Title IV Conservators, Receivers, and Voluntary Liquidations; Receivership Repudiation Authorities, 55513-55516 [05-18892]
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Rules and Regulations
Federal Register
Vol. 70, No. 183
Thursday, September 22, 2005
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
NUCLEAR REGULATORY
COMMISSION
10 CFR Part 72
RIN 3150–AH75
List of Approved Fuel Storage Casks:
NAC–UMS Revision 4, Confirmation of
Effective Date
Nuclear Regulatory
Commission.
ACTION: Direct final rule: Confirmation
of effective date.
AGENCY:
SUMMARY: The Nuclear Regulatory
Commission (NRC) is confirming the
effective date of October 11, 2005, for
the direct final rule that was published
in the Federal Register on July 25, 2005
(70 FR 42485). This direct final rule
amended the NRC’s regulations to revise
the NAC–UMS cask system listing to
include Amendment No. 4 to Certificate
of Compliance (CoC) No. 1015.
EFFECTIVE DATE: The effective date of
October 11, 2005, is confirmed for this
direct final rule.
ADDRESSES: Documents related to this
rulemaking, including comments
received, may be examined at the NRC
Public Document Room, located at One
White Flint North, 11555 Rockville
Pike, Rockville, MD 20852. These same
documents may also be viewed and
downloaded electronically via the
rulemaking Web site (https://
ruleforum.llnl.gov). For information
about the interactive rulemaking
website, contact Ms. Carol Gallagher
(301) 415–5905; e-mail CAG@nrc.gov.
FOR FURTHER INFORMATION CONTACT:
Jayne M. McCausland, Office of Nuclear
Material Safety and Safeguards, U.S.
Nuclear Regulatory Commission,
Washington, DC 20555, telephone (301)
415–6219, e-mail jmm2@nrc.gov.
SUPPLEMENTARY INFORMATION: On July
25, 2005 (70 FR 42485), the NRC
published a direct final rule amending
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15:53 Sep 21, 2005
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its regulations in 10 CFR part 72 to
revise the NAC-UMS cask system listing
within the ‘‘List of Approved Spent Fuel
Storage Casks’’ to include Amendment
No. 4 to CoC No. 1015. This amendment
replaces the term ‘‘zircaloy’’ with the
more generic term ‘‘zirconium alloy’;
revises the definitions of ‘‘operable’’ and
‘‘site specific fuel’’; revises vacuum
drying pressure and time limits; revises
short-term temperature limits and
completion times for the heat removal
system; clarifies the surface dose rate
surveillance; adds a dissolved boron
concentration option; deletes a
redundant boron concentration
administrative control; adds an alternate
site-specific design basis earthquake
analysis; and incorporates editorial and
administrative changes. In the direct
final rule, NRC stated that if no
significant adverse comments were
received, the direct final rule would
become final on October 11, 2005. The
NRC did not receive any comments that
warranted withdrawal of the direct final
rule. Therefore, this rule will become
effective as scheduled.
Dated at Rockville, Maryland, this 18th day
of September, 2005.
For the Nuclear Regulatory Commission.
Michael T. Lesar,
Chief, Rules and Directives Branch, Division
of Administrative Services, Office of
Administration.
[FR Doc. 05–18914 Filed 9–21–05; 8:45 am]
BILLING CODE 7590–01–P
FARM CREDIT ADMINISTRATION
resolve issues raised by Financial
Accounting Standards Board (FASB)
Statement No. 140, Accounting for
Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
(SFAS 140). Under conditions described
in the final rule, the FCSIC will not seek
to recover or reclaim certain financial
assets in exercising its authority to
repudiate or disaffirm contracts
pursuant to 12 CFR 627.2725(b)(2),
(b)(14) and 627.2780(b) and (d).
Additionally, with this final rule, the
FCSIC will not seek to enforce the
‘‘contemporaneous’’ requirement of
section 5.61(d) of the Farm Credit Act of
1971, as amended (Act) (12 U.S.C.
2277a–10(d)). The final rule is
substantially identical to receivership
rules issued by the Federal Deposit
Insurance Corporation (FDIC) and the
National Credit Union Administration
(NCUA).
EFFECTIVE DATE: This regulation will be
effective 30 days after publication in the
Federal Register during which 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:
Robert E. Donnelly, Senior Accountant,
Office of Policy and Analysis, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4498, TTY
(703) 883–4434, or
Rebecca S. Orlich, Senior Attorney,
Office of General Counsel, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4020, TTY
(703) 883–4020.
