12 C.F.R. PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
Title 12 - Banks and Banking
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2278b, 2278b–6, 2279aa, 2279aa–3, 2279aa–4, 2279aa–6, 2279aa–7, 2279aa–8, 2279aa–10, 2279aa–12); sec. 301(a) of Pub. L. 100–233, 101 Stat. 1568, 1608.
(a) The System banks, acting through the Federal Farm Credit Banks Funding Corporation (Funding Corporation), have the primary responsibility for obtaining funds for the lending operations of the System institutions. (b) The System's funding operations have a significant impact upon the investment community, the general public, and the national economy in both the volume and the manner by which funds are raised. The Farm Credit Administration supervises compliance with the statutory collateral requirements for the debt obligations issued. The Chairman of the Farm Credit Administration, under policies adopted by the Board, consults with the Secretary of the Treasury concerning the System's funding activities, pursuant to section 5.10 of the Act. [54 FR 1158, Jan. 12, 1989] (a) The Funding Corporation shall issue, market, and handle the obligations of the banks issued under section 4.2(b) through (d) of the Act and interbank or intersystem flow of funds as may from time to time be required, and, upon request of the banks, shall handle investment portfolios. The Funding Corporation shall maintain accurate and timely records. The System banks shall provide for the sale of such obligations through the Funding Corporation by negotiation, offer, bid, or syndicate sale, and for the delivery of such obligations by book entry, wire transfer, or such other means as may be appropriate. (b) The interaction of the System with the financial community shall be conducted principally through the Funding Corporation. The Funding Corporation shall be subject to regulation and examination by the Farm Credit Administration. [54 FR 1158, Jan. 12, 1989] (a) Each System bank board, by resolution, shall authorize all commercial bank borrowings by that System bank. (b) The Financial Assistance Corporation may borrow from commercial banks with the approval of the Farm Credit Administration. [54 FR 1159, Jan. 12, 1989] The Farm Credit banks may borrow from other financial institutions, such as insurance companies, Federal agencies, or Federal reserve banks. [37 FR 11434, June 7, 1972, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989] Source: 54 FR 1159, Jan. 12, 1989, unless otherwise noted.
(a) Cost means the actual amount paid for any asset. (b) Market value means the price at which a willing seller would sell to a willing buyer, neither under any compulsion to buy or sell. (c) Unpaid balance means total principal and accrued interest owed. (d) Secured interbank loan means a loan from one Farm Credit System bank to another Farm Credit System bank, secured by assets of the borrowing Farm Credit System bank. (a) Each bank shall have on hand at the time of issuance of any notes, bonds, debentures, or other similar obligations, and at all times thereafter maintain, free from any lien or other pledge, assets consisting of notes and other obligations representing loans made under the authority of the Act, real or personal property acquired in connection with loans made under the Act, obligations of the United States or any agency thereof direct or fully guaranteed, other bank assets (including marketable securities) approved by the Farm Credit Administration, cash, or cash equivalents approved by the Farm Credit Administration, in an aggregate value equal to the total amount of notes, bonds, debentures, or other similar obligations outstanding for which the bank is primarily liable. (b) The collateral value of eligible investments (as defined in §615.5140) shall be the lower of cost or market value. (c)(1) Except as otherwise provided in this paragraph, the collateral value of notes and other obligations representing loans made under the authority of any Farm Credit Act shall be the unpaid balance of such loans adjusted for any allowance for loan losses (except as provided for in §615.5090). (2) The collateral value of loans in process of liquidation or foreclosure, judgments, and sales contracts shall be the unpaid balance of such loans, judgments, and contracts adjusted for any allowance for losses. (3) The collateral value of loans which have been restructured by any action, such as an extension, deferment, or partial release, shall be the new unpaid balance of the loans adjusted for any allowance for losses. (4) The collateral value of property acquired in the liquidation of loans shall be the book value of such property adjusted for any allowance for losses. (5) Collateral shall not include the amount of any loan that exceeds the maximum amount authorized under the Act or part 614 of these regulations. (6) Collateral may include the collateral value of secured interbank loans, computed as provided in §615.5050(c)(1), provided that the assets securing the loan could serve as collateral supporting the issuance of obligations under §615.5050(a). In computing its eligible collateral, the borrowing bank shall not count the assets securing such loan. (d) Each bank shall have procedures which will ensure that the bank is in compliance with the statutory requirements for maintenance of collateral. Such procedures shall include provisions for: (1) Adequate safekeeping facilities; (2) Methods to determine that debt instruments meet all requirements of law and regulations; (3) A report signed by an authorized bank officer at each regular meeting of the board of directors certifying the eligibility and the adequacy of collateral. Items to be reported will include but not be limited to the total amount of eligible collateral, amount of ineligible loans, amount of deductions, and the amount of excess collateral; and (4) Written procedures and practices to ensure that there will be a high degree of accuracy in protecting and accounting for the collateral. (a) An attorney lien certification need not be obtained at the time a note is accepted as collateral if the counsel for the bank or association has determined, in writing, that the bank or association procedures provide sufficient safeguards to ensure that a real estate mortgage loan, within the meaning of section 1.7(a) of the Act, made by the bank or association will be secured by a first lien or its equivalent on the borrower's interest in the primary real estate security. However, the note shall be withdrawn from collateral upon the expiration of 1 year from the date of the loan closing, unless, before the end of such period: (1) An attorney has certified that the bank or association has a first lien or its equivalent from a security standpoint in the primary real estate security for the loan; or (2) The bank or association has obtained a title insurance policy insuring that it has a first lien or its equivalent from a security standpoint in the primary real estate security for the loan, and all of the following requirements are satisfied: (i) The final policy was issued by a title insurance company that has been licensed to issue such policies by the appropriate state insurance regulatory body or bodies, has not been barred or suspended, and has been approved by the lending institution; (ii) The standard form on which the final policy was issued has been approved by the counsel for the lending institution; (iii) The final policy was issued for an amount at least equal to the balance outstanding on the real estate mortgage loan or, if separate policies are issued to insure separate tracts, the minimum amount insured by each policy shall bear the same ratio to the outstanding balance of the loan that the appraised value of the tract insured by that policy bears to the appraised value of all the real estate security for the loan; and (iv) Personnel meeting written standards of training and experience in real estate title matters prescribed by the counsel for the lending institution certified in writing that: (A) They reviewed the final policy and that the policy complies with standards prescribed by such counsel; and (B) The final policy insures that a first lien or its equivalent from a security standpoint has been obtained on the primary real estate security for the loan. (b) A loan participation agreement to which a System bank or association is a participant and involving a loan originated by another lender shall constitute an obligation meeting the collateral requirements of §615.5050(a). [54 FR 1159, Jan. 12, 1989, as amended at 59 FR 3787, Jan. 27, 1994] When the bank or Farm Credit Administration determines that a loan did not conform to the requirements of the law or regulations at the time the loan was closed, such loan shall be withdrawn from collateral until the cause of ineligibility is remedied. When a loan has been classified as a loss loan, the bank shall adjust the collateral value of the loan accordingly. The Act authorizes each bank of the System, subject to the collateral requirements of section 4.3(c) of the Act, to issue: (a) Notes, bonds, debentures, or other similar obligations; (b) Consolidated obligations, together with any or all banks organized and operating under the same title of the Act; (c) Systemwide obligations, together with other banks of the System; and (d) Investment bonds to the authorized purchasers subject to the limitations contained in the regulations set forth in subpart D. [54 FR 1160, Jan. 12, 1989] Except as provided in section 4.2(e) of the Act, each debt obligation shall meet the following requirements: (a) Each debt obligation shall be issued through the Federal Farm Credit Banks Funding Corporation acting for System banks. (b) Each debt obligation shall be authorized by resolution of the board(s) of directors of the issuer(s). Each participating bank shall provide, in its authorizing resolution, for its primary liability on the portion of any consolidated or Systemwide obligation issued on its behalf and be jointly and severally liable for the payment of any additional sums as called upon by the Farm Credit Administration, in accordance with section 4.4 of the Act, in the event any bank primarily liable therefor is unable to pay. (c) Each issuance of debt obligations shall meet the collateral requirements set forth in subpart B. (d) Each issuance of debt obligations shall be approved by the Farm Credit Administration. (e)(1) Consultation with the Secretary of the Treasury required by 31 U.S.C. 9108 shall be conducted by System representatives and shall have occurred prior to each debt issuance. (2) Under policies adopted by the Board of the Farm Credit Administration, the Chairman will consult with the Secretary of the Treasury on a regular basis concerning the exercise by the System of the powers conferred under section 4.2 of the Act. [54 FR 1160, Jan. 12, 1989] (a) The amount, maturities, rates or interest, terms and conditions of participation by the System banks in each issue of joint, consolidated or Systemwide obligations shall be determined by the Funding Corporation established pursuant to section 4.9 of the Act, acting for the banks of the System, subject to the approval of the Farm Credit Administration in accordance with §615.5102. (b) The Funding Corporation shall plan and develop funding guidelines, priorities, and objectives based upon the asset/liability management policies of the System institutions and the requirements of the market. The guidelines, priorities, and objectives shall be designed to ensure that the debt marketing responsibilities of the Funding Corporation will continue to provide flexibility for the banks and are fiscally sound. (c) For all debt issuances conducted by the Funding Corporation, the specific prior approval of the Farm Credit Administration must be obtained prior to the distribution and sale of the obligation pursuant to section 4.9 of the Act. [54 FR 1160, Jan. 12, 1989] Consolidated Systemwide notes authorized under §615.5100(b) shall be subject to the following provisions unless otherwise approved by the Farm Credit Administration: (a) Maturities shall be not less than five days nor more than 365 days. (b) Prices shall be on a discount yield basis or as determined by the Funding Corporation. [42 FR 32227, June 24, 1977, as amended at 47 FR 28609, July 1, 1982; 54 FR 1160, Jan. 12, 1989; 60 FR 20011, Apr. 24, 1995] Any Farm Credit bank may issue Farm Credit Investment Bonds directly to those eligible as set forth in §615.5120(a). The bonds are subject to the limitations contained in the Federal Reserve Board's Regulation Q. [43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978] (a) Limitations. Eligibility to purchase Farm Credit Investment Bonds shall be limited to members and employees of the Farm Credit banks and associations, except any bank officers, directors, and employees who are involved in setting the term or rate, to retired employees who are beneficiaries of a pension or retirement program of the Farm Credit banks or associations, and to retired employees of the Farm Credit Administration. A member of a Farm Credit association or a bank for cooperatives need not be an active borrower to be eligible. A member of any Farm Credit institution may purchase investment bonds from any of the institutions in the district which offer the purchase program. Patrons, members, employees, or stockholder of other financing institutions discounting loans with a Farm Credit Bank or agricultural credit bank or of any legal entity which is a borrower from any Farm Credit institution as such are ineligible as they are not members of a Farm Credit institution. Stock or participation certificates shall not be sold merely to qualify a party for the purchase of Farm Credit Investment Bonds. For purposes of this section “member” means a stockholder or participation certificate holder who acquired stock or participation certificates to obtain a loan, to purchase stock for investment or to qualify for other services of the association or bank. A person who assumes a loan is not a member unless he becomes a stockholder or participation certificate holder in connection with that loan. Employee means a regular full-time employee of a Farm Credit bank or association. Retired employee means a retiree who is a direct beneficiary of a pension or retirement program of a Farm Credit bank or association or the Farm Credit Administration under civil service retirement. (b) Form and ownership. Farm Credit Investment Bonds are registered bonds issued in definitive or book-entry form depending on investor preference. The registration used must express the actual ownership of an interest in the bond and will be considered by the issuing institution as conclusive of such ownership and interest. No designation of an attorney, agent, or other representative to request or receive payment on behalf of the owner or coowner, nor any restriction on the right of the owner or coowner to receive payment of the bond or interest, except as provided in this section may be made in the registration or otherwise. Registrations requested in applications for the purchase shall be clear, accurate, complete, and conform with one of the registration provisions set forth in this section, and include the appropriate taxpayer identifying number. Registrations requested will be inscribed on the face of the bond if in definitive form or on the confirmation of investment if in book-entry form. The following provisions shall apply for registration of Farm Credit Investment Bonds: (1) In all cases the member's name (whether a natural person, fiduciary, or legal entity) or employee's name must appear as owner of the bond. (2) A bond may be registered in the name of a fiduciary only if the fiduciary is in fact the member. (3) A member or employee may not use a form of registration (such as a gift to a minor, irrevocable trust, etc.) which would divest himself of ownership. However, a minor may be named as coowner or beneficiary. (4) If a member is a natural person, a second natural person, member or nonmember, may be named as coowner or beneficiary. Coownership may not involve a fiduciary or private organization. (5) In the coownership form the connective “or” shall serve the same purpose as “joint tenants with right of survivorship.” [43 FR 47489, Oct. 16, 1978; 43 FR 55239, Nov. 27, 1978, as amended at 56 FR 2675, Jan. 24, 1991; 61 FR 67187, Dec. 20, 1996] Procedures relating to issuance, pricing, payment of interest, redemption, replacement of lost or stolen bonds and other matters shall be promulgated under the authority of this regulation as operating instructions to banks and associations. [37 FR 11434, June 7, 1972] For purposes of this subpart, the following definitions apply: (a) Asset-backed securities (ABS) mean investment securities that provide for ownership of a fractional undivided interest or collateral interests in specific assets of a trust that are sold and traded in the capital markets. For the purposes of this subpart, ABS exclude mortgage securities that are defined in §615.5131(h). (b) Eurodollar time deposit means a non-negotiable deposit denominated in United States dollars and issued by an overseas branch of a United States bank or by a foreign bank outside the United States. (c) Final maturity means the last date on which the remaining principal amount of a security is due and payable (matures) to the registered owner. It does not mean the call date, the expected average life, the duration, or the weighted average maturity. (d) General obligations of a State or political subdivision means: (1) The full faith and credit obligations of a State, the District of Columbia, the Commonwealth of Puerto Rico, a territory or possession of the United States, or a political subdivision thereof that possesses general powers of taxation, including property taxation; or (2) An obligation that is unconditionally guaranteed by an obligor possessing general powers of taxation, including property taxation. (e) Liquid investments are assets that can be promptly converted into cash without significant loss to the investor. In the money market, a security is liquid if the spread between its bid and ask price is narrow and a reasonable amount can be sold at those prices. (f) Loans are defined by §621.2(f) of this chapter and they are calculated quarterly (as of the last day of March, June, September, and December) by using the average daily balance of loans during the quarter. (g) Market risk means the risk to the financial condition of your institution because the value of your holdings may decline if interest rates or market prices change. Exposure to market risk is measured by assessing the effect of changing rates and prices on either the earnings or economic value of an individual instrument, a portfolio, or the entire institution. (h) Mortgage securities means securities that are either: (1) Pass-through securities or participation certificates that represent ownership of a fractional undivided interest in a specified pool of residential (excluding home equity loans), multifamily or commercial mortgages, or (2) A multiclass security (including collateralized mortgage obligations and real estate mortgage investment conduits) that is backed by a pool of residential, multifamily or commercial real estate mortgages, pass-through mortgage securities, or other multiclass mortgage securities. (i) Nationally Recognized Statistical Rating Organization (NRSRO) means a rating organization that the Securities and Exchange Commission recognizes as an NRSRO. (j) Revenue bond means an obligation of a municipal government that finances a specific project or enterprise but it is not a full faith and credit obligation. The obligor pays a portion of the revenue generated by the project or enterprise to the bondholders. (k) Weighted average life (WAL) means the average time until the investor receives the principal on a security, weighted by the size of each principal payment and calculated under specified prepayment assumptions. (l) You means a Farm Credit bank, association, or service corporation. [64 FR 28895, May 28, 1999, as amended at 70 FR 51589, Aug. 31, 2005] Each Farm Credit bank is allowed to hold eligible investments, listed under §615.5140, in an amount not to exceed 35 percent of its total outstanding loans, to comply with the liquidity reserve requirement of §615.5134, manage surplus short-term funds, and manage interest rate risk under §615.5135. [70 FR 51589, Aug. 31, 2005] (a) Responsibilities of Board of Directors. Your board must adopt written policies for managing your investment activities. Your board of directors must also ensure that management complies with these policies and that appropriate internal controls are in place to prevent loss. Annually, the board of directors must review these investment policies and make any changes that are needed. (b) Investment policies. Your board's written investment policies must address the purposes and objectives of investments, risk tolerance, delegations of authority, and reporting requirements. Investment policies must be appropriate for the size, types, and risk characteristics of your investments. (c) Risk tolerance. Your investment policies must establish risk limits and diversification requirements for the various classes of eligible investments and for the entire investment portfolio. These policies must ensure that you maintain appropriate diversification of your investment portfolio. Risk limits must be based on your institutional objectives, capital position, and risk tolerance. Your policies must identify the types and quantity of investments that you will hold to achieve your objectives and control credit, market, liquidity, and operational risks. The policy of any association