Loan Policies and Operations; Loan Purchases From FDIC, 30246-30250 [2011-12785]
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Federal Register / Vol. 76, No. 101 / Wednesday, May 25, 2011 / Rules and Regulations
Regulatory Flexibility Act
List of Subjects in 5 CFR Part 2641
As Director of the Office of
Government Ethics, I certify under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) that this rule will not have a
significant economic impact on a
substantial number of small entities
because it affects only Federal
departments and agencies and current
and former Federal employees.
Conflict of interests, Government
employees.
Appendix B to Part 2641—Agency
Components for Purposes of 18 U.S.C.
207(c)
lending authority to purchase from the
Federal Deposit Insurance Corporation
(FDIC) loans to farmers, ranchers,
producers or harvesters of aquatic
products and cooperatives that meet
eligibility and scope of financing
requirements. This will allow the
System to provide liquidity and a stable
source of funding and credit for
borrowers of eligible agricultural loans
in rural areas affected by the failure of
their lending institution.
DATES: 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:
Mark L. Johansen, Senior Policy
Analyst, Office of Regulatory Policy,
Farm Credit Administration, McLean,
VA 22102–5090, (703) 883–4498, TTY
(703) 883–4434, or
Mary Alice Donner, Senior Counsel,
Office of General Counsel, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4020, TTY
(703) 883–4020.
SUPPLEMENTARY INFORMATION:
Congressional Review Act
*
I. Background
The Office of Government Ethics has
determined that this rulemaking
involves a non-major rule under the
Congressional Review Act (5 U.S.C.
chapter 8) and will submit a report
thereon to the U.S. Senate, House of
Representatives and Government
Accountability Office in accordance
with that law at the same time this
rulemaking document is sent to the
Office of the Federal Register for
publication in the Federal Register.
Parent: Department of Labor
Components:
Bureau of Labor Statistics.
Employee Benefits Security Administration
(formerly Pension and Welfare Benefits
Administration) (effective May 16, 1997).
Employment and Training Administration.
Employment Standards Administration.
Mine Safety and Health Administration.
Occupational Safety and Health
Administration.
Office of Disability Employment Policy
(effective January 30, 2003).
Pension Benefit Guaranty Corporation
(effective May 25, 2011).
Approved: May 18, 2011.
Robert I. Cusick,
Director, Office of Government Ethics.
Accordingly, for the reasons set forth
in the preamble, the Office of
Government Ethics is amending 5 CFR
part 2641 as follows:
Paperwork Reduction Act
The Paperwork Reduction Act (44
U.S.C. chapter 35) does not apply to this
rule because it does not contain
information collection requirements that
require the approval of the Office of
Management and Budget.
Unfunded Mandates Reform Act
For purposes of the Unfunded
Mandates Reform Act of 1995 (2 U.S.C.
chapter 25, subchapter II), the final rule
will not significantly or uniquely affect
small governments and will not result in
increased expenditures by State, local
and tribal governments, in the aggregate,
or by the private sector, of $100 million
or more (as adjusted for inflation) in any
one year.
WReier-Aviles on DSKGBLS3C1PROD with RULES
Executive Order 12866
In promulgating this final rule, the
Office of Government Ethics has
adhered to the regulatory philosophy
and the applicable principles of
regulation set forth in section 1 of
Executive Order 12866, Regulatory
Planning and Review. This rule has not
been reviewed by the Office of
Management and Budget under that
Executive order since it deals with
agency organization, management, and
personnel matters and is not
‘‘significant’’ under the order.
PART 2641—POST-EMPLOYMENT
CONFLICT OF INTEREST
RESTRICTIONS
1. The authority citation for part 2641
continues to read as follows:
■
Authority: 5 U.S.C. App. (Ethics in
Government Act of 1978); 18 U.S.C. 207; E.O.
12674, 54 FR 15159, 3 CFR, 1989 Comp., p.
215, as modified by E.O. 12731, 55 FR 42547,
3 CFR, 1990 Comp., p. 306.
2. Effective May 25, 2011, appendix B
to part 2641 is amended by revising the
listing for the Department of Labor to
read as follows:
■
*
*
*
*
*
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[FR Doc. 2011–12798 Filed 5–23–11; 8:45 am]
BILLING CODE 6345–03–P
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052–AC62
Loan Policies and Operations; Loan
Purchases From FDIC
Farm Credit Administration.
Final rule.
AGENCY:
Executive Order 12988
ACTION:
As Director of the Office of
Government Ethics, I have reviewed this
rule in light of section 3 of Executive
Order 12988, Civil Justice Reform, and
certify that it meets the applicable
standards provided therein.
SUMMARY:
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The Farm Credit
Administration (FCA or we) issues this
final rule to amend its regulations on
loan policies and operations. This final
rule will permit Farm Credit System
(System or FCS) institutions with direct
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Agriculture and rural sectors in the
United States are adversely affected by
bank failures and the resultant
depressed local economies. Many
commercial banks are active in
agricultural and cooperative lending
and, when they fail, farmers, ranchers,
producers or harvesters of aquatic
products, and cooperatives can be left
seeking new lenders to meet their
ongoing credit needs. Representatives
from the FDIC, the System, and others
have asked whether System institutions,
directly or in partnership with other
market participants, could provide a
source of credit and liquidity to
borrowers whose operations are
financed with agricultural or
cooperative loans affected by
commercial bank failures.1
On May 18, 2010, the FCA published
a Notice of Proposed Rulemaking
(NPRM) to amend FCA regulations
governing purchase and sale of interests
in loans (75 FR 27660). The proposed
rule would allow System institutions to
purchase certain agricultural or
cooperative loans of failed commercial
1 System institutions are federally chartered,
cooperatively owned corporations authorized under
titles I, II, and III of the Farm Credit Act of 1971,
as amended (Act), to make long-term mortgage and
short- and intermediate-term production loans to
farmers, ranchers, aquatic producers or harvesters,
and, in the case of banks for cooperatives, to eligible
cooperative associations. See 12 U.S.C. 2001 et seq.
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banks from the FDIC. The FCA initially
established a 60-day comment period
but, on the request of the public,
reopened the comment period for
another 30 days (75 FR 56487, Sept. 16,
2010).2
After reviewing the comments, the
FCA is adopting this final rule with two
changes from the proposed rule. First,
the FCA originally proposed a due
diligence process in which a System
institution would conduct a preliminary
review of loans for eligibility prior to
purchase, conduct a more thorough due
diligence review after purchase, and
divest ineligible loans. In response to
the comments, FCA now modifies the
final rule to eliminate the two-tiered
due diligence process and to authorize
only the purchase of agricultural loans
that are eligible for System financing.
