Title IV Conservators, Receivers, and Voluntary Liquidations; Joint and Several Liability-Priority of Claims, 10939-10941 [E7-4427]

Download as PDF 10939 Proposed Rules Federal Register Vol. 72, No. 47 Monday, March 12, 2007 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. FARM CREDIT ADMINISTRATION 12 CFR Part 627 RIN 3052-AC16 Title IV Conservators, Receivers, and Voluntary Liquidations; Joint and Several Liability—Priority of Claims Farm Credit Administration. Proposed rule. AGENCY: ACTION: SUMMARY: The Farm Credit Administration (FCA, Agency, we), proposes to amend the priority of claims regulations to provide priority of claims rights to Farm Credit System (System, FCS, Farm Credit) banks if they make payments under a reallocation agreement to holders of consolidated and System-wide obligations on behalf of a defaulting System bank. We also propose to clarify that payments to a class of claims will be on a pro rata basis. You may send comments on or before May 11, 2007. ADDRESSES: We offer a variety of methods for you to submit comments. For accuracy and efficiency reasons, we encourage commenters to submit comments by e-mail or through the Agency’s Web site or the Federal eRulemaking Portal. You may also send comments by mail or by facsimile transmission. Regardless of the method you use, please do not submit your comment multiple times via different methods. You may submit comments by any of the following methods: • E-mail: Send us an e-mail at regcomm@fca.gov. • Agency Web site: http:// www.fca.gov. Once you are at the Web site, select ‘‘Legal Info,’’ then ‘‘Pending Regulations and Notices.’’ • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Gary K. Van Meter, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090. jlentini on PROD1PC65 with PROPOSAL DATES: VerDate Aug<31>2005 16:38 Mar 09, 2007 Jkt 211001 • Fax: (703) 883–4477. Posting and processing of faxes may be delayed. Please consider another means to comment, if possible. You may review copies of comments we receive at our office in McLean, Virginia, or from our Web site at http://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 that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove email addresses to help reduce Internet spam. FOR FURTHER INFORMATION CONTACT: Christopher D. Wilson, Policy Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102– 5090, (703) 883–4414, TTY (703) 883– 4434, or Rebecca S. Orlich, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102–5090, (703) 883–4020, TTY (703) 883–4020. SUPPLEMENTARY INFORMATION: I. Objectives Our objectives in this proposed rule are to: • Provide System banks that make payments under a reallocation agreement to holders of consolidated and System-wide obligations of a defaulting bank the same priority of claims rights they would have for payments made under statutory joint and several calls by the FCA. • Clarify that claims in the same class will receive payments on a pro rata basis if there are insufficient assets in a receivership to pay the entire class in full. II. Background A. Joint and Several Liability Under the Act System associations obtain funding by means of direct loans from their affiliated Farm Credit banks. The banks in turn obtain their funding primarily by issuing System-wide obligations to investors through the Federal Farm Credit Banks Funding Corporation (Funding Corporation).1 The banks’ 1 The Funding Corporation is the fiscal agent of the System established under section 4.9 of the PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 authority to issue System-wide obligations is provided in section 4.2(d) of the Farm Credit Act of 1971, as amended (Act).2 Section 4.2(c) of the Act also authorizes the banks to obtain funding by issuing consolidated obligations with other banks operating under the same title of the Act, but all of the System’s joint funding at the present time is through System-wide obligations.3 Investors in consolidated and Systemwide obligations have three levels of repayment sources. Under section 4.4(a)(2)(A) of the Act, each bank is primarily liable for the portion of any consolidated or System-wide obligation made on its behalf.4 If the bank that is primarily liable is unable to pay, payment must be made by the Farm Credit System Insurance Corporation (FCSIC), created in 1988. The FCSIC insures the timely payment of interest and principal on consolidated and System-wide obligations (these obligations are referred to as ‘‘insured obligations’’). The source of payments by the FCSIC is the Farm Credit Insurance Fund (Insurance Fund), whose assets