or service corporation that holds significant investments and each bank must establish risk limits for the following four types of risk. (1) Credit risk. Investment policies must establish: (i) Credit quality standards, limits on counterparty risk, and risk diversification standards that limit concentrations based on a single or related counterparty(ies), a geographical area, industries or obligations with similar characteristics. (ii) Criteria for selecting brokers, dealers, and investment bankers (collectively, securities firms). You must buy and sell eligible investments with more than one securities firm. As part of your annual review of your investment policies, your board of directors must review the criteria for selecting securities firms and determine whether to continue your existing relationships with them. (iii) Collateral margin requirements on repurchase agreements. (2) Market risk. Investment policies must set market risk limits for specific types of investments, the investment portfolio, or your institution. Your board of directors must establish market risk limits in accordance with these regulations and our other policies. (3) Liquidity risk. Investment policies must describe the liquidity characteristics of eligible investments that you will hold to meet your liquidity needs and institutional objectives. (4) Operational risk. Investment policies must address operational risks, including delegations of authority and internal controls in accordance with paragraphs (d) and (e) of this section. (d) Delegation of authority. All delegations of authority to specified personnel or committees must state the extent of management's authority and responsibilities for investments. (e) Internal controls. You must: (1) Establish appropriate internal controls to detect and prevent loss, fraud, embezzlement, conflicts of interest, and unauthorized investments. (2) Establish and maintain a separation of duties and supervision between personnel who execute investment transactions and personnel who approve, revaluate, and oversee investments. (3) Maintain management information systems that are appropriate for the level and complexity of your investment activities. (f) Securities valuation. (1) Before you purchase a security, you must evaluate its credit quality and its price sensitivity to changes in market interest rates. You must also verify the value of a security that you plan to purchase, other than a new issue, with a source that is independent of the broker, dealer, counterparty or other intermediary to the transaction. (2) You must determine the fair market value of each security in your portfolio and the fair market value of your whole investment portfolio at least monthly. You must also evaluate the credit quality and price sensitivity to change in market interest rates of all investments that you hold on an ongoing basis. (3) Before you sell a security, you must verify its value with a source that is independent of the broker, dealer, counterparty, or other intermediary to the transaction. (g) Reports to the board. Each quarter, management must report to the board of directors or a board committee on the performance and risk of each class of investments and the entire investment portfolio. These reports must identify all gains and losses that you incur during the quarter on individual securities that you sold before maturity. Reports must also identify potential risk exposure to changes in market interest rates and other factors that may affect the value of your bank's investment holdings. Management's report must discuss how investments affect your bank's overall financial condition and must evaluate whether the performance of the investment portfolio effectively achieves the board's objectives. Any deviations from the board's policies must be specifically identified in the report. [64 FR 28895, May 28, 1999] (a) Each Farm Credit bank must maintain a liquidity reserve, discounted in accordance with paragraph (c) of this section, sufficient to fund 90 days of the principal portion of maturing obligations and other borrowings of the bank at all times. The liquidity reserve may only be funded from cash, including cash due from traded but not yet settled debt, and the eligible investments under §615.5140. Money market instruments, floating, and fixed rate debt securities used to fund the liquidity reserve must be backed by the full faith and credit of the United States or rated in one of the two highest NRSRO credit categories. If not rated, the issuer's NRSRO credit rating, if one of the two highest, may be used. (b) All investments that the bank holds for the purpose of meeting the liquidity reserve requirement of this section must be free of lien. (c) The liquid assets of the liquidity reserve are discounted as follows: (1) Multiply cash and overnight investments by 100 percent. (2) Multiply money market instruments and floating rate debt securities that are below the contractual cap rate by 95 percent of the market value. (3) Multiply fixed rate debt securities and floating rate debt securities that meet or exceed the contractual cap rate by 90 percent of the market value. (4) Multiply individual securities in diversified investment funds by the discounts that would apply to the securities if held separately. (d) Each Farm Credit bank must have a contingency plan to address liquidity shortfalls during market disruptions. The board of directors must review the plan each year, making all needed changes. Farm Credit banks may incorporate these requirements into their §615.5133 investment management policies. [58 FR 63056, Nov. 30, 1993, as amended at 64 FR 28896, May 28, 1999; 70 FR 51590, Aug. 31, 2005] The board of directors of each Farm Credit Bank, bank for cooperatives, and agricultural credit bank shall develop and implement an interest rate risk management program as set forth in subpart G of this part. The board of directors shall adopt an interest rate risk management section of an asset/liability management policy which establishes interest rate risk exposure limits as well as the criteria to determine compliance with these limits. At a minimum, the interest rate risk management section shall establish policies and procedures for the bank to: (a) Identify and analyze the causes of risks within its existing balance sheet structure; (b) Measure the potential impact of these risks on projected earnings and market values by conducting interest rate shock tests and simulations of multiple economic scenarios at least on a quarterly basis; (c) Explore and implement actions needed to obtain its desired risk management objectives; (d) Document the objectives that the bank is attempting to achieve by purchasing eligible investments that are authorized by §615.5140 of this subpart; (e) Evaluate and document, at least quarterly, whether these investments have actually met the objectives stated under paragraph (d) of this section. [58 FR 63056, Nov. 30, 1993, as amended at 63 FR 39225, July 22, 1998] An emergency shall be deemed to exist whenever a financial, economic, agricultural or national defense crisis could impede the normal access of Farm Credit banks to the capital markets. Whenever the Farm Credit Administration determines after consultations with the Federal Farm Credit Banks Funding Corporation that such an emergency exists, the Farm Credit Administration Board shall, in its sole discretion, adopt a resolution that: (a) Increases the amount of eligible investments that Farm Credit Banks, banks for cooperatives and agricultural credit banks are authorized to hold pursuant to §615.5132 of this subpart; and/or (b) Modifies or waives the liquidity reserve requirement in §615.5134 of this subpart. [58 FR 63057, Nov. 30, 1993] (a) You may hold only the following types of investments listed in the Investment Eligibility Criteria Table. These investments must be denominated in United States dollars. (b) Rating of foreign countries. Whenever the obligor or issuer of an eligible investment is located outside the United States, the host country must maintain the highest sovereign rating for political and economic stability by an NRSRO. (c) Marketable securities. All eligible investments, except money market instruments, must be marketable. An eligible investment is marketable if you can sell it quickly at a price that closely reflects its fair value in an active and universally recognized secondary market. (d) Obligor limits. (1) You may not invest more than 20 percent of your total capital in eligible investments issued by any single institution, issuer, or obligor. This obligor limit does not apply to obligations, including mortgage securities, that are issued or guaranteed as to interest and principal by the United States, its agencies, instrumentalities, or corporations. (2) Obligor limits for your holdings in an investment company. You must count securities that you hold through an investment company towards the obligor limit of this section unless the investment company's holdings of the security of any one issuer do not exceed five (5) percent of the investment company's total portfolio. (e) Other investments approved by the FCA. You may purchase and hold other investments that we approve. Your request for our approval must explain the risk characteristics of the investment and your purpose and objectives for making the investment. [64 FR 28896, May 28, 1999] Mortgage securities are not eligible investments unless they pass a stress test. You must perform stress tests to determine how interest rate changes will affect the cashflow and price of each mortgage security that you purchase and hold, except for adjustable rate securities that reprice at intervals of 12 months or less and are tied to an index. You must also use stress tests to gauge how interest rate fluctuations on mortgage securities affect your institution's capital and earnings. You may conduct the stress tests as described in either paragraph (a) or (b) of this section. (a) Mortgage securities must comply with the following three tests at the time of purchase and each following quarter: (1) Average Life Test. The expected WAL of the instrument does not exceed 5 years. (2) Average Life Sensitivity Test. The expected WAL does not extend for more than 2 years, assuming an immediate and sustained parallel shift in the yield curve of plus 300 basis points, nor shorten for more than 3 years, assuming an immediate and sustained parallel shift in the yield curve of minus 300 basis points. (3) Price Sensitivity Test. The estimated change in price is not more than thirteen (13) percent due to an immediate and sustained parallel shift in the yield curve of plus or minus 300 basis points. (4) Exemption. A floating rate mortgage security is subject only to the price sensitivity test in paragraph (a)(3) of this section if at the time of purchase and each quarter thereafter it bears a rate of interest that is below its contractual cap. (b) You may use an alternative stress test to evaluate the price sensitivity of your mortgage securities. An alternative stress test must be able to measure the price sensitivity of mortgage instruments over different interest rate/yield curve scenarios. The methodology that you use to analyze mortgage securities must be appropriate for the complexity of the instrument's structure and cashflows. Prior to purchase and each quarter thereafter, you must use the stress test to determine that the risk in the mortgage security is within the risk limits of your board's investment policies. The stress test must enable you to determine at the time of purchase and each subsequent quarter that the mortgage security does not expose your capital or earnings to excessive risks. (c) You must rely on verifiable information to support all your assumptions, including prepayment and interest rate volatility assumptions, when you apply the stress tests in either paragraph (a) or (b) of this section. You must document the basis for all assumptions that you use to evaluate the security and its underlying mortgages. You must also document all subsequent changes in your assumptions. If at any time after purchase, a mortgage security no longer complies with requirements in this section, you must divest it in accordance with §615.5143. [64 FR 28899, May 28, 1999] An association may hold eligible investments listed in §615.5140, with the approval of its funding bank, for the purposes of reducing interest rate risk and managing surplus short-term funds. Each bank must review annually the investment portfolio of every association that it funds. [64 FR 28899, May 28, 1999] You must dispose of an ineligible investment within 6 months unless we approve, in writing, a plan that authorizes you to divest the instrument over a longer period of time. An acceptable divestiture plan must require you to dispose of the ineligible investment as quickly as possible without substantial financial loss. Until you actually dispose of the ineligible investment, the managers of your investment portfolio must report at least quarterly to your board of directors about the status and performance of the ineligible instrument, the reasons why it remains ineligible, and the managers' progress in disposing of the investment. [64 FR 28899, May 28, 1999] As may be authorized by the banks for cooperatives' or agricultural credit banks boards of directors ownership investment may be made in foreign business entities solely for the purpose of obtaining credit information and other services needed to facilitate transactions which may be financed under section 3.7(b) of the Farm Credit Act Amendments of 1980. Such an investment shall not exceed the level required to access credit and other services of the entity and shall not be made for earnings purposes. The business entity shall be deemed to be principally engaged in providing credit information to and performing such servicing functions for its members where such activities constitute a materially important line of business to its members. Also, investments must be made by a bank for cooperatives or agricultural credit bank for its own account and not on behalf of its members. The bank for cooperatives or agricultural credit bank shall use only those services provided by the business entity as necessary to facilitate transactions authorized by section 3.7(b) of the Farm Credit Act Amendments of 1980. [46 FR 55088, Nov. 6, 1981, as amended at 54 FR 1151, Jan. 12, 1989; 54 FR 50736, Dec. 11, 1989; 61 FR 67187, Dec. 20, 1996. Redesignated at 64 FR 28899, May 28, 1999] Real estate and personal property may be acquired, held, or disposed of by any Farm Credit institution for the necessary and normal operations of its business. The purchase, lease, or construction of office quarters shall be limited to facilities reasonably necessary to meet the foreseeable requirements of the institution. Property shall not be acquired if it involves, or appears to involve, a bank or association in the real estate or other unrelated business. [50 FR 48554, Nov. 26, 1985. Redesignated at 58 FR 63056, Nov. 30, 1993, and amended at 60 FR 20011, Apr. 24, 1995] (a) Definitions for this section—(1) Transfer of capital means any payment or forbearance by a Farm Credit Bank or agricultural credit bank (collectively, bank) to an affiliated association, including but not limited to: (i) The purchase of nonvoting stock or participation certificates; (ii) The payment of cash; (iii) Debt forgiveness or reduction; (iv) Interest rate concessions or interest-free loans; (v) The transfer of loans at other than fair market value; (vi) The reduction or elimination of standard loan servicing or other fees; and (vii) The assumption of operating or other expenses, such as legal fees or insurance premiums. (2) Preferential transfer of capital means a transfer of capital that is not available to all similarly situated affiliated associations. (3) Nonroutine transfer of capital means a transfer of capital that is not available in the ordinary course of business. (b) Considerations for preferential or nonroutine transfers of capital. Before authorizing a preferential or nonroutine transfer of capital, a bank board of directors must take into account and document whether: (1) The transfer of capital is in the best interests of all of the shareholders; (2) The bank will be able to achieve its capital adequacy and business plan goals after making the transfer of capital; and (3) The transfer of capital is the “least cost” alternative available and will enable the association to maintain sound, adequate, and constructive service to borrowers. (c) Notification requirements. At least 30 days before making a preferential or nonroutine transfer of capital to an affiliated association, banks must provide shareholders and the Chief Examiner of the Farm Credit Administration with a description of the transfer and the documentation required by paragraph (b) of this section. [64 FR 49961, Sept. 15, 1999] (a) In accordance with policies prescribed by the board of directors of the Farm Credit Bank or agricultural credit bank and each production credit association and agricultural credit association (hereinafter association(s)), such association(s) may invest in notes, conditional sales contracts, and other similar obligations given to cooperatives and private dealers by farmers and ranchers eligible to borrow from such associations. (b) Such notes and other obligations evidencing purchases of farm machinery, supplies, equipment, home appliances, and other items of a capital nature handled by cooperatives and private dealers will be eligible for purchase as investments. (c) The total amount which an association may invest in such obligations at any one time shall not exceed 15 percent of the balance of its loans outstanding at the close of the association's preceding fiscal year. In addition, the total amount which an association may invest in such obligations that are originated by any one cooperative or private dealer, at any one time, shall not exceed 50 percent of association capital and surplus. (d) All notes in which an association invests shall be endorsed with full recourse against the cooperative or dealer. The association shall contact each notemaker who meets the association's credit standards to encourage him to become a borrower. [54 FR 1158, Jan. 12, 1989, as amended at 55 FR 24888, June 19, 1990; 55 FR 38313, Sept. 18, 1990. Redesignated at 58 FR 63056, Nov. 30, 1993] Banks and associations of the Farm Credit System are authorized to purchase and hold Class B common stock of the Federal Agricultural Mortgage Corporation pursuant to section 8.4 of the Farm Credit Act. [58 FR 63058, Nov. 30, 1993] (a) General authority. You may purchase and hold mortgage securities that are issued or guaranteed as to both principal and interest by the Federal Agricultural Mortgage Corporation (Farmer Mac securities). You may purchase and hold Farmer Mac securities for the purposes of managing credit and interest rate risks, and furthering your mission to finance agriculture. The total value of your Farmer Mac securities cannot exceed your total outstanding loans, as defined by §615.5131(f). (b) Board and management responsibilities. Your board of directors must adopt written policies that will govern your investments in Farmer Mac securities. All delegations of authority to specified personnel or committees must state the extent of management's authority and responsibilities for managing your investments in Farmer Mac securities. The board of directors must also ensure that appropriate internal controls are in place to prevent loss, in accordance with §615.5133(e). Management must submit quarterly reports to the board of directors on the performance of all investments in Farmer Mac securities. Annually, your board of directors must review these policies and the performance of your Farmer Mac securities and make any changes that are needed. (c) Policies. Your board of directors must establish investment policies for Farmer Mac securities that include your: (1) Objectives for holding Farmer Mac securities. (2) Credit risk parameters including: (i) The quantities and types of Farmer Mac mortgage securities that are collateralized by qualified agricultural mortgages, rural home loans, and loans guaranteed by the Farm Service Agency. (ii) Product and geographic diversification for the loans that underlie the security; and (iii) Minimum pool size, minimum number of loans in each pool, and maximum allowable premiums or discounts on these securities. (3) Liquidity risk tolerance and the liquidity characteristics of Farmer Mac securities that are suitable to meet your institutional objectives. A bank may not include Farmer Mac mortgage securities in the liquidity reserve maintained to comply with §615.5134. (4) Market risk limits based on the effects that the Farmer Mac securities have on your capital and earnings. (d) Stress Test. You must perform stress tests on mortgage securities that are issued or guaranteed by Farmer Mac in accordance with the requirements of §615.5141(b) and (c). If a Farmer Mac security fails a stress test, you must divest it as required by §615.5143. [64 FR 28899, May 28, 1999, as amended at 70 FR 51590, Aug. 31, 2005] Except as provided for in §615.5171, Farm Credit banks, associations and service corporations may only purchase preferred stock issued by another Farm Credit System institution, including the Federal Agricultural Mortgage Corporation, with the written prior approval of the Farm Credit Administration. The request for approval should explain the terms and risk characteristics of the investment and the purpose and objectives for making the investment. [70 FR 53908, Sept. 13, 2005] Source: 63 FR 39225, July 22, 1998, unless otherwise noted.