Second, in response to comments
concerning the need for the rule and
those raising concerns on the safety and
soundness of acquiring failed bank
loans and out-of-territory loans, the final
rule requires System institutions to
provide information on loans made
under authority of this section to FCA
in the Reports of Condition and
Performance.
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II. Purpose of the Rule
FCA regulations currently provide
that a System institution may not
purchase an interest in a loan from a
non-System institution except for the
purpose of pooling and securitizing
loans to sell to the Federal Agricultural
Mortgage Corporation unless the interest
is a participation interest.3 As a result,
System institutions are not currently
authorized to buy loans from the FDIC.
However, the Farm Credit Act of 1971,
as amended (Act), does not prohibit
System institutions from purchasing
eligible loans from the FDIC. This rule
will allow System institutions, directly
or in partnership with other market
participants, to purchase loans of failed
banks from the FDIC acting as receiver
or in any other capacity, when those
loans meet eligibility and scope of
financing requirements under titles I, II
and III of the Act. System institutions
will be able to provide a source of credit
and liquidity to borrowers whose
operations are financed with System
eligible agricultural or cooperative loans
affected by commercial bank failures.
III. Discussion of Comments
We received approximately 94
comment letters from commercial banks
and their trade groups, the Farm Credit
2 The reopened comment period for the proposed
rule closed on October 18, 2010.
3 12 CFR 614.4325(b).
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Council, a few System institutions and
individuals. All non-System entities
opposed the proposed rule while the
System entities supported it. The
Independent Community Bankers of
America (ICBA) submitted a comment
letter dated October 18, 2010, in which
it discusses the results of a survey it
conducted of over 2000 agricultural
banks to determine their opinions on
the proposed rule. We treat the ICBA’s
summary of the results of its survey and
all discussion of it as a comment of the
ICBA. We discuss all relevant comments
to our proposed rule and our responses
below. Those areas of the proposed rule
not receiving comment are finalized as
proposed unless otherwise discussed in
this preamble.
A. Legal Authority for the Rule
Most of the non-System commenters
objected that the rule gives System
institutions authority beyond that
granted by Congress and expands the
Farm Credit mission beyond the intent
of the Act. These commenters contend
that the Act expressly identifies the
limited authority of System institutions
to buy, sell and participate in nonSystem loans. They opine that the FDIC
is comparable to a non-System lender
and that Federal law does not grant
authority to System institutions to
purchase loans from non-System
lenders. They object that ineligible loans
that are distressed would remain in the
FCS and borrowers could get the benefit
of borrower rights. They state that by
providing restructuring to ineligible
distressed loans and financial services
to ineligible borrowers, the FCA
contravenes the Act. A few commenters
contend that the FCA is suggesting that
all powers not denied by Congress are
therefore granted by Congress, and that
this is disingenuous because obviously
Congress cannot foresee all potential
lending activities.
Several System institutions
commented that the FCA should
authorize System institutions to
purchase loans from FDIC successor
banks, to purchase whole loans from
non-System entities whenever it would
benefit rural America, or that the FCA
should allow the purchase of interests
in all eligible loans.
FCA response. We do not agree that
the proposed rule contravenes the Act.
Section 1.5(5) of the Act gives Farm
Credit Banks the authority to acquire,
hold, dispose and otherwise exercise all
the usual incidents of ownership of real
and personal property necessary or
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convenient to its business,4 and section
1.5(15) of the Act gives Farm Credit
Banks authority to buy and sell
obligations of, or insured by the United
States or any agency thereof, and to
make other investments as may be
authorized under regulation issued by
the FCA.5 System institutions have the
specific authority to make eligible loans,
and to participate in eligible loans with
non-System lenders. While these
provisions of the Act do not specifically
identify the System’s authority to buy
eligible loans from the FDIC, an
eventuality not contemplated by
Congress at the time, they do set forth
the parameters of the System’s authority
upon which the FCA relies in this rule.
The Supreme Court has held that the
business of banking is not limited to
authorized activities specifically
identified or enumerated in a statute.6
System institutions may engage in those
banking activities that are necessary to
carry out their specific mission.7 The
System’s mission is to make credit
available to farmers and ranchers and
their cooperatives, and to provide for an
adequate and flexible flow of money
into rural areas, and to meet current and
future rural credit needs.8 The System,
as a Government-sponsored enterprise
(GSE) for agricultural lending, should
have a role in providing credit to
farmers and ranchers and cooperatives
and liquidity to rural areas, by
purchasing eligible loans when the FDIC
seeks buyers of agricultural or
cooperative loans of a failed bank,
consistent with the safe and sound
operation of System business.
One non-System commenter contends
that the FCA has, in the past,
interpreted the Act to prohibit the
proposed action, and that the FCA’s
authority to draft regulations does not
authorize the FCA to go beyond the
authority that limits the participation,
selling and buying of loans with nonSystem banks.
The FCA has in the past determined
that System institutions may not
purchase whole loans from commercial
banks. As the result of bank failures in
rural areas, the FCA has for the first
4 See sections 2.2(5) and 2.12(5) of the Act for
parallel authority with respect to Farm Credit
associations.
5 See sections 2.2(11) and 2.12(17) of the Act for
parallel authority with respect to Farm Credit
associations, and section 3.1(5) and (13)(A) of the
Act for parallel authorities with respect to banks for
cooperatives.
6 See NationsBank of North Carolina, N.A. v.
Variable Annuity Life Insurance Co., 513 U.S. 251
(1995).
7 REW Enterprises, Inc. v. Premier Bank, N.A., 49
F.3d 163 (5th Cir. 1995).
8 See Preamble, Farm Credit Act of 1971, as
amended, 12 U.S.C. 2001 et seq.
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time considered the question of whether
a System institution may purchase an
otherwise eligible loan from the FDIC, a
non-bank, non-lender, liquidator. It is
unlikely that Congress ever considered
this particular authority; however,
Congress intended the System to
provide liquidity to rural areas where
necessary, and the FCA believes that
allowing System institutions to bid on
loans of failed banks—loans that the
System could make outright and could
participate in if originated by
commercial banks—furthers that intent.
The FCA does not agree with the
comments of the System institutions
that it should broaden the reach of the
rule.