consist primarily of premiums paid by the System banks (as well as earnings on the premiums).5 The Insurance Fund must be used to make payments on behalf of System banks defaulting on their insured obligations, but the FCSIC also has discretion to make other expenditures out of the Insurance Fund.6 If a System bank is unable to pay the portion of any insured obligations issued on its behalf and the Insurance Fund is exhausted, section 4.4(a)(2) of the Act provides that the other (nondefaulting) System banks are jointly and severally liable for such timely payments as follows: • The FCA will make calls on nondefaulting banks in proportion to each bank’s proportionate share of the aggregate available collateral held by all nondefaulting banks.7 • If the aggregate available collateral does not fully satisfy the insured Farm Credit Act of 1971, as amended (12 U.S.C. 2160). 2 12 U.S.C. 2153(d). 3 12 U.S.C. 2153(c). 4 12 U.S.C. 2155(a)(2)(A). 5 Section 5.55 of the Act (12 U.S.C. 2277a–4). 6 Section 5.60(c) of the Act (12 U.S.C. 2277a–9). 7 Section 4.4(a)(2)(F) of the Act requires the FCA to appoint a receiver upon making a joint and several call. E:\FR\FM\12MRP1.SGM 12MRP1 10940 Federal Register / Vol. 72, No. 47 / Monday, March 12, 2007 / Proposed Rules obligations of the defaulting bank, the FCA will make calls on all nondefaulting banks in proportion to each bank’s remaining assets. A bank’s ‘‘available collateral’’ is defined in section 4.4(a)(2)(C) as ‘‘the amount (determined at the close of the last calendar quarter ending before such call) by which a bank’s collateral * * * exceeds the collateral required to support the bank’s outstanding notes, bonds, debentures, and other similar obligations.’’ Furthermore, the Act provides subrogation rights to both the banks and the FCSIC for payments of insured obligations made on behalf of a defaulting bank. With respect to FCSIC, section 5.61(c)(1) and (2) of the Act provides: [O]n the payment to an owner of an insured obligation issued on behalf of an insured System bank in receivership, the [FCSIC] shall be subrogated to all rights of the owner against the bank to the extent of the payment * * * Subrogation * * * shall include the right on the part of the [FCSIC] to receive the same dividends from the proceeds of the assets of the bank as would have been payable to the owner on a claim for the insured obligation.8 With respect to System banks, section 4.4(a)(2)(E) provides: jlentini on PROD1PC65 with PROPOSAL Any System bank that, pursuant to a call by the [FCA], makes a payment of principal or interest to the holder of any consolidated or System-wide obligations issued on behalf of another System bank shall be subrogated to the rights of the holder against such other bank to the extent of such payment. B. FCA Priority of Claims Regulations Part 627 of our regulations governs the conduct of System institution conservatorships and receiverships. Section 627.2750 sets forth the priority of claims in the distribution of the assets of a bank in liquidation. After payment of certain receivership expenses and secured claims, paragraph (h) provides for the payment of ‘‘[a]ll claims of holders of consolidated and Systemwide bonds and claims of the other Farm Credit banks arising from their payments pursuant to [joint and several calls by the FCA under] 12 U.S.C. 2155’’ before payments are made to general creditors. Section 627.2755 requires the receiver to pay in full all the claims of a class of claims of the same priority (or make provision for such payment) before paying the claims of classes of lesser priority. That regulation further provides that the receiver must pay such claims on a pro rata basis if there are insufficient funds to pay in full any class of claims against a System association in receivership. However, 8 12 U.S.C. 2277a–10(c). VerDate Aug<31>2005 16:38 Mar 09, 2007 Jkt 211001 the regulation does not address how the receiver must pay claims against a System bank or institution other than an association in the case of insufficient funds to pay a class of claims in full. C. System Banks’ Petition To Amend Regulations At the present time, the System banks and associations are well capitalized, and no bank or association has been placed in receivership since 1989. The FCA has never made joint and several calls on System banks to pay consolidated and System-wide bondholders, and monies from the Insurance Fund have never been used for that purpose. Nonetheless, the potential effect of a joint and several call based on banks’ aggregate available collateral has caused System banks