[Federal Register Volume 64, Number 152 (Monday, August 9, 1999)]
[Rules and Regulations]
[Pages 43046-43049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20323]
[[Page 43046]]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 612, 614 and 618
RIN 3052-AB85
Standards of Conduct; Loan Policies and Operations; General
Provisions; Regulatory Burden
AGENCY: Farm Credit Administration (FCA).
ACTION: Direct final rule with opportunity to comment.
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SUMMARY: This direct final rule reduces regulatory burden on the Farm
Credit System (FCS or System) by repealing or amending 16 regulations.
These revisions provide System banks and associations with greater
flexibility concerning loan sales, agricultural secondary market
activities, loans to insiders, letters of credit, information programs,
travel expenses, and disclosing borrower information during litigation.
DATES: Unless we receive significant adverse comment by September 8,
1999, these regulations 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 notice of the effective date in the Federal
Register. If we receive significant adverse comment on an amendment,
paragraph, or section of this rule, and that provision may be addressed
separately from the remainder of the rule, we will withdrawal that
amendment, paragraph, or section and adopt as final those provisions of
the rule that are not the subject of a significant adverse comment. In
such a case, we would then tell you how we expect to continue with
further rulemaking on the provisions that were the subject of
significant adverse comment.
ADDDRESSES: You may send comments by electronic mail to ``comm@fca.gov'' or through the Pending Regulations section of our
website at ``www.fca.gov.'' You may also mail or deliver written
comments to Patricia W. DiMuzio, Director, Regulation and Policy
Division, Office of Policy and Analysis, Farm Credit Administration,
1501 Farm Credit Drive, McLean, Virginia 22102-5090 or fax them to
(703) 734-5784. You may review copies of all communications that we
receive in the Office of Policy and Analysis, Farm Credit
Administration.
FOR FURTHER INFORMATION CONTACT:
Eric Howard, Senior Policy Analyst, or Dale Aultman, Policy Analyst,
Office of Policy and Analysis, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4498, TDD (703) 883-4444,
or
Richard A. Katz, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
I. Background
On August 18, 1998, we published a notice in the Federal Register
that invited you to identify existing regulations and policies that
impose unnecessary burdens on the FCS. See 63 FR 44176 (Aug. 18,
1998).\1\ We specifically asked you to focus on those regulations and
policies that are ineffective, duplicate other governmental
requirements, or impose burdens that are greater than the benefits
received. We took this action in our continuing effort to improve the
regulatory environment so the System can better serve farmers and
ranchers.
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\1\ On November 18, 1998, we extended the comment period to
January 19, 1999. See 63 FR 64013 (Nov. 18, 1998).
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We received 30 responses. Of this total, 20 comment letters came
from Farm Credit associations. Six Farm Credit banks sent us seven
comment letters. The Farm Credit Council (FCC) commented on behalf of
its membership. We also received responses from the Federal Farm Credit
Banks Funding Corporation and the Federal Agricultural Mortgage
Corporation (Farmer Mac).
In this first phase of our effort to reduce regulatory burden on
the FCS, we are repealing or revising 16 regulations. These regulations
govern:
Loan sales by agricultural credit banks (ACBs);
Subordinated participation interests in Farmer Mac loan
pools;
Loans to institution-affiliated parties;
Letters of credit that finance international trade;
Informational programs at FCS institutions;
Purchases and sales of personal property;
Travel and subsistence expenses for directors, officers,
and employees; and
Disclosure of confidential information in litigation.
We plan to respond to your other concerns in future phases of this
project, and currently, we are analyzing all the issues that you
raised.
II. Analysis of Changes and Comments by Section
A. Sale of Interests in Loans by ACBs
We are correcting Sec. 614.4010(f)(1) so it accurately reflects the
statutory authority of ACBs to sell interests in loans. The amended
regulations confirm that ACBs may sell interests in the type of long-
term real estate mortgages that they can make under section 1.7(a) of
the Farm Credit Act of 1971, as amended (Act), to:
System banks and associations that have authority to
purchase such interests;
Non-System lenders; and
Certified agricultural mortgage marketing facilities for
Farmer Mac.