B. Eligibility
Non-System commenters object to the
provision of the proposed rule that
would allow ineligible loans to remain
within the System until divested. They
object that the proposed rule would
allow System institutions to offer
financial services to borrowers who are
not eligible under the Act and would
offer financial remedies that are
statutorily exclusive to those who meet
eligibility requirements. They conclude
that the proposed rule is contrary to
statutory intent. Several commenters
state that there should be an outright
prohibition against purchasing
ineligible loans, and that if the FCA
cannot assure that loans purchased are
within the legal requirements for
System institutions, then FCA has no
business making such a proposal. Many
commenters object that the proposed
rule does not set forth a required
timeline for divesting illegal loans, and
several commenters suggest that System
institutions with ineligible loans should
be subject to penalties.
One commenter states that the Act
and existing regulations plainly identify
loan eligibility, carefully keeping with
the limited purposes Congress intended.
This commenter states that under the
proposed rule the ineligible loan, one
not related to the mission of the Act and
its congressionally defined mission or
one in which the borrower does not
acquire voting stock, would remain
within the System until divested.
Several commenters stated that the
result of the rule would be that the
System institutions would hold all
manner of loans not related to farming
and agriculture. One commenter states
that if a loan is ineligible due to
borrower status or loan type then that is
the end of the analysis, and the FCS
institution is not authorized to provide
financial services. The commenter
concludes that financing that is
ineligible based on loan type or
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membership cannot be made eligible by
being identified as distressed. The
commenter further opines that a System
institution cannot expeditiously divest
of ineligible distressed loans in which it
has provided restructuring financing,
because the restructuring process takes
time. One System institution
commented that requiring a second due
diligence review after loan purchase and
divestiture will result in a substantial
discount in the bid amount.
FCA response. We agree with
commenters that System institutions do
not have authority to purchase ineligible
loans. Therefore, we are changing
§ 614.4325(b)(3)(i) of the final rule to
require participating System institutions
to determine eligibility of the loans or
loan pools up front, before purchase. If
a determination of eligibility cannot be
made, then the System institution may
not purchase the loan or loan pool
under the rule. Because eligibility must
be determined before purchasing the
loan, there is no need to require
divestiture of these loans except if the
borrower does not elect to acquire
voting stock, and § 614.4325(b)(3)(v) is
modified accordingly.
This rule requires System institutions
to establish a program offering each
eligible borrower of a purchased loan
the opportunity to acquire voting stock.
We expect System institutions to have a
fair and equitable program in place to
make membership available to all
interested borrowers. We anticipate that
pursuant to such a program all
borrowers will choose to become
members. If, however, a borrower
chooses not to acquire voting stock, the
borrower will not be entitled to
borrower rights under this rule, and
§ 614.4325(b)(3)(iv) is modified
accordingly.
C. Need for the Rule
The ICBA comments that when loans
are available for bidding, the
competition in the bidding process is
adequate to aggressive. It comments that
there is robust competition among
community banks for credit-seeking
customers. Several commenters state
that the rule allows System institutions
to leverage high capital levels to spur
new growth at the expense of private
sector lenders. Many non-System
commenters state that they are not
aware of a lack of buyers of loans or
loan pools from the FDIC after bank
failures. They state that there are plenty
of bidders on good quality loans. They
comment that System institutions are
not needed in the bidding process as
there is no lack of commercial and
community bank buyers for loans sold
by FDIC. One commenter states that
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System institutions rarely reach out to
help with loans that have material
weakness. This commenter states that
System institutions cherry pick the best
loans from the community and that if
the System needs loans it should reach
out to farmers who need cheap credit
but do not qualify for bank loans.
FCA response. The rule does not
authorize System institutions to bid on
loans or pools of loans that include
loans not eligible for direct lending. The
FDIC decides how to package loan
assets for sale, and if the FDIC decides
that the most cost effective and efficient
way to sell loans is to create a pool of
agricultural loans eligible for System
financing, then System institutions will
be able to bid on those pools. As
mentioned above, if a determination of
eligibility cannot be made, then the
System institution is not authorized by
this rule to purchase the loan or loan
pool. This helps assure that the System
institutions will only enter the FDIC
auction market based on need. If there
are enough non-System banks to bid on
loans at auction, the FDIC is unlikely to
go to the trouble and expense of
packaging System eligible loans. The
FDIC will have the incentive to limit the
pool to loans eligible for purchase by
Farm Credit institutions only if there is
not an available market to buy
agricultural loans.
D. Unfair Competition
Some non-System commenters opine
that the rule allows System institutions
to shop for high quality loans, including
ineligible loans, while ignoring marginal
credits. Many non-System commenters
assert that the rule allows System
institutions to use their GSE status and
tax advantages to undercut the bidding
of community banks in the FDIC auction
process.
Many non-System commenters assert
that because community banks have
paid premiums to the Deposit Insurance
Fund to enable the FDIC to resolve
failed FDIC-insured banks, it would be
unfair to allow non-paying FCS
institutions to compete in bidding on
loans of failed banks. They state that the
rule allows the System to leverage its
GSE status, and the fact that the System
does not pay premiums into the Deposit
Insurance Fund results in a gross
unfairness to community banks.
FCA response. The final rule does not
authorize System institutions to
purchase loans ineligible for financing.
System institutions are exercising their
authority to support agriculture by
bidding on agricultural loans where
there is a need, consistent with their
mission. Further, to the extent the
System institutions are able to
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participate in the bidding process, they
are increasing the return to the FDIC on
failed bank assets, thereby providing
additional support to the insurance
fund. The result is a benefit to FDICinsured banks.
E. Out of Territory Loans and Safety and
Soundness
Many non-System commenters
question why FCA would propose a rule
that would allow a System institution to
purchase pools of loans without first
obtaining the prior consent of the
System institution in whose lending
territory the borrower’s agricultural
operation is wholly or partially located.
Many commenters state that this
practice is not consistent with
cooperative principles or a cooperative
system and that out-of-territory loan
purchases would pose safety and
soundness issues for FCS lenders
bidding on loans in territories with
which the lenders are unfamiliar.
One commenter states that the rule
allows System institutions to hold more
than the usual volume of extra territorial
loans and that capital that should be
reserved to finance farming and
agriculture within a territory would be
diverted to purchase loans outside of
the territory, some of which would be
distressed and not related to farming,
resulting in a loss of available capital in
the district. The commenter stated that
System institutions will expend
resources to manage loans far outside
their districts, resulting in added
economic risks associated with the
purchase of loans from failed banks.
One commenter states that it appears
the FCA is willing to allow System
institutions to engage in significant risks
in the quality of loans purchased just so
they can achieve greater growth.