to consider possible alternative methodologies based on an agreement among the banks. In recent years, the banks have discussed the benefits and feasibility of using a methodology for joint and several calls based on the proportion of total System-wide debt on which each nondefaulting bank is primarily liable. The banks have explored the possibility of entering into a reallocation agreement among themselves to pay a defaulting bank’s maturing insured obligations as the Insurance Fund is nearing exhaustion but before statutory joint and several calls are triggered. The banks have informed us that, while they are in general agreement on the outlines of an agreement for payment based on individual banks’ outstanding Systemwide debt, a key to an agreement is that payments made under the banks’ agreement would be entitled to the same payment rights as if the banks had made the payments under a statutory joint and several call. The System banks have petitioned the FCA to amend our priority of claims regulations to provide the same subrogation rights to banks under a reallocation agreement to make joint and several payments on insured obligations that the banks would receive if they made payments under section 4.4(a)(2) of the Act. We have reviewed the banks’ petition and believe there is merit in the banks’ efforts to create an alternative methodology that they perceive has the potential benefit to increase funds available to pay a defaulting bank’s insured obligations. Such an agreement would be subject to Agency approval. Therefore, we are proposing to amend our regulations to allow for such a reallocation agreement and to provide priority of claims rights equivalent to those granted to the banks PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 for payments under section 4.4(a)(2) of the Act. The proposed rule is described more fully below. III. Description of Proposed Rule Section 627.2750—Priority of Claims— Banks Section 627.2750 sets forth the priority of claims for banks in liquidation. Each paragraph describes a class of claims. Existing paragraph (h) provides for payment of claims of holders of consolidated and Systemwide obligations and of other System banks arising from their payments made under statutory joint and several calls. We propose to add to this paragraph all claims of other System banks arising from their payments of consolidated and System-wide obligations under a reallocation agreement. The agreement must be in writing and approved by the FCA. Section 627.2755—Payment of Claims Existing § 627.2755 contains several provisions that apply to some or all types of System institutions that may be placed in receivership by the FCA under part 627 of our regulations.9 We propose to amend paragraph (a) by deleting language limiting the pro rata requirement to association receiverships. This will clarify that, in all System institution receiverships, if there are insufficient funds to pay a class of claims in full, payments to such class must be on a pro rata basis. IV. Regulatory Flexibility Act Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the FCA hereby certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not ‘‘small entities’’ as defined in the Regulatory Flexibility Act. List of Subjects in 12 CFR Part 627 Agriculture, Banks, Banking, Claims, Rural areas. For the reasons stated in the preamble, we propose to amend part 627 of chapter VI, title 12 of the Code 9 We note that part 627 of FCA’s regulations does not apply to the Federal Agricultural Mortgage Corporation, also known as Farmer Mac. Regulations applicable to Farmer Mac are in part 650 of FCA’s regulations. E:\FR\FM\12MRP1.SGM 12MRP1 Federal Register / Vol. 72, No. 47 / Monday, March 12, 2007 / Proposed Rules of Federal Regulations to read as follows: PART 627—TITLE IV CONSERVATORS, RECEIVERS, AND VOLUNTARY LIQUIDATIONS 1. The authority citation for part 627 continues 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 2. Revise § 627.2750(h) to read as follows: § 627.2750 Priority of claims—banks. * * * * * (h) All claims of holders of consolidated and System-wide bonds and all claims of the other Farm Credit banks arising from their payments on consolidated and System-wide bonds pursuant to 12 U.S.C. 2155 or pursuant to an agreement among the banks to reallocate the payments, provided the agreement is in writing and approved by the Farm Credit Administration. * * * * * § 627.2755 [Amended] 3. Amend § 627.2755(a) by removing the words ‘‘described in § 627.2745’’ in the last sentence. Dated: March 7, 2007. Roland E. Smith, Secretary, Farm Credit