We emphasize that revised Sec. 614.4010(f)(1) also permits ACBs to
sell interests in long-term mortgages that they purchase from other
System lenders. Section 3.1(13)(B) of the Act and amended
Sec. 614.4010(f)(1) allow ACBs to sell interests in cooperative, rural
utility, and international loans only to other Farm Credit banks and
associations that have authority to purchase such loan interests.
B. Subordinated Participation Interests in Farmer Mac Pools
We are repealing five separate regulatory provisions
(Secs. 614.4000(e)(4), 614.4010(f)(4), 614.4030(c)(4), 614.4040(c)(4),
and 614.4050(d)(4)) that authorize Farm Credit banks and associations
to purchase subordinated participation interests in pools of loans that
are sold into the Farmer Mac secondary market. The existing regulations
carry out provisions of title VIII of the Act that Congress repealed in
1996.\2\ Prior to 1996, title VIII of the Act required Farm Credit
banks and associations to pledge cash reserves or hold subordinated
participation interests in loans that they pooled and securitized for
Farmer Mac. As amended, title VIII of the Act now permits, but no
longer requires, Farm Credit banks and associations to retain
subordinated participation interests in Farmer Mac pools. With the
removal of these regulations, we will continue to review policy as well
as safety and soundness issues related to subordinated participation
interests in Farmer Mac loan pools.
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\2\ Farm Credit System Reform Act of 1996; Pub. L. No. 104-105,
110 Stat. 162 (Feb. 10, 1996).
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C. Loan Approvals
We received 11 comments about Secs. 614.4460 and 614.4470, which
govern loans to insiders. Although the Agricultural Credit Technical
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Corrections Act of 1988 \3\ abolished the district boards,
Sec. 614.4460 refers to the defunct boards. Under this regulation,
district boards were required to approve loans that System banks make
to:
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\3\ Pub. L. 100-399, 102 Stat. 1003 (Aug. 17, 1988).
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Their directors and employees; and
FCA Board members and staff.
Currently, Sec. 614.4470 requires Farm Credit banks to approve
loans that their affiliated associations make to:
The association's own directors and employees;
Directors and employees of a jointly managed association;
or
Bank employees.
System banks and associations asked us to update Sec. 614.4460 and
repeal the bank approval requirement in Sec. 614.4470. These commenters
believe that our regulations should only apply to large insider loans.
We respond by replacing Secs. 614.4460 and 614.4470 with a single
regulation. Final Sec. 614.4460 requires your board to approve all
loans to:
Certain FCA and Farm Credit System Insurance Corporation
(FCSIC) employees who are permitted to borrow from your institution
under our Supplemental Standards of Ethical Conduct regulations at 5
CFR parts 4101 and 4001, respectively; \4\
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\4\ The new regulation explicitly refers to the Supplemental
Standards of Ethical Conduct regulations that the FCA and FCSIC
Boards enacted in 1995. See 60 FR 30781 (June 12, 1995). Those
regulations specifically prohibit most FCA and FCSIC employees from
borrowing from System institutions. For example, FCA and FCSIC Board
members, examiners, procurement personnel, and all employees over a
certain civil service grade level cannot legally borrow from Farm
Credit banks and associations.
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Your directors and employees;
The directors and employees of another System bank or
association that is under a joint management agreement with your
institution;
The directors and employees of your association's funding
bank; and
A cooperative or other legal entity if any of its
directors, partners, or employees are also members of your board of
directors.
Your board must also approve loans to other borrowers if any of
these parties has a substantial beneficial interest in the proceeds or
collateral of the loan.
When you extend credit to insiders you must comply with the
Standards of Conduct regulations in part 612, the Disclosure
regulations in part 621, and your board's policies. We also require
your institution to document all material facts about your credit
relationships with any of these parties and make it available, on
request, to the FCA's Office of Examination and to the appropriate
officials of your funding bank.
The final regulation repeals the requirement that bank boards
approve loans that their affiliated associations make to insiders. Our
new approach retains adequate controls on loans that Farm Credit banks
and associations make to their directors and employees. Currently, the
boards of Farm Credit banks approve loans to insiders. Under the new
regulation, boards of associations are similarly responsible for
approving loans to their insiders.
