any YBS reporting. The agency's current definitions
for YBS farmers and ranchers include all loans, even those that fall
under a de minimis loan amount, such as $5,000. We do not believe a de
minimis exclusion would provide an accurate and complete picture of the
System's YBS lending.
One commenter recommended making ``small'' the umbrella category
for ``young'' and ``beginning'' farmers and ranchers. This commenter
also recommended creating a category for ``small'' loans to farmers and
ranchers who are not ``young'' or ``beginning.'' Section 4.19 of the
Act requires that the System have programs for ``young,''
``beginning,'' and ``small'' farmers and ranchers. The agency has
interpreted this statutory provision as requiring System policies,
programs, and reporting to be based on these three distinct YBS
categories. The agency believes that changing these categories by
making any one of them the umbrella for other categories, as suggested
by the commenter, would be inconsistent with Congressional intent.
Moreover, the agency's current ``small'' category already captures
small farmers and ranchers who are not ``young'' and ``beginning.''
Therefore, to rearrange the categories, as suggested by the commenter,
would be unnecessarily burdensome and not more useful.
One commenter noted the inconsistency between the FCA and the USDA
definitions for certain categories of YBS borrowers. The agency has
considered a variety of data, including USDA benchmarks, in developing
what it believes to be YBS definitions most appropriate for the
System's mission.
A few commenters noted that a borrower should have a ``material
stake'' in the agricultural operation before he or she can be counted
in one of the YBS categories. The current definitions for young and
beginning farmers and ranchers apply to individuals who benefit from
System loans. Loans to sole proprietors and partners qualify for
reporting purposes if a young or beginning borrower is obligated on the
loan. Loans to a closely held legal entity qualify for reporting
purposes if a young or beginning borrower has an ownership interest in
the entity. The current definitions do not require that a young or
beginning borrower have a material stake in the agricultural operation.
We believe a material stake requirement is inconsistent with the
purpose of YBS lending, which is to provide credit and services to
those borrowers who are just getting started in agriculture and often
have a low equity position, thereby precluding their ability to have a
``material stake'' in an agricultural operation.
Finally, one commenter noted that System institutions do not
consistently apply YBS definitions. The agency's 1998 guidance for YBS
reporting provided a phase-in period for the new definitions, which
required compliance by January 2001. During this transition period,
System institutions may have adopted different implementation dates for
their reporting changes. The agency annually reviews and provides
instructions to each System direct lender association for its YBS
reporting to ensure that it is both accurate and complete. In addition,
FCA examiners evaluate and test the direct lender associations'
internal controls to verify whether the designation of YBS farmers and
ranchers is correct, the accuracy of the direct lender associations'
databases, and the quality of reporting to association boards and FCA.
In summary, the agency believes the current YBS definitions reflect
the changes in agriculture occurring over the years and provide the
most accurate picture of the System's service to YBS farmers and
ranchers. The definitions for YBS categories are not included in the
proposed rule, but continue to remain in agency guidance set forth in
an agency bookletter (1998 BL-040).
H. Other Authorities To Enhance YBS Lending
A significant number of commenters offered suggestions on ways to
improve credit and services to YBS farmers and ranchers in lieu of
issuing a revised YBS regulation. These suggestions included:
1. Reviving the national charter issue to eliminate territorial
restrictions and thereby improve competition, availability, and access
to credit to YBS farmers and ranchers;
2. Removing the existing scope of lending restrictions limiting
lending to less than full-time farmers so that part-time farmers have
more access to credit;
3. Removing restrictions on rural home loan lending;
4. Authorizing System institutions to make investments in rural
America;
5. Expanding the System's lending authority to include lending to
businesses located in rural areas; and
6. Enhancing the System's lending to other financing institutions.
One commenter opposed any initiatives that would expand the System's
lending authorities.
The proposed rule focuses only on System YBS policies and programs.
The agency's regulatory performance plan (which is available on the
agency's Web site) includes many of the topics raised by the
commenters. As the regulatory performance plan indicates, many of these
topics may be addressed in separate agency rulemakings.
IV. Regulatory Approach
As discussed above, the agency received contrasting comments on
whether further guidance is necessary to strengthen the System's
mission to provide sound and constructive credit and services to YBS
farmers and ranchers. After reviewing the comment letters and public
testimony, the agency is proposing a regulation that balances the needs
for additional direction while allowing System direct lender
associations the flexibility to design YBS programs unique to the needs
of their territories and within their risk-bearing capacities.
The proposed rule outlines the minimum components that must be a
part of each direct lender association's YBS program. Thus, it is
responsive to the GAO report recommendation for a regulation that
``outlines specific activities and standards that constitute an
acceptable program to implement the YBS statutory requirement.''