Administration Board. [FR Doc. E7–4427 Filed 3–9–07; 8:45 am] BILLING CODE 6705–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. NM362 Special Conditions No. 25–06–15–SC] Special Conditions: Boeing Model 787– 8 Airplane; Interaction of Systems And Structures, Electronic Flight Control System—Control Surface Awareness, High Intensity Radiated Fields (HIRF) Protection, Limit Engine Torque Loads for Sudden Engine Stoppage, and Design Roll Maneuver Requirement Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed special conditions. jlentini on PROD1PC65 with PROPOSAL AGENCY: SUMMARY: This notice proposes special conditions for the Boeing Model 787–8 airplane. This airplane will have novel VerDate Aug<31>2005 16:38 Mar 09, 2007 Jkt 211001 or unusual design features when compared to the state of technology envisioned in the airworthiness standards for transport category airplanes. These design features include electronic flight control systems and high bypass engines. These special conditions also pertain to the effects of such novel or unusual design features, such as effects on the structural performance of the airplane. Finally, these special conditions pertain to effects of certain conditions on these novel or unusual design features, such as the effects of high intensity radiated fields (HIRF). Additional special conditions will be issued for other novel or unusual design features of the Boeing Model 787–8 airplanes. DATES: Comments must be received on or before April 26, 2007. ADDRESSES: Comments on this proposal may be mailed in duplicate to: Federal Aviation Administration, Transport Airplane Directorate, Attention: Rules Docket (ANM–113), Docket No. NM362, 1601 Lind Avenue, SW., Renton, Washington 98057–3356; or delivered in duplicate to the Transport Airplane Directorate at the above address. All comments must be marked Docket No. NM362. Comments may be inspected in the Rules Docket weekdays, except Federal holidays, between 7:30 a.m. and 4 p.m. FOR FURTHER INFORMATION CONTACT: Meghan Gordon, FAA, Standardization Branch, ANM–113, Transport Airplane Directorate, Aircraft Certification Service, 1601 Lind Avenue, SW., Renton, Washington 98057–3356; telephone (425) 227–2138; facsimile (425) 227–1149. SUPPLEMENTARY INFORMATION: Comments Invited The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments. We will file in the docket all comments we receive as well as a report summarizing each substantive public contact with FAA personnel concerning these proposed special conditions. The docket is available for public inspection before and after the comment closing date. If you wish to review the docket in person, go to the address in the ADDRESSES section of this notice between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays. PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 10941 We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change the proposed special conditions based on comments we receive. If you want the FAA to acknowledge receipt of your comments on this proposal, include with your comments a pre-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it back to you. Background On March 28, 2003, Boeing applied for an FAA type certificate for its new Boeing Model 787–8 passenger airplane. The Boeing Model 787–8 airplane will be an all-new, two-engine jet transport airplane with a two-aisle cabin. The maximum takeoff weight will be 476,000 pounds, with a maximum passenger count of 381 passengers. Type Certification Basis Under provisions of 14 CFR 21.17, Boeing must show that Boeing Model 787–8 airplanes (hereafter referred to as ‘‘the 787’’) meet the applicable provisions of 14 CFR part 25, as amended by Amendments 25–1 through 25–117, except §§ 25.809(a) and 25.812, which will remain at Amendment 25– 115. If the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for the 787 because of a novel or unusual design feature, special conditions are prescribed under provisions of 14 CFR 21.16. In addition to the applicable airworthiness regulations and special conditions, the 787 must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of part 36. In addition, the FAA must issue a finding of regulatory adequacy pursuant to section 611 of Public Law 92–574, the ‘‘Noise Control Act of 1972.’’ Special conditions, as defined in § 11.19, are issued in accordance with § 11.38 and become part of the type certification basis in accordance with § 21.17(a)(2). Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same or similar novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101. E:\FR\FM\12MRP1.SGM 12MRP1