The board of directors of each Farm Credit Bank, bank for cooperatives, and agricultural credit bank shall develop and implement an interest rate risk management program tailored to the needs of the institution and consistent with the requirements set forth in §615.5135 of this part. The program shall establish a risk management process that effectively identifies, measures, monitors, and controls interest rate risk. (a) The board of directors of each Farm Credit Bank, bank for cooperatives, and agricultural credit bank is responsible for providing effective oversight to the interest rate risk management program and must be knowledgeable of the nature and level of interest rate risk taken by the institution. (b) Senior management is responsible for ensuring that interest rate risk is properly managed on both a long-range and a day-to-day basis. Any association or other Farm Credit System institution other than banks, excluding the Federal Agricultural Mortgage Corporation, with interest rate risk that could lead to significant declines in net income or in the market value of capital shall comply with the requirements of §§615.5180 and 615.5181. The interest rate risk management program required under §615.5181 shall be commensurate with the level of interest rate risk of the institution. Source: 53 FR 39247, Oct. 6, 1988, unless otherwise noted.
(a) The Board of Directors of each Farm Credit System institution shall determine the amount of total capital, core surplus, total surplus, and unallocated surplus needed to assure the institution's continued financial viability and to provide for growth necessary to meet the needs of its borrowers. The minimum capital standards specified in this part are not meant to be adopted as the optimal capital level in the institution's capital adequacy plan. Rather, the standards are intended to serve as minimum levels of capital that each institution must maintain to protect against the credit and other general risks inherent in its operations. (b) Each Board of Directors shall establish, adopt, and maintain a formal written capital adequacy plan as a part of the financial plan required by §618.8440 of this chapter. The plan shall include the capital targets that are necessary to achieve the institution's capital adequacy goals as well as the minimum permanent capital and surplus standards. The plan shall address any projected dividends, patronage distribution, equity requirements, or other action that may decrease the institution's capital or the components thereof for which minimum amounts are required by this part. The plan shall set forth the circumstances in which retirements or revolvements of stock or equities may occur. If the plan provides for retirement or revolvement of equities included in core surplus, in connection with a loan default or the death of a former borrower, the plan must require the institution to make a prior determination that such retirement or revolvement is in the best interest of the institution, and also require the institution to charge off an amount of the indebtedness on the loan equal to the amount of the equities that are retired or canceled. In addition to factors that must be considered in meeting the minimum standards, the board of directors shall also consider at least the following factors in developing the capital adequacy plan: (1) Capability of management and the board of directors; (2) Quality of operating policies, procedures, and internal controls; (3) Quality and quantity of earnings; (4) Asset quality and the adequacy of the allowance for losses to absorb potential loss within the loan and lease portfolios; (5) Sufficiency of liquid funds; (6) Needs of an institution's customer base; and (7) Any other risk-oriented activities, such as funding and interest rate risks, potential obligations under joint and several liability, contingent and off-balance-sheet liabilities or other conditions warranting additional capital. [53 FR 39247, Oct. 6, 1988, as amended at 62 FR 4446, Jan. 30, 1997; 71 FR 5763, Feb. 2, 2006] For the purpose of this subpart, the following definitions apply: Allocated investment means earnings allocated but not paid in cash by a System bank to an association or other recipient. Bank means an institution that: (1) Engages in the business of banking; (2) Is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations; (3) Receives deposits to a substantial extent in the regular course of business; and (4) Has the power to accept demand deposits. Commitment means any arrangement that legally obligates an institution to: (1) Purchase loans or securities; (2) Participate in loans or leases; (3) Extend credit in the form of loans or leases; (4) Pay the obligation of another; (5) Provide overdraft, revolving credit, or underwriting facilities; or (6) Participate in similar transactions. Credit conversion factor means that number by which an off-balance sheet item is multiplied to obtain a credit equivalent before placing the item in a risk-weight category. Credit derivative means a contract that allows one party (the protection purchaser) to transfer the credit risk of an asset or off-balance sheet credit exposure to another party (the protection provider). The value of a credit derivative is dependent, at least in part, on the credit performance of a “reference asset.” Credit-enhancing interest-only strip— (1) The term credit-enhancing interest-only strip means an on-balance sheet asset that, in form or in substance: (i) Represents the contractual right to receive some or all of the interest due on transferred assets; and (ii) Exposes the institution to credit risk directly or indirectly associated with the transferred assets that exceeds its pro rata claim on the assets, whether through subordination provisions or other credit enhancement techniques. (2) FCA reserves the right to identify other cash flows or related interests as credit-enhancing interest-only strips. In determining whether a particular interest cash flow functions as a credit-enhancing interest-only strip, FCA will consider the economic substance of the transaction. Credit-enhancing representations and warranties— (1) The term credit-enhancing representations and warranties means representations and warranties that: (i) Are made or assumed in connection with a transfer of assets (including loan-servicing assets), and (ii) Obligate an institution to protect investors from losses arising from credit risk in the assets transferred or loans serviced. (2) Credit-enhancing representations and warranties include promises to protect a party from losses resulting from the default or nonperformance of another party or from an insufficiency in the value of the collateral. (3) Credit-enhancing representations and warranties do not include: (i) Early-default clauses and similar warranties that permit the return of, or premium refund clauses covering, loans for a period not to exceed 120 days from the date of transfer. These warranties may cover only those loans that were originated within 1 year of the date of the transfer; (ii) Premium refund clauses covering assets guaranteed, in whole or in part, by the United States Government, a United States Government agency, or a United States Government-sponsored agency, provided the premium refund clause is for a period not to exceed 120 days from the date of transfer; (iii) Warranties that permit the return of assets in instances of fraud, misrepresentation, or incomplete documentation; or (iv) Clean-up calls if the agreements to repurchase are limited to 10 percent or less of the original pool balance (except where loans 30 days or more past due are repurchased). Deferred-tax assets that are dependent on future income or future events means: (1) Deferred-tax assets arising from deductible temporary differences dependent upon future income that exceed the amount of taxes previously paid that could be recovered through loss carrybacks if existing temporary differences (both deductible and taxable and regardless of where the related tax-deferred effects are recorded on the institution's balance sheet) fully reverse; (2) Deferred-tax assets dependent upon future income arising from operating loss and tax carryforwards; (3) Deferred-tax assets arising from temporary differences that could be recovered if existing temporary differences that are dependent upon other future events (both deductible and taxable and regardless of where the related tax-deferred effects are recorded on the institution's balance sheet) fully reverse. Direct credit substitute means an arrangement in which an institution assumes, in form or in substance, credit risk directly or indirectly associated with an on-or off-balance sheet asset or exposure that was not previously owned by the institution (third-party asset) and the risk assumed by the institution exceeds the pro rata share of the institution's interest in the third-party asset. If the institution has no claim on the third-party asset, then the institution's assumption of any credit risk is a direct credit substitute. Direct credit substitutes include, but are not limited to: (1) Financial standby letters of credit that support financial claims on a third party that exceed an institution's pro rata share in the financial claim; (2) Guarantees, surety arrangements, credit derivatives, and similar instruments backing financial claims that exceed an institution's pro rata share in the financial claim; (3) Purchased subordinated interests that absorb more than their pro rata share of losses from the underlying assets; (4) Credit derivative contracts under which the institution assumes more than its pro rata share of credit risk on a third-party asset or exposure; (5) Loans or lines of credit that provide credit enhancement for the financial obligations of a third party; (6) Purchased loan-servicing assets if the servicer is responsible for credit losses or if the servicer makes or assumes credit-enhancing representations and warranties with respect to the loans serviced. Servicer cash advances as defined in this section are not direct credit substitutes; and, (7) Clean-up calls on third-party assets. However, clean-up calls that are 10 percent or less of the original pool balance and that are exercisable at the option of the institution are not direct credit substitutes. Direct lender institution means an institution that extends credit in the form of loans or leases to eligible borrowers in its own right and carries such loan or lease assets on its books. Externally rated means that an instrument or obligation has received a credit rating from at least one NRSRO. Face amount means: (1) The notional principal, or face value, amount of an off-balance sheet item; (2) The amortized cost of an asset not held for trading purposes; and (3) The fair value of a trading asset. Financial asset means cash or other monetary instrument, evidence of debt, evidence of an ownership interest in an entity, or a contract that conveys a right to receive from or exchange cash or another financial instrument with another party. Financial standby letter of credit means a letter of credit or similar arrangement that represents an irrevocable obligation to a third-party beneficiary: (1) To repay money borrowed by, or advanced to, or for the account of, a second party (the account party); or (2) To make payment on behalf of the account party, in the event that the account party fails to fulfill its obligation to the beneficiary. Government agency means an agency or instrumentality of the United States Government whose obligations are fully and explicitly guaranteed as to the timely repayment of principal and interest by the full faith and credit of the United States Government. Government-sponsored agency means an agency, instrumentality, or corporation chartered or established to serve public purposes specified by the United States Congress but whose obligations are not explicitly guaranteed by the full faith and credit of the United States Government, including but not limited to any Government-sponsored enterprise. Institution means a Farm Credit Bank, Federal land bank association, Federal land credit association, production credit association, agricultural credit association, Farm Credit Leasing Services Corporation, bank for cooperatives, agricultural credit bank, and their successors. Nationally recognized statistical rating organization (NRSRO) means a rating organization that the Securities and Exchange Commission recognizes as an NRSRO. Non-OECD bank means a bank and its branches (foreign and domestic) organized under the laws of a country that does not belong to the OECD group of countries. Nonagreeing association means an association that does not have an allotment agreement in effect with a Farm Credit Bank or agricultural credit bank pursuant to §615.5207(b)(2). OECD means the group of countries that are full members of the Organization for Economic Cooperation and Development, regardless of entry date, as well as countries that have concluded special lending arrangements with the International Monetary Fund's General Arrangement to Borrow, excluding any country that has rescheduled its external sovereign debt within the previous 5 years. OECD bank means a bank and its branches (foreign and domestic) organized under the laws of a country that belongs to the OECD group of countries. For purposes of this subpart, this term includes U.S. depository institutions. Preferred stock means stock that is permanent capital and has dividend and/or liquidation preference over common stock. Performance-based standby letter of credit means any letter of credit, or similar arrangement, however named or described, that represents an irrevocable obligation to the beneficiary on the part of the issuer to make payment as a result of any default by a third party in the performance of a nonfinancial or commercial obligation. Permanent capital, subject to adjustments as described in §615.5207, includes: (1) Current year retained earnings; (2) Allocated and unallocated earnings (which, in the case of earnings allocated in any form by a System bank to any association or other recipient and retained by the bank, must be considered, in whole or in part, permanent capital of the bank or of any such association or other recipient as provided under an agreement between the bank and each such association or other recipient); (3) All surplus; (4) Stock issued by a System institution, except: (i) Stock that may be retired by the holder of the stock on repayment of the holder's loan, or otherwise at the option or request of the holder; (ii) Stock that is protected under section 4.9A of the Act or is otherwise not at risk; (iii) Farm Credit Bank equities required to be purchased by Federal land bank associations in connection with stock issued to borrowers that is protected under section 4.9A of the Act; (iv) Capital subject to revolvement, unless: (A) The bylaws of the institution clearly provide that there is no express or implied right for such capital to be retired at the end of the revolvement cycle or at any other time; and (B) The institution clearly states in the notice of allocation that such capital may only be retired at the sole discretion of the board of directors in accordance with statutory and regulatory requirements and that no express or implied right to have such capital retired at the end of the revolvement cycle or at any other time is thereby granted; (5) [Reserved] (6) Financial assistance provided by the Farm Credit System Insurance Corporation that the FCA determines appropriate to be considered permanent capital; and (7) Any other debt or equity instruments or other accounts the FCA has determined are appropriate to be considered permanent capital. The FCA may permit one or more institutions to include all or a portion of such instrument, entry, or account as permanent capital, permanently or on a temporary basis, for purposes of this part. Qualified residential loan— (1) The term qualified residential loan means: (i) A rural home loan, as authorized by §613.3030, and (ii) A single-family residential loan to a bona fide farmer, rancher, or producer or harvester of aquatic products. (2) A qualified residential loan must be secured by a separate first lien mortgage or deed of trust on the residential property alone (not on any adjoining agricultural property or any other nonresidential property), must have been approved in accordance with prudent underwriting standards suitable for residential property, must not be past due 90 days or more or carried in nonaccrual status, and must have a monthly amortization schedule. In addition, the mortgage or deed of trust securing the residential property must be written and recorded in accordance with all state and local requirements governing its enforceability as a first lien and the secured residential property must have a permanent right-of-way access. Qualifying bilateral netting contract means a bilateral netting contract that meets at least the following conditions: (1) The contract is in writing; (2) The contract is not subject to a walkaway clause, defined as a provision that permits a non-defaulting counterparty to make lower payments than it would make otherwise under the contract, or no payment at all, to a defaulter or to the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the contract; (3) The contract creates a single obligation either to pay or receive the net amount of the sum of positive and negative mark-to-market values for all derivative contracts subject to the qualifying bilateral netting contract; (4) The institution receives a legal opinion that represents, to a high degree of certainty, that in the event of legal challenge the relevant court and administrative authorities would find the institution's exposure to be the net amount; (5) The institution establishes a procedure to monitor relevant law and to ensure that the contracts continue to satisfy the requirements of this section; and (6) The institution maintains in its files adequate documentation to support the netting of a derivatives contract. Qualifying securities firm means: (1) A securities firm incorporated in the United States that is a broker-dealer that is registered with the Securities and Exchange Commission (SEC) and that complies with the SEC's net capital regulations (17 CFR 240.15c3–1); and (2) A securities firm incorporated in any other OECD-based country, if the institution is able to demonstrate that the securities firm is subject to supervision and regulation (covering its direct and indirect subsidiaries, but not necessarily its parent organizations) comparable to that imposed on depository institutions in OECD countries. Such regulation must include risk-based capital requirements comparable to those imposed on depository institutions under the Accord on International Convergence of Capital Measurement and Capital Standards (1988, as amended in 1998) (Basel Accord). Recourse means an institution's retention, in form or in substance, of any credit risk directly or indirectly associated with an asset it has sold (in accordance with GAAP) that exceeds a pro rata share of the institution's claim on the asset. If an institution has no claim on an asset it has sold, then the retention of any credit risk is recourse. A recourse obligation typically arises when an institution transfers assets in a sale and retains an explicit obligation to repurchase assets or to absorb losses due to a default on the payment of principal or interest or any other deficiency in the performance of the underlying obligor or some other party. Recourse may also exist implicitly if an institution provides credit enhancement beyond any contractual obligation to support assets it has sold. Recourse obligations include, but are not limited to: (1) Credit-enhancing representations and warranties made on transferred assets; (2) Loan-servicing assets retained pursuant to an agreement under which the institution will be responsible for losses associated with the loans serviced. Servicer cash advances as defined in this section are not recourse obligations; (3) Retained subordinated interests that absorb more than their pro rata share of losses from the underlying assets; (4) Assets sold under an agreement to repurchase, if the assets are not already included on the balance sheet; (5) Loan strips sold without contractual recourse where the maturity of the