12 CFR Part 627
SUPPLEMENTARY INFORMATION:
RIN 3052–AC26
I. Objective
Title IV Conservators, Receivers, and
Voluntary Liquidations; Receivership
Repudiation Authorities
The objective in this final rule is to
give certainty to System institutions
regarding how the FCSIC will treat
qualifying participations and
securitizations if the institution is
subsequently placed in conservatorship
or receivership. The rule will achieve
this by ensuring that the FCSIC will not
attempt to ‘‘pull back’’ the subject assets
into the conservatorship or receivership
estate if the transaction meets specified
conditions.
There is nothing in this final rule that
provides any System institutions with
the authority to engage in any
transaction that is not otherwise
authorized.
Farm Credit Administration.
Final rule.
AGENCY:
ACTION:
SUMMARY: The Farm Credit
Administration (FCA, we, or our) issues
this final rule amending our regulations
governing how the Farm Credit System
Insurance Corporation (FCSIC), as
receiver or conservator of a Farm Credit
System (System) institution, will treat
financial assets transferred by the
institution in connection with a
securitization or in the form of a
participation. This final rule will
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Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Rules and Regulations
II. Background
As discussed in the preamble to the
proposed rule (see 70 FR 21685, April
27, 2005), under generally accepted
accounting principles (GAAP), a transfer
of financial assets is accounted for as a
sale if the transferor surrenders control
over the assets. This principle is set
forth in the SFAS No. 140 issued by the
FASB.1 Under this principle, one of the
conditions for determining that the
transferor has surrendered control is
that the assets have been isolated from
the transferor, i.e., put presumptively
beyond the reach of the transferor, its
creditors, a trustee in bankruptcy, or a
receiver. This is known as the ‘‘legal
isolation’’ condition.
Whether the legal isolation condition
has been met is determined primarily
from a legal perspective. This
determination involves considerations
of the kind of receivership into which
the transferor may be placed and the
powers of the receiver to reach assets
that were transferred prior to its
appointment. If the available evidence
provides reasonable assurance that the
transferred assets would be beyond the
reach of the powers of a bankruptcy
trustee or receiver for the transferor,
then a determination that the transferred
assets have been legally isolated is
appropriate.
When the transferor is a System
institution, the FCSIC may be appointed
conservator or receiver. The FCSIC has
authority to repudiate burdensome
contracts under §§ 627.2725(b)(2),
(b)(14) and 627.2780(b) and (d) of FCA
regulations; and it can repudiate certain
other contracts under section 5.61(d) of
the Act.2 Due to these provisions, the
question becomes whether financial
assets transferred in connection with a
securitization or in the form of a
participation would be beyond the reach
of the FCSIC as conservator or receiver.
Under §§ 627.2725(b)(2) and
627.2780(d), the FCSIC may take any
action it considers appropriate or
expedient to carry on the business of the
institution during the process of
liquidation or during the
conservatorship. Under
§ 627.2725(b)(14), the FCSIC, when
acting as conservator or receiver of a
1 SFAS 140 replaced SFAS 125 (which had
covered the same issues and was identically titled)
in September 2000. SFAS 140 revised the standards
for accounting for securitizations and other
transfers of financial assets and collateral and
required certain disclosures, but it carried over
most of the provisions of SFAS 125 without
reconsideration. The FDIC receivership issues and
its related rule 12 CFR 360.6, which are discussed
later in this preamble, are described in paragraphs
157–160 of SFAS 140.
2 See 12 CFR 627.2725(b)(2), (b)(14) and
627.2780(b) and (d), and 12 U.S.C. 2277a–10(d).
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System institution, has the power to
disaffirm or repudiate any contract or
lease to which the institution is a party,
the performance of which the FCSIC
determines to be burdensome.
Repudiation of a contract relieves the
FCSIC from performing any
unperformed obligations remaining
under the contract. Section 5.61(d) of
the Act provides that no agreement that
tends to diminish or defeat the FCSIC’s
interest in an asset acquired by the
FCSIC as conservator or receiver is
enforceable against the FCSIC unless the
agreement meets certain requirements.
One of those requirements is that the
agreement must be executed, by the
institution and by any person claiming
an adverse interest under it,
contemporaneously with the acquisition
of the asset by the institution. This is
referred to as the ‘‘contemporaneous’’
requirement. These provisions are
discussed below.