The commenters suggested that our regulation should require System
boards to approve only insider loans that are above a minimum amount
established by the institution's policy. We did not adopt this approach
because board approval of all insider loans provides the most
independent and objective approval process for such loans at each bank
or association. Board approval also avoids the appearance of misconduct
and impropriety. Board approval of even small insider loans is
appropriate and reassures customers, shareholders, and investors that
the System boards exercise diligence and independent judgment when they
carry out their duties and obligations. Another regulation,
Sec. 612.2140(a), requires directors of Farm Credit banks and
associations to recuse themselves from board deliberations on their own
loans.
We are repealing Sec. 614.4450 on our own initiative. This
regulation originally carried out provisions of the Act that authorized
the FCA to supervise and approve the lending activities of all System
banks and associations.\5\ After the Farm Credit Act of 1985 \6\
repealed this authority and converted the FCA into an arms-length
regulator, we amended Sec. 614.4450 to state that ``authority for loan
approval is vested in the Farm Credit banks and associations.'' This
rule is no longer needed because it neither implements the Act nor
promotes the System's safety and soundness.
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\5\ See 38 FR 27837 (Oct. 9, 1973).
\6\ Pub. L. No. 99-205, 99 Stat. 1678 (Dec. 23, 1985).
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D. Letters of Credit
Existing Sec. 614.4720 allows banks for cooperatives (BCs) and ACBs
to issue and confirm letters of credit that finance international trade
in agricultural commodities and farm supplies. The final provision of
this regulation, Sec. 614.4720(g), requires BCs and ACBs to charge fees
for issuing letters of credit. We repeal it because we believe that
this should be a business decision of BCs and ACBs. We retain all other
provisions of this regulation because we believe they continue to
promote safe and sound international banking practices at BCs and ACBs.
E. Conducting Information Programs
The FCC, one association, and two Farm Credit Banks asked us to
repeal Sec. 618.8210, which requires FCS institutions to maintain
programs that inform farmers and other members of the public about FCS
organization, functions, and services. The commenters believe that our
regulations should not tell System institutions to conduct
informational programs. Instead, they suggested that each System bank
or association address this issue in its operational program. We agree
that business goals provide an effective incentive for System banks and
associations to market their services to potential customers. We repeal
Sec. 618.8210 because it is no longer needed.
F. Purchases and Sales of Personal Property
The FCC, two System banks, and an association want us to repeal
Sec. 618.8250. The commenters remarked that operational programs of
System lenders, not FCA regulations, should govern the purchases and
sales of personal property.
We respond by adjusting the regulatory requirements that apply to
the purchases and sales of personal property by your banks and
associations. One provision of Sec. 618.8250 is obsolete because it
contains a reference to the defunct district boards. Moreover, we agree
that your policies and operational programs, rather than FCA
regulations, should cover all purchases and most sales of personal
property by your bank or association. However, we believe that our
Standards of Conduct regulations in part 612 should continue to govern
the sale of personal property to your directors, officers, or other
employees. Our regulatory requirements in part 612 help your
institution avoid allegations of favoritism or fraud when you sell
personal property to insiders. We rewrote the final sentence of
Sec. 618.8250 in plain language and transferred it to
Sec. 612.2165(b)(7) in the Standards of Conduct section of the
regulations. This provision requires your institution to sell surplus
personal property above a stated value to your employees through open
competitive bidding.
G. Travel, Subsistence, and Other Related Expenses
Four commenters suggested that we repeal Sec. 618.8270. This
regulation requires the boards of FCS banks and associations to develop
written policies,
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keep records, and audit the travel, subsistence, and other related
expenses of their directors, officers, and employees. The commenters
assert that this regulation imposes unnecessary burdens on FCS
institutions. They point out that System banks and associations already
address this issue in their operational plans.
We have decided to repeal Sec. 618.8270 because other regulations
already cover the travel and subsistence expenses of directors,
officers, and employees of your institutions. For example,
Sec. 618.8430 requires your bank or association to establish effective
internal controls over their operations. Additionally, Sec. 611.400
implements section 4.21 of the Act, which governs compensation for the
FCS bank directors. Our examiners will continue to review the travel,
subsistence, and related expenses of System bank directors in the
normal examination process.
H. Production of Documents and Testimony
One Farm Credit bank asked us to amend Sec. 618.8320(b)(7), and two
Farm Credit banks and two associations wanted us to repeal
Sec. 618.8330. These regulations govern the disclosure of documents and
testimony in litigation. Some commenters objected to the cost of hiring
an attorney to contest orders to produce documents or testimony. All
commenters believe that our regulations should not limit their options
on how best to respond to court orders.
