96-10988. Policy Statement on Association Structure

[Federal Register Volume 61, Number 87 (Friday, May 3, 1996)]
[Notices]
[Pages 19938-19939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10988]



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FARM CREDIT ADMINISTRATION

[BM-23-APR-96-02]


Policy Statement on Association Structure

AGENCY: Farm Credit Administration.

ACTION: Policy statement.

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SUMMARY: Section 7.8 of the Farm Credit Act of 1971, as amended, 
provides the Farm Credit Administration (FCA) with the authority to 
approve mergers of unlike associations. With limited exceptions, the 
FCA has not allowed unlike association mergers unless the territories 
of the merging entities have been the same. The FCA Board will now 
consider merger requests from unlike associations whose territories are 
not the same when such mergers promote efficiencies and improve 
services to borrowers, provided the resulting institutions are 
financially viable and any adverse impact on other Farm Credit System 
institutions is minimal. The FCA Board Policy Statement on Association 
Structure describes the criteria it will consider when acting on such 
merger requests. However, nothing in the Policy Statement limits the 
FCA Board's discretion with respect to charter requests.

EFFECTIVE DATE: April 23, 1996.

FOR FURTHER INFORMATION CONTACT: Elna J. Luopa, Chief, Corporate 
Affairs Division, Office of Special Supervision and Corporate Affairs, 
[phone]; or Victor A. Cohen, Associate General Counsel, 
Regulatory Enforcement Division, Office of General Counsel, Farm Credit 
Administration, 1501 Farm Credit Drive, McLean Virginia 22102-5090, 
[phone], TDD [phone].

SUPPLEMENTARY INFORMATION: The text of the Board's policy statement on 
association structure is set forth below in its entirety:

Farm Credit Administration Board Policy Statement on Association 
Structure, BM-23-APR-96-02, FCA-PS-70

    Effective Date: April 23, 1996.
    Effect on Previous Action: Supersedes FCA-PS-27 [BM-21-NOV-88-02] 
and FCA-PS-30 [BM-06-JAN-89-07].
    Source of Authority: Sections 5.17, 7.8, and 7.11 of the Farm 
Credit Act of 1971, as amended.
    In the interest of providing the highest quality and most efficient 
service to agricultural borrowers, the Farm Credit Administration (FCA) 
encourages Farm Credit System (System) institutions to select 
structural options that are most conducive to that goal. The FCA Board 
will favor charter requests that promote such efficiency, provided they 
result in viable financial institutions and any adverse effect on other 
System institutions is minimal.
    The FCA believes that agricultural credit associations (ACAs), 
formed pursuant to section 7.8(a) of the Farm Credit Act of l971, as 
amended, can promote such efficiency because of their ability to offer 
a broad array of services to borrowers. However, when the chartered 
territories of the merging associations are not identical, the FCA must 
determine whether to disapprove the merger application or to charter an 
ACA with (1) Full lending authority throughout its territory, resulting 
in competition with one or more adjoining associations; or (2) 
different lending authorities in different parts of its territory 
(bifurcated charter) with exclusive lending authorities in the common 
territory. Except for several ACAs formed as a result of section 411 of 
the Agricultural Credit Act of l987, the FCA generally has denied 
charter requests for the merger of unlike associations when the 
boundaries of the merging entities were not the same. These actions 
were taken to protect exclusive charters, to discourage intra-System 
competition, and to prevent the administrative difficulties caused by 
bifurcated charters. The FCA Board prefers charters that authorize a 
full range of services throughout an ACA's

[[Page 19939]]

territory. However, the FCA recognizes that permitting only exclusive, 
full-service ACA charters would limit the potential for achieving 
additional structural efficiencies at the association level when 
voluntary realignment cannot be achieved.
    Consequently, the FCA Board has determined that, in acting on ACA 
charter requests, it will attempt to strike an appropriate balance 
between the efficiencies gained from the merger and any potential 
adverse impact the requested charter may have on borrowers, other 
associations, and the System. While the Board prefers that the affected 
associations resolve their territorial issues to permit the chartering 
of non-overlapping, full-service ACAs, the Board will not rule out 
granting a permanent, full-service charter that overlaps another 
association's territory if the adverse effect caused by any resulting 
competition is minimal, especially when the affected association 
board(s) consents. Any institution whose charter would be affected by 
such a merger request would have the opportunity to comment on the 
request. Should a nonexclusive charter be issued, the FCA Board would 
consider an application from an affected association(s) to convert to 
an ACA or for some other reasonable alternative. In addition, the Board 
may approve a request for a bifurcated charter when administrative 
difficulties are outweighed by the benefits to be derived. However, 
since the Board believes a bifurcated charter should be an interim step 
to a full-service ACA, it encourages the newly formed ACA and the 
affected association(s) to continue to work toward territorial 
realignment and full-service, non-overlapping ACAs..
    Nothing in this policy statement shall limit the Board's discretion 
with respect to charter requests. Each request will be considered on 
its individual merits. In exercising its discretion, the Board will 
consider the following factors and any other factors the Board 
determines relevant at the time of the request.
    1. Projected operating efficiencies to be realized as a result of 
the merger.
    2. Projected improvements in the quality and range of services to 
be offered borrowers.
    3. Potential for adverse financial consequences on other 
associations because of any competition that will result, and whether 
the affected association board(s) consents to the competition.
    4. The effects of other alternatives that may be requested by 
either the merging constituents or any affected association(s).
    This policy statement supersedes the November 221, 1988 FCA Board 
Policy Statement on Granting Nonexclusive Charters to Associations and 
the January 6, l989 FCA Board Policy Statement on Section 411 Mergers 
Resulting in Nonexclusive Charters.

    Adopted this 23rd day of April, 1996 by order of the Board.

    Dated: April 29, 1996.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 96-10988 Filed 5-2-96; 8:45 am]
BILLING CODE 6705-01-P