96-9700. Policy Statement Concerning Stand-Alone Assistance

[Federal Register Volume 61, Number 77 (Friday, April 19, 1996)]
[Notices]
[Pages 17299-17300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9700]



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FARM CREDIT SYSTEM INSURANCE CORPORATION

[BM-28-MAR-96-02]


Policy Statement Concerning Stand-Alone Assistance

AGENCY: Farm Credit System Insurance Corporation.

ACTION: Policy statement.

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SUMMARY: The Farm Credit System Insurance Corporation (Corporation) 
announces that it is publishing a new Policy Statement Concerning 
Stand-Alone Assistance. This policy statement establishes the 
circumstances under which financial assistance will be considered for 
an insured bank. It conforms to the provisions of the Farm Credit 
System Reform Act of 1996 (Pub. L. 104-105, 110 Stat. 162 (Feb. 10, 
1996)) amending section 5.61 of the Farm Credit Act of 1971; 12 U.S.C. 
2277a-10.

EFFECTIVE DATE: March 28, 1996.

FOR FURTHER INFORMATION CONTACT: Dorothy L. Nichols, General Counsel, 
Farm Credit System Insurance Corporation, 1501 Farm Credit Drive, 
McLean, Virginia 22102, [phone], TDD [phone].

SUPPLEMENTARY INFORMATION: The text of the Corporation's policy 
statement concerning stand-alone assistance is set forth below in its 
entirety:

Policy Statement Concerning Stand-Alone Assistance

    Effective Date: March 28, 1996.
    Effect on Previous Action: Revises Policy Statement Concerning 
Financial Assistance to Operating Insured Banks, No. BM-27-APR-93-02.
    Source of Authority: Section 5.61 of the Farm Credit Act of 1971, 
as Amended (the Act); 12 U.S.C. 2277a-10.
    Whereas, under section 5.61 of the Act, the Farm Credit System 
Insurance Corporation (Corporation) may provide financial assistance to 
insured banks:\1\ (1) To prevent the placing of the bank in 
receivership or to assist a bank in danger of being placed in 
receivership, or (2) when severe financial conditions exist that 
threaten the stability of a significant number of insured System banks 
or of insured System banks possessing significant financial resources, 
to lessen the risk to the Corporation posed by insured System banks 
under such threat of instability.
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    \1\ As used in section 5.61, the terms ``insured System bank'' 
and ``bank'' include Production Credit Associations and other 
Associations making direct loans under the authority provided under 
section 7.6 of the Farm Credit Act of 1971, as amended.
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    Therefore, the Farm Credit System Insurance Corporation's Board of 
Directors (Board) adopts the following policy statement:
    In order for the Corporation to provide assistance to any insured 
bank, the Corporation's Board of Directors must determine that 
providing assistance is the least costly means of all possible 
alternatives available to the Corporation, including liquidation of the 
bank (including paying the insured obligations issued on behalf of the 
bank), or assistance pursuant to a merger of the insured bank with one 
or more System institutions. Before making a least-cost determination 
the Corporation shall accord such other insured System banks as the 
Corporation determines to be appropriate the opportunity to submit 
information relating to the determination.
    In determining the least costly alternative the Corporation shall:
    1. Evaluate alternatives on a present-value basis, using a 
reasonable discount rate;
    2. Document the evaluation and the assumptions on which the 
evaluation is based; and
    3. Retain the documentation for not less than 5 years.
    An estimate of the costs of providing any assistance to any insured 
System bank shall be made within thirty days prior to the date on which 
the

[[Page 17300]]

Corporation makes the determination to provide the assistance to the 
institution under this section, and the least cost determination shall 
be made as of the date on which the Corporation intends to provide 
assistance to the institution.
    The determination of the costs of liquidation of any insured System 
bank shall be made as of the earliest of:
    1. The date on which a conservator is appointed for the insured 
System bank;
    2. The date on which a receiver is appointed for the insured System 
bank; or
    3. The date on which the Corporation makes any determination to 
provide assistance under this section with respect to the insured 
System bank.
    Assistance to operating insured banks may be provided directly to 
the troubled bank, or to another insured bank qualified to merge with 
or acquire the failing bank.
    The Corporation believes that proposals for assistance to operating 
insured banks under section 5.61 of the Act should be reviewed by the 
Corporation utilizing the following criteria:
    1. The proposal must reasonably anticipate the viability of the 
recipient, including provisions for the attainment of an adequate level 
of capitalization within a reasonable period of time.
    2. The proposal should provide for the eventual repayment of the 
assistance.
    3. The proposal must provide for adequate managerial resources, and 
the Corporation's approval of business plans. The continued service of 
any director or senior officer serving the assisted institution in a 
policymaking role, as determined by the Corporation, will be subject to 
approval of the Corporation. In addition, compensation arrangements 
covering directors and senior officers must be approved by the 
Corporation.
    4. The Corporation will consider on a case-by-case basis the nature 
of the financial assistance requested. Generally, assistance proposals 
should not anticipate the acquisition and servicing of assets from the 
assisted institution by the Corporation.
    5. Fee arrangements with attorneys, accountants, consultants, and 
other parties incident to requests for financial assistance must be 
disclosed to the Corporation. Excessive fees are unnecessary and must 
be avoided; fee arrangements will be considered in evaluating the cost 
of the assistance request.
    6. The Corporation retains the option of evaluating the assistance 
proposal within the context of a competitive bidding process and will 
consider soliciting interest from qualified acquirers.
    7. An institution seeking operating institution assistance must 
consent to unrestricted on-site due diligence review by any potential 
acquirer that is determined by the Corporation to be qualified after 
consultation with the Farm Credit Administration.
    8. The proposal must contain quantifiable limits on all financial 
items in the request.
    9. The Corporation will evaluate the potential financial effect of 
the proposal on shareholders, uninsured creditors and the financial 
markets.
    As provided in Section 5.61(a)(3)(E), any determination the 
Corporation makes under this policy shall be in the sole discretion of 
the Corporation.
    Adopted this 28th day of March, 1996 by order of the Corporation 
Board.

    Dated: April 15, 1996.
Floyd Fithian,
Secretary to the Board, Farm Credit System Insurance Corporation.
[FR Doc. 96-9700 Filed 4-18-96; 8:45 am]
BILLING CODE 6710-01-P