We continue to believe that regulations governing the production of
confidential information during litigation are necessary. However, we
revised our regulations to better balance your borrowers' rights to
confidentiality with your need for greater flexibility in disclosing
information during litigation. We combined both provisions into a
single regulation, Sec. 618.8330, and rewrote it in plain language.
Final Sec. 618.8330(a) allows your bank or association to disclose
confidential information about a borrower (or a successor in interest)
if your institution is in litigation with that borrower or his or her
successor. Without this provision, your institution would have no
authority to produce confidential information about a borrower who is
in litigation with you.
Final Sec. 618.8330(b) allows your bank or association to disclose
confidential information under the lawful order of a court if the
Government or your institution is not a party to the litigation. As a
result, you do not automatically have to contest every order to produce
documents or testimony. You may release confidential borrower
information as defined by Sec. 618.8320(a) only if a judge issues the
order. We believe that this requirement is important because the judge
is impartial and can fairly decide whether the litigant needs the
confidential information in your possession.
III. Direct Final Rule
We are revising or repealing these regulations by a direct final
rulemaking. The Administrative Procedure Act, 5 U.S.C. 551-59, et seq.
(APA), supports direct final rulemaking, which is a streamlined
technique for Federal agencies to enact noncontroversial regulations
more quickly, without the usual notice and comment period. This process
enables us to reduce the time and resources we need to develop, review,
clear, and publish a final rule while still affording the public an
opportunity to comment on or object to the rule.
In a direct final rulemaking, we notify you the rule will become
final on a specified future date unless we receive significant adverse
comment during the comment period. If we receive significant adverse
comment on an amendment, paragraph, or section of this rule, and that
provision may be addressed from the remainder of the rule, we will
withdraw that amendment, paragraph, or section and adopt as final those
provisions of the rule that are not the subject of a significant
adverse comment. In such a case, we would then tell you how we expect
to continue with further rulemaking on the provisions that were the
subject of significant adverse comment.
A significant adverse comment is one where a commenter explains why
the rule would be inappropriate (including challenges to its underlying
premise or approach), ineffective, or unacceptable without a change. In
general, a significant adverse comment would raise an issue serious
enough to warrant a substantive response from the agency in a notice-
and-comment rulemaking.
Direct final rulemaking is justified under section 553(b)(B) of the
APA. Section 553(b)(B) is the APA's ``good cause'' exemption that
allows an agency to omit notice and comment on a rule when it finds
``that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' In direct final
rulemaking, the agency finds the rule is straightforward and
noncontroversial to make normal notice and comment unnecessary under
the APA. However, rather than eliminating public comment altogether,
which is permissible under section 553(b)(B), the agency gives the
public an opportunity to rebut the agency's conclusion that public
input on the rule is unnecessary.
We believe that a direct final rulemaking is the proper method for
repealing or revising these regulations that place unnecessary
regulatory burden on FCS institutions. For these reasons, we do not
anticipate significant adverse comment on this rule. If we receive no
significant adverse comment, we will publish our regular notice of the
effective date of the rule following the required Congressional waiting
period under section 5.17(c)(1) of the Act.
List of Subjects
12 CFR Part 612
Agriculture, Banks, banking, Conflict of interests, Rural areas.
12 CFR Part 614
Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 618
Agriculture, Archives and records, Banks, banking, Insurance,
Reporting and recordkeeping requirements, Rural areas, Technical
assistance.
For the reasons stated in the preamble, the Farm Credit
Administration amends parts 612, 614, and 618 of chapter VI, title 12
of the Code of Federal Regulations as follows:
PART 612--STANDARDS OF CONDUCT
1. The authority citation for part 612 continues to read as
follows:
Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12
U.S.C. 2243, 2252, 2254).
2. Amend Sec. 612.2165 by adding the following sentence to the end
of paragraph (b)(7):
Sec. 612.2165 Policies and procedures.
* * * * *
(b) * * *
(7) * * * Farm Credit institutions must use open competitive
bidding whenever they sell surplus property above a stated value (as
established by the board) to their employees.