Agencies

[Federal Register Volume 72, Number 47 (Monday, March 12, 2007)]
[Proposed Rules]
[Pages 10939-10941]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-4427]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 72, No. 47 / Monday, March 12, 2007 / 
Proposed Rules

[[Page 10939]]



FARM CREDIT ADMINISTRATION

12 CFR Part 627

RIN 3052-AC16


Title IV Conservators, Receivers, and Voluntary Liquidations; 
Joint and Several Liability--Priority of Claims

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA, Agency, we), proposes to 
amend the priority of claims regulations to provide priority of claims 
rights to Farm Credit System (System, FCS, Farm Credit) banks if they 
make payments under a reallocation agreement to holders of consolidated 
and System-wide obligations on behalf of a defaulting System bank. We 
also propose to clarify that payments to a class of claims will be on a 
pro rata basis.

DATES: You may send comments on or before May 11, 2007.

ADDRESSES: We offer a variety of methods for you to submit comments. 
For accuracy and efficiency reasons, we encourage commenters to submit 
comments by e-mail or through the Agency's Web site or the Federal 
eRulemaking Portal. You may also send comments by mail or by facsimile 
transmission. Regardless of the method you use, please do not submit 
your comment multiple times via different methods. You may submit 
comments by any of the following methods:
     E-mail: Send us an e-mail at reg-comm@fca.gov.
     Agency Web site: http://www.fca.gov. Once you are at the 
Web site, select ``Legal Info,'' then ``Pending Regulations and 
Notices.''
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Gary K. Van Meter, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
     Fax: (703) 883-4477. Posting and processing of faxes may 
be delayed. Please consider another means to comment, if possible.

    You may review copies of comments we receive at our office in 
McLean, Virginia, or from our Web site at http://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 that you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove e-mail addresses to help reduce Internet spam.

FOR FURTHER INFORMATION CONTACT: Christopher D. Wilson, Policy Analyst, 
Office of Regulatory Policy, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4414, TTY (703) 883-4434, or Rebecca S. Orlich, 
Senior Counsel, Office of General Counsel, Farm Credit Administration, 
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.

SUPPLEMENTARY INFORMATION:

I. Objectives

    Our objectives in this proposed rule are to:
     Provide System banks that make payments under a 
reallocation agreement to holders of consolidated and System-wide 
obligations of a defaulting bank the same priority of claims rights 
they would have for payments made under statutory joint and several 
calls by the FCA.
     Clarify that claims in the same class will receive 
payments on a pro rata basis if there are insufficient assets in a 
receivership to pay the entire class in full.

II. Background

A. Joint and Several Liability Under the Act

    System associations obtain funding by means of direct loans from 
their affiliated Farm Credit banks. The banks in turn obtain their 
funding primarily by issuing System-wide obligations to investors 
through the Federal Farm Credit Banks Funding Corporation (Funding 
Corporation).\1\ The banks' authority to issue System-wide obligations 
is provided in section 4.2(d) of the Farm Credit Act of 1971, as 
amended (Act).\2\ Section 4.2(c) of the Act also authorizes the banks 
to obtain funding by issuing consolidated obligations with other banks 
operating under the same title of the Act, but all of the System's 
joint funding at the present time is through System-wide 
obligations.\3\
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    \1\ The Funding Corporation is the fiscal agent of the System 
established under section 4.9 of the Farm Credit Act of 1971, as 
amended (12 U.S.C. 2160).
    \2\ 12 U.S.C. 2153(d).
    \3\ 12 U.S.C. 2153(c).
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    Investors in consolidated and System-wide obligations have three 
levels of repayment sources. Under section 4.4(a)(2)(A) of the Act, 
each bank is primarily liable for the portion of any consolidated or 
System-wide obligation made on its behalf.\4\ If the bank that is 
primarily liable is unable to pay, payment must be made by the Farm 
Credit System Insurance Corporation (FCSIC), created in 1988. The FCSIC 
insures the timely payment of interest and principal on consolidated 
and System-wide obligations (these obligations are referred to as 
``insured obligations''). The source of payments by the FCSIC is the 
Farm Credit Insurance Fund (Insurance Fund), whose assets consist 
primarily of premiums paid by the System banks (as well as earnings on 
the premiums).\5\ The Insurance Fund must be used to make payments on 
behalf of System banks defaulting on their insured obligations, but the 
FCSIC also has discretion to make other expenditures out of the 
Insurance Fund.\6\
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    \4\ 12 U.S.C. 2155(a)(2)(A).
    \5\ Section 5.55 of the Act (12 U.S.C. 2277a-4).
    \6\ Section 5.60(c) of the Act (12 U.S.C. 2277a-9).
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    If a System bank is unable to pay the portion of any insured 
obligations issued on its behalf and the Insurance Fund is exhausted, 
section 4.4(a)(2) of the Act provides that the other (nondefaulting) 
System banks are jointly and severally liable for such timely payments 
as follows:
     The FCA will make calls on nondefaulting banks in 
proportion to each bank's proportionate share of the aggregate 
available collateral held by all nondefaulting banks.\7\
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    \7\ Section 4.4(a)(2)(F) of the Act requires the FCA to appoint 
a receiver upon making a joint and several call.
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     If the aggregate available collateral does not fully 
satisfy the insured

