Organization; Standards of Conduct and Referral of Known or Suspected Criminal Violations; Eligibility and Scope of Financing; Loan Policies and Operations; Regulatory Burden, 15343-15345 [E6-4479]

Agencies

• Farm Credit Administration

[Federal Register Volume 71, Number 59 (Tuesday, March 28, 2006)]
[Proposed Rules]
[Pages 15343-15345]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4479]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 612, 613, and 614

RIN 3052-AC15


Organization; Standards of Conduct and Referral of Known or 
Suspected Criminal Violations; Eligibility and Scope of Financing; Loan 
Policies and Operations; Regulatory Burden

AGENCY: Farm Credit Administration (FCA).

ACTION: Proposed rule.

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SUMMARY: This proposed rule is intended to reduce regulatory burden on 
the Farm Credit System (FCS or System) by repealing or revising five 
regulations. The proposed rule would also correct outdated and 
erroneous cross-references in two regulations. These revisions provide 
System banks and associations with greater flexibility concerning stock 
ownership of service corporations, employee reporting under standards 
of conduct rules, domestic lending to cooperatives, and real property 
evaluations for certain loans.

DATES: Please send your comments to us by May 30, 2006.

ADDRESSES: Comments may be sent by electronic mail to regcomm@fca.gov, 
through the Pending Regulations section of our Web site at 
https://www.fca.gov or through the Government-wide 
https://www.regulations.gov 
portal. You may also send written comments to Gary K. Van Meter, Deputy 
Director, Office of Regulatory Policy, Farm Credit Administration, 1501 
Farm Credit Drive, McLean, Virginia 22102-5090 or by fax to (703) 734-
5784.
    You may review copies of all comments we receive at our office in 
McLean, Virginia or from our Web site at https://www.fca.gov. Once you 
are in the Web site, select ``Legal Info,'' and then select ``Public 
Comments.'' We will show your comments as submitted, but for technical 
reasons we may omit items such as logos and special characters. 
Identifying information you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove electronic-mail addresses to help reduce Internet spam.

FOR FURTHER INFORMATION CONTACT:


Jacqueline R. Melvin, Associate Policy Analyst, Office of Regulatory 
Policy, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4414, TTY (703) 883-4434; or
Howard Rubin, Senior Attorney, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.

SUPPLEMENTARY INFORMATION:

I. Background

    On May 16, 2003, we published a notice in the Federal Register at 
68 FR 26551 that invited the public to identify existing regulations 
and policies that impose unnecessary burdens on the FCS. We 
specifically asked for comments on those regulations and policies that 
are ineffective, duplicate other governmental requirements, or impose 
burdens that are greater than the benefits received. We took this 
action in our continuing effort to improve the regulatory environment 
so the System can better serve farmers, ranchers, aquatic producers and 
harvesters, cooperatives, and other rural residents.
    We received 19 comment letters: 11 from System associations, five 
from Farm Credit banks, one from the Farm Credit Council on behalf of 
its membership, one from CoBank, ACB's Northeast Farm Credit Regional 
Council, and one from a private citizen. In response, we are proposing 
to: (1) Revise and clarify who may own stock in an FCS service 
corporation; (2) expand the time for a newly hired employee to report 
matters to an institution's standards of conduct official; (3) 
eliminate the 10-percent limit on dividends in determining the 
eligibility of a cooperative to borrow from a System lender under title 
III of the Farm Credit Act of 1971, as amended (Act); (4) eliminate the 
requirement for a Uniform Standards of Professional Appraisal Practices 
(USPAP) compliant real property appraisal for business loans between 
$250,000 and $1 million that are not otherwise exempt under our rules; 
and (5) repeal an outdated and obsolete regulation on bankers' 
acceptance financing. We are also proposing to correct three cross-
reference errors affecting two regulations governing title III lending.
    Contemporaneously with this proposed rule, we are publishing a 
notice in the Federal Register explaining how we addressed, or will 
address, all remaining comments we received.