transferred portion of the loan is shorter than the maturity of the commitment under which the loan is drawn; (6) Credit derivatives issued that absorb more than the institution's pro rata share of losses from the transferred assets; and (7) Clean-up call on assets the institution has sold. However, clean-up calls that are 10 percent or less of the original pool balance and that are exercisable at the option of the institution are not recourse arrangements. Residual interest— (1) The term residual interest means any on-balance sheet asset that: (i) Represents an interest (including a beneficial interest) created by a transfer that qualifies as a sale (in accordance with generally accepted accounting principles) of financial assets, whether through a securitization or otherwise; and (ii) Exposes an institution to credit risk directly or indirectly associated with the transferred asset that exceeds a pro rata share of the institution's claim on the asset, whether through subordination provisions or other credit enhancement techniques. (2) Residual interests generally include credit-enhancing interest-only strips, spread accounts, cash collateral accounts, retained subordinated interests (and other forms of overcollateralization), and similar assets that function as a credit enhancement. (3) Residual interests further include those exposures that, in substance, cause the institution to retain the credit risk of an asset or exposure that had qualified as a residual interest before it was sold. (4) Residual interests generally do not include interests purchased from a third party. However, purchased credit-enhancing interest-only strips are residual interests. Risk-adjusted asset base means the total dollar amount of the institution's assets adjusted in accordance with §615.5207 and weighted on the basis of risk in accordance with §§615.5211 and 615.5212. Risk participation means a participation in which the originating party remains liable to the beneficiary for the full amount of an obligation (e.g., a direct credit substitute) notwithstanding that another party has acquired a participation in that obligation. Rural Business Investment Company has the definition given in 7 U.S.C. 2009cc(14). Securitization means the pooling and repackaging by a special purpose entity or trust of assets or other credit exposures that can be sold to investors. Securitization includes transactions that create stratified credit risk positions whose performance is dependent upon an underlying pool of credit exposures, including loans and commitments. Servicer cash advance means funds that a mortgage servicer advances to ensure an uninterrupted flow of payments, including advances made to cover foreclosure costs or other expenses to facilitate the timely collection of the loan. A servicer cash advance is not a recourse obligation or a direct credit substitute if: (1) The servicer is entitled to full reimbursement and this right is not subordinated to other claims on the cash flows from the underlying asset pool; or (2) For any one loan, the servicer's obligation to make nonreimbursable advances is contractually limited to an insignificant amount of the outstanding principal amount on that loan. Stock means stock and participation certificates. Term preferred stock means preferred stock with an original maturity of at least 5 years and on which, if cumulative, the board of directors has the option to defer dividends, provided that, at the beginning of each of the last 5 years of the term of the stock, the amount that is eligible to be counted as permanent capital is reduced by 20 percent of the original amount of the stock (net of redemptions). Total capital means assets minus liabilities, valued in accordance with generally accepted accounting principles, except that liabilities do not include obligations to retire stock protected under section 4.9A of the Act. Traded position means a position retained, assumed, or issued that is externally rated, where there is a reasonable expectation that, in the near future, the rating will be relied upon by: (1) Unaffiliated investors to purchase the position; or (2) An unaffiliated third party to enter into a transaction involving the position, such as a purchase, loan, or repurchase agreement. U.S. depository institution means branches (foreign and domestic) of federally insured banks and depository institutions chartered and headquartered in the 50 states of the United States, the District of Columbia, Puerto Rico, and United States territories and possessions. The definition encompasses banks, mutual or stock savings banks, savings or building and loan associations, cooperative banks, credit unions, international banking facilities of domestic depository institutions, and U.S.-chartered depository institutions owned by foreigners. The definition excludes branches and agencies of foreign banks located in the U.S. and bank holding companies. [70 FR 35348, June 17, 2005, as amended at 70 FR 53908, Sept. 13, 2005] Each institution shall at all times maintain permanent capital at a level of at least 7 percent of its risk-adjusted asset base. [62 FR 4446, Jan. 30, 1997] (a) The institution's permanent capital ratio is determined on the basis of the financial statements of the institution prepared in accordance with generally accepted accounting principles except that the obligations of the Farm Credit System Financial Assistance Corporation issued to repay banks in connection with the capital preservation and loss-sharing agreements described in section 6.9(e)(1) of the Act shall not be considered obligations of any institution subject to this regulation prior to their maturity. (b) The institution's asset base and permanent capital are computed using average daily balances for the most recent 3 months. (c) The institution's permanent capital ratio is calculated by dividing the institution's permanent capital, adjusted in accordance with §615.5207 (the numerator), by the risk-adjusted asset base (the denominator) as determined in §615.5210, to derive a ratio expressed as a percentage. (d) Until September 27, 2002, payments of assessments to the Farm Credit System Financial Assistance Corporation, and any part of the obligation to pay future assessments to the Farm Credit System Financial Assistance Corporation that is recognized as an expense on the books of a bank or association, shall be included in the capital of such bank or association for the purpose of determining its compliance with regulatory capital requirements, to the extent allowed by section 6.26(c)(5)(G) of the Act. If the bank directly or indirectly passes on all or part of the payments to its affiliated associations pursuant to section 6.26(c)(5)(D) of the Act, such amounts shall be included in the capital of the associations and shall not be included in the capital of the bank. After September 27, 2002, no payments of assessments or obligations to pay future assessments may be included in the capital of the bank or association. [70 FR 35351, June 17, 2005] For the purpose of computing the institution's permanent capital ratio, the following adjustments must be made prior to assigning assets to risk-weight categories and computing the ratio: (a) Where two Farm Credit System institutions have stock investments in each other, such reciprocal holdings must be eliminated to the extent of the offset. If the investments are equal in amount, each institution must deduct from its assets and its total capital an amount equal to the investment. If the investments are not equal in amount, each institution must deduct from its total capital and its assets an amount equal to the smaller investment. The elimination of reciprocal holdings required by this paragraph must be made prior to making the other adjustments required by this section. (b) Where a Farm Credit Bank or an agricultural credit bank is owned by one or more Farm Credit System institutions, the double counting of capital is eliminated in the following manner: (1) All equities of a Farm Credit Bank or agricultural credit bank that have been purchased by other Farm Credit institutions are considered to be permanent capital of the Farm Credit Bank or agricultural credit bank. (2) Each Farm Credit Bank or agricultural credit bank and each of its affiliated associations may enter into an agreement that specifies, for the purpose of computing permanent capital only, a dollar amount and/or percentage allotment of the association's allocated investment between the bank and the association. Section 615.5208 provides conditions for allotment agreements or defines allotments in the absence of such agreements. (c) A Farm Credit Bank or agricultural credit bank and a recipient, other than an association, of allocated earnings from such bank may enter into an agreement specifying a dollar amount and/or percentage allotment of the recipient's allocated earnings in the bank between the bank and the recipient. Such agreement must comply with the provisions of paragraph (b) of this section, except that, in the absence of an agreement, the allocated investment must be allotted 100 percent to the allocating bank and 0 percent to the recipient. All equities of the bank that are purchased by a recipient are considered as permanent capital of the issuing bank. (d) A bank for cooperatives and a recipient of allocated earnings from such bank may enter into an agreement specifying a dollar amount and/or percentage allotment of the recipient's allocated earnings in the bank between the bank and the recipient. Such agreement must comply with the provisions of paragraph (b) of this section, except that, in the absence of an agreement, the allocated investment must be allotted 100 percent to the allocating bank and 0 percent to the recipient. All equities of a bank that are purchased by a recipient shall be considered as permanent capital of the issuing bank. (e) Where a bank or association invests in an association to capitalize a loan participation interest, the investing institution must deduct from its total capital an amount equal to its investment in the participating institution. (f) The double counting of capital by a service corporation chartered under section 4.25 of the Act and its stockholder institutions must be eliminated by deducting an amount equal to the institution's investment in the service corporation from its total capital. (g) Each institution must deduct from its total capital an amount equal to all goodwill, whenever acquired. (h) To the extent an institution has deducted its investment in another Farm Credit institution from its total capital, the investment may be eliminated from its asset base. (i) Where a Farm Credit Bank and an association have an enforceable written agreement to share losses on specifically identified assets on a predetermined quantifiable basis, such assets must be counted in each institution's risk-adjusted asset base in the same proportion as the institutions have agreed to share the loss. (j) The permanent capital of an institution must exclude the net effect of all transactions covered by the definition of “accumulated other comprehensive income” contained in the Statement of Financial Accounting Standards No. 130, as promulgated by the Financial Accounting Standards Board. (k) For purposes of calculating capital ratios under this part, deferred-tax assets are subject to the conditions, limitations, and restrictions described in §615.5209. (l) Capital may also need to be reduced for potential loss exposure on any recourse obligations, direct credit substitutes, residual interests, and credit-enhancing interest-only-strips in accordance with §615.5210. [70 FR 35351, June 17, 2005] (a) The following conditions apply to agreements that a Farm Credit Bank or agricultural credit bank enters into with an affiliated association pursuant to §615.5207(b)(2): (1) The agreement must be for a term of 1 year or longer. (2) The agreement must be entered into on or before its effective date. (3) The agreement may be amended according to its terms, but no more frequently than annually except in the event that a party to the agreement is merged or reorganized. (4) On or before the effective date of the agreement, a certified copy of the agreement, and any amendments thereto, must be sent to the field office of the Farm Credit Administration responsible for examining the institution. A copy must also be sent within 30 calendar days of adoption to the bank's other affiliated associations. (5) Unless the parties otherwise agree, if the bank and the association have not entered into a new agreement on or before the expiration of an existing agreement, the existing agreement will automatically be extended for another 12 months, unless either party notifies the Farm Credit Administration in writing of its objection to the extension prior to the expiration of the existing agreement. (b) In the absence of an agreement between a Farm Credit Bank or an agricultural credit bank and one or more associations, or in the event that an agreement expires and at least one party has timely objected to the continuation of the terms of its agreement, the following formula applies with respect to the allocated investments held by those associations with which there is no agreement (nonagreeing associations), and does not apply to the allocated investments held by those associations with which the bank has an agreement (agreeing associations): (1) The allotment formula must be calculated annually. (2) The permanent capital ratio of the Farm Credit Bank or agricultural credit bank must be computed as of the date that the existing agreement terminates, using a 3-month average daily balance, excluding the allocated investment from nonagreeing associations but including any allocated investments of agreeing associations that are allotted to the bank under applicable allocation agreements. The permanent capital ratio of each nonagreeing association must be computed as of the same date using a 3-month average daily balance, and must be computed excluding its allocated investment in the bank. (3) If the permanent capital ratio for the Farm Credit Bank or agricultural credit bank calculated in accordance with §615.5208(b)(2) is 7 percent or above, the allocated investment of each nonagreeing association whose permanent capital ratio calculated in accordance with §615.5208(b)(2) is 7 percent or above must be allotted 50 percent to the bank and 50 percent to the association. (4) If the permanent capital ratio of the Farm Credit Bank or agricultural credit bank calculated in accordance with §615.5208(b)(2) is 7 percent or above, the allocated investment of each nonagreeing association whose capital ratio is below 7 percent must be allotted to the association until the association's capital ratio reaches 7 percent or until all of the investment is allotted to the association, whichever occurs first. Any remaining unallotted allocated investment must be allotted 50 percent to the bank and 50 percent to the association. (5) If the permanent capital ratio of the Farm Credit Bank or agricultural credit bank calculated in accordance with §615.5208(b)(2) is less than 7 percent, the amount of additional capital needed by the bank to reach a permanent capital ratio of 7 percent must be determined, and an amount of the allocated investment of each nonagreeing association must be allotted to the Farm Credit Bank or agricultural credit bank, as follows: (i) If the total of the allocated investments of all nonagreeing associations is greater than the additional capital needed by the bank, the allocated investment of each nonagreeing association must be multiplied by a fraction whose numerator is the amount of capital needed by the bank and whose denominator is the total amount of allocated investments of the nonagreeing associations, and such amount must be allotted to the bank. Next, if the permanent capital ratio of any nonagreeing association is less than 7 percent, a sufficient amount of unallotted allocated investment must then be allotted to each nonagreeing association, as necessary, to increase its permanent capital ratio to 7 percent, or until all such remaining investment is allotted to the association, whichever occurs first. Any unallotted allocated investment still remaining must be allotted 50 percent to the bank and 50 percent to the nonagreeing association. (ii) If the additional capital needed by the bank is greater than the total of the allocated investments of the nonagreeing associations, all of the remaining allocated investments of the nonagreeing associations must be allotted to the bank. (c) If a payment or part of a payment to the Farm Credit System Financial Assistance Corporation pursuant to section 6.9(e)(3)(D)(ii) of the Act would cause a bank to fall below its minimum permanent capital requirement, the bank and one or more associations shall amend their allocation agreements to increase the allotment of the allocated investment to the bank sufficiently to enable the bank to make the payment to the Farm Credit System Financial Assistance Corporation, provided that the associations would continue to meet their minimum permanent capital requirement. In the case of a nonagreeing association, the Farm Credit Administration may require a revision of the allotment sufficient to enable the bank to make the payment to the Farm Credit System Financial Assistance Corporation, provided that the association would continue to meet its minimum permanent capital requirement. The Farm Credit Administration may, at the request of one or more of the institutions affected, waive the requirements of this paragraph if the FCA deems it is in the overall best interest of the institutions affected. [70 FR 35351, June 17, 2005] For purposes of calculating capital ratios under this part, deferred-tax assets are subject to the conditions, limitations, and restrictions described in this section. (a) Each institution must deduct an amount of deferred-tax assets, net of any valuation allowance, from its assets and its total capital that is equal to the greater of: (1) The amount of deferred-tax assets that is dependent on future income or future events in excess of the amount that is reasonably expected to be realized within 1 year of the most recent calendar quarter-end date, based on financial projections for that year, or (2) The amount of deferred-tax assets that is dependent on future income or future events in excess of 10 percent of the amount of core surplus that exists before the deduction of any deferred-tax assets. (b) For purposes of this calculation: (1) The amount of deferred-tax assets that can be realized from taxes paid in prior carryback years and from the reversal of existing taxable temporary differences may not be deducted from assets and from equity capital. (2) All existing temporary differences should be assumed to fully reverse at the calculation date. (3) Projected future taxable income should not include net operating loss carryforwards to be used within 1 year or the amount of existing temporary differences expected to reverse within that year. (4) Financial projections must include the estimated effect of tax-planning strategies that are expected to be implemented to minimize tax liabilities and realize tax benefits. Financial projections for the current fiscal year (adjusted for any significant changes that have occurred or are expected to occur) may be used when applying the capital limit at an interim date within the fiscal year. (5) The deferred tax effects of any unrealized holding gains and losses on available-for-sale debt securities may be excluded from the determination of the amount of deferred-tax assets that are dependent upon future taxable income and the calculation of the maximum allowable amount of such assets. If these deferred-tax effects are excluded, this treatment must be followed consistently over time. [70 FR 35351, June 17, 2005] (a) Computation. Each asset on the institution's balance sheet and each off-balance-sheet item, adjusted by the appropriate credit conversion factor in §615.5212, is assigned to one of the risk categories specified in §615.5211. The aggregate dollar value of the assets in each category is multiplied by the percentage weight assigned to that category. The sum of the weighted dollar values from each of the risk categories comprises “risk-adjusted assets,” the denominator for computation of the