III. Description of the Final Rule
This final rule will add a new
§ 627.2726 to the conservatorship and
receivership provisions in part 627 of
FCA’s regulations. The rule will apply
only to those securitizations or
participations in which the transfer of
financial assets meets all conditions for
sale accounting treatment under GAAP,
other than the ‘‘legal isolation’’
condition as it applies to institutions for
which the FCSIC may be appointed as
conservator or receiver, which is
addressed by this rule. The final rule
provides that, for these transfers, the
FCSIC will not, by exercise of its
authority to repudiate contracts under
§ 627.2725(b)(2) or (b)(14), reclaim,
recover, or recharacterize as property of
the institution or the receivership any
financial assets transferred by a System
institution in connection with a
securitization or in the form of a
participation. Although the repudiation
of a securitization or participation will
not affect transferred financial assets,
repudiation will excuse the FCSIC from
performing any continuing obligations
imposed by the securitization or
participation. If the FCSIC, in order to
terminate such continuing obligations or
duties, seeks to repudiate an agreement
or contract under which a System
institution has transferred financial
assets in connection with a
securitization or in the form of a
participation, the FCSIC will not seek to
reclaim, recover, or recharacterize as
property of the institution or the
receivership such financial assets.
The definitions in the final rule are
limited to this rule only, and language
has been added to the final rule to
clarify this point. The definition of
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‘‘participation’’ is specifically limited to
participations that are ‘‘without
recourse’’ to the selling or ‘‘lead’’
institution. ‘‘Without recourse’’ means
that the participation must not be
subject to any agreement that requires
the selling or ‘‘lead’’ institution to
repurchase the participant’s interest or
to otherwise compensate the participant
upon the borrower’s default on the
underlying obligation. The term
‘‘without recourse’’ will not, however,
preclude the lead institution from
retaining a subordinated interest in the
participated obligation, against which
losses are initially allocated. The final
rule will not apply unless the System
institution received adequate
consideration for the transfer of
financial assets at the time of the
transfer, and the documentation
effecting the transfer of financial assets
reflects the intent of the parties to treat
the transaction as a sale, and not as a
secured borrowing, for accounting
purposes.
The final rule further provides that it
will not be construed as waiving,
limiting, or otherwise affecting the
rights or powers of the FCSIC to take
any action or to exercise any power not
specifically limited by this section.
Such rights or powers include, but are
not limited to, any rights, powers or
remedies of the FCSIC regarding
transfers taken in contemplation of the
institution’s insolvency or with the
intent to hinder, delay, or defraud the
institution or the creditors of such
institution, or that is a fraudulent
transfer under applicable law.
The final rule further provides that
the FCSIC will not seek to avoid an
otherwise legally enforceable
securitization agreement or
participation agreement executed by a
System institution solely because such
agreement does not meet the
‘‘contemporaneous’’ requirement of
section 5.61(d) of the Act.
The final rule will apply to
securitizations and participations
engaged in by System institutions while
the rule is in effect, even if the rule is
later amended or repealed. Section
627.2726(g) provides that any repeal or
amendment of the rule by the FCA will
not apply to any transfer of financial
assets made in connection with a
securitization or participation that was
in effect before such repeal or
amendment. As a result of § 627.2726(g),
where a transfer of financial assets in
connection with a securitization or in
the form of a participation is made by
a System institution and the
securitization or participation was in
effect before any repeal or amendment
of the rule by the FCA, such transfer
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Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Rules and Regulations
will continue to satisfy the legal
isolation requirement notwithstanding
the repeal or amendment.
The final rule makes a conforming
change to § 627.2780(b) to clarify that
the provisions of this final rule apply to
a conservatorship as well as to a
receivership.
IV. Comments
The FCA received no written
comments on the proposed rule. The
FCA adopts the rule as final with no
substantive changes other than the
change to the definitions section
described above.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.), FCA hereby certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities. Each of the
banks in the Farm Credit 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, Farm Credit System
institutions are not ‘‘small entities’’ as
defined in the Regulatory Flexibility
Act.
List of Subjects in 12 CFR Part 627
Agriculture, Banks, banking, Claims,
Rural areas.
I For the reasons stated in the preamble,
part 627 of chapter VI, title 12 of the
Code of Federal Regulations is amended
as follows:
PART 627—CONSERVATORS,
RECEIVERS, AND VOLUNTARY
LIQUIDATIONS
1. The authority citation for part 627
is amended to read as follows:
I
Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51,
5.58, 5.61 of the Farm Credit Act (12 U.S.C.
2183, 2243, 2244, 2252, 2277a, 2277a–7,
2277a–10).
Subpart B—Receivers and
Receiverships
2. Add a new § 627.2726 to read as
follows:
I
§ 627.2726 Treatment by the conservator
or receiver of financial assets transferred in
connection with a securitization or
participation.
(a) Definitions. For the purposes of
this section, the following definitions
apply:
Beneficial interest means debt or
equity (or mixed) interests or obligations
of any type issued by a special purpose
entity that entitle their holders to
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receive payments that depend primarily
on the cash flow from financial assets
owned by the special purpose entity.
