[Federal Register: July 21, 2004 (Volume 69, Number 139)]
[Rules and Regulations]
[Page 43511-43515]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy04-2]
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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: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, our) issues this
final rule amending regulations governing domestic and international
lending, certain intra-Farm Credit System (FCS or System) consent
requirements concerning similar entity participation transactions,
provisions of general financing agreements (GFAs), and related
services.
DATES: Effective Date: This regulation will be effective 30 days after
publication in the Federal Register during which time either or both
Houses of Congress are in session. We will publish a notice of the
effective date in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
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 the General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY
(703) 883-2020.
SUPPLEMENTARY INFORMATION:
I. Objectives
The primary objectives of the final rule are to conform our
regulations to statutory amendments to the Farm Credit Act of 1971, as
amended (Act), and to reduce regulatory burden imposed on System
institutions, while helping ensure compliance with the Act and FCA
regulations. We expect the rule 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
On May 21, 2003, we published a proposed regulation for public
comment. (See 68 FR 27757.) As discussed in the proposed rule's
[[Page 43512]]
preamble, we are amending our rules 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); address public comments concerning
regulatory burden; \1\ and 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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III. Comments
We received comments on the proposed rule from the Farm Credit
Council (Council), four Farm Credit Banks (FCBs), and an agricultural
credit bank. In general, commenters expressed support for our efforts
to reduce regulatory burden and conform our regulations to the Act.
However, the Council and some FCBs asked for clarification or expressed
concern about our proposal to help ensure that FCS association lending
complies with the Act and our regulations. Another FCB requested that
we eliminate the proposal.
After carefully considering the comments, we adopt the final rule
as proposed with clarification of Sec. 614.4125(a), regarding the
compliance of FCS association lending with the Act and our regulations.
IV. FCA's Section-by-Section Response to Comments
A. Domestic Title III Lending
In response to our earlier regulatory burden solicitation, CoBank,
ACB (CoBank) requested that we amend Sec. 613.3100 concerning
financing for domestic borrowers and asked that we amend Sec.
613.3100(c)(2) concerning financing certain activities for which
financing might not be available under the Rural Electrification Act.
In commenting on our proposed rule, CoBank acknowledged our efforts to
reduce regulatory burden by providing the clarifications sought. In
addition, the Council stated that the System commends the FCA for
responding to CoBank's request for clarification of authorities and
reducing regulatory burden. No other comments were received on these
proposed amendments. Accordingly, we adopt the proposed amendments at
Sec. Sec. 613.3100(b)(2)(ii), 613.3100(c)(1)(v), and 613.3100(c)(2) as
final.
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
In our final rule we 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. As amended,
Sec. 613.3100(b)(2)(ii) clarifies that a title III bank may provide
limited financing to a subsidiary or other entity in which an eligible
cooperative has an ownership interest. As amended, Sec.
613.3100(c)(1)(v) clarifies that a title III bank may 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
In our final rule we clarify that a bank for cooperatives (BC) or
agricultural credit bank (ACB) may provide financing for subsidiaries
of cooperatives or other entities that are eligible to borrow 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
Rural Utilities Service (RUS) or the Rural Telephone Bank (RTB). The
legislative history of the Act clearly demonstrates that Congress
intended for BCs and ACBs to provide financing for certain limited
``non act'' purposes.\2\ We amend 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 RUS or the RTB as described in Sec.
613.3100(c)(1)(ii).
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B. Conforming FCA Regulations To Reflect Recent Amendments to the Act
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,'' and 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. We proposed amendments to Sec. Sec. 613.3200 and 613.3300(d)
to reflect these statutory changes. In its comment on the proposed
rule, the Council stated that the System supports the action taken by
FCA to amend its regulations to reflect the changes to the Act made by
the FSRIA and urged their enactment. No other comments were received on
these proposed amendments. Accordingly, we adopt the proposed
amendments to Sec. Sec. 613.3200 and 613.3300(d) as final.
Section 613.3200(a)--International Lending
In our final rule we conform our regulations to 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 amend Sec. 613.3200(a) by
adding a definition of ``agricultural supply.'' The definition of
``agricultural supply'' in Sec. 613.3200(a)(1) includes 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. 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(d)--Participations and Other Interests in Loans to
Similar Entities
In our final rule we amend our regulations to conform them to
changes FSRIA made in the Act regarding similar entity transactions.\3\
FCS institutions are no longer required to obtain the approvals
required by former 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
[[Page 43513]]
association. Therefore, while we delete former Sec. 613.3300(d) to
reflect the elimination of other statutory approval requirements, we
add a new section to reflect this statutory requirement. New Sec.
613.3300(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 title III if the similar entity has a loan or a
loan commitment outstanding with the FCB or association. Because all
FCBs have transferred their direct lending authority to their
associations, this provision currently requires consent from
associations only.
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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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C. Ensure Loan Making Complies With the Act and FCA 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. In appropriate
cases, FCA may use its cease and desist or civil money penalty
authorities. However, a review of 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.
We proposed an amendment to Sec. 614.4125(a) that, without in any
way limiting our other authorities or remedies under the Act, would
mandate that the GFA between the funding bank and the direct lender
association require that the amount of financing available be based
solely on loans that comply with the Act and FCA regulations.