permanent capital ratio. (b) Ratings-based approach. (1) Under the ratings-based approach, a rated position in a securitization (provided it satisfies the criteria specified in paragraph (b)(3) of this section) is assigned to the appropriate risk-weight category based on its external rating. (2) Provided they satisfy the criteria specified in paragraph (b)(3) of this section, the following positions qualify for the ratings-based approach: (i) Recourse obligations; (ii) Direct credit substitutes; (iii) Residual interests (other than credit-enhancing interest-only strips); and (iv) Asset-or mortgage-backed securities. (3) A position specified in paragraph (b)(2) of this section qualifies for a ratings-based approach provided it satisfies the following criteria: (i) If the position is traded and externally rated, its long-term external rating must be one grade below investment grade or better (e.g., BB or better) or its short-term external rating must be investment grade or better (e.g., A–3, P–3). If the position receives more than one external rating, the lowest rating applies. (ii) If the position is not traded and is externally rated, (A) It must be externally rated by more than one NRSRO; (B) Its long-term external rating must be one grade below investment grade or better (e.g., BB or better) or its short-term external rating must be investment grade or better (e.g., A–3, P–3 or better). If the ratings are different, the lowest rating applies; (C) The ratings must be publicly available; and (D) The ratings must be based on the same criteria used to rate traded positions. (c) Positions in securitizations that do not qualify for a ratings-based approach. The following positions in securitizations do not qualify for a ratings-based approach. They are treated as indicated. (1) For any residual interest that is not externally rated, the institution must deduct from capital and assets the face amount of the position (dollar-for-dollar reduction). (2) For any credit-enhancing interest-only strip, the institution must deduct from capital and assets the face amount of the position (dollar-for-dollar reduction). (3) For any position that has a long-term external rating that is two grades below investment grade or lower (e.g., B or lower) or a short-term external rating that is one grade below investment grade or lower (e.g., B or lower, Not Prime), the institution must deduct from capital and assets the face amount of the position (dollar-for-dollar reduction). (4) Any recourse obligation or direct credit substitute (e.g., a purchased subordinated security) that is not externally rated is risk weighted using the amount of the recourse obligation or direct credit substitute and the full amount of the assets it supports, i.e., all the more senior positions in the structure. This treatment is subject to the low-level exposure rule set forth in paragraph (e) of this section. This amount is then placed into a risk-weight category according to the obligor or, if relevant, the guarantor or the nature of the collateral. (5) Any stripped mortgage-backed security or similar instrument, such as an interest-only strip that is not credit-enhancing or a principal-only strip (including such instruments guaranteed by Government-sponsored agencies), is assigned to the 100-percent risk-weight category described in §615.5211(d)(7). (d) Senior positions not externally rated. For a position in a securitization that is not externally rated but is senior in all features to a traded position (including collateralization and maturity), an institution may apply a risk weight to the face amount of the senior position based on the traded position's external rating. This section will apply only if the traded position provides substantial credit support for the entire life of the unrated position. (e) Low-level exposure rule. If the maximum contractual exposure to loss retained or assumed by an institution in connection with a recourse obligation or a direct credit substitute is less than the effective risk-based capital requirement for the credit-enhanced assets, the risk-based capital required under paragraph (c)(4) of this section is limited to the institution's maximum contractual exposure, less any recourse liability account established in accordance with generally accepted accounting principles. This limitation does not apply when an institution provides credit enhancement beyond any contractual obligation to support assets it has sold. (f) Reservation of authority. The FCA may, on a case-by-case basis, determine the appropriate risk weight for any asset or credit equivalent amount that does not fit wholly within one of the risk categories set forth in §615.5211 or that imposes risks that are not commensurate with the risk weight otherwise specified in §615.5211 for the asset or credit equivalent. In addition, the FCA may, on a case-by-case basis, determine the appropriate credit conversion factor for any off-balance sheet item that does not fit wholly within one of the credit conversion factors set forth in §615.5212 or that imposes risks that are not commensurate with the credit conversion factor otherwise specified in §615.5212 for the item. In making this determination, the FCA will consider the similarity of the asset or off-balance sheet item to assets or off-balance sheet items explicitly treated in §§615.5211 or 615.5212, as well as other relevant factors. [70 FR 35351, June 17, 2005] Section 615.5210(c) specifies certain balance sheet assets that are not assigned to the risk categories set forth below. All other balance sheet assets are assigned to the percentage risk categories as follows: (a) Category 1: 0 Percent. (1) Cash (domestic and foreign). (2) Balances due from Federal Reserve Banks and central banks in other OECD countries. (3) Direct claims on, and portions of claims unconditionally guaranteed by, the U.S. Treasury, government agencies, or central governments in other OECD countries. (4) Portions of local currency claims on, or unconditionally guaranteed by, non-OECD central governments (including non-OECD central banks), to the extent the institution has liabilities booked in that currency. (5) Claims on, or guaranteed by, qualifying securities firms that are collateralized by cash held by the institution or by securities issued or guaranteed by the United States (including U.S. Government agencies) or OECD central governments, provided that a positive margin of collateral is required to be maintained on such a claim on a daily basis, taking into account any change in the institution's exposure to the obligor or counterparty under the claim in relation to the market value of the collateral held in support of the claim. (b) Category 2: 20 Percent. (1) Cash items in the process of collection. (2) Loans and other obligations of and investments in Farm Credit institutions. (3) All claims (long- and short-term) on, and portions of claims (long- and short-term) guaranteed by, OECD banks. (4) Short-term (remaining maturity of 1 year or less) claims on, and portions of short-term claims guaranteed by, non-OECD banks. (5) Portions of loans and other claims conditionally guaranteed by the U.S. Treasury, government agencies, or central governments in other OECD countries and portions of local currency claims conditionally guaranteed by non-OECD central governments to the extent that the institution has liabilities booked in that currency. (6) All securities and other claims on, and portions of claims guaranteed by, Government-sponsored agencies. (7) Portions of loans and other claims (including repurchase agreements) collateralized by securities issued or guaranteed by the U.S. Treasury, government agencies, Government-sponsored agencies or central governments in other OECD countries. (8) Portions of loans and other claims collateralized by cash held by the institution or its funding bank. (9) General obligation claims on, and portions of claims guaranteed by, the full faith and credit of states or other political subdivisions or OECD countries, including U.S. state and local governments. (10) Claims on, and portions of claims guaranteed by, official multinational lending institutions or regional development institutions in which the U.S. Government is a shareholder or a contributing member. (11) Portions of claims collateralized by securities issued by official multilateral lending institutions or regional development institutions in which the U.S. Government is a shareholder or contributing member. (12) Investments in shares of mutual funds whose portfolios are permitted to hold only assets that qualify for the zero or 20-percent risk categories. (13) Recourse obligations, direct credit substitutes, residual interests (other than credit-enhancing interest-only strips) and asset-or mortgage-backed securities that are externally rated in the highest or second highest investment grade category, e.g., AAA, AA, in the case of long-term ratings, or the highest rating category, e.g., A–1, P–1, in the case of short-term ratings. (14) Claims on, and claims guaranteed by, qualifying securities firms provided that: (i) The qualifying securities firm, or at least one issue of its long-term debt, has a rating in one of the highest two investment grade rating categories from an NRSRO (if the securities firm or debt has more than one NRSRO rating the lowest rating applies); or (ii) The claim is guaranteed by a qualifying securities firm's parent company with such a rating. (15) Certain collateralized claims on qualifying securities firms without regard to satisfaction of the rating standard, provided that the claim arises under a contract that: (i) Is a reverse repurchase/repurchase agreement or securities lending/borrowing transaction executed under standard industry documentation; (ii) Is collateralized by liquid and readily marketable debt or equity securities; (iii) Is marked-to-market daily; (iv) Is subject to a daily margin maintenance requirement under the standard documentation; and (v) Can be liquidated, terminated, or accelerated immediately in bankruptcy or similar proceedings, and the security or collateral agreement will not be stayed or avoided, under applicable law of the relevant country. (16) Claims on other financing institutions provided that: (i) The other financing institution qualifies as an OECD bank or it is owned and controlled by an OECD bank that guarantees the claim, or (ii) The other financing institution has a rating in one of the highest three investment-grade rating categories from a NRSRO or the claim is guaranteed by a parent company with such a rating, and (iii) The other financing institution has endorsed all obligations it pledges to its funding Farm Credit bank with full recourse. (c) Category 3: 50 Percent. (1) All other investment securities with remaining maturities under 1 year, if the securities are not eligible for the ratings-based approach or subject to the dollar-for-dollar capital treatment. (2) Qualified residential loans. (3) Recourse obligations, direct credit substitutes, residual interests (other than credit-enhancing interest-only strips) and asset-or mortgage-backed securities that are rated in the third highest investment grade category, e.g., A, in the case of long-term ratings, or the second highest rating category, e.g., A–2, P–2, in the case of short-term ratings. (4) Revenue bonds or similar obligations, including loans and leases, that are obligations of state or political subdivisions of the United States or other OECD countries but for which the government entity is committed to repay the debt only out of revenue from the specific projects financed. (5) Claims on other financing institutions that: (i) Are not covered by the provisions of paragraph (b)(17) of this section, but otherwise meet similar capital, risk identification and control, and operational standards, or (ii) Carry an investment-grade or higher NRSRO rating or the claim is guaranteed by a parent company with such a rating, and (iii) The other financing institution has endorsed all obligations it pledges to its funding Farm Credit bank with full recourse. (d) Category 4: 100 Percent. This category includes all assets not specified in the categories above or below nor deducted dollar-for-dollar from capital and assets as discussed in §615.5210(c). This category comprises standard risk assets such as those typically found in a loan or lease portfolio and includes: (1) All other claims on private obligors. (2) Claims on, or portions of claims guaranteed by, non-OECD banks with a remaining maturity exceeding 1 year. (3) Claims on, or portions of claims guaranteed by, non-OECD central governments that are not included in paragraphs (a)(4) or (b)(4) of this section, and all claims on non-OECD state and local governments. (4) Industrial-development bonds and similar obligations issued under the auspices of states or political subdivisions of the OECD-based group of countries for the benefit of a private party or enterprise where that party or enterprise, not the government entity, is obligated to pay the principal and interest. (5) Premises, plant, and equipment; other fixed assets; and other real estate owned. (6) Recourse obligations, direct credit substitutes, residual interests (other than credit-enhancing interest-only strips) and asset-or mortgage-backed securities that are rated in the lowest investment grade category, e.g., BBB, in the case of long-term ratings, or the third highest rating category, e.g., A–3, P–3, in the case of short-term ratings. (7) Stripped mortgage-backed securities and similar instruments, such as interest-only strips that are not credit-enhancing and principal-only strips (including such instruments guaranteed by Government-sponsored agencies). (8) Investments in Rural Business Investment Companies. (9) If they have not already been deducted from capital: (i) Investments in unconsolidated companies, joint ventures, or associated companies. (ii) Deferred-tax assets. (iii) Servicing assets. (10) All non-local currency claims on foreign central governments, as well as local currency claims on foreign central governments that are not included in any other category. (11) Claims on other financing institutions that do not otherwise qualify for a lower risk-weight category under this section; and (12) All other assets not specified above, including but not limited to leases and receivables. (e) Category 5: 200 Percent. Recourse obligations, direct credit substitutes, residual interests (other than credit-enhancing interest-only strips) and asset-or mortgage-backed securities that are rated one category below the lowest investment grade category, e.g., BB. [70 FR 35351, June 17, 2005] (a) The face amount of an off-balance sheet item is generally incorporated into risk-weighted assets in two steps. For most off-balance sheet items, the face amount is first multiplied by a credit conversion factor. (In the case of direct credit substitutes and recourse obligations the full amount of the assets enhanced are multiplied by a credit conversion factor). The resultant credit equivalent amount is assigned to the appropriate risk-weight category described in §615.5211 according to the obligor or, if relevant, the guarantor or the collateral. (b) Conversion factors for various types of off-balance sheet items are as follows: (1) 0 Percent. (i) Unused commitments with an original maturity of 14 months or less; (ii) Unused commitments with an original maturity greater than 14 months if: (A) They are unconditionally cancellable by the institution; and (B) The institution has the contractual right to, and in fact does, make a separate credit decision based upon the borrower's current financial condition before each drawing under the lending arrangement. (2) 20 Percent. Short-term, self-liquidating, trade-related contingencies, including but not limited to commercial letters of credit. (3) 50 Percent. (i) Transaction-related contingencies (e.g., bid bonds, performance bonds, warranties, and performance-based standby letters of credit related to a particular transaction). (ii) Unused loan commitments with an original maturity greater than 14 months, including underwriting commitments and commercial credit lines. (iii) Revolving underwriting facilities (RUFs), note issuance facilities (NIFs) and other similar arrangements pursuant to which the institution's customer can issue short-term debt obligations in its own name, but for which the institution has a legally binding commitment to either: (A) Purchase the obligations its customer is unable to sell by a stated date; or (B) Advance funds to its customer if the obligations cannot be sold. (4) 100 Percent. (i) The full amount of the assets supported by direct credit substitutes and recourse obligations for which an institution directly or indirectly retains or assumes credit risk. For risk participations in such arrangements acquired by the institution, the full amount of assets supported by the main obligation multiplied by the acquiring institution's percentage share of the risk participation. The capital requirement under this paragraph is limited to the institution's maximum contractual exposure, less any recourse liability account established under generally accepted accounting principles. (ii) Acquisitions of risk participations in bankers acceptances. (iii) Sale and repurchase agreements, if not already included on the balance sheet. (iv) Forward agreements (i.e., contractual obligations) to purchase assets, including financing facilities with certain drawdown. (c) Credit equivalents of interest rate contracts and foreign exchange contracts. (1) Credit equivalents of interest rate contracts and foreign exchange contracts (except single-currency floating/floating interest rate swaps) are determined by adding the replacement cost (mark-to-market value, if positive) to the potential future credit exposure, determined by multiplying the notional principal amount by the following credit conversion factors as appropriate. (2) For any derivative contract that does not fall within one of the categories in the above table, the potential future credit exposure is to be calculated using the commodity conversion factors. The net current exposure for multiple derivative contracts with a single counterparty and subject to a qualifying bilateral netting contract is the net sum of all positive and negative mark-to-market values for each derivative contract. The positive sum of the net current exposure is added to the adjusted potential future credit exposure for the same multiple contracts with a single counterparty. The adjusted potential future credit exposure is computed as Anet = (0.4 × Agross) + 0.6 (NGR × Agross) where: (i) Anet is the adjusted potential future credit exposure; (ii) Agross is the sum of potential future credit exposures determined by multiplying the notional principal amount by the appropriate credit conversion factor; and (iii) NGR is the ratio of the net current credit exposure divided by the gross current credit exposure determined as the sum of only the positive mark-to-markets for each derivative contract with the single counterparty. (3) Credit equivalents of single-currency floating/floating interest rate swaps are determined by their replacement cost (mark-to-market). [70 FR 35351, June 17, 2005] The boards of directors of System institutions may not reduce the permanent capital of the institution through the payment of patronage refunds or dividends, or the retirement of stock or allocated equities except retirements pursuant to §§615.5280 and 615.5290 if, after or due to the action, the permanent capital of the institution would fail to meet the minimum permanent capital adequacy standard established under §615.5205 for that period. This limitation shall not apply to the payment of noncash patronage refunds by any institution exempt from Federal income tax if the entire refund paid qualifies as permanent capital at the issuing institution. Any System institution subject to Federal income tax may pay patronage refunds partially in cash if the cash portion of the refund is the minimum amount required to qualify the refund as a deductible patronage distribution for Federal income tax purposes and the remaining portion of the refund paid qualifies as permanent capital. [53 FR 39247, Oct. 6, 1988, as amended at 53 FR 40046, Oct. 13, 1988] Source: 53 FR 40046, Oct. 13, 1988, unless otherwise noted.