II. Analysis of Changes and Comments by Section

Section 611.1135--Incorporation of Service Corporations

    Section 4.25 of the Act, provides that any System bank or 
association, or two or more such institutions, may organize a federally 
chartered corporation for the purpose of performing functions and 
services for or on behalf of the organizing institutions. Current Sec.  
611.1135(a) provides that ``[a]ll Farm Credit banks and associations 
are eligible to become stockholders in your service corporation.'' A 
bank commented that:

    The existing requirement that each bank or association be 
eligible to become a stockholder of each 4.25 service corporation is 
not required by the Act and may limit the usefulness of these 
corporations to FCS institutions that might wish to organize them.

    We agree that the Act does not require that ``each'' service 
corporation must make its stock available to ``each'' System bank and 
association. To clarify, we are proposing to amend the relevant 
sentence of Sec.  611.1135(b) to read:

    Your service corporation may issue voting and non-voting stock 
to one or more Farm Credit banks and associations.

    This should clarify that while each bank and association has the 
statutory authority to organize (and own stock in) section 4.25 service 
corporation, each service corporation is not required to offer stock to 
every System bank and association.

Section 612.2155--Employee Reporting

    Existing Sec.  612.2155(d) provides:

    A newly hired employee shall report matters required to be 
reported in paragraphs (a), (b), and (c) of this section to the 
Standards of Conduct Official within 30 days after accepting an 
offer for employment and thereafter shall comply with the 
requirements of this section.

    CoBank, ACB stated that:


[[Page 15344]]


    This provision requires newly hired employees to complete a 
standards of conduct report within 30 days after accepting an offer 
for employment. This is often impractical. It is not uncommon for 
offers of employment to be accepted 2 to 4 months before employment 
is to begin. Also, it may not be wise to share the list of bank's 
borrowers who are publicly traded long before the start date, as the 
prospective employee can always renege on the offer/acceptance. 
Finally, the standards of conduct material have more meaning to the 
new employee nearer to the employee's start date.

    We believe that this comment has merit and we propose to amend 
Sec.  612.2155(d) to adopt CoBank's proposal to revise the regulation 
to require reporting no later than 5 business days after the new 
employee's start date.

Section 613.3100--Domestic Lending--Banks Operating Under Title III of 
the Farm Credit Act

    Section 3.8(a) of the Act provides that an agricultural cooperative 
is eligible for financing from a title III lender if it conforms to 
either of the two following requirements:
    (1) No member of the association is allowed more than one vote 
because of the amount of stock or membership capital he may own 
therein; or
    (2) Does not pay dividends on stock or membership capital in excess 
of such per centum per annum as may be approved under regulations of 
the Farm Credit Administration * * *.
    Current Sec.  613.3100(b)(1)(iii) implementing section 3.8 of the 
Act provides that an eligible cooperative must comply with one of the 
following two conditions:
    (A) No member of the cooperative shall have more than one vote 
because of the amount of stock or membership capital owned therein; or
    (B) The cooperative restricts dividends on stock or membership 
capital to 10 percent per year or the maximum percentage per year 
permitted by applicable state law, whichever is less.
    CoBank, ACB stated that:

    This 10-percent limitation is overly restrictive with respect to 
new forms of cooperatives, such as those organized under the Wyoming 
Processing Cooperative statute (Wyo. Stat. Sec.  17-10-201~.) or the 
similar cooperative statute recently enacted in Minnesota. These 
statutes specifically permit the formation of cooperatives with both 
patron members (producers with delivery obligations) and non-patron 
investor members. While patron members continue to follow the more 
traditional cooperative model with respect to voting and dividends, 
the investor members vote on the basis of equity ownership and have 
no specific limit on dividends. This creates eligibility problems 
that might be avoided if the 10-percent dividend limitation were 
deleted. Since these organizations are still fundamentally 
cooperatives, CoBank, ACB should be able to finance them. The 
statute clearly gives FCA broad discretion in setting the dividend 
limitation.