We received several comments on the proposal. The Council and three
FCBs asked for clarification of the word ``solely'' in our proposal and
noted that GFAs calculate available funding on the basis of other
assets such as farmer notes, purchase money mortgages, acquired
property, and leases in addition to loans. In the final rule, we
rephrase the regulation to clarify that the regulatory requirement
concerning GFA provisions was not meant to imply that the GFA cannot
include certain assets other than loans in calculating available
financing.
The Council and an FCB noted that some GFAs do not provide 100-
percent credit for all loans, and asked us to clarify that any
reduction to the borrowing base for an eligible loan should not exceed
the amount of credit given. We clarify in the final rule that if FCA
determines that a loan is ineligible, then the amount of financing
available must be recalculated without that ineligible loan.
The Council and an FCB asked for clarification and expressed
concern whether ``minor'' or ``technical'' \4\ credit administration
errors could be interpreted by FCA as not complying with the Act or FCA
regulations, necessitating recalculation of the GFA. For those reasons,
another FCB requested that we eliminate this proposal. The intent of
this rule is not to eliminate loans with credit administration errors
from the amount of financing available to an association. Our final
rule clarifies our intent to address ineligible loans. For example, a
loan would be ineligible if it violated the requirements in part 613 of
our regulations or the first lien, loan-to-value, or lending and
leasing limit requirements of part 614 of our regulations.
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\4\ Examples cited included minor effective interest rate
disclosure errors or borrowers that did not receive timely interest
rate change notices.
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Subpart C--Bank/Association Lending Relationship
Section 614.4125(a)--Funding and Discount Relationships Between Farm
Credit Banks or Agricultural Credit Banks and Direct Lender
Associations
The final rule modifies the language proposed in order to provide
appropriate clarification. The final rule amends Sec. 614.4125(a) so
that each GFA must require that the amount of financing available to a
direct lender association not be based on loans that are ineligible
under the Act and our regulations. Furthermore, if financing under a
GFA is based on a loan that we determine is ineligible under the Act
and our regulations, then the amount of financing available must be
recalculated without that ineligible loan.
We reiterate that the new regulatory requirements with respect to
GFAs' treatment of ineligible loans do not limit in any way FCA's
remedies or actions with respect to loans that do not comply with FCA
regulations or with the Act in any other respect. Nor does the addition
of new regulatory requirements with respect to GFAs' treatment of
ineligible loans limit, in any way, FCA's remedies or actions with
respect to other types of assets held by FCS institutions that fail to
comply with FCA regulations or with the Act.
D. Related Services
In response to our earlier regulatory burden solicitation discussed
in Section III above, CoBank requested clarification that it has the
same authority to provide related services under title I of the Act as
FCBs and the same authority to provide related services under title III
of the Act as BCs. We proposed regulations in Sec. Sec. 618.8000(b)
and 618.8005(c) to provide that clarification.\5\ In commenting on our
proposed rule, CoBank acknowledged our efforts to reduce regulatory
burden by providing the clarifications sought. In addition, the Council
stated that the System commends the FCA for responding to CoBank's
request for clarification of authorities and reducing regulatory
burden. No other comments were received on these proposed amendments.
Accordingly, we adopt the proposed amendments to Sec. Sec. 618.8000(b)
and 618.8005(a) and (c) as final.
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\5\ The proposed regulation did not affect our authorized
related services list discussed at part 618, subpart A, of our
regulations.
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Subpart A--Related Services
Section 618.8000(b)--Definitions and Sections 618.8005(a) and (c)--
Eligibility
In our final rule we revise 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. In Sec. 618.8000(b)
we delete the phrase, ``on-farm, aquatic, or cooperative operations''
in order to eliminate any possible confusion about limitations on
related services offerings under title III. Similarly, in Sec.
618.8005(c) we delete the phrase, ``appropriate to cooperative
operations of.'' In Sec. 618.8005(a) we add 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.
V. 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 final 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.
[[Page 43514]]
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.
0
For the reasons stated in the preamble, parts 613, 614, and 618 of
chapter VI, title 12 of the Code of Federal Regulations are amended as
follows:
PART 613--ELIGIBILITY AND SCOPE OF FINANCING
0
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
0
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 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.
* * * * *
0
3. Amend Sec. 613.3200 as follows:
0
a. Revise paragraph (a); and
0
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
0
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
0
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
0
6. Amend Sec. 614.4125(a) by adding a second and third 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 not be
based on loans that are ineligible under the Act and the regulations in
this chapter. If financing under a general financing agreement is based
on a loan that FCA determines is ineligible under the Act and the
regulations in this chapter, then the amount of financing available
must be recalculated without that ineligible loan.
* * * * *
PART 618--GENERAL PROVISIONS
0
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
0
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]
0
9. Amend Sec. 618.8005 by:
[[Page 43515]]
0
a. Adding the phrase ``appropriate to on-farm and aquatic operations''
after the word ``services'' in paragraph (a); and
0
b. Removing the phrase ``appropriate to cooperative operations of'' and
adding in its place, the word ``to'' in paragraph (c).
Dated: July 15, 2004.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 04-16553 Filed 7-20-04; 8:45 am]
BILLING CODE 6705-01-P