(a) The board of directors of each System bank and association shall, pursuant to section 4.3A of the Farm Credit Act of 1971 (Act), adopt capitalization bylaws, subject to the approval of its voting shareholders that set forth: (1) Classes of equities and the manner in which they shall be issued, transferred, converted and retired; (2) For each class of equities, a description of the class(es) of persons to whom such stock may be issued, voting rights, dividend rights and preferences, and priority upon liquidation, including rights, if any, to share in the distribution of the residual estate; (3) The number of shares and par value of equities authorized to be issued for each class of equities. However, the bylaws need not state a number or value limit for these equities: (i) Equities that are required to be purchased as a condition of obtaining a loan, lease, or related service. (ii) Non-voting stock resulting from the conversion of voting stock due to repayment of a loan. (iii) Non-voting equities that are issued to an association's funding bank in conjunction with any agreement for a transfer of capital between the association and the bank. (iv) Equities resulting from the distribution of earnings. (4) For Farm Credit Banks, agricultural credit banks (with respect to loans other than to cooperatives), and associations, the percentage or dollar amount of equity investment (which may be expressed as a range within which the board of directors may from time to time determine the requirement) that will be required to be purchased as a condition for obtaining a loan, which shall be not less than, 2 percent of the loan amount or $1,000, whichever is less; (5) For banks for cooperatives and agricultural credit banks (with respect to loans to cooperatives), the percentage or dollar amount of equity or guaranty fund investment (which may be expressed as a range within which the board may from time to time determine the requirement) that serves as a target level of investment in the bank for patronage-sourced business, which shall not be less than, 2 percent of the loan amount or $1,000, whichever is less; (6) The manner in which equities will be retired, including a provision stating that equities other than those protected under section 4.9A of the Act are retirable at the sole discretion of the board, provided minimum permanent capital adequacy standards established in subpart H of this part are met; (7) The manner in which earnings will be allocated and distributed, including the basis on which patronage refunds will paid, which shall be in accord with cooperative principles; and (8) For Farm Credit banks, the manner in which the capitalization requirements of the Farm Credit Bank shall be allocated and equalized from time to time among its owners. (b) The board of directors of each service corporation (including the Farm Credit Leasing Services Corporation) shall adopt capitalization bylaws, subject to the approval of its voting shareholders, that set forth the requirements of paragraphs (a)(1), (a)(2), and (a)(3) of this section to the extent applicable. Such bylaws shall also set forth the manner in which equities will be retired and the manner in which earnings will be distributed. [53 FR 40046, Oct. 13, 1988, as amended at 62 FR 4446, Jan. 30, 1997; 63 FR 39227, July 22, 1998; 66 FR 16844, Mar. 28, 2001] (a) Voting shareholders of Farm Credit banks and associations shall be accorded full voting rights in accordance with cooperative principles. (1) Each voting shareholder of an association or bank for cooperatives must: (i) Have only one vote, regardless of the number of shares owned or the number of loans outstanding, except as otherwise required by statute or regulation and except as modified by paragraph (b) of this section; (ii) Unless regional election of directors is provided for in the bylaws pursuant to §615.5230(a)(3), be accorded the right to vote in the election of each director (except for a director that is elected by the other directors); (iii) Unless regional election of directors is provided for in the bylaws, or unless otherwise provided in the bylaws, be allowed to cumulate such votes and distribute them among the candidates in the shareholder's discretion. (2) Each voting shareholder of a Farm Credit Bank must: (i) Have one vote that is assigned a weight proportional to the number of the association's voting shareholders in a manner that does not discriminate against agricultural credit associations that have resulted from the merger or consolidation of Federal land bank associations and production credit associations; and (ii) Have the right to vote in the election of each director and be allowed to cumulate such votes and distribute them among the candidates in the shareholder's discretion, except that cumulative voting for directors may be eliminated if 75 percent of the associations that are shareholders of the Farm Credit Bank vote in favor of elimination. In a vote to eliminate cumulative voting, each association shall be accorded one vote. (3) The regional election of stockholder-elected directors is permitted under the following conditions: (i) A bylaw establishing regional elections is approved by a majority of voting shareholders, voting in person or by proxy, prior to implementation; (ii) The bylaw provides that all voting shareholders of the institution, whether or not they reside in the director's region, have the right to vote in any shareholder vote to remove each director; (iii) There are an approximately equal number of voting shareholders in each of the institution's voting regions. The regions shall be deemed to have an approximately equal number of voting shareholders if no region contains more than 25 percent more voting shareholders than in any other region. At least once every 3 years, the institution shall count the number of voting shareholders in each region and, if the regions do not have an approximately equal number of shareholders, shall adjust the regional boundaries to achieve such result; and (iv) An institution may provide for more than one director to represent a region. In such case, for purposes of determining whether the regions have an approximately equal number of voting shareholders, the number of voting shareholders in the region with more than one director shall be divided by the number of director positions representing that region, and the resulting quotient shall be the number that is compared to the number of voting shareholders in other regions. (b) Each equityholder of each institution shall be equitably treated in the operation of the institution. (1) Each issuance of preferred stock (other than preferred stock outstanding on October 5, 1988, and stock into which such outstanding stock is converted that has substantially similar preferences) shall be approved by a majority of the shares of each class of equities adversely affected by the preference, voting as a class, whether or not such classes are otherwise authorized to vote; (2) Any dividends paid to the holders of common stock and participation certificates shall be on a per share basis and without preference as to rate or priority of payment between classes of common stock, between classes of participation certificates, between classes of common stock and classes of participation certificates, or between holders of the same class of stock or participation certificates, except that any class of common stock or participation certificates that result from the conversion of allocated surplus may be subordinated to other classes of common stock and participation certificates in the payment of dividends. (3) Any patronage refunds that are paid shall be paid in accordance with cooperative principles, on an equitable and nondiscriminatory basis determined by the board of directors in accordance with the capitalization bylaws, provided that any earning pools that may be established for the payment of patronage shall be established on a rational and equitable basis that will ensure that each patron of the institution receives its fair share of the earnings of the institution and bears its fair share of the expenses of the institution. (4) All classes of common stock and participation certificates (except those resulting from a conversion of allocated surplus) must be accorded the same priority with respect to impairment and restoration of impairment and have the same rights and priority upon liquidation. (5) Each bank must endeavor to assure that there is a choice of at least two nominees for each elective office to be filled and that the board represents as nearly as possible all types of agriculture in the district. If fewer than two nominees for each position are named, the efforts to locate two willing nominees must be documented in the records of the bank and provided as part of the Annual Meeting Information Statement of part 620, subpart E of this chapter. The bank must also maintain a list of the type or types of agriculture engaged in by each director on its board. [53 FR 40046, Oct. 13, 1988, as amended at 54 FR 6118, Feb. 8, 1989; 60 FR 57921, Nov. 24, 1995; 62 FR 4446, Jan. 30, 1997; 62 FR 49908, Sept. 24, 1997; 63 FR 39228, July 22, 1998; 70 FR 53908, Sept. 13, 2005; 71 FR 5763, Feb. 2, 2006] (a) The capitalization bylaws shall enable the institution to meet the capital adequacy standards established under subparts H and K of this part and the total capital requirements established by the board of directors of the institution. (b) In order to qualify as permanent capital, equities issued under the bylaws must meet the following requirements: (1) Retirement must be solely at the discretion of the board of directors and not upon a date certain (other than the original maturity date of preferred stock) or upon the happening of any event, such as repayment of the loan, and not pursuant to any automatic retirement or revolvement plan; (2) Retirement must be at not more than book value; (3) The institution must have made the disclosures required by this subpart; (4) For common stock and participation certificates, dividends must be noncumulative and payable only at the discretion of the board; and (5) For cumulative preferred stock, the board of directors must have discretion to defer payment of dividends. [70 FR 53908, Sept. 13, 2005] (a) The board of directors of each association offering preferred stock must adopt a policy that addresses the association's conditions or limits on the amount of preferred stock that any one holder, or small number of holders may acquire. (b) Each association offering preferred stock must make the stock available for purchase to each of its members on the same basis. (c) An association may not extend credit for purchases of preferred stock in the association. [70 FR 53908, Sept. 13, 2005] (a) For sales of borrower stock, which for this subpart means equities purchased as a condition for obtaining a loan, an institution must provide a prospective borrower with the following documents prior to loan closing: (1) The institution's most recent annual report filed under part 620 of this chapter; (2) The institution's most recent quarterly report filed under part 620 of this chapter, if more recent than the annual report; (3) A copy of the institution's capitalization bylaws; and (4) A written description of the terms and conditions under which the equity is issued. In addition to specific terms and conditions, the description must disclose: (i) That the equity is an at-risk investment and not a compensating balance; (ii) That the equity is retireable only at the discretion of the board of directors and only if minimum permanent capital standards established under subpart H of this part are met; (iii) Whether the institution presently meets its minimum permanent capital standards; (iv) Whether the institution knows of any reason the institution may not meet its permanent capital standard on the next earnings distribution date; and (v) The rights, if any, to share in patronage distributions. (b) Notwithstanding the provisions of paragraph (a) of this section, no materials previously provided to a purchaser (except the disclosures required by paragraph (a)(4) of this section) need be provided again unless the purchaser requests such materials. [70 FR 53908, Sept. 13, 2005] (a) A bank, association, or service corporation must submit a proposed disclosure statement to the Farm Credit Administration (FCA) for review and clearance prior to the proposed sale of any other equities, which for this subpart means equities not purchased as a condition for obtaining a loan. (b) An institution may not offer to sell other equities until a disclosure statement is reviewed and cleared by FCA. (c) A disclosure statement must include: (1) All of the information required by part 620 of this chapter in the annual report to shareholders as of a date within 135 days of the proposed sale. An institution may incorporate by reference its most recent annual report to shareholders and the most recent quarterly report filed with the FCA in satisfaction of this requirement; (2) The information required by §615.5250(a)(3) and (a)(4); and (3) A discussion of the intended use of the sale proceeds. (d) An institution is not required to provide the materials identified in paragraphs (c)(1) and (c)(2) of this section to a purchaser who previously received them unless the purchaser requests it. (e) For any class of stock where each purchaser and each subsequent transferee acquires at least $250,000 of the stock and meets the definition of “accredited investor” or “qualified institutional buyer” contained in 17 CFR 230.501 and 230.144A (or successor provisions), a disclosure statement submitted pursuant to this section is deemed reviewed and cleared by FCA and an institution may treat stock that meets all requirements of part 615 as permanent capital for the purpose of meeting the minimum permanent capital standards established under subpart H unless FCA notifies the institution to the contrary within 30 days of receipt of a complete disclosure statement submission. A complete disclosure statement submission includes the proposed disclosure statement plus any additional materials requested by FCA. (f) For all other issuances, a disclosure statement submitted pursuant to this section is deemed cleared by FCA, and an institution may treat stock that meets all requirements of part 615 as permanent capital for the purpose of meeting the minimum permanent capital standards established under subpart H unless FCA notifies the institution to the contrary within 60 days of receipt of a complete disclosure statement submission. A complete disclosure statement submission includes the proposed disclosure statement plus any additional materials requested by FCA. (g) Upon request, FCA will inform the institution how it will treat the proposed issuance for other regulatory capital ratios or computations. (h) No institution, officer, director, employee, or agent shall, in connection with the sale of equities, make any disclosure, through a disclosure statement or otherwise, that is inaccurate or misleading, or omit to make any statement needed to prevent other disclosures from being misleading. (i) Each bank and association must establish a method to disclose and make information on insider preferred stock purchases and retirements readily available to the public. At a minimum, each institution offering preferred stock must make this information available upon request. (j) The requirements of this section do not apply to the sale of Farm Credit System institution equities to: (1) Other Farm Credit System institutions, (2) Other financing institutions in connection with a lending or discount relationship, or (3) Non-Farm Credit System lenders that purchase equities in connection with a loan participation transaction. (k) In addition to the requirements of this section, each institution is responsible for ensuring its compliance with all applicable Federal and state securities laws. [70 FR 53908, Sept. 13, 2005] (a) Definitions. For the purposes of this subpart the following definitions shall apply: (1) Eligible borrowers stock means: (i) Stock, participation certificates or allocated equities outstanding on January 6, 1988, or purchased as a condition of obtaining a loan prior to the earlier of the date of shareholder approval of capitalization bylaws under section 4.3A of the Act or October 6, 1988; and (ii) Any stock, participation certificates or allocated equities for which such eligible borrower stock is exchanged in connection with a merger, consolidation, or other reorganization or a transfer of territory. Eligible borrower stock does not include equities for which eligible borrower stock is required to be exchanged pursuant to the bylaws adopted under section 4.3A or equities for which eligible borrower stock is voluntarily exchanged except in connection with a merger, consolidation or other reorganization or a transfer of territory. (2) Retirement in the ordinary course of business means: (i) Retirement upon repayment of a loan or under a retirement or revolvement plan in effect prior to January 6, 1988, and for eligible borrower stock issued after that date, at the time the loan was made; or (ii) Retirement pursuant to §§615.5280 and 615.5290. (3) Par value means: (i) In the case of stock, par value; (ii) In the case of participation certificates and other equities, face or equivalent value; or (iii) In the case of participation certificates and allocated surplus subject to retirement under a revolving cycle and retired out or order pursuant to §§615.5280 and 615.5290 or otherwise under the Act, par or face value discounted at a rate determined by the institution to reflect the present value of the equity as of the date of such retirement. (b) When an institution retires eligible borrower stock in the ordinary course of business, such equities shall be retired at par, even if book value is less than par. (c) When a Farm Credit Bank retires stock for the sole purpose of enabling an association to retire eligible borrower stock that was issued in connection with a long term real estate loan, such stock shall be retired at par even if its book value is less than par. [53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 62 FR 4447, Jan. 30, 1997; 63 FR 39228, July 22, 1998] (a) Equities other than eligible borrower stock shall be retired at not more than their book value. (b) No equities shall be retired, except pursuant to §§615.5280 and 615.5290, or term stock at its stated maturity unless after the retirement the institution would continue to meet the minimum permanent capital standards established under subpart H of this part. (c) A bank, association, or service corporation board of directors may delegate authority to retire at-risk stock to institution management if: (1) The board has determined that the institution's capital position is adequate; (2) All retirements are in accordance with the institution's capital adequacy plan or capital restoration plan; (3) The institution's permanent capital ratio will be in excess of 9 percent after any retirements; (4) The institution will continue to satisfy all applicable minimum surplus and collateral standards after any retirements; and (5) Management reports the aggregate amount and net effect of stock purchases and retirements to the board of directors each quarter. (d) Each board of directors of a bank, association, or service corporation that issues preferred stock must adopt a written policy covering the retirement of preferred stock. The policy must, at a minimum: (1) Establish any delegations of authority to retire preferred stock and the conditions of delegation, which must meet the requirements of paragraph (c) of this section and include minimum levels for total surplus and core surplus commensurate with the volatility of the preferred stock. (2) Identify limitations on the amount of stock that may be retired during a single quarterly (or shorter) time period; (3) Ensure that all stockholder requests for retirement are treated fairly and equitably; (4) Prohibit any insider, including institution officers, directors, employees, or agents, from retiring any preferred stock in advance of the release of material non-public information concerning the institution to other stockholders; and (5) Establish when insiders may retire their preferred stock. (e) The institution's board must review its policy at least annually to ensure that it continues to be appropriate for the institution's current financial condition and consistent with its long-term goals established in its capital adequacy plan. [53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 62 FR 4447, Jan. 30, 1997; 70 FR 53909, Sept. 13, 2005] (a) When the debt of a holder of eligible borrower stock issued by a production credit association, Federal land bank association, Federal land credit association or agricultural credit association is in default, such institution may, but shall not be required to, retire at par eligible borrower stock owned by such borrower on which the institution has a lien, in total or partial liquidation of the debt. (b) When the debt of a holder of stock, participation certificates or other equities issued by a production credit association, Federal land bank association, Federal land credit association or agricultural credit association is in default, such institution may, but shall not be required to, retire at book value not to exceed par all or part of such equities, other than eligible borrower stock as defined in §615.5260(a)(1), owned by such borrower on which the institution has a lien, in total or partial liquidation of the debt. (c) When the debt of a holder of equities or guaranty fund certificates issued by a bank for cooperatives or agricultural credit bank is in default the bank may, but shall not be required to, retire all or part of such equities qualify or guaranty fund investments owned by the borrower on which the bank has a lien, in total or partial liquidation of the debt. If such investments qualify as eligible borrower stock, it shall be retired at par, as defined in §615.5260(a)(3). All other investments shall be retired at a rate determined by the institution to reflect its present value on the date of retirement. (d) When the debt of a holder of the equities of a Farm Credit Bank or agricultural credit bank is in default the bank may, but shall not be required to, retire all or part of such equities owned by the borrower on which the bank has a lien, in total or partial liquidation of the debt. If such equities qualify as eligible borrower stock or are retired solely to permit a Federal land bank association to retire eligible borrower stock under §615.5280(a), they shall be retired at par. All other equities shall be retired at book value not to exceed par. (e) Any retirements made under this section by a Federal land bank association shall be made only upon the specific approval of, or in accordance with, approval procedures issued by the association's funding bank. (f) Prior to making any retirement pursuant to this section, except retirements pursuant to paragraphs (c) and (d) of this section, the institution shall provide the borrower with written notice of the following matters; (1) A statement that the institution has declared the borrower's loan to be in default; (2) A statement that the institution will retire all or part of the equities of the borrower in total or partial liquidation of his or her loan; (3) A description of the effect of the retirement on the relationship of the borrower to the institution; (4) A statement of the amount of the outstanding debt that will be owed to the institution after the retirement of the borrower's equities; and (5) The date on which the institution will retire the equities of the borrower. (g) The notice required by this section shall be provided in person at least 10 days prior to the retirement of any equities of a holder, or by mailing a copy of the notice by first class mail to the last known address of the equity holder at least 13 days prior to the retirement of such person's equities. (h) The requirements of this section may be satisfied by notices given pursuant to §§617.7405, 617.7410, 617.7420, and 617.7425 of this chapter that contain the information required by this section. [53 FR 40048, Oct. 13, 1988; 54 FR 7029, Feb. 16, 1989, as amended at 61 FR 67187, Dec. 20, 1996; 62 FR 13213, Mar. 19, 1997; 69 FR 10907, Mar. 9, 2004] (a) If a Farm Credit Bank or agricultural credit bank forgives and writes off, under §617.7415, any of the principal outstanding on a loan made to any borrower, where appropriate the Federal land bank association of which the borrower is a member and stockholder shall cancel the same dollar amount of borrower stock held by the borrower in respect of the loan, up to the total amount of such stock, and to the extent provided for in the bylaws of the Bank relating to its capitalization, the Farm Credit Bank or agricultural credit bank shall retire an equal amount of stock owned by the Federal land bank association. (b) If a production credit association or merged association forgives and writes off, under §617.7415, any of the principal outstanding on a loan made to any borrower, the association shall cancel the same dollar amount of borrower stock held by the borrower in respect of the loan, up to the total amount of such loan. (c) Notwithstanding paragraphs (a) and (b) of this section, the borrower shall be entitled to retain at least one share of stock to maintain the borrower's membership and voting interest. [53 FR 35457, Sept. 14, 1988, as amended at 61 FR 67188, Dec. 20, 1996; 69 FR 10907, Mar. 9, 2004] (a) The board of directors of a bank, association, or service corporation must declare a dividend on a class of stock before any dividends may be paid to stockholders. (b) No bank, association, or service corporation may declare or pay any dividend unless after declaration or payment of the dividend the institution would continue to meet its regulatory capital standards under this part. (c) Each bank, association, and service corporation must exclude any accrued but unpaid dividends from regulatory capital computations under this part. [70 FR 53909, Sept. 13, 2005] Source: 62 FR 4447, Jan. 30, 1997, unless otherwise noted.