FCA response. The System is not the
lender of last resort and therefore not
required to fund loans that are not
creditworthy or would pose
considerable risk to the safety and
soundness of the institution. On the
other hand, the System, as a GSE, does
have a mission responsibility to provide
credit to rural areas where needed so
long as the institution remains safe and
sound. As such, the bidding System
institution should consider the overall
credit quality of the loan pool
recognizing that the loans in the pool
will have varying degrees of individual
loan quality.
As a practical matter the chartered
territory of the System institution
located closest to the failed commercial
bank would never be exactly in line
with the headquarters of the eligible
agricultural borrowers of the failed
bank. It would be impractical for the
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FDIC to package loans by FCS territory.
The rule requires the purchasing System
institution to notify the System
institutions in whose lending territory
the borrowers’ headquarters are wholly
or partially located to alert them to the
purchase and, as noted in the preamble
to the proposal, consider partnering
with that institution if the purchasing
institution cannot adequately service a
purchased loan located outside of its
chartered territory. However, System
institutions must comply with
§ 614.4070 if a new loan is subsequently
made to the borrower.
To address safety and soundness
concerns, we have added to the final
rule a provision requiring System
institutions to provide information on
loans purchased under authority of this
section in the Reports of Condition and
Performance. This allows the FCA to
monitor loans acquired through this
program to make adjustments as
necessary if safety and soundness issues
arise.
F. Comments Requesting FCA Expand
FCS Institutions’ Authority
Several System commenters stated
that the FCA should allow FCS
institutions to purchase whole loans
from FDIC successor banks and from
non-System entities whenever it would
benefit rural America. Many nonSystem commenters objected to an
extension of the rule to successor banks.
The rule is intended to provide
liquidity to areas in need of credit
incident to a bank failure. The FCA does
not intend to extend the rule beyond the
purchase of loans directly from the FDIC
either in its receivership or corporate
capacity.
IV. Section-by-Section Analysis
A. Section 614.4070(d)
This section is finalized as proposed.
B. Section 614.4325(b)(3)
This section is finalized as proposed.
See discussion on authority above.
C. Section 614.4325(b)(3)(i)
In response to the comments, and for
the reasons discussed above, this
section authorizes System institutions to
purchase loans from the FDIC, but now
requires participating System
institutions to conduct thorough due
diligence prior to purchase.
D. Section 614.4325(b)(3)(ii)
This section is finalized as proposed.
E. Section 614.4325(b)(3)(iii)
This section is finalized as proposed.
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F. Section 614.4325(b)(3)(iv)
Commenters object to this section
because it could result in allowing
borrowers of distressed ineligible loans
certain borrower rights. In response to
the comments, the FCA has modified
the rule to authorize purchase of only
eligible loans. Therefore, only borrowers
of eligible loans will be afforded
borrower rights under this section. This
section is finalized as proposed.
G. Section 614.4325(b)(3)(v)
In response to the comments, the FCA
has modified the rule to authorize only
the purchase of eligible loans.
Therefore, a provision addressing
divestiture of ineligible loans is
unnecessary. This section is modified
from the proposed rule accordingly.
H. Section 614.4325(b)(3)(vi)
To ensure adequate oversight and
disclosure of loans purchased under this
section, we adopt a new paragraph (vi),
which provides that each System
institution shall include information on
loans purchased under authority of this
section in the Reports of Condition and
Performance required under § 621.12 of
this chapter, in the format prescribed by
FCA reporting instructions.
FCA makes System ‘‘call report’’ data
publicly available through its Web site
at https://www.fca.gov. Under § 621.13(a)
of this chapter, System institutions must
prepare Reports of Condition and
Performance in accordance with FCA
instructions.
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
final 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 614
Agriculture, Banks, Banking, Foreign
trade, Reporting and recordkeeping
requirements, Rural areas.
Accordingly, for the reasons stated in
the preamble, part 614 of chapter VI,
title 12 of the Code of Federal
Regulations, is amended as follows:
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PART 614—LOAN POLICIES AND
OPERATIONS
1. The authority citation for part 614
continues to read as follows:
■
Authority: 42 U.S.C. 4012a, 4104a, 4104b,
4106, and 4128; secs. 1.3, 1.5, 1.6, 1.7, 1.9,
1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13,
2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28,
4.12, 4.12A, 4.13B, 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 B—Chartered Territories
2. Amend § 614.4070 by adding a new
paragraph (d) to read as follows:
■
§ 614.4070 Loans and chartered territory—
Farm Credit Banks, agricultural credit
banks, Federal land bank associations,
Federal land credit associations, production
credit associations, and agricultural credit
associations.
*
*
*
*
*
(d) A bank or association chartered
under title I or II of the Act may finance
eligible borrower operations conducted
wholly or partially outside its chartered
territory through the purchase of loans
from the Federal Deposit Insurance
Corporation in compliance with
§ 614.4325(b)(3), provided:
(1) Notice is given to the Farm Credit
System institution(s) chartered to serve
the territory where the headquarters of
the borrower’s operation being financed
is located; and
(2) After loan purchase, additional
financing of eligible borrower
operations complies with paragraphs
(a), (b), and (c) of this section.
Subpart H—Loan Purchases and Sales
3. Amend § 614.4325 by revising
paragraph (b) to read as follows:
■
§ 614.4325
in loans.
Purchase and sale of interests
WReier-Aviles on DSKGBLS3C1PROD with RULES
*
*
*
*
*
(b) Authority to purchase and sell
interests in loans. Loans and interests in
loans may only be sold in accordance
with each institution’s lending
authorities, as set forth in subpart A of
this part. No Farm Credit System
institution may purchase any interest in
a loan from an institution that is not a
Farm Credit System institution, except:
VerDate Mar<15>2010
13:38 May 24, 2011
Jkt 223001
(1) For the purpose of pooling and
securitizing such loans under title VIII
of the Act;
(2) Purchases of a participation
interest that qualifies under the
institution’s lending authority, as set
forth in subpart A of this part, and
meets the requirements of § 614.4330 of
this subpart;
(3) Loans purchased from the Federal
Deposit Insurance Corporation,
provided that the Farm Credit System
institution with direct lending authority
under title I, II or III of the Act:
(i) Conducts a thorough due diligence
prior to purchase to ensure that the
loan, or pool of loans, qualifies under
the institution’s lending authority as set
forth in subpart A of this part, and
meets scope of financing and eligibility
requirements in subpart A or subpart B
of part 613;
(ii) Obtains funding bank approval if
a Farm Credit System association
purchases loans or pools of loans that
exceed 10 percent of total its capital;
(iii) Establishes a program whereby
each eligible borrower of the loan
purchased is offered an opportunity to
acquire the institution’s required
minimum amount of voting stock;
(iv) Determines whether each loan
purchased, except for loans purchased
that could be financed only by a bank
for cooperatives under title III of the
Act, is a distressed loan as defined in
§ 617.7000, and provides borrowers of
purchased loans who acquire voting
stock the rights afforded in § 617.7000,
subparts A, and D through G if the loan
is distressed; and
(v) Divests eligible purchased loans
when the borrowers elect not to acquire
stock under the program offered in
paragraph (b)(3)(iii) of this section in the
same manner it would divest loans
under its current business practices.