Financial asset means cash or a
contract or instrument that conveys to
one entity a contractual right to receive
cash or another financial instrument
from another entity.
Participation means the transfer or
assignment of an undivided interest in
all or part of a loan or a lease from a
seller, known as the ‘‘lead’’, to a buyer,
known as the ‘‘participant’’, without
recourse to the lead, pursuant to an
agreement between the lead and the
participant. Without recourse means
that the participation is not subject to
any agreement that requires the lead to
repurchase the participant’s interest or
to otherwise compensate the participant
due to a default on the underlying
obligation.
Securitization means the issuance by
a special purpose entity of beneficial
interests:
(1) The most senior class of which at
the time of issuance is rated in one of
the four highest categories assigned to
long-term debt or in an equivalent shortterm category (within either of which
there may be sub-categories or
gradations indicating relative standing)
by one or more nationally recognized
statistical rating organizations, or
(2) Which are sold in transactions by
an issuer not involving any public
offering for purposes of section 4 of the
Securities Act of 1933 (15 U.S.C. 77d),
as amended, or in transactions exempt
from registration under such Act
pursuant to Regulation S thereunder (or
any successor regulation).
Special purpose entity means a trust,
corporation, or other entity
demonstrably distinct from the Farm
Credit institution that is primarily
engaged in acquiring and holding (or
transferring to another special purpose
entity) financial assets, and in activities
related or incidental thereto, in
connection with the issuance by such
special purpose entity (or by another
special purpose entity that acquires
financial assets directly or indirectly
from such special purpose entity) of
beneficial interests.
(b) The receiver shall not, by exercise
of its authority to repudiate contracts
under § 627.2725(b)(2) and (b)(14),
reclaim, recover, or recharacterize as
property of the institution or the
receivership any financial assets
transferred by a Farm Credit institution
in connection with a securitization or
participation, provided that such
transfer meets all conditions for sale
accounting treatment under generally
accepted accounting principles, other
than the ‘‘legal isolation’’ condition as it
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55515
applies to institutions for which the
FCSIC may be appointed as receiver
which is addressed by this section.
(c) Paragraph (b) of this section shall
not apply unless the Farm Credit
institution received adequate
consideration for the transfer of
financial assets at the time of the
transfer, and the documentation
effecting the transfer of financial assets
reflects the intent of the parties to treat
the transaction as a sale, and not as a
secured borrowing, for accounting
purposes.
(d) Paragraph (b) of this section shall
not be construed as waiving, limiting, or
otherwise affecting the power of the
receiver to disaffirm or repudiate any
agreement imposing continuing
obligations or duties upon the
institution in receivership.
(e) Paragraph (b) of this section shall
not be construed as waiving, limiting or
otherwise affecting the rights or powers
of the receiver to take any action or to
exercise any power not specifically
limited by this section, including, but
not limited to, any rights, powers or
remedies of the receiver regarding
transfers taken in contemplation of the
institution’s insolvency or with the
intent to hinder, delay, or defraud the
institution or the creditors of such
institution, or that is a fraudulent
transfer under applicable law.
(f) The receiver shall not seek to avoid
an otherwise legally enforceable
securitization agreement or
participation agreement executed by a
Farm Credit institution solely because
such agreement does not meet the
‘‘contemporaneous’’ requirement of
section 5.61(d) of the Act.
(g) This section may be repealed or
amended by the Farm Credit
Administration, but any such repeal or
amendment shall not apply to any
transfers of financial assets made in
connection with a securitization or
participation that was in effect before
such repeal or modification.
Subpart C—Conservators and
Conservatorships
3. Amend § 627.2780(b) by adding a
second sentence to read as follows:
I
§ 627.2780 Powers and duties of
conservators.
*
*
*
*
*
(b) * * * The provisions of
§ 627.2726 shall also apply to the
conservator of a Farm Credit
institution.* * *
*
*
*
*
*
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Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Rules and Regulations
Dated: September 16, 2005.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 05–18892 Filed 9–21–05; 8:45 am]
BILLING CODE 6705–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 703, 790, 791
Technical Corrections
National Credit Union
Administration.
ACTION: Final rule.
AGENCY:
SUMMARY: The National Credit Union
Administration (NCUA) Board is issuing
a rule to make certain technical
corrections. The rule corrects titles of
some NCUA offices and reorganizes the
section describing the central and
regional office organization. The NCUA
Board is also making a minor revision
to its own rules of procedure to clarify
when notation voting is appropriate.
DATES: This rule is effective September
22, 2005.