[[Page 10940]]

obligations of the defaulting bank, the FCA will make calls on all 
nondefaulting banks in proportion to each bank's remaining assets.
    A bank's ``available collateral'' is defined in section 
4.4(a)(2)(C) as ``the amount (determined at the close of the last 
calendar quarter ending before such call) by which a bank's collateral 
* * * exceeds the collateral required to support the bank's outstanding 
notes, bonds, debentures, and other similar obligations.''
    Furthermore, the Act provides subrogation rights to both the banks 
and the FCSIC for payments of insured obligations made on behalf of a 
defaulting bank. With respect to FCSIC, section 5.61(c)(1) and (2) of 
the Act provides:

    [O]n the payment to an owner of an insured obligation issued on 
behalf of an insured System bank in receivership, the [FCSIC] shall 
be subrogated to all rights of the owner against the bank to the 
extent of the payment * * * Subrogation * * * shall include the 
right on the part of the [FCSIC] to receive the same dividends from 
the proceeds of the assets of the bank as would have been payable to 
the owner on a claim for the insured obligation.\8\

    \8\ 12 U.S.C. 2277a-10(c).
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    With respect to System banks, section 4.4(a)(2)(E) provides:

    Any System bank that, pursuant to a call by the [FCA], makes a 
payment of principal or interest to the holder of any consolidated 
or System-wide obligations issued on behalf of another System bank 
shall be subrogated to the rights of the holder against such other 
bank to the extent of such payment.

B. FCA Priority of Claims Regulations

    Part 627 of our regulations governs the conduct of System 
institution conservatorships and receiverships. Section 627.2750 sets 
forth the priority of claims in the distribution of the assets of a 
bank in liquidation. After payment of certain receivership expenses and 
secured claims, paragraph (h) provides for the payment of ``[a]ll 
claims of holders of consolidated and Systemwide bonds and claims of 
the other Farm Credit banks arising from their payments pursuant to 
[joint and several calls by the FCA under] 12 U.S.C. 2155'' before 
payments are made to general creditors. Section 627.2755 requires the 
receiver to pay in full all the claims of a class of claims of the same 
priority (or make provision for such payment) before paying the claims 
of classes of lesser priority. That regulation further provides that 
the receiver must pay such claims on a pro rata basis if there are 
insufficient funds to pay in full any class of claims against a System 
association in receivership. However, the regulation does not address 
how the receiver must pay claims against a System bank or institution 
other than an association in the case of insufficient funds to pay a 
class of claims in full.