(vi) Includes information on loans
purchased under authority of this
section in the Reports of Condition and
Performance required under § 621.12 of
this chapter, in the format prescribed by
FCA reporting instructions.
*
*
*
*
*
Date: May 19, 2011.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2011–12785 Filed 5–24–11; 8:45 am]
BILLING CODE 6705–01–P
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 745
RIN 3133–AD79
Share Insurance and Appendix
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
Section 343 of the DoddFrank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) 1
provides that, on a temporary basis,
NCUA shall fully insure the net amount
that any member or depositor at an
insured credit union maintains in a
noninterest-bearing transaction account.
Although this insurance coverage is selfimplementing, and therefore already in
place, this final rule: Clarifies the
definition of the term ‘‘noninterestbearing transaction account;’’ provides
that this new insurance coverage is
separate from, and in addition to, other
coverage provided in NCUA’s share
insurance rules; and imposes certain
notice and disclosure requirements.
DATES: The rule is effective June 24,
2011.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Frank Kressman, Senior Staff Attorney,
Office of General Counsel, at the above
address or telephone (703) 518–6540.
SUPPLEMENTARY INFORMATION:
A. Background
1. The Dodd-Frank Act
Section 343 of the Dodd-Frank Act
amended the Federal Credit Union Act
(FCU Act) to include full share
insurance coverage, beyond the
Standard Maximum Share Insurance
Amount (SMSIA),2 for the net amount
held in a noninterest-bearing transaction
account by any member or depositor at
an insured credit union. The term
‘‘noninterest-bearing’’ should be read as
including ‘‘nondividend-bearing’’ to
translate the provisions of the DoddFrank Act into credit union
terminology.3 Insured credit unions are
not required to take any action to
receive this additional insurance
coverage. The additional coverage
mandated by Section 343 of the Dodd1 Public
Law 111–203 (July 21, 2010).
SMSIA is defined as $250,000. 12 CFR
745.1(e).
3 Federal credit unions cannot offer interestbearing accounts; they can only pay dividends
pursuant to the Federal Credit Union Act. Some
state chartered, federally insured credit unions may
offer interest-bearing accounts pursuant to their
state credit union acts.
2 The
E:\FR\FM\25MYR1.SGM
25MYR1
Agencies
[Federal Register Volume 76, Number 101 (Wednesday, May 25, 2011)]
[Rules and Regulations]
[Pages 30246-30250]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-12785]
=======================================================================
-----------------------------------------------------------------------
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052-AC62
Loan Policies and Operations; Loan Purchases From FDIC
AGENCY: Farm Credit Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Farm Credit Administration (FCA or we) issues this final
rule to amend its regulations on loan policies and operations. This
final rule will permit Farm Credit System (System or FCS) institutions
with direct lending authority to purchase from the Federal Deposit
Insurance Corporation (FDIC) loans to farmers, ranchers, producers or
harvesters of aquatic products and cooperatives that meet eligibility
and scope of financing requirements. This will allow the System to
provide liquidity and a stable source of funding and credit for
borrowers of eligible agricultural loans in rural areas affected by the
failure of their lending institution.
DATES: 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:
Mark L. Johansen, Senior Policy Analyst, Office of Regulatory Policy,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TTY
(703) 883-4434, or
Mary Alice Donner, Senior Counsel, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703)
883-4020.
SUPPLEMENTARY INFORMATION:
I. Background
Agriculture and rural sectors in the United States are adversely
affected by bank failures and the resultant depressed local economies.
Many commercial banks are active in agricultural and cooperative
lending and, when they fail, farmers, ranchers, producers or harvesters
of aquatic products, and cooperatives can be left seeking new lenders
to meet their ongoing credit needs. Representatives from the FDIC, the
System, and others have asked whether System institutions, directly or
in partnership with other market participants, could provide a source
of credit and liquidity to borrowers whose operations are financed with
agricultural or cooperative loans affected by commercial bank
failures.\1\
---------------------------------------------------------------------------
\1\ System institutions are federally chartered, cooperatively
owned corporations authorized under titles I, II, and III of the
Farm Credit Act of 1971, as amended (Act), to make long-term
mortgage and short- and intermediate-term production loans to
farmers, ranchers, aquatic producers or harvesters, and, in the case
of banks for cooperatives, to eligible cooperative associations. See
12 U.S.C. 2001 et seq.
---------------------------------------------------------------------------
On May 18, 2010, the FCA published a Notice of Proposed Rulemaking
(NPRM) to amend FCA regulations governing purchase and sale of
interests in loans (75 FR 27660). The proposed rule would allow System
institutions to purchase certain agricultural or cooperative loans of
failed commercial
[[Page 30247]]
banks from the FDIC. The FCA initially established a 60-day comment
period but, on the request of the public, reopened the comment period
for another 30 days (75 FR 56487, Sept. 16, 2010).\2\
---------------------------------------------------------------------------
\2\ The reopened comment period for the proposed rule closed on
October 18, 2010.
---------------------------------------------------------------------------
After reviewing the comments, the FCA is adopting this final rule
with two changes from the proposed rule. First, the FCA originally
proposed a due diligence process in which a System institution would
conduct a preliminary review of loans for eligibility prior to
purchase, conduct a more thorough due diligence review after purchase,
and divest ineligible loans. In response to the comments, FCA now
modifies the final rule to eliminate the two-tiered due diligence
process and to authorize only the purchase of agricultural loans that
are eligible for System financing. Second, in response to comments
concerning the need for the rule and those raising concerns on the
safety and soundness of acquiring failed bank loans and out-of-
territory loans, the final rule requires System institutions to provide
information on loans made under authority of this section to FCA in the
Reports of Condition and Performance.