    Unlike prior law, the Act does not incorporate any definition of 
cooperative or otherwise attempt to define ``cooperative.'' \1\ A 
review of past FCA rulemaking in this area indicates that the 10-
percent limitation was based solely on FCA policy.\2\
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    \1\ See former 11 U.S.C. 1134c (repealed 1971) (providing that 
Banks for Cooperatives could make loans to ``cooperative 
associations as defined in the Agricultural Marketing Act * * *.'') 
The Agricultural Marketing Act (incorporating the Capper-Volstead 
Act provisions) includes an 8-percent limit on dividends. See 7 
U.S.C. 291.
    \2\ See 47 FR 12136 (March 22, 1982).
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    As pointed out by CoBank, ACB, cooperatives have continued to 
evolve and we believe that so long as an entity is considered a 
``cooperative'' under state law and continues to meet the eligibility 
requirements of the Act, FCA regulations should not impose additional 
restrictions on lending eligibility. Therefore, we are proposing to 
delete the 10-percent dividend limitation from our rules and instead 
require that to be eligible, a cooperative restrict dividends on stock 
or membership capital to the maximum percentage per year permitted by 
applicable State law.

Section 614.4265--Real Property Evaluations

    Current Sec.  614.4265(c) provides:

    Where real estate appraisals or real estate collateral 
valuations for business loans in excess of $250,000 that would not 
otherwise be exempted under Sec.  614.4260(c) are required, such 
evaluations shall be completed in accordance with the USPAP and 
shall include a legal description of the subject property.

    Several commenters stated that this requirement is unduly 
burdensome and places System lenders at a competitive disadvantage 
because non-System lenders are not required to perform USPAP appraisals 
for these loans. Commenters added that the requirement does not 
necessarily ensure greater safety and soundness because a similar level 
of analysis is required for collateral evaluations.
    We agree with the commenters that removing this provision and 
putting our rules in accord with those of other financial institution 
regulators will not adversely impact the System's safety and soundness. 
Therefore, we are proposing to delete Sec.  614.4265(c).

Section 614.4710--Bankers' Acceptance Financing

    CoBank, ACB asked us to clarify the limited scope of Sec.  614.4710 
that was originally adopted in 1982 and pertained primarily to the 
rediscount of bankers' acceptances. Section 614.4710(a) and (c) 
authorize the Federal Farm Credit Banks Funding Corporation to accept 
drafts or bills of exchange drawn upon banks for cooperatives and 
agricultural credit banks. Section 614.4710(b) provides the basis on 
which a bank for cooperatives or agricultural credit bank may purchase 
participations in discounted acceptances of another bank for 
cooperatives or agricultural credit bank.
    Because the System has only one remaining agricultural credit bank 
that is also a bank for cooperatives, paragraph (b) clearly is no 
longer relevant or needed. Additionally, the type of transaction 
contemplated by paragraphs (a) and (c) of the rule has not taken place 
for many years (if ever). Therefore, we are proposing to delete Sec.  
614.4710 in its entirety.

III. Technical Corrections

    In response to comments, we are proposing to correct outdated and 
erroneous cross-references in Sec. Sec.  613.3100(d)(1) and 
614.4010(d)(1) and (d)(2) of our regulations.

IV. 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 proposed 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

12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 612

    Agriculture, Banks, banking, Conflicts of interest, Crime, 
Investigations, Rural areas.

12 CFR Part 613

    Agriculture, Banks, banking, Credit, Rural areas.

[[Page 15345]]

12 CFR Part 614

    Agriculture, Banks, banking, Foreign trade, Reporting and 
recordkeeping requirements, Rural areas.