GAO also recommended publicly disclosing the results of the
examinations for YBS compliance for individual System associations. The
Federal financial regulatory agencies, including the FCA, have a
longstanding policy of keeping examination results confidential to
everyone other than the board of directors of the affected
institution.\18\ The purposes of this policy are to protect financial
institutions by withholding reports that contain candid evaluations of
their stability and to promote cooperation and communication between
the institution and examiners.
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\18\ An exemption under the Freedom of Information Act permits
the agency to withhold from the public any agency record ``contained
in or related to examination, operating, or condition reports
prepared by, on behalf of, or for the use of an agency responsible
for the regulation or supervision of financial institutions.'' See 5
U.S.C. 552(b)(8).
---------------------------------------------------------------------------
We believe the proposed rule meets the intent of the GAO
recommendation for improved public disclosure of the System's YBS
performance results. The agency will assign a rating for each direct
lender association's overall YBS program. The rating will identify the
association's YBS program performance as either ``Pass'' or ``Fail.''
The FCA Board will publicly disclose the results
[[Page 53922]]
of the System's YBS compliance. The proposed rule also requires System
banks and direct lender associations to discuss their YBS programs and
results in their annual reports to shareholders and investors. We
believe these reporting and disclosure requirements will create more
meaningful and transparent disclosure of the System's YBS program
results than would the reporting of YBS examination results. Moreover,
we believe such reporting and disclosure requirements will provide an
added incentive to System banks and direct lender associations to focus
on and enhance their YBS policies and programs.
Finally, the GAO recommended more consistent and complete YBS
examination procedures. In response to this recommendation, FCA has
made numerous changes to improve the YBS examination process. Such
changes included implementing additional controls to provide assurance
that examiners are fully completing the comprehensive YBS examination
procedures. Before the GAO review, examiners had been completing YBS
examination procedures using a ``risk-based'' approach, focusing
attention on those areas deemed to be significant to that particular
institution. Shortly after receiving the GAO report, the ``risk-based''
approach was discontinued and comprehensive scope examinations became
mandatory in all association examinations, with full documentation of
work performed and conclusions drawn. Senior examiners are now required
to provide close supervision of the YBS examination program, and
quality assurance examiners review the work completed and certify that
the examiners followed all applicable guidance. After reviewing the
agency's progress in this area, the GAO concluded that our corrective
action plan satisfies the recommendation contained in the report
regarding YBS examination activities.
The agency proposes to revise its YBS regulation by removing the
current rule in its entirety and replacing it with the proposed rule
discussed below.
V. Section-by-Section Analysis
Section 614.4165(a)--Definitions
We have added a definition section to clarify that the term
``credit'' includes all loans and interests in participations made by
System banks and direct lender associations operating under title I or
II of the Act. This section also clarifies that the term ``services''
as used in section 4.19(a) of the Act includes all leases made under
title I or II authorities and all related services made by System banks
and direct lender associations operating under title I or II of the
Act.
Section 614.4165(b)--Farm Credit Bank Policies
This section implements certain provisions of section 4.19 of the
Act, which require each:
1. Direct lender association to adopt a YBS program under the
polices of its funding \19\ Farm Credit bank board;
---------------------------------------------------------------------------
\19\ Although section 4.19 of the Act refers to ``district'' and
``supervising'' Farm Credit bank, we use the term ``funding'' bank,
which we believe more appropriately reflects the current
relationship between a Farm Credit bank and its affiliated direct
lender associations.
---------------------------------------------------------------------------
2. Direct lender association to coordinate with other System
institutions in its territory, and other Governmental and private
sources of credit in extending credit and services to YBS farmers and
ranchers;
3. Direct lender association to report annually on its YBS programs
and performance results to its funding bank; and
4. Farm Credit bank to report annually to the FCA, summarizing the
YBS program operations and achievements of its affiliated direct lender
associations.
Direct lender associations have gained more autonomy from their
funding banks since 1980, when section 4.19 of the Act was added. In
recognizing this autonomy, we are proposing that the Farm Credit bank
policies be kept to a minimum. Instead, the proposed rule focuses on
ensuring that the direct lender associations establish YBS programs
that fulfill the provisions of section 4.19 of the Act.
Section 614.4165(c)--Direct Lender Association YBS Programs
This section sets forth the minimum components that each direct
lender association must include in its YBS program. This section allows
each direct lender association to design a YBS program unique to the
needs of the YBS farmers and ranchers in its territory. Setting forth
minimum components for YBS programs conveys FCA's expectations for
specific activities and standards that constitute an acceptable YBS
program.
The first component of this section requires each direct lender
association to develop a mission statement for its YBS program. The
exercise of developing a mission statement will compel each direct
lender association to focus on the objectives of its YBS program and
the steps it must take to accomplish such objectives.