FOR FURTHER INFORMATION CONTACT:
Moisette Green, Staff Attorney, Division
of Operations, Office of General
Counsel, at the National Credit Union
Administration, 1775 Duke Street,
Alexandria, Virginia 22314–3428 or
telephone: (703) 518–6540.
SUPPLEMENTARY INFORMATION:
A. Background
The NCUA Board reorganized a few
offices within the central office of the
agency as a result of the fiscal year 2005
(FY05) budget review. The Board’s goals
included improving the efficiency of
NCUA operations, clarifying central
office functions and extending
assistance to small credit unions.
As part of the reorganization, the
Board reassigned some existing NCUA
positions and resources to the Office of
Credit Union Development and renamed
it as the Office of Small Credit Union
Initiatives. This change recognizes the
important role small credit unions,
which represent about one-half of all
credit unions, play in the credit union
movement and provides additional
focus within NCUA on the problems
small credit unions face.
The Board also restructured the Office
of Strategic Program Support and
Planning when it approved the FY05
budget. The Board reorganized this staff
to achieve more effective operations and
better respond to NCUA’s emerging
needs and renamed the office as the
Office of Capital Markets and Planning
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to reflect its purpose and function more
accurately.
Part 790 describes NCUA’s
organization. Due to the renaming of
these offices, the Board revises
§§ 790.2(b)(12) and (13) to delete the
references to the ‘‘Office of Credit Union
Development’’ and ‘‘Office of Strategic
Program Support and Planning.’’ These
references are replaced with ‘‘Office of
Small Credit Union Initiatives’’ and
‘‘Office of Capital Markets and
Planning’’ respectively. The Board also
makes a conforming change to § 703.19.
Accordingly, the Board revises
§§ 703.19(c), 790.2(b)(12) and (13) to
make this correction.
The Board also revises § 790.2(b)(4) to
describe graphics as an example of the
administrative services provided by the
Office of the Chief Financial Officer
instead of a responsibility of the Office
of Public and Congressional Affairs.
Additionally, the Board has a policy
of continually reviewing NCUA
regulations to ‘‘update, clarify and
simplify existing regulations and
eliminate redundant and unnecessary
provisions.’’ NCUA Interpretive Rulings
and Policy Statement (IRPS) 87–2,
Developing and Reviewing Government
Regulations. The NCUA staff’s most
recent review of NCUA’s regulations
revealed the need for a few minor
updates and corrections.
The description of the NCUA Central
Liquidity Facility (CLF) is currently
placed within the description of the
Office of Examination and Insurance.
The CLF is an instrumentality of the
United States established under Title III
of the Federal Credit Union Act, 12
U.S.C. 1795–1795k, and should be
described in a separate paragraph in
§ 790.2. Accordingly, the Board
redesignates § 790.2(b)(5)(ii) as a new
paragraph § 790.2(b)(15) to make this
correction.
The NCUA Board has reviewed the
rules governing its procedures in Part
791. Specifically, Board is revising
§ 791.4 to reflect when it may consider
matters by notation voting. When the
rule was approved in 1980, the Board
described matters it would consider by
notation voting with the word
‘‘routine,’’ intending to restrict the use
of this method of acting. The Board
continues to believe notation voting
should not be used for substantive
decisions of significant, broad impact on
credit unions. To clarify the rule and
provide the Board with additional
flexibility, while complying the
Government in the Sunshine Act, 5
U.S.C. 552b, the Board revises
§ 791.4(b)(1) by replacing the word
‘‘routine’’ with the words
‘‘administrative or time sensitive.’’
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B. Regulatory Procedures
Final Rule Under the Administrative
Procedure Act
The amendments in this rule are
technical rather than substantive or
involve only agency rules governing
internal procedure. NCUA finds good
cause that notice and public comment
are unnecessary under section 553(b)(B)
of the Administrative Procedure Act
(APA). 5 U.S.C. 553(b)(B). NCUA also
finds good cause to dispense with the
30-day delayed effective date
requirement under section 553(d)(3) of
the APA. The rule will, therefore, be
effective immediately upon publication.
Regulatory Flexibility Act
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact a rule may have on a substantial
number of small entities, those credit
unions with less than ten million
dollars in assets. This rule makes
technical corrections and revises the
Board’s internal procedural rules, so it
will not have a significant economic
impact on a substantial number of small
credit unions, and, therefore, a
regulatory flexibility analysis is not
required.
Paperwork Reduction Act
NCUA has determined that this rule
will not increase paperwork
requirements under the Paperwork
Reduction Act of 1995 and regulations
of the Office of Management and
Budget.
Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. In adherence to
fundamental federalism principles, the
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. This rule will not have
substantial direct effects on the states,
on the relationship between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. The NCUA has
determined that this rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
NCUA has determined that this rule
will not affect family well-being within
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]]>Agencies
[Federal Register Volume 70, Number 183 (Thursday, September 22, 2005)]
[Rules and Regulations]
[Pages 55513-55516]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18892]
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FARM CREDIT ADMINISTRATION
12 CFR Part 627
RIN 3052-AC26
Title IV Conservators, Receivers, and Voluntary Liquidations;
Receivership Repudiation Authorities
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, or our) issues this
final rule amending our regulations governing how the Farm Credit
System Insurance Corporation (FCSIC), as receiver or conservator of a
Farm Credit System (System) institution, will treat financial assets
transferred by the institution in connection with a securitization or
in the form of a participation. This final rule will resolve issues
raised by Financial Accounting Standards Board (FASB) Statement No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities (SFAS 140). Under conditions described in
the final rule, the FCSIC will not seek to recover or reclaim certain
financial assets in exercising its authority to repudiate or disaffirm
contracts pursuant to 12 CFR 627.2725(b)(2), (b)(14) and 627.2780(b)
and (d). Additionally, with this final rule, the FCSIC will not seek to
enforce the ``contemporaneous'' requirement of section 5.61(d) of the
Farm Credit Act of 1971, as amended (Act) (12 U.S.C. 2277a-10(d)). The
final rule is substantially identical to receivership rules issued by
the Federal Deposit Insurance Corporation (FDIC) and the National
Credit Union Administration (NCUA).
EFFECTIVE DATE: This regulation will be effective 30 days after
publication in the Federal Register during which 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:
Robert E. Donnelly, Senior Accountant, Office of Policy and Analysis,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TTY
(703) 883-4434, or
Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703)
883-4020.
SUPPLEMENTARY INFORMATION:
I. Objective
The objective in this final rule is to give certainty to System
institutions regarding how the FCSIC will treat qualifying
participations and securitizations if the institution is subsequently
placed in conservatorship or receivership. The rule will achieve this
by ensuring that the FCSIC will not attempt to ``pull back'' the
subject assets into the conservatorship or receivership estate if the
transaction meets specified conditions.
There is nothing in this final rule that provides any System
institutions with the authority to engage in any transaction that is
not otherwise authorized.
[[Page 55514]]
II. Background
As discussed in the preamble to the proposed rule (see 70 FR 21685,
April 27, 2005), under generally accepted accounting principles (GAAP),
a transfer of financial assets is accounted for as a sale if the
transferor surrenders control over the assets. This principle is set
forth in the SFAS No. 140 issued by the FASB.\1\ Under this principle,
one of the conditions for determining that the transferor has
surrendered control is that the assets have been isolated from the
transferor, i.e., put presumptively beyond the reach of the transferor,
its creditors, a trustee in bankruptcy, or a receiver. This is known as
the ``legal isolation'' condition.
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\1\ SFAS 140 replaced SFAS 125 (which had covered the same
issues and was identically titled) in September 2000. SFAS 140
revised the standards for accounting for securitizations and other
transfers of financial assets and collateral and required certain
disclosures, but it carried over most of the provisions of SFAS 125
without reconsideration. The FDIC receivership issues and its
related rule 12 CFR 360.6, which are discussed later in this
preamble, are described in paragraphs 157-160 of SFAS 140.
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Whether the legal isolation condition has been met is determined
primarily from a legal perspective. This determination involves
considerations of the kind of receivership into which the transferor
may be placed and the powers of the receiver to reach assets that were
transferred prior to its appointment. If the available evidence
provides reasonable assurance that the transferred assets would be
beyond the reach of the powers of a bankruptcy trustee or receiver for
the transferor, then a determination that the transferred assets have
been legally isolated is appropriate.
When the transferor is a System institution, the FCSIC may be
appointed conservator or receiver. The FCSIC has authority to repudiate
burdensome contracts under Sec. Sec. 627.2725(b)(2), (b)(14) and
627.2780(b) and (d) of FCA regulations; and it can repudiate certain
other contracts under section 5.61(d) of the Act.\2\ Due to these
provisions, the question becomes whether financial assets transferred
in connection with a securitization or in the form of a participation
would be beyond the reach of the FCSIC as conservator or receiver.
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\2\ See 12 CFR 627.2725(b)(2), (b)(14) and 627.2780(b) and (d),
and 12 U.S.C. 2277a-10(d).
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Under Sec. Sec. 627.2725(b)(2) and 627.2780(d), the FCSIC may take
any action it considers appropriate or expedient to carry on the
business of the institution during the process of liquidation or during
the conservatorship. Under Sec. 627.2725(b)(14), the FCSIC, when
acting as conservator or receiver of a System institution, has the
power to disaffirm or repudiate any contract or lease to which the
institution is a party, the performance of which the FCSIC determines
to be burdensome. Repudiation of a contract relieves the FCSIC from
performing any unperformed obligations remaining under the contract.