C. System Banks' Petition To Amend Regulations

    At the present time, the System banks and associations are well 
capitalized, and no bank or association has been placed in receivership 
since 1989. The FCA has never made joint and several calls on System 
banks to pay consolidated and System-wide bondholders, and monies from 
the Insurance Fund have never been used for that purpose. Nonetheless, 
the potential effect of a joint and several call based on banks' 
aggregate available collateral has caused System banks to consider 
possible alternative methodologies based on an agreement among the 
banks.
    In recent years, the banks have discussed the benefits and 
feasibility of using a methodology for joint and several calls based on 
the proportion of total System-wide debt on which each nondefaulting 
bank is primarily liable. The banks have explored the possibility of 
entering into a reallocation agreement among themselves to pay a 
defaulting bank's maturing insured obligations as the Insurance Fund is 
nearing exhaustion but before statutory joint and several calls are 
triggered. The banks have informed us that, while they are in general 
agreement on the outlines of an agreement for payment based on 
individual banks' outstanding System-wide debt, a key to an agreement 
is that payments made under the banks' agreement would be entitled to 
the same payment rights as if the banks had made the payments under a 
statutory joint and several call.
    The System banks have petitioned the FCA to amend our priority of 
claims regulations to provide the same subrogation rights to banks 
under a reallocation agreement to make joint and several payments on 
insured obligations that the banks would receive if they made payments 
under section 4.4(a)(2) of the Act. We have reviewed the banks' 
petition and believe there is merit in the banks' efforts to create an 
alternative methodology that they perceive has the potential benefit to 
increase funds available to pay a defaulting bank's insured 
obligations. Such an agreement would be subject to Agency approval. 
Therefore, we are proposing to amend our regulations to allow for such 
a reallocation agreement and to provide priority of claims rights 
equivalent to those granted to the banks for payments under section 
4.4(a)(2) of the Act.
    The proposed rule is described more fully below.

III. Description of Proposed Rule

Section 627.2750--Priority of Claims--Banks

    Section 627.2750 sets forth the priority of claims for banks in 
liquidation. Each paragraph describes a class of claims. Existing 
paragraph (h) provides for payment of claims of holders of consolidated 
and System-wide obligations and of other System banks arising from 
their payments made under statutory joint and several calls. We propose 
to add to this paragraph all claims of other System banks arising from 
their payments of consolidated and System-wide obligations under a 
reallocation agreement. The agreement must be in writing and approved 
by the FCA.

Section 627.2755--Payment of Claims

    Existing Sec.  627.2755 contains several provisions that apply to 
some or all types of System institutions that may be placed in 
receivership by the FCA under part 627 of our regulations.\9\ We 
propose to amend paragraph (a) by deleting language limiting the pro 
rata requirement to association receiverships. This will clarify that, 
in all System institution receiverships, if there are insufficient 
funds to pay a class of claims in full, payments to such class must be 
on a pro rata basis.
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    \9\ We note that part 627 of FCA's regulations does not apply to 
the Federal Agricultural Mortgage Corporation, also known as Farmer 
Mac. Regulations applicable to Farmer Mac are in part 650 of FCA's 
regulations.
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IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the proposed rule 
will not have a significant economic impact on a substantial number of 
small entities. Each of the banks in the System, considered together 
with its affiliated associations, has assets and annual income in 
excess of the amounts that would qualify them as small entities. 
Therefore, System institutions are not ``small entities'' as defined in 
the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 627

    Agriculture, Banks, Banking, Claims, Rural areas.

    For the reasons stated in the preamble, we propose to amend part 
627 of chapter VI, title 12 of the Code

[[Page 10941]]

of Federal Regulations to read as follows:

PART 627--TITLE IV CONSERVATORS, RECEIVERS, AND VOLUNTARY 
LIQUIDATIONS

    1. The authority citation for part 627 continues 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

    2. Revise Sec.  627.2750(h) to read as follows:


Sec.  627.2750  Priority of claims--banks.

* * * * *
    (h) All claims of holders of consolidated and System-wide bonds and 
all claims of the other Farm Credit banks arising from their payments 
on consolidated and System-wide bonds pursuant to 12 U.S.C. 2155 or 
pursuant to an agreement among the banks to reallocate the payments, 
provided the agreement is in writing and approved by the Farm Credit 
Administration.
* * * * *


Sec.  627.2755  [Amended]

    3. Amend Sec.  627.2755(a) by removing the words ``described in 
Sec.  627.2745'' in the last sentence.

    Dated: March 7, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
 [FR Doc. E7-4427 Filed 3-9-07; 8:45 am]
BILLING CODE 6705-01-P