For the purposes of this subpart, the following definitions shall apply: (a) The terms deferred-tax assets that are dependent on future income or future events, institution, permanent capital, and total capital shall have the meanings set forth in §615.5201. (b) Core surplus. (1) Core surplus means: (i) Undistributed earnings/unallocated surplus less, for associations only, an amount equal to the net investment in the bank; (ii) Nonqualified allocated equities (including stock) that are not distributed according to an established plan or practice, provided that, in the event that a nonqualified patronage allocation is distributed, other than as required by section 4.14B of the Act, or in connection with a loan default or the death of an equityholder whose loan has been repaid (to the extent provided for in the institution's capital adequacy plan), any remaining nonqualified allocations that were allocated in the same year will be excluded from core surplus. (iii) Perpetual common or noncumulative perpetual preferred stock (other than allocated stock) that is not retired according to an established plan or practice, provided that, in the event that stock held by a borrower is retired, other than as required by section 4.14B of the Act or in connection with a loan default to the extent provided for in the institution's capital plan, the remaining perpetual stock of the same class or series shall be excluded from core surplus; (iv) A capital instrument or a particular balance sheet entry or account that the Farm Credit Administration has determined to be the functional equivalent of a component of core surplus. The Farm Credit Administration may permit an institution to include all or a portion of such instrument, entry, or account as core surplus, permanently or on a temporary basis, for purposes of this subpart. (2) For associations only, other allocated equities may also be included in the core surplus ratio to the extent permitted by §615.5330(b) if the following conditions are met: (i) The allocated equities are includible in total surplus; and (ii) The allocated equities, if subject to a plan or practice of revolvement or retirement, are not scheduled or intended to be revolved or retired during the next 3 years, provided that, in the event that such allocated equities included in core surplus are retired, other than as required by section 4.14B of the Act, or in connection with a loan default or the death of an equityholder whose loan has been repaid (to the extent provided for in the institution's capital adequacy plan), any remaining such allocated equities that were allocated in the same year will be excluded from core surplus. (3) The deductions that must be made by an institution in the computation of its permanent capital pursuant to §615.5207(f), (g), (i), and (k) shall also be made in the computation of its core surplus. Deductions required by §615.5207(a) shall also be made to the extent that they do not duplicate deductions calculated pursuant to this section and required by §615.5330(b)(2). (4) Equities issued by System institutions and held by other System institutions shall not be included in the core surplus of the issuing institution or of the holder, unless approved pursuant to paragraph (b)(1)(iv) of this section, except that equities held in connection with a loan participation shall not be excluded by the holder. This paragraph shall not apply to investments by an association in its affiliated bank, which are governed by §615.5301(b)(1)(i). (5) The core surplus of an institution shall exclude the net effect of all transactions covered by the definition of “accumulated other comprehensive income” contained in the Statement of Financial Accounting Standards No. 130, as promulgated by the Financial Accounting Standards Board. (6) The Farm Credit Administration may, if it finds that a particular component, balance sheet entry, or account has characteristics or terms that diminish its contribution to an institution's ability to absorb losses, require the deduction of all or a portion of such component, entry, or account from core surplus. (c) Net collateral means the value of a bank's collateral as defined by §615.5050 (except that eligible investments as described in §615.5140 are to be valued at their amortized cost), less an amount equal to that portion of the allocated investments of affiliated associations that is not counted as permanent capital by the bank. (d) Net collateral ratio means a bank's net collateral, divided by the bank's total liabilities. (e) Net investment in the bank means the total investment by an association in its affiliated bank, less reciprocal investments and investments resulting from a loan originating/service agency relationship, including participations. (f) Nonqualified allocated equities means allocations of earnings designated to the institution's members that are not deducted from the gross taxable income of the allocating institution at the time of allocation. (g) Perpetual stock or equity means stock or equity not having a maturity date, not redeemable at the option of the holder, and having no other provisions that will require the future redemption of the issue. (h) Qualified allocated equities means allocations of earnings that are deducted from the gross taxable income of the allocating institution and designated to the institution's members. (i) Total surplus means: (1) Undistributed earnings/unallocated surplus; (2) Allocated equities, including allocated surplus and stock, that are not subject to a plan or practice of revolvement or retirement of 5 years or less and are eligible to be included in permanent capital pursuant to paragraph(4)(iv) of the definition of permanent capital in §615.5201; and (3) Common and perpetual preferred stock (other than allocated stock) that is not purchased or held as a condition of obtaining a loan, provided that the institution has no established plan or practice of retiring such stock; (4) Term preferred stock that is not purchased or held as a condition of obtaining a loan, up to a maximum of 25 percent of the institution's permanent capital (as calculated after deductions required in the permanent capital ratio computation). The amount of includible term stock must be reduced by 20 percent (net of redemptions) at the beginning of each of the last 5 years of the term of the instrument; (5) The total surplus of an institution shall exclude the net effect of all transactions covered by the definition of “accumulated other comprehensive income” contained in the Statement of Financial Accounting Standards No. 130, as promulgated by the Financial Accounting Standards Board. (6) A capital instrument or a particular balance sheet entry or account that the Farm Credit Administration has determined to be the functional equivalent of a component of total surplus. The Farm Credit Administration may permit one or more institutions to include all or a portion of such instrument, entry, or account as total surplus, permanently or on a temporary basis, for purposes of this subpart. (7) The Farm Credit Administration may, if it finds that a particular component, balance sheet entry, or account has characteristics or terms that diminish its contribution to an institution's ability to absorb losses, require the deduction of all or a portion of such component, entry, or account from total surplus. (8) Any deductions made by an institution in the computation of its permanent capital pursuant to §615.5207 shall also be made in the computation of its total surplus. (j) Total liabilities means liabilities valued in accordance with generally accepted accounting principles (GAAP), except that total liabilities shall exclude the following: (1) As set forth in Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as promulgated by the Financial Accounting Standards Board— (i) Adjustments to the carrying amount of any liability designated as being hedged; and (ii) Any derivative recognized as a liability that is designated as a hedging instrument. (2) Term preferred stock to the extent such stock is included as total surplus in the computation of the bank's total surplus ratio pursuant to §615.5301(i). [62 FR 4447, Jan. 30, 1997; 62 FR 19219, Apr. 21, 1997; 63 FR 39228, July 22, 1998; 68 FR 18534, Apr. 16, 2003; 70 FR 35356, June 17, 2005] (a) Total surplus. (1) Each institution shall achieve and at all times maintain a ratio of a least 7 percent of total surplus to the risk-adjusted asset base. (2) The risk-adjusted asset base is the total dollar amount of the institution's assets adjusted in accordance with §615.5301(i)(7) and weighted on the basis of risk in accordance with §615.5210. (b) Core surplus. (1) Each institution shall achieve and at all times maintain a ratio of core surplus to the risk-adjusted asset base of a least 3.5 percent, of which no more than 2 percentage points may consist of allocated equities otherwise includible pursuant to §615.5301(b). (2) Each association shall compute its core surplus ratio by deducting an amount equal to the net investment in the bank from its core surplus. (3) The risk-adjusted asset base is the total dollar amount of the institution's assets adjusted in accordance with §§615.5301(b)(3) and 615.5330(b)(2), and weighted on the basis of risk in accordance with §615.5210. (c) An institution shall compute its risk-adjusted asset base, total surplus, and core surplus ratios using average daily balances for the most recent 3 months. [63 FR 39228, July 22, 1998, as amended at 70 FR 35356, June 17, 2005] (a) Each bank shall achieve and at all times maintain a net collateral ratio of at least 103 percent. (b) At a minimum, a bank shall compute its net collateral ratio as of the end of each month. A bank shall have the capability to compute its net collateral ratio a day after the close of a business day using the daily balances outstanding for assets and liabilities for that date. [63 FR 39229, July 22, 1998] (a) Noncompliance and reporting. An institution that meets the minimum applicable surplus ratios and net collateral ratio established in §§615.5330 and 615.5335 at or after the end of the quarter in which these regulations become effective and subsequently falls below one or more minimum requirements shall be in violation of the applicable regulations. Such institution shall report its noncompliance to the Farm Credit Administration within 20 calendar days following the month end in which the institution initially determines that it is not in compliance with the requirements. (b) Initial compliance and reporting requirements. (1) An institution that fails to satisfy one or more of its minimum applicable surplus and net collateral ratios at the end of the quarter in which these regulations become effective shall report its initial noncompliance to the Farm Credit Administration within 20 days following such quarter end and shall also submit a capital restoration plan for achieving and maintaining the standards, demonstrating appropriate annual progress toward meeting the goal, to the Farm Credit Administration within 60 days following such quarter end. If the capital restoration plan is not approved by the Farm Credit Administration, the Agency shall inform the institution of the reasons for disapproval, and the institution shall submit a revised capital restoration plan within the time specified by the Farm Credit Administration. (2) Approval of compliance plans. In determining whether to approve a capital restoration plan submitted under this section, the FCA shall consider the following factors, as applicable: (i) The conditions or circumstances leading to the institution's falling below minimum levels, the exigency of those circumstances, and whether or not they were caused by actions of the institution or were beyond the institution's control; (ii) The overall condition, management strength, and future prospects of the institution and, if applicable, affiliated System institutions; (iii) The institution's capital, adverse assets (including nonaccrual and nonperforming loans), allowance for loss, and other ratios compared to the ratios of its peers or industry norms; (iv) How far an institution's ratios are below the minimum requirements; (v) The estimated rate at which the institution can reasonably be expected to generate additional earnings; (vi) The effect of the business changes required to increase capital; (vii) The institution's previous compliance practices, as appropriate; (viii) The views of the institution's directors and senior management regarding the plan; and (ix) Any other facts or circumstances that the FCA deems relevant. (3) An institution shall be deemed to be in compliance with the surplus and collateral requirements of this subpart if it is in compliance with a capital restoration plan that is approved by the Farm Credit Administration within 180 days following the end of the quarter in which these regulations become effective. Source: 62 FR 4448, Jan. 30, 1997, unless otherwise noted.
(a) The rules and procedures specified in this subpart are applicable to a proceeding to establish required minimum capital ratios that would otherwise be applicable to an institution under §§615.5205, 615.5330, and 615.5335. The Farm Credit Administration is authorized to establish such minimum capital requirements for an institution as the Farm Credit Administration, in its discretion, deems to be necessary or appropriate in light of the particular circumstances of the institution. Proceedings under this subpart also may be initiated to require an institution having capital ratios greater than those set forth in §§615.5205, 615.5330, or 615.5335 to continue to maintain those higher ratios. (b) The Farm Credit Administration may require higher minimum capital ratios for an individual institution in view of its circumstances. For example, higher capital ratios may be appropriate for: (1) An institution receiving special supervisory attention; (2) An institution that has, or is expected to have, losses resulting in capital inadequacy; (3) An institution with significant exposure due to operational risk, interest rate risk, the risks from concentrations of credit, certain risks arising from other products, services, or related activities, or management's overall inability to monitor and control financial risks presented by concentrations of credit and related services activities; (4) An institution exposed to a high volume of, or particularly severe, problem loans; (5) An institution that is growing rapidly; or (6) An institution that may be adversely affected by the activities or condition of System institutions with which it has significant business relationships or in which it has significant investments. (7) An institution with significant exposures to declines in net income or in the market value of its capital due to a change in interest rates and/or the exercising of embedded or explicit options. [62 FR 4448, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998] The appropriate minimum capital ratios for an individual institution cannot be determined solely through the application of a rigid mathematical formula or wholly objective criteria. The decision is necessarily based in part on subjective judgment grounded in Agency expertise. The factors to be considered in the determination will vary in each case and may include, for example: (a) The conditions or circumstances leading to the Farm Credit Administration's determination that higher minimum capital ratios are appropriate or necessary for the institution; (b) The exigency of those circumstances or potential problems; (c) The overall condition, management strength, and future prospects of the institution and, if applicable, affiliated institutions; (d) The institution's capital, adverse assets (including nonaccrual and nonperforming loans), allowance for loss, and other ratios compared to the ratios of its peers or industry norms; and (e) The views of the institution's directors and senior management. (a) Notice. When the Farm Credit Administration determines that minimum capital ratios greater than those set forth in §§615.5205, 615.5330, or 615.5335 are necessary or appropriate for a particular institution, the Farm Credit Administration will notify the institution in writing of the proposed minimum capital ratios and the date by which they should be reached (if applicable) and will provide an explanation of why the ratios proposed are considered necessary or appropriate for the institution. (b) Response. (1) The institution may respond to any or all of the items in the notice. The response should include any matters which the institution would have the Farm Credit Administration consider in deciding whether individual minimum capital ratios should be established for the institution, what those capital ratios should be, and, if applicable, when they should be achieved. The response must be in writing and delivered to the designated Farm Credit Administration official within 30 days after the date on which the institution received the notice. In its discretion, the Farm Credit Administration may extend the time period for good cause. The Farm Credit Administration may shorten the time period with the consent of the institution or when, in the opinion of the Farm Credit Administration, the condition of the institution so requires, provided that the institution is informed promptly of the new time period. (2) Failure to respond within 30 days or such other time period as may be specified by the Farm Credit Administration shall constitute a waiver of any objections to the proposed minimum capital ratios or the deadline for their achievement. (c) Decision. After the close of the institution's response period, the Farm Credit Administration will decide, based on a review of the institution's response and other information concerning the institution, whether individual minimum capital ratios should be established for the institution and, if so, the ratios and the date the requirements will become effective. The institution will be notified of the decision in writing. The notice will include an explanation of the decision, except for a decision not to establish individual minimum capital requirements for the institution. (d) Submission of plan. The decision may require the institution to develop and submit to the Farm Credit Administration, within a time period specified, an acceptable plan to reach the minimum capital ratios established for the institution by the date required. (e) Reconsideration based on change in circumstances. If, after the Farm Credit Administration's decision in paragraph (c) of this section, there is a change in the circumstances affecting the institution's capital adequacy or its ability to reach the required minimum capital ratios by the specified date, either the institution or the Farm Credit Administration may propose a change in the minimum capital ratios for the institution, the date when the minimums must be achieved, or the institution's plan (if applicable). The Farm Credit Administration may decline to consider proposals that are not based on a significant change in circumstances or are repetitive or frivolous. Pending a decision on reconsideration, the Farm Credit Administration's original decision and any plan required under that decision shall continue in full force and effect. In lieu of, or in addition to, the procedures in this subpart, the required minimum capital ratios for an institution may be established or revised through a written agreement or cease and desist proceedings under part C of title V of the Act, or as a condition for approval of an application. An institution that does not have or maintain the minimum capital ratios applicable to it, whether required in subparts H and K of this part, in a decision pursuant to this subpart, in a written agreement or temporary or final order under part C of title V of the Act, or in a condition for approval of an application, or an institution that has failed to submit or comply with an acceptable plan to attain those ratios, will be subject to such administrative action or sanctions as the Farm Credit Administration considers appropriate. These sanctions may include the issuance of a capital directive pursuant to subpart M of this part or other enforcement action, assessment of civil money penalties, and/or the denial or condition of applications. Source: 62 FR 4449, Jan. 30, 1997, unless otherwise noted.