II. Purpose of the Rule
FCA regulations currently provide that a System institution may not
purchase an interest in a loan from a non-System institution except for
the purpose of pooling and securitizing loans to sell to the Federal
Agricultural Mortgage Corporation unless the interest is a
participation interest.\3\ As a result, System institutions are not
currently authorized to buy loans from the FDIC. However, the Farm
Credit Act of 1971, as amended (Act), does not prohibit System
institutions from purchasing eligible loans from the FDIC. This rule
will allow System institutions, directly or in partnership with other
market participants, to purchase loans of failed banks from the FDIC
acting as receiver or in any other capacity, when those loans meet
eligibility and scope of financing requirements under titles I, II and
III of the Act. System institutions will be able to provide a source of
credit and liquidity to borrowers whose operations are financed with
System eligible agricultural or cooperative loans affected by
commercial bank failures.
---------------------------------------------------------------------------
\3\ 12 CFR 614.4325(b).
---------------------------------------------------------------------------
III. Discussion of Comments
We received approximately 94 comment letters from commercial banks
and their trade groups, the Farm Credit Council, a few System
institutions and individuals. All non-System entities opposed the
proposed rule while the System entities supported it. The Independent
Community Bankers of America (ICBA) submitted a comment letter dated
October 18, 2010, in which it discusses the results of a survey it
conducted of over 2000 agricultural banks to determine their opinions
on the proposed rule. We treat the ICBA's summary of the results of its
survey and all discussion of it as a comment of the ICBA. We discuss
all relevant comments to our proposed rule and our responses below.
Those areas of the proposed rule not receiving comment are finalized as
proposed unless otherwise discussed in this preamble.
A. Legal Authority for the Rule
Most of the non-System commenters objected that the rule gives
System institutions authority beyond that granted by Congress and
expands the Farm Credit mission beyond the intent of the Act. These
commenters contend that the Act expressly identifies the limited
authority of System institutions to buy, sell and participate in non-
System loans. They opine that the FDIC is comparable to a non-System
lender and that Federal law does not grant authority to System
institutions to purchase loans from non-System lenders. They object
that ineligible loans that are distressed would remain in the FCS and
borrowers could get the benefit of borrower rights. They state that by
providing restructuring to ineligible distressed loans and financial
services to ineligible borrowers, the FCA contravenes the Act. A few
commenters contend that the FCA is suggesting that all powers not
denied by Congress are therefore granted by Congress, and that this is
disingenuous because obviously Congress cannot foresee all potential
lending activities.
Several System institutions commented that the FCA should authorize
System institutions to purchase loans from FDIC successor banks, to
purchase whole loans from non-System entities whenever it would benefit
rural America, or that the FCA should allow the purchase of interests
in all eligible loans.
FCA response. We do not agree that the proposed rule contravenes
the Act. Section 1.5(5) of the Act gives Farm Credit Banks the
authority to acquire, hold, dispose and otherwise exercise all the
usual incidents of ownership of real and personal property necessary or
convenient to its business,\4\ and section 1.5(15) of the Act gives
Farm Credit Banks authority to buy and sell obligations of, or insured
by the United States or any agency thereof, and to make other
investments as may be authorized under regulation issued by the FCA.\5\
System institutions have the specific authority to make eligible loans,
and to participate in eligible loans with non-System lenders. While
these provisions of the Act do not specifically identify the System's
authority to buy eligible loans from the FDIC, an eventuality not
contemplated by Congress at the time, they do set forth the parameters
of the System's authority upon which the FCA relies in this rule.
---------------------------------------------------------------------------
\4\ See sections 2.2(5) and 2.12(5) of the Act for parallel
authority with respect to Farm Credit associations.
\5\ See sections 2.2(11) and 2.12(17) of the Act for parallel
authority with respect to Farm Credit associations, and section
3.1(5) and (13)(A) of the Act for parallel authorities with respect
to banks for cooperatives.
---------------------------------------------------------------------------
The Supreme Court has held that the business of banking is not
limited to authorized activities specifically identified or enumerated
in a statute.\6\ System institutions may engage in those banking
activities that are necessary to carry out their specific mission.\7\
The System's mission is to make credit available to farmers and
ranchers and their cooperatives, and to provide for an adequate and
flexible flow of money into rural areas, and to meet current and future
rural credit needs.\8\ The System, as a Government-sponsored enterprise
(GSE) for agricultural lending, should have a role in providing credit
to farmers and ranchers and cooperatives and liquidity to rural areas,
by purchasing eligible loans when the FDIC seeks buyers of agricultural
or cooperative loans of a failed bank, consistent with the safe and
sound operation of System business.
---------------------------------------------------------------------------
\6\ See NationsBank of North Carolina, N.A. v. Variable Annuity
Life Insurance Co., 513 U.S. 251 (1995).
\7\ REW Enterprises, Inc. v. Premier Bank, N.A., 49 F.3d 163
(5th Cir. 1995).
\8\ See Preamble, Farm Credit Act of 1971, as amended, 12 U.S.C.
2001 et seq.
---------------------------------------------------------------------------
One non-System commenter contends that the FCA has, in the past,
interpreted the Act to prohibit the proposed action, and that the FCA's
authority to draft regulations does not authorize the FCA to go beyond
the authority that limits the participation, selling and buying of
loans with non-System banks.
The FCA has in the past determined that System institutions may not
purchase whole loans from commercial banks. As the result of bank
failures in rural areas, the FCA has for the first
[[Page 30248]]
time considered the question of whether a System institution may
purchase an otherwise eligible loan from the FDIC, a non-bank, non-
lender, liquidator. It is unlikely that Congress ever considered this
particular authority; however, Congress intended the System to provide
liquidity to rural areas where necessary, and the FCA believes that
allowing System institutions to bid on loans of failed banks--loans
that the System could make outright and could participate in if
originated by commercial banks--furthers that intent.
The FCA does not agree with the comments of the System institutions
that it should broaden the reach of the rule.
B. Eligibility
Non-System commenters object to the provision of the proposed rule
that would allow ineligible loans to remain within the System until
divested. They object that the proposed rule would allow System
institutions to offer financial services to borrowers who are not
eligible under the Act and would offer financial remedies that are
statutorily exclusive to those who meet eligibility requirements. They
conclude that the proposed rule is contrary to statutory intent.