Section 5.61(d) of the Act provides that no agreement that tends to
diminish or defeat the FCSIC's interest in an asset acquired by the
FCSIC as conservator or receiver is enforceable against the FCSIC
unless the agreement meets certain requirements. One of those
requirements is that the agreement must be executed, by the institution
and by any person claiming an adverse interest under it,
contemporaneously with the acquisition of the asset by the institution.
This is referred to as the ``contemporaneous'' requirement. These
provisions are discussed below.
III. Description of the Final Rule
This final rule will add a new Sec. 627.2726 to the
conservatorship and receivership provisions in part 627 of FCA's
regulations. The rule will apply only to those securitizations or
participations in which the transfer of financial assets meets all
conditions for sale accounting treatment under GAAP, other than the
``legal isolation'' condition as it applies to institutions for which
the FCSIC may be appointed as conservator or receiver, which is
addressed by this rule. The final rule provides that, for these
transfers, the FCSIC will not, by exercise of its authority to
repudiate contracts under Sec. 627.2725(b)(2) or (b)(14), reclaim,
recover, or recharacterize as property of the institution or the
receivership any financial assets transferred by a System institution
in connection with a securitization or in the form of a participation.
Although the repudiation of a securitization or participation will not
affect transferred financial assets, repudiation will excuse the FCSIC
from performing any continuing obligations imposed by the
securitization or participation. If the FCSIC, in order to terminate
such continuing obligations or duties, seeks to repudiate an agreement
or contract under which a System institution has transferred financial
assets in connection with a securitization or in the form of a
participation, the FCSIC will not seek to reclaim, recover, or
recharacterize as property of the institution or the receivership such
financial assets.
The definitions in the final rule are limited to this rule only,
and language has been added to the final rule to clarify this point.
The definition of ``participation'' is specifically limited to
participations that are ``without recourse'' to the selling or ``lead''
institution. ``Without recourse'' means that the participation must not
be subject to any agreement that requires the selling or ``lead''
institution to repurchase the participant's interest or to otherwise
compensate the participant upon the borrower's default on the
underlying obligation. The term ``without recourse'' will not, however,
preclude the lead institution from retaining a subordinated interest in
the participated obligation, against which losses are initially
allocated. The final rule will not apply unless the System institution
received adequate consideration for the transfer of financial assets at
the time of the transfer, and the documentation effecting the transfer
of financial assets reflects the intent of the parties to treat the
transaction as a sale, and not as a secured borrowing, for accounting
purposes.
The final rule further provides that it will not be construed as
waiving, limiting, or otherwise affecting the rights or powers of the
FCSIC to take any action or to exercise any power not specifically
limited by this section. Such rights or powers include, but are not
limited to, any rights, powers or remedies of the FCSIC regarding
transfers taken in contemplation of the institution's insolvency or
with the intent to hinder, delay, or defraud the institution or the
creditors of such institution, or that is a fraudulent transfer under
applicable law.
The final rule further provides that the FCSIC will not seek to
avoid an otherwise legally enforceable securitization agreement or
participation agreement executed by a System institution solely because
such agreement does not meet the ``contemporaneous'' requirement of
section 5.61(d) of the Act.
The final rule will apply to securitizations and participations
engaged in by System institutions while the rule is in effect, even if
the rule is later amended or repealed. Section 627.2726(g) provides
that any repeal or amendment of the rule by the FCA will not apply to
any transfer of financial assets made in connection with a
securitization or participation that was in effect before such repeal
or amendment. As a result of Sec. 627.2726(g), where a transfer of
financial assets in connection with a securitization or in the form of
a participation is made by a System institution and the securitization
or participation was in effect before any repeal or amendment of the
rule by the FCA, such transfer
[[Page 55515]]
will continue to satisfy the legal isolation requirement
notwithstanding the repeal or amendment.
The final rule makes a conforming change to Sec. 627.2780(b) to
clarify that the provisions of this final rule apply to a
conservatorship as well as to a receivership.
IV. Comments
The FCA received no written comments on the proposed rule. The FCA
adopts the rule as final with no substantive changes other than the
change to the definitions section described above.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
Each of the banks in the Farm Credit 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, Farm
Credit System institutions are not ``small entities'' as defined in the
Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 627
Agriculture, Banks, banking, Claims, Rural areas.