(a) This subpart is applicable to proceedings by the Farm Credit Administration to issue a capital directive under sections 4.3(b) and 4.3A(e) of the Act. A capital directive is an order issued to an institution that does not have or maintain capital at or greater than the minimum ratios set forth in §§615.5205, 615.5330, and 615.5335; or established for the institution under subpart L, by a written agreement under part C of title V of the Act, or as a condition for approval of an application. A capital directive may order the institution to: (1) Achieve the minimum capital ratios applicable to it by a specified date; (2) Adhere to a previously submitted plan to achieve the applicable capital ratios; (3) Submit and adhere to a plan acceptable to the Farm Credit Administration describing the means and time schedule by which the institution shall achieve the applicable capital ratios; (4) Take other action, such as reduction of assets or the rate of growth of assets, restrictions on the payment of dividends or patronage, or restrictions on the retirement of stock, to achieve the applicable capital ratios, or reduce levels of interest rate and other risk exposures, or strengthen management expertise, or improve management information and measurement systems; or (5) A combination of any of these or similar actions. (b) A capital directive may also be issued to the board of directors of an institution, requiring such board to comply with the requirements of section 4.3A(d) of the Act prohibiting the reduction of permanent capital. (c) A capital directive issued under this rule, including a plan submitted under a capital directive, is enforceable in the same manner and to the same extent as an effective and outstanding cease and desist order which has become final as defined in section 5.25 of the Act. Violation of a capital directive may result in assessment of civil money penalties in accordance with section 5.32 of the Act. [62 FR 4449, Jan. 30, 1997, as amended at 63 FR 39229, July 22, 1998] The Farm Credit Administration will notify an institution in writing of its intention to issue a capital directive. The notice will state: (a) The reasons for issuance of the capital directive; (b) The proposed contents of the capital directive, including the proposed date for achieving the minimum capital requirement; and (c) Any other relevant information concerning the decision to issue a capital directive. (a) An institution may respond to the notice by stating why a capital directive should not be issued and/or by proposing alternative contents for the capital directive or seeking other appropriate relief. The response shall include any information, mitigating circumstances, documentation, or other relevant evidence that supports its position. The response may include a plan for achieving the minimum capital ratios applicable to the institution. The response must be in writing and delivered to the Farm Credit Administration within 30 days after the date on which the institution received the notice. In its discretion, the Farm Credit Administration may extend the time period for good cause. The Farm Credit Administration may shorten the 30-day time period: (1) When, in the opinion of the Farm Credit Administration, the condition of the institution so requires, provided that the institution shall be informed promptly of the new time period; (2) With the consent of the institution; or (3) When the institution already has advised the Farm Credit Administration that it cannot or will not achieve its applicable minimum capital ratios. (b) Failure to respond within 30 days or such other time period as may be specified by the Farm Credit Administration shall constitute a waiver of any objections to the proposed capital directive. After the closing date of the institution's response period, or receipt of the institution's response, if earlier, the Farm Credit Administration may seek additional information or clarification of the response. Thereafter, the Farm Credit Administration will determine whether or not to issue a capital directive, and if one is to be issued, whether it should be as originally proposed or in modified form. (a) A capital directive will be served by delivery to the institution. It will include or be accompanied by a statement of reasons for its issuance. (b) A capital directive is effective immediately upon its receipt by the institution, or upon such later date as may be specified therein, and shall remain effective and enforceable until it is stayed, modified, or terminated by the Farm Credit Administration. Upon a change in circumstances, an institution may request the Farm Credit Administration to reconsider the terms of its capital directive or may propose changes in the plan to achieve the institution's applicable minimum capital ratios. The Farm Credit Administration also may take such action on its own motion. The Farm Credit Administration may decline to consider requests or proposals that are not based on a significant change in circumstances or are repetitive or frivolous. Pending a decision on reconsideration, the capital directive and plan shall continue in full force and effect. A capital directive may be issued in addition to, or in lieu of, any other action authorized by law, including cease and desist proceedings, civil money penalties, or the conditioning or denial of applications. The Farm Credit Administration also may, in its discretion, take any action authorized by law, in lieu of a capital directive, in response to an institution's failure to achieve or maintain the applicable minimum capital ratios. Source: 61 FR 67192, Dec. 20, 1996, unless otherwise noted.
In this subpart, unless the context otherwise requires or indicates: (a) Adverse claim means a claim that a claimant has a property interest in a security and that it is a violation of the rights of the claimant for another person to hold, transfer, or deal with the security. (b) Book-entry security means a Farm Credit security issued or maintained in the Book-entry System. (c) Book-entry System means the automated book-entry system operated by the Federal Reserve Banks, acting as the fiscal agent for the Farm Credit banks, through which book-entry securities are issued, recorded, transferred and maintained in book-entry form. (d) Definitive Farm Credit security means a Farm Credit security in engraved or printed form, or that is otherwise represented by a certificate. (e) Eligible book-entry security means a book-entry security issued or maintained in the Book-entry System, which by the terms of its securities documentation, is eligible to be converted from book-entry into definitive form. (f) Entitlement Holder means a person to whose account an interest in a book-entry security is credited on the records of a securities intermediary. (g) Farm Credit banks means one or more Farm Credit Banks, agricultural credit banks, and banks for cooperatives. (h) Farm Credit securities means consolidated notes, bonds, debentures, or other similar obligations of the Farm Credit banks and Systemwide notes, bonds, debentures, or similar obligations of the Farm Credit banks issued under sections 4.2(c) and 4.2(d), respectively, of the Act, or laws repealed thereby. (i) Federal Reserve Bank means a Federal Reserve Bank or Branch acting as agent for the Farm Credit banks and the Funding Corporation. (j) Federal Reserve Bank Operating Circular means the publication issued by each Federal Reserve Bank that sets forth the terms and conditions under which the Federal Reserve Bank maintains book-entry securities accounts and transfers book-entry securities. (k) Funding Corporation means the Federal Farm Credit Banks Funding Corporation established pursuant to section 4.9 of the Act, which issues Farm Credit securities on behalf of the Farm Credit banks. (l) Funds Account means a reserve and/or clearing account at a Federal Reserve Bank to which debits or credits are posted for transfers against payment, book-entry securities transaction fees, or principal and interest payments. (m) Participant means a person that maintains a participant's securities account with a Federal Reserve Bank. (n) Participant's Securities Account means an account in the name of a participant at a Federal Reserve Bank to which book-entry securities held for a participant are or may be credited. (o) Person means an individual, corporation, company, governmental entity, association, firm, partnership, trust, estate, representative and any other similar organization, but does not mean the United States, a Farm Credit bank, the Funding Corporation or a Federal Reserve Bank. (p) Revised Article 8 means Uniform Commercial Code, Revised Article 8, Investment Securities (with Conforming and Miscellaneous Amendments to Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text, and has the same meaning as in 31 CFR 357.2. (q) Securities Documentation means the applicable statement of terms, trust indenture, securities agreement, offering circular or other documents establishing the terms of a book-entry security. (r) Securities Intermediary means: (1) A person that is registered as a “clearing agency” under the Federal securities laws; a Federal Reserve Bank; any other person that provides clearance or settlement services with respect to a book-entry security that would require it to register as a clearing agency under the Federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including promulgation of rules, are subject to regulation by a Federal or State governmental authority; or (2) A person (other than an individual, unless such individual is registered as a broker or dealer under the Federal securities laws) including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. (s) Security means a Farm Credit security as defined in paragraph (h) of this section. (t) Security Entitlement means the rights and property interest of an entitlement holder with respect to a book-entry security. (u) State means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other territory or possession of the United States. (v) Transfer Message means an instruction of a participant to a Federal Reserve Bank to effect a transfer of a book-entry security maintained in the Book-entry System, as set forth in Federal Reserve Bank Operating Circulars. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997] Subject to subpart C of this part: (a) Farm Credit banks operating under the same title of the Act may issue consolidated securities in book-entry form. (b) Farm Credit banks may issue Systemwide securities in book-entry form. (c) Consolidated and Systemwide securities also may be issued in either registered or bearer definitive form. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997] (a) Except as provided in paragraph (b) of this section, the following are governed solely by the regulations contained in this subpart O, the securities documentation, and Federal Reserve Bank Operating Circulars: (1) The rights and obligations of the Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks with respect to: (i) A book-entry security or security entitlement, and (ii) The operation of the Book-entry System as it applies to Farm Credit securities; and (2) The rights of any person, including a participant, against the Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks with respect to: (i) A book-entry security or security entitlement, and (ii) The operation of the Book-entry System as it applies to Farm Credit securities. (b) A security interest in a security entitlement that is in favor of a Federal Reserve Bank from a participant and that is not recorded on the books of a Federal Reserve Bank pursuant to §615.5454(c)(1) of this subpart, is governed by the law (not including the conflict-of-law rules) of the jurisdiction where the head office of the Federal Reserve Bank maintaining the participant's securities account is located. A security interest in a security entitlement that is in favor of a Federal Reserve Bank from a person that is not a participant, and that is not recorded on the books of a Federal Reserve Bank pursuant to §615.5454(c)(1)of this subpart, is governed by the law determined in the manner specified in §615.5453 of this subpart. (c) If the jurisdiction specified in the first sentence of paragraph (b) of this section is a State that has not adopted revised Article 8 (see 31 CFR 357.2) then the law specified in paragraph (b) of this section shall be the law of that State as though revised Article 8 had been adopted by that State. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997] (a) To the extent not inconsistent with these regulations, the law (not including the conflict-of-law rules) of a securities intermediary's jurisdiction governs: (1) The acquisition of a security entitlement from the securities intermediary; (2) The rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement; (3) Whether the securities intermediary owes any duties to an adverse claimant to a security entitlement; (4) Whether an adverse claim can be asserted against a person who acquires a security entitlement from the securities intermediary or a person who purchases a security entitlement or interest therein from an entitlement holder; and (5) Except as otherwise provided in paragraph (c) of this section, the perfection, effect of perfection or non-perfection and priority of a security interest in a security entitlement. (b) The following rules determine a “securities intermediary's jurisdiction” for purposes of this section: (1) If an agreement between the securities intermediary and its entitlement holder specifies that it is governed by the law of a particular jurisdiction, that jurisdiction is the securities intermediary's jurisdiction. (2) If an agreement between the securities intermediary and its entitlement holder does not specify the governing law as provided in paragraph (b)(1) of this section, but expressly specifies that the securities account is maintained at an office in a particular jurisdiction, that jurisdiction is the securities intermediary's jurisdiction. (3) If an agreement between the securities intermediary and its entitlement holder does not specify a jurisdiction as provided in paragraph (b)(1) or (b)(2) of this section, the securities intermediary's jurisdiction is the jurisdiction in which is located the office identified in an account statement as the office serving the entitlement holder's account. (4) If an agreement between the securities intermediary and its entitlement holder does not specify a jurisdiction as provided in paragraph (b)(1) or (b)(2) of this section and an account statement does not identify an office serving the entitlement holder's account as provided in paragraph (b)(3) of this section, the securities intermediary's jurisdiction is the jurisdiction in which is located the chief executive office of the securities intermediary. (c) Notwithstanding the general rule in paragraph (a)(5) of this section, the law (but not the conflict-of-law rules) of the jurisdiction in which the person creating a security interest is located governs whether and how the security interest may be perfected automatically or by filing a financing statement. (d) If the jurisdiction specified in paragraph (b) of this section is a State that has not adopted revised Article 8 (see 31 CFR 357.2), then the law for the matters specified in paragraph (a) of this section shall be the law of that State as though revised Article 8 had been adopted by that State. For purposes of the application of the matters specified in paragraph (a) of this section, the Federal Reserve Bank maintaining the securities account is a clearing corporation, and the participant's interest in a book-entry security is a security entitlement. (a) A participant's security entitlement is created when a Federal Reserve Bank indicates by book entry that a book-entry security has been credited to a participant's securities account. (b) A security interest in a security entitlement of a participant in favor of the United States to secure deposits of public money, including without limitation deposits to the Treasury tax and loan accounts, or other security interest in favor of the United States that is required by Federal statute, regulation, or agreement, and that is marked on the books of a Federal Reserve Bank is thereby effected and perfected, and has priority over any other interest in the securities. Where a security interest in favor of the United States in a security entitlement of a participant is marked on the books of a Federal Reserve Bank, such Federal Reserve Bank may rely, and is protected in relying, exclusively on the order of an authorized representative of the United States directing the transfer of the security. For purposes of this paragraph, an “authorized representative of the United States” is the official designated in the applicable regulations or agreement to which a Federal Reserve Bank is a party, governing the security interest. (c)(1) The Farm Credit Banks, the Funding Corporation, and the Federal Reserve Banks have no obligation to agree to act on behalf of any person or to recognize the interest of any transferee of a security interest or other limited interest in favor of any person except to the extent of any specific requirement of Federal law or regulation or to the extent set forth in any specific agreement with the Federal Reserve Bank on whose books the interest of the participant is recorded. To the extent required by such law or regulation or set forth in an agreement with a Federal Reserve Bank, or the Federal Reserve Bank Operating Circular, a security interest in a security entitlement that is in favor of a Federal Reserve Bank, a Farm Credit Bank, the Funding Corporation, or a person may be created and perfected by a Federal Reserve Bank marking its books to record the security interest. Except as provided in paragraph (b) of this section, a security interest in a security entitlement marked on the books of a Federal Reserve Bank shall have priority over any other interest in the securities. (2) In addition to the method provided in paragraph (c)(1) of this section, a security interest, including a security interest in favor of a Federal Reserve Bank, may be perfected by any method by which a security interest may be perfected under applicable law as described in §615.5452(b) or §615.5453 of this subpart. The perfection, effect of perfection or non-perfection and priority of a security interest are governed by that applicable law. A security interest in favor of a Federal Reserve Bank shall be treated as a security interest in favor of a clearing corporation in all respects under that law, including with respect to the effect of perfection and priority of the security interest. A Federal Reserve Bank Operating Circular shall be treated as a rule adopted by a clearing corporation for such purposes. [62 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997] (a) Except in the case of a security interest in favor of the United States or a Federal Reserve Bank or otherwise as provided in §615.5454(c)(1), for the purposes of this subpart O, the Farm Credit banks, the Funding Corporation and the Federal Reserve Banks shall treat the participant to whose securities account an interest in a book-entry security has been credited as the person exclusively entitled to issue a transfer message, to receive interest and other payments with respect thereof and otherwise to exercise all the rights and powers with respect to such security, notwithstanding any information or notice to the contrary. The Federal Reserve Banks, the Farm Credit banks, and the Funding Corporation are not liable to a person asserting or having an adverse claim to a security entitlement or to a book-entry security in a participant's securities account, including any such claim arising as a result of the transfer or disposition of a book-entry security by a Federal Reserve Bank pursuant to a transfer message that the Federal Reserve Bank reasonably believes