The second and third components of this section require each direct
lender association to develop annual quantitative targets and
qualitative goals to be incorporated into its operational and strategic
business plan. Although the proposed regulation provides several
suggestions on how to establish quantitative targets, these are
suggestions only and are not mandatory. Each direct lender association
has the flexibility to establish quantitative targets that best fit the
needs of its territory. These targets must be established for each
category of YBS borrowers. We note that no matter how direct lender
associations establish their quantitative targets, the agency will
continue to require annual YBS reports on loan volume and numbers.
The proposed rule requires that quantitative targets reasonably
relate to the demographic data in each direct lender association's
territory. We realize, based on the comments received, that the
demographic data available to the System is not a perfect
representation of the potential pool of eligible YBS borrowers in each
direct lender association's territory. However, demographic data
available from the Census of Agriculture, for example, is suitable as
long as the direct lender association makes a reasonable effort to
determine the reliability of the data. Moreover, quantitative targets
must reasonably reflect the YBS demographics in each direct lender
association's territory.
The quantitative targets and qualitative goals outlined in the
proposed rule are similar to current FCA policy and reporting
requirements for System YBS programs. Therefore, we do not believe
these components impose significant new burdens for System direct
lender associations.
The fourth component of this section requires each direct lender
association to have methods to ensure that it conducts its YBS program
in a safe and sound manner and within its risk-bearing capacity. It is
possible that YBS farmers and ranchers pose a higher credit risk than
other System borrowers. However, through the use of loan
participations, capital pooling, guarantors such as the Farm Service
Agency and state organizations that address specific YBS lending needs,
a direct lender association can better manage its risk and increase
opportunities for its YBS borrowers. The use of credit enhancements is
one method to manage risk while providing more opportunities.
Section 614.4165(d)--YBS Advisory Committee
Under this section, each direct lender association may establish
and maintain an advisory committee comprised of
[[Page 53923]]
young, beginning, and small farmers and ranchers. We believe a YBS
advisory committee could help each association determine the credit and
services needs of YBS farmers and ranchers in the association's
territory. Similarly, this committee could serve as the association's
conduit to the YBS community and other agricultural interest groups and
lending sources serving the needs of YBS farmers and ranchers. For
example, an advisory committee could reach out to the YBS community to
inform such potential borrowers of the association's credit and
services programs designed to serve YBS farmers and ranchers. For these
reasons, we believe this committee will be extremely helpful to System
associations.
Section 614.4165(e)--Review and Approval of YBS Programs
This section implements section 4.19(a) of the Act, which requires
each YBS program to be subject to review and approval by the funding
bank. We recognize that because System associations are now all direct
lenders, their relationship with their funding banks has significantly
changed since 1980, when section 4.19 was added to the Act. Direct
lender associations have been increasingly more responsible for their
own programs and operations. Accordingly, we have limited each funding
bank's review and approval of YBS programs to whether or not the YBS
programs are complete and include the necessary components required in
the proposed rule.
Section 614.4165(f)--YBS Program and the Operational and Strategic
Business Plan
This paragraph requires direct lender associations to include their
YBS quantitative targets and qualitative goals in their operational and
strategic business plan. The annual targets and goals will establish
the steps by which the association hopes to reach its longer-term YBS
program objectives as identified in its operational and strategic
business plan.
Section 614.4165(g)--YBS Program Internal Controls
Proper oversight and control of a YBS program will help ensure that
the program is managed effectively and will contribute to its overall
success. Therefore, we believe comprehensive and detailed internal
controls are a critical component of a YBS program. These internal
controls include establishing clear lines of responsibility for YBS
program implementation, YBS performance results, and YBS quarterly
reporting. Regular and reliable reporting to the board of directors
helps the association to assess the strengths and weaknesses of its YBS
program. The quarterly reporting requirement in the proposed rule will
provide the board of directors an opportunity to assess its YBS program
and consider any necessary changes or adjustments to its program
components.
Section 620.5(n)--Contents of the Annual Report to Shareholders
A significant number of commenters noted how successfully the
System is fulfilling its YBS mission. However, many commenters also
noted that the System could do a better job of sharing its YBS mission
accomplishments with the public. Therefore, the proposed rule includes
a requirement for each direct lender association and Farm Credit bank
to report on its YBS mission accomplishments in its annual report to
shareholders. The reporting information required in the proposed rule
is not significantly different than the information solicited by the
agency each year from each direct lender association through its
funding bank. Therefore, the agency believes this reporting requirement
will not be significantly burdensome or costly to the System.