    For the reasons stated in the preamble, parts 611, 612, 613 and 614 
of chapter VI, title 12 of the Code of Federal Regulations are proposed 
to be amended as follows:

PART 611--ORGANIZATION

    1. The authority citation for part 611 continues to read as 
follows:

    Authority: Secs. 1.3, 1.4, 1.13, 2.0, 2.1, 2.10, 2.11, 3.0, 3.2, 
3.21, 4.12, 4.15, 4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 
8.5(e) of the Farm Credit Act (12 U.S.C. 2011, 2013, 2021, 2071, 
2072, 2091, 2092, 2121, 2123, 2142, 2183, 2203, 2208, 2209, 2243, 
2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1, 2279aa-5(e)); secs. 411 
and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 
of Pub. L. 100-399, 102 Stat. 989, 1003, and 1004.

Subpart I--Service Organizations

    2. Amend Sec.  611.1135 by revising paragraph (b) to read as 
follows:


Sec.  611.1135  Incorporation of service corporations.

* * * * * *
    (b) Who may own equities in your service corporation?
    (1) Your service corporation may only issue voting and non-voting 
stock to:
    (i) One or more Farm Credit banks and associations; and
    (ii) Persons that are not Farm Credit banks or associations, 
provided that at least 80 percent of the voting stock is at all times 
held by Farm Credit banks or associations.
    (2) For the purposes of this subpart, we define persons as 
individuals or legal entities organized under the laws of the United 
States or any state or territory thereof.
* * * * *

PART 612--STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED 
CRIMINAL VIOLATIONS

    3. The authority citation for part 612 continues to read as 
follows:

    Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 
U.S.C. 2243, 2252, 2254).

Subpart A--Standards of Conduct

    4. Amend 612.2155 by revising paragraph (d) to read as follows:


Sec.  612.2155  Employee reporting.

* * * * *
    (d) A newly hired employee shall report matters required to be 
reported in paragraphs (a), (b), and (c) of this section to the 
Standards of Conduct Official 5 business days after starting employment 
and thereafter shall comply with the requirements of this section.

PART 613--ELIGIBILITY AND SCOPE OF FINANCING

    5. 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

    6. Amend Sec.  613.3100 by revising paragraphs (b)(1)(iii)(B) and 
(d)(1) to read as follows:


Sec.  613.3100  Domestic lending.

* * * * *
    (b) * * *
    (1) * * *
    (iii) * * *
    (B) The cooperative restricts dividends on stock or membership 
capital to the maximum percentage per year permitted by applicable 
state law.
* * * * *
    (d) Water and waste disposal facilities.
    (1) Eligibility. A cooperative or a public agency, quasi public 
agency, body, or other public or private entity that, under the 
authority of state or local law, establishes and operates water and 
waste disposal facilities in a rural area, as that term is defined by 
paragraph (a)(4) of this section, is eligible to borrow from a bank for 
cooperatives or an agricultural credit bank.
* * * * *

PART 614--LOAN POLICIES AND OPERATIONS

    7. 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 A--Lending Authorities

    8. Amend Sec.  614.4010 by revising paragraphs (d)(1) and (d)(2) to 
read as follows:


Sec.  614.4010  Agricultural credit banks.

* * * * *
    (d) * * *
    (1) Eligible cooperatives, as defined in Sec.  613.3100(b)(1), in 
accordance with Sec. Sec.  614.4200, 614.4231, 614.4232, 614.4233, and 
subpart Q of part 614;
    (2) Other eligible entities, as defined in Sec.  613.3100(b)(2), in 
accordance with Sec. Sec.  614.4200, 614.4231, and 614.4232;
* * * * *

Subpart F--Collateral Evaluation Requirements


Sec.  614.4265  [Amended]

    9. Amend Sec.  614.4265 by removing paragraph (c) and redesignating 
paragraphs (d), (e), (f), (g), and (h) as (c), (d), (e), (f), and (g), 
respectively.

Subpart Q--Banks for Cooperatives and Agricultural Credit Banks 
Financing International Trade


Sec.  614.4710  [Removed and reserved]

    10. Remove and reserve Sec.  614.4710.

    Dated: March 23, 2006.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
 [FR Doc. E6-4479 Filed 3-27-06; 8:45 am]
BILLING CODE 6705-01-P