* * * * *
PART 614--LOAN POLICIES AND OPERATIONS
3. 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,
4.13, 4.13B, 4.14, 4.14A, 4.14C,
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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, 2199, 2201, 2202, 2202a,
2202c, 2202d, 2202e, 2206, 2206a, 2207, 2211, 2212, 2213, 2214,
2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279c-1,
2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101
Stat. 1568, 1639.
Subpart A--Lending Authorities
Sec. 614.4000 [Amended]
4. Remove Sec. 614.4000(e)(4).
5. Amend Sec. 614.4010 by removing paragraph (f)(4) and revising
paragraph (f)(1) to read as follows:
Sec. 614.4010 Agricultural credit banks.
* * * * * *
(f) * * *
(1) Subject to subpart H of this part, agricultural credit banks
may sell interests in real estate mortgage loans identified in
paragraph (a) of this section to Farm Credit System institutions
authorized to purchase such interests, other lenders, and certified
agricultural mortgage marketing facilities for the Federal Agricultural
Mortgage Corporation. Agricultural credit banks may also sell interests
in the types of loans listed in paragraph (d) of this section to other
Farm Credit System institutions that are authorized to purchase such
interests.
* * * * *
Sec. 614.4030 [Amended]
6. Remove Sec. 614.4030(c)(4).
Sec. 614.4040 [Amended]
7. Remove Sec. 614.4040(c)(4).
Sec. 614.4050 [Amended]
8. Remove Sec. 614.4050(d)(4).
9. Revise subpart M to read as follows:
Subpart M--Loan Approval Requirements
Sec. 614.4460 Approval of loans to affiliated parties.
(a) With approval of your board, your bank or association may lend
to the following parties in accordance with part 612 of this chapter
and the policies of your board of directors:
(1) Farm Credit Administration employees permitted to borrow from
your institution under 5 CFR 4101.104;
(2) Farm Credit System Insurance Corporation employees permitted to
borrow from your institution under 5 CFR 4001.104;
(3) Your directors and employees;
(4) The directors or employees of another bank or association under
a joint management agreement with your institution;
(5) The directors or employees of your funding bank if you are an
association;
(6) A cooperative or other legal entity if any of its directors,
partners, or employees are also members of your board of directors; and
(7) Other borrowers if any of the parties identified in this
section are:
(i) Recipients of the loan proceeds;
(ii) Stockholders or other equity owners of the borrower and they
have a significant interest in the loan funds or collateral; or
(iii) Endorsers, guarantors or comakers on the credit.
(b) Your bank or association must document all material facts about
the credit relationship with any of these parties and make the
documentation available, on request, to our Office of Examination and
to the funding bank.
Subpart Q--Banks for Cooperatives and Agricultural Credit Banks
Financing International Trade
Sec. 614.4720 [Amended]
10. Remove Sec. 614.4720(g).
PART 618--GENERAL PROVISIONS
11. The authority citation for part 618 continues to read as
follows:
Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7,
4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act (12
U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183,
2200, 2211, 2218, 2243, 2244, 2252).
Subpart F--Miscellaneous Provisions
Secs. 618.8210-618.8270 [Removed and Reserved]
12. Remove and reserve subpart F, consisting of Secs. 618.8210
through 618.8270.
Subpart G--Releasing Information
Sec. 618.8320 [Amended]
13. Amend Sec. 618.8320 as follows:
a. Remove paragraph (b)(7); and
b. Redesignate paragraphs (b)(8), (b)(9) and (b)(10) as paragraphs
(b)(7), (b)(8), and (b)(9).
14. Revise Sec. 618.8330 to read as follows:
Sec. 618.8330 Production of documents and testimony during litigation.
(a) If your bank or association is a party to litigation with a
borrower or a successor in interest, you or your directors, officers,
or employees may disclose confidential information about that borrower
or the successor in interest during the litigation.
(b) If the Government or your bank or association is not a party to
litigation, you or your directors, officers, or employees may produce
confidential documents or testimony only if a court of competent
jurisdiction issues a lawful order signed by a judge.
Dated: August 2, 1999.
Vivian L. Portis,
Secretary, Farm Credit Administration Board.
[FR Doc. 99-20323 Filed 8-6-99; 8:45 am]
BILLING CODE 6705-01-P