Several commenters state that there should be an outright prohibition
against purchasing ineligible loans, and that if the FCA cannot assure
that loans purchased are within the legal requirements for System
institutions, then FCA has no business making such a proposal. Many
commenters object that the proposed rule does not set forth a required
timeline for divesting illegal loans, and several commenters suggest
that System institutions with ineligible loans should be subject to
penalties.
One commenter states that the Act and existing regulations plainly
identify loan eligibility, carefully keeping with the limited purposes
Congress intended. This commenter states that under the proposed rule
the ineligible loan, one not related to the mission of the Act and its
congressionally defined mission or one in which the borrower does not
acquire voting stock, would remain within the System until divested.
Several commenters stated that the result of the rule would be that the
System institutions would hold all manner of loans not related to
farming and agriculture. One commenter states that if a loan is
ineligible due to borrower status or loan type then that is the end of
the analysis, and the FCS institution is not authorized to provide
financial services. The commenter concludes that financing that is
ineligible based on loan type or membership cannot be made eligible by
being identified as distressed. The commenter further opines that a
System institution cannot expeditiously divest of ineligible distressed
loans in which it has provided restructuring financing, because the
restructuring process takes time. One System institution commented that
requiring a second due diligence review after loan purchase and
divestiture will result in a substantial discount in the bid amount.
FCA response. We agree with commenters that System institutions do
not have authority to purchase ineligible loans. Therefore, we are
changing Sec. 614.4325(b)(3)(i) of the final rule to require
participating System institutions to determine eligibility of the loans
or loan pools up front, before purchase. If a determination of
eligibility cannot be made, then the System institution may not
purchase the loan or loan pool under the rule. Because eligibility must
be determined before purchasing the loan, there is no need to require
divestiture of these loans except if the borrower does not elect to
acquire voting stock, and Sec. 614.4325(b)(3)(v) is modified
accordingly.
This rule requires System institutions to establish a program
offering each eligible borrower of a purchased loan the opportunity to
acquire voting stock. We expect System institutions to have a fair and
equitable program in place to make membership available to all
interested borrowers. We anticipate that pursuant to such a program all
borrowers will choose to become members. If, however, a borrower
chooses not to acquire voting stock, the borrower will not be entitled
to borrower rights under this rule, and Sec. 614.4325(b)(3)(iv) is
modified accordingly.
C. Need for the Rule
The ICBA comments that when loans are available for bidding, the
competition in the bidding process is adequate to aggressive. It
comments that there is robust competition among community banks for
credit-seeking customers. Several commenters state that the rule allows
System institutions to leverage high capital levels to spur new growth
at the expense of private sector lenders. Many non-System commenters
state that they are not aware of a lack of buyers of loans or loan
pools from the FDIC after bank failures. They state that there are
plenty of bidders on good quality loans. They comment that System
institutions are not needed in the bidding process as there is no lack
of commercial and community bank buyers for loans sold by FDIC. One
commenter states that System institutions rarely reach out to help with
loans that have material weakness. This commenter states that System
institutions cherry pick the best loans from the community and that if
the System needs loans it should reach out to farmers who need cheap
credit but do not qualify for bank loans.
FCA response. The rule does not authorize System institutions to
bid on loans or pools of loans that include loans not eligible for
direct lending. The FDIC decides how to package loan assets for sale,
and if the FDIC decides that the most cost effective and efficient way
to sell loans is to create a pool of agricultural loans eligible for
System financing, then System institutions will be able to bid on those
pools. As mentioned above, if a determination of eligibility cannot be
made, then the System institution is not authorized by this rule to
purchase the loan or loan pool. This helps assure that the System
institutions will only enter the FDIC auction market based on need. If
there are enough non-System banks to bid on loans at auction, the FDIC
is unlikely to go to the trouble and expense of packaging System
eligible loans. The FDIC will have the incentive to limit the pool to
loans eligible for purchase by Farm Credit institutions only if there
is not an available market to buy agricultural loans.
D. Unfair Competition
Some non-System commenters opine that the rule allows System
institutions to shop for high quality loans, including ineligible
loans, while ignoring marginal credits. Many non-System commenters
assert that the rule allows System institutions to use their GSE status
and tax advantages to undercut the bidding of community banks in the
FDIC auction process.
Many non-System commenters assert that because community banks have
paid premiums to the Deposit Insurance Fund to enable the FDIC to
resolve failed FDIC-insured banks, it would be unfair to allow non-
paying FCS institutions to compete in bidding on loans of failed banks.
They state that the rule allows the System to leverage its GSE status,
and the fact that the System does not pay premiums into the Deposit
Insurance Fund results in a gross unfairness to community banks.
FCA response. The final rule does not authorize System institutions
to purchase loans ineligible for financing. System institutions are
exercising their authority to support agriculture by bidding on
agricultural loans where there is a need, consistent with their
mission. Further, to the extent the System institutions are able to
[[Page 30249]]
participate in the bidding process, they are increasing the return to
the FDIC on failed bank assets, thereby providing additional support to
the insurance fund. The result is a benefit to FDIC-insured banks.
E. Out of Territory Loans and Safety and Soundness
Many non-System commenters question why FCA would propose a rule
that would allow a System institution to purchase pools of loans
without first obtaining the prior consent of the System institution in
whose lending territory the borrower's agricultural operation is wholly
or partially located. Many commenters state that this practice is not
consistent with cooperative principles or a cooperative system and that
out-of-territory loan purchases would pose safety and soundness issues
for FCS lenders bidding on loans in territories with which the lenders
are unfamiliar.
One commenter states that the rule allows System institutions to
hold more than the usual volume of extra territorial loans and that
capital that should be reserved to finance farming and agriculture
within a territory would be diverted to purchase loans outside of the
territory, some of which would be distressed and not related to
farming, resulting in a loss of available capital in the district. The
commenter stated that System institutions will expend resources to
manage loans far outside their districts, resulting in added economic
risks associated with the purchase of loans from failed banks. One
commenter states that it appears the FCA is willing to allow System
institutions to engage in significant risks in the quality of loans
purchased just so they can achieve greater growth.
FCA response. The System is not the lender of last resort and
therefore not required to fund loans that are not creditworthy or would
pose considerable risk to the safety and soundness of the institution.
On the other hand, the System, as a GSE, does have a mission
responsibility to provide credit to rural areas where needed so long as
the institution remains safe and sound. As such, the bidding System
institution should consider the overall credit quality of the loan pool
recognizing that the loans in the pool will have varying degrees of
individual loan quality.