Reporting requirements for the direct lender associations are more
detailed than the Farm Credit bank disclosure requirements. 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), and the definitions of ``young,'' ``beginning,'' and
``small'' farmers and ranchers. Each direct lender association must
also describe the YBS demographics in its territory and the source of
its demographic data as well as any differences between this data and
the association's YBS data. For example, if an association uses the
USDA Census of Agriculture to report on the demographics of its
territory, it must cite this source. Furthermore, if there are
differences between the demographic data and the YBS data being
collected by the association, the differences must be explained in the
report. For instance, the USDA Census of Agriculture reports on number
of farmers and ranchers, whereas System associations report on the
number of loans.
In addition, each association must discuss any other information
necessary for a comprehensive understanding of the association's YBS
program and its results. For example, the association may need to
describe the choice of services that it offers to its YBS farmers and
ranchers. The association may also need to discuss any significant
changes in quantitative targets or qualitative goals between reporting
periods.
Section 4.19(b) of the Act requires each Farm Credit bank to
summarize the YBS operations and achievements for all its affiliated
direct lender associations and report such information to the agency.
The proposed rule requires each Farm Credit bank to include such
information in its annual report to shareholders. Specifically, the
proposed rule requires the banks to include in its annual report to
shareholders a summary report of the quantitative YBS data from its
affiliated direct lender associations. The annual report to
shareholders must also include the definitions of ``young,''
``beginning,'' and ``small'' farmers and ranchers. We note that the
proposed rule requires each Farm Credit bank to report on quantitative
data only. However, a narrative report may be necessary for an ample
understanding of the YBS mission results.
We believe reporting to shareholders and the public will create
more transparent disclosure of the System's YBS mission accomplishment.
Such transparency will underscore the importance of the YBS mission to
the System, not only in its role as a provider of sound, constructive,
and dependable credit to all of American agriculture, but also in its
public purpose role as a GSE.
To increase the transparency of the System's YBS disclosure, we
would encourage all System banks and direct lender associations to
provide Web site access to their annual reports to shareholders. We
note that much of the YBS information currently reported to the agency
by System banks and associations is available on our Web site.
Section 630.20--Contents of the Annual Report to Investors
In order to strive for more transparency in the System's
fulfillment of its YBS mission, the proposed rule requires Farm Credit
banks to include, in their annual report to investors, a report on
consolidated YBS lending data of their affiliated direct lender
associations. The annual report to investors must also include the
definitions of ``young,'' ``beginning,'' and ``small'' farmers and
ranchers.
VI. 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
[[Page 53924]]
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 614
Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 630
Accounting, Agriculture, Banks, banking, Organization and functions
(Government agencies), Reporting and recordkeeping requirements, Rural
areas.
For the reasons stated in the preamble, parts 614, 620, and 630,
chapter VI, title 12 of the Code of Federal Regulations are proposed to
be amended 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 D--General Loan Policies for Banks and Associations
2. Section 614.4165 is revised to read as follows:
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 titles I or II of the Act; and
(ii) Interests in participations made to farmers and ranchers and
producers or harvesters of aquatic products under titles I or II of the
Act.
(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 titles I or II of the Act; and
(ii) Related services to farmers and ranchers and producers or
harvesters of aquatic products under titles 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 Farm Credit 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.
(4) The bank to provide the Farm Credit Administration 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 reasonably reliable demographic data and
that reasonably reflect the YBS demographics in 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;
(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 among other Farm Credit 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;
(iii) Implement effective outreach programs to attract YBS farmers
and ranchers, which may include advertising campaigns, and educational,
credit and services programs beneficial to ``young,'' ``beginning,''
and ``small'' farmers and ranchers in the territory.
(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) YBS Advisory Committee. The YBS program of each direct lender
association may include 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 YBS farmers and ranchers.
(e) Review and approval of YBS programs. The YBS program of each
direct 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.
[[Page 53925]]
(f) 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).
(g) 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.
PART 620--DISCLOSURE TO SHAREHOLDERS
3. The authority citation for part 620 continues to read as
follows:
Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12
U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101
Stat. 1568, 1656.
Subpart B--Annual Report to Shareholders
4. Amend Sec. 620.5 by adding a new paragraph (n) to read as
follows:
Sec. 620.5 Contents of the annual report to shareholders.
* * * * *
(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 the Farm Credit Administration'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.
PART 630--DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND CONSOLIDATED
BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM
5. The authority citation for part 630 continues to read as
follows:
Authority: Secs. 5.17, 5.19 of the Farm Credit Act (12 U.S.C.
2252, 2254).
Subpart B--Annual Report to Investors
6. Amend Sec. 630.20 by adding a new paragraph (p) to read as
follows:
Sec. 630.20 Contents of the annual report to investors.
* * * * *
(p) Credit and Services to young, beginning, and small farmers and
ranchers and producers or harvesters of aquatic products. The Farm
Credit banks must include a report on consolidated YBS lending data of
their affiliated associations. 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.
Dated: September 10, 2003.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 03-23421 Filed 9-12-03; 8:45 am]
BILLING CODE 6705-01-P