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For the reasons stated in the preamble, part 627 of chapter VI, title
12 of the Code of Federal Regulations is amended as follows:
PART 627--CONSERVATORS, RECEIVERS, AND VOLUNTARY LIQUIDATIONS
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1. The authority citation for part 627 is amended to read as follows:
Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58, 5.61 of the
Farm Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7,
2277a-10).
Subpart B--Receivers and Receiverships
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2. Add a new Sec. 627.2726 to read as follows:
Sec. 627.2726 Treatment by the conservator or receiver of financial
assets transferred in connection with a securitization or
participation.
(a) Definitions. For the purposes of this section, the following
definitions apply:
Beneficial interest means debt or equity (or mixed) interests or
obligations of any type issued by a special purpose entity that entitle
their holders to receive payments that depend primarily on the cash
flow from financial assets owned by the special purpose entity.
Financial asset means cash or a contract or instrument that conveys
to one entity a contractual right to receive cash or another financial
instrument from another entity.
Participation means the transfer or assignment of an undivided
interest in all or part of a loan or a lease from a seller, known as
the ``lead'', to a buyer, known as the ``participant'', without
recourse to the lead, pursuant to an agreement between the lead and the
participant. Without recourse means that the participation is not
subject to any agreement that requires the lead to repurchase the
participant's interest or to otherwise compensate the participant due
to a default on the underlying obligation.
Securitization means the issuance by a special purpose entity of
beneficial interests:
(1) The most senior class of which at the time of issuance is rated
in one of the four highest categories assigned to long-term debt or in
an equivalent short-term category (within either of which there may be
sub-categories or gradations indicating relative standing) by one or
more nationally recognized statistical rating organizations, or
(2) Which are sold in transactions by an issuer not involving any
public offering for purposes of section 4 of the Securities Act of 1933
(15 U.S.C. 77d), as amended, or in transactions exempt from
registration under such Act pursuant to Regulation S thereunder (or any
successor regulation).
Special purpose entity means a trust, corporation, or other entity
demonstrably distinct from the Farm Credit institution that is
primarily engaged in acquiring and holding (or transferring to another
special purpose entity) financial assets, and in activities related or
incidental thereto, in connection with the issuance by such special
purpose entity (or by another special purpose entity that acquires
financial assets directly or indirectly from such special purpose
entity) of beneficial interests.
(b) The receiver shall not, by exercise of its authority to
repudiate contracts under Sec. 627.2725(b)(2) and (b)(14), reclaim,
recover, or recharacterize as property of the institution or the
receivership any financial assets transferred by a Farm Credit
institution in connection with a securitization or participation,
provided that such transfer meets all conditions for sale accounting
treatment under generally accepted accounting principles, other than
the ``legal isolation'' condition as it applies to institutions for
which the FCSIC may be appointed as receiver which is addressed by this
section.
(c) Paragraph (b) of this section shall not apply unless the Farm
Credit institution received adequate consideration for the transfer of
financial assets at the time of the transfer, and the documentation
effecting the transfer of financial assets reflects the intent of the
parties to treat the transaction as a sale, and not as a secured
borrowing, for accounting purposes.
(d) Paragraph (b) of this section shall not be construed as
waiving, limiting, or otherwise affecting the power of the receiver to
disaffirm or repudiate any agreement imposing continuing obligations or
duties upon the institution in receivership.
(e) Paragraph (b) of this section shall not be construed as
waiving, limiting or otherwise affecting the rights or powers of the
receiver to take any action or to exercise any power not specifically
limited by this section, including, but not limited to, any rights,
powers or remedies of the receiver regarding transfers taken in
contemplation of the institution's insolvency or with the intent to
hinder, delay, or defraud the institution or the creditors of such
institution, or that is a fraudulent transfer under applicable law.
(f) The receiver shall not seek to avoid an otherwise legally
enforceable securitization agreement or participation agreement
executed by a Farm Credit institution solely because such agreement
does not meet the ``contemporaneous'' requirement of section 5.61(d) of
the Act.
(g) This section may be repealed or amended by the Farm Credit
Administration, but any such repeal or amendment shall not apply to any
transfers of financial assets made in connection with a securitization
or participation that was in effect before such repeal or modification.
Subpart C--Conservators and Conservatorships
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3. Amend Sec. 627.2780(b) by adding a second sentence to read as
follows:
Sec. 627.2780 Powers and duties of conservators.
* * * * *
(b) * * * The provisions of Sec. 627.2726 shall also apply to the
conservator of a Farm Credit institution.* * *
* * * * *
[[Page 55516]]
Dated: September 16, 2005.
Jeanette C. Brinkley,
Secretary, Farm Credit Administration Board.
[FR Doc. 05-18892 Filed 9-21-05; 8:45 am]
BILLING CODE 6705-01-P