As a practical matter the chartered territory of the System
institution located closest to the failed commercial bank would never
be exactly in line with the headquarters of the eligible agricultural
borrowers of the failed bank. It would be impractical for the FDIC to
package loans by FCS territory. The rule requires the purchasing System
institution to notify the System institutions in whose lending
territory the borrowers' headquarters are wholly or partially located
to alert them to the purchase and, as noted in the preamble to the
proposal, consider partnering with that institution if the purchasing
institution cannot adequately service a purchased loan located outside
of its chartered territory. However, System institutions must comply
with Sec. 614.4070 if a new loan is subsequently made to the borrower.
To address safety and soundness concerns, we have added to the
final rule a provision requiring System institutions to provide
information on loans purchased under authority of this section in the
Reports of Condition and Performance. This allows the FCA to monitor
loans acquired through this program to make adjustments as necessary if
safety and soundness issues arise.
F. Comments Requesting FCA Expand FCS Institutions' Authority
Several System commenters stated that the FCA should allow FCS
institutions to purchase whole loans from FDIC successor banks and from
non-System entities whenever it would benefit rural America. Many non-
System commenters objected to an extension of the rule to successor
banks.
The rule is intended to provide liquidity to areas in need of
credit incident to a bank failure. The FCA does not intend to extend
the rule beyond the purchase of loans directly from the FDIC either in
its receivership or corporate capacity.
IV. Section-by-Section Analysis
A. Section 614.4070(d)
This section is finalized as proposed.
B. Section 614.4325(b)(3)
This section is finalized as proposed. See discussion on authority
above.
C. Section 614.4325(b)(3)(i)
In response to the comments, and for the reasons discussed above,
this section authorizes System institutions to purchase loans from the
FDIC, but now requires participating System institutions to conduct
thorough due diligence prior to purchase.
D. Section 614.4325(b)(3)(ii)
This section is finalized as proposed.
E. Section 614.4325(b)(3)(iii)
This section is finalized as proposed.
F. Section 614.4325(b)(3)(iv)
Commenters object to this section because it could result in
allowing borrowers of distressed ineligible loans certain borrower
rights. In response to the comments, the FCA has modified the rule to
authorize purchase of only eligible loans. Therefore, only borrowers of
eligible loans will be afforded borrower rights under this section.
This section is finalized as proposed.
G. Section 614.4325(b)(3)(v)
In response to the comments, the FCA has modified the rule to
authorize only the purchase of eligible loans. Therefore, a provision
addressing divestiture of ineligible loans is unnecessary. This section
is modified from the proposed rule accordingly.
H. Section 614.4325(b)(3)(vi)
To ensure adequate oversight and disclosure of loans purchased
under this section, we adopt a new paragraph (vi), which provides that
each System institution shall include information on loans purchased
under authority of this section in the Reports of Condition and
Performance required under Sec. 621.12 of this chapter, in the format
prescribed by FCA reporting instructions.
FCA makes System ``call report'' data publicly available through
its Web site at https://www.fca.gov. Under Sec. 621.13(a) of this
chapter, System institutions must prepare Reports of Condition and
Performance in accordance with FCA instructions.
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 final 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 614
Agriculture, Banks, Banking, Foreign trade, Reporting and
recordkeeping requirements, Rural areas.
Accordingly, for the reasons stated in the preamble, part 614 of
chapter VI, title 12 of the Code of Federal Regulations, is amended as
follows:
[[Page 30250]]
PART 614--LOAN POLICIES AND OPERATIONS
0
1. The authority citation for part 614 continues to read as follows:
Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs.
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12,
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A,
4.13B, 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 B--Chartered Territories
0
2. Amend Sec. 614.4070 by adding a new paragraph (d) to read as
follows:
Sec. 614.4070 Loans and chartered territory--Farm Credit Banks,
agricultural credit banks, Federal land bank associations, Federal land
credit associations, production credit associations, and agricultural
credit associations.
* * * * *
(d) A bank or association chartered under title I or II of the Act
may finance eligible borrower operations conducted wholly or partially
outside its chartered territory through the purchase of loans from the
Federal Deposit Insurance Corporation in compliance with Sec.
614.4325(b)(3), provided:
(1) Notice is given to the Farm Credit System institution(s)
chartered to serve the territory where the headquarters of the
borrower's operation being financed is located; and
(2) After loan purchase, additional financing of eligible borrower
operations complies with paragraphs (a), (b), and (c) of this section.
Subpart H--Loan Purchases and Sales
0
3. Amend Sec. 614.4325 by revising paragraph (b) to read as follows:
Sec. 614.4325 Purchase and sale of interests in loans.
* * * * *
(b) Authority to purchase and sell interests in loans. Loans and
interests in loans may only be sold in accordance with each
institution's lending authorities, as set forth in subpart A of this
part. No Farm Credit System institution may purchase any interest in a
loan from an institution that is not a Farm Credit System institution,
except:
(1) For the purpose of pooling and securitizing such loans under
title VIII of the Act;
(2) Purchases of a participation interest that qualifies under the
institution's lending authority, as set forth in subpart A of this
part, and meets the requirements of Sec. 614.4330 of this subpart;
(3) Loans purchased from the Federal Deposit Insurance Corporation,
provided that the Farm Credit System institution with direct lending
authority under title I, II or III of the Act:
(i) Conducts a thorough due diligence prior to purchase to ensure
that the loan, or pool of loans, qualifies under the institution's
lending authority as set forth in subpart A of this part, and meets
scope of financing and eligibility requirements in subpart A or subpart
B of part 613;
(ii) Obtains funding bank approval if a Farm Credit System
association purchases loans or pools of loans that exceed 10 percent of
total its capital;
(iii) Establishes a program whereby each eligible borrower of the
loan purchased is offered an opportunity to acquire the institution's
required minimum amount of voting stock;
(iv) Determines whether each loan purchased, except for loans
purchased that could be financed only by a bank for cooperatives under
title III of the Act, is a distressed loan as defined in Sec.
617.7000, and provides borrowers of purchased loans who acquire voting
stock the rights afforded in Sec. 617.7000, subparts A, and D through
G if the loan is distressed; and
(v) Divests eligible purchased loans when the borrowers elect not
to acquire stock under the program offered in paragraph (b)(3)(iii) of
this section in the same manner it would divest loans under its current
business practices.
(vi) Includes information on loans purchased under authority of
this section in the Reports of Condition and Performance required under
Sec. 621.12 of this chapter, in the format prescribed by FCA reporting
instructions.
* * * * *
Date: May 19, 2011.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2011-12785 Filed 5-24-11; 8:45 am]
BILLING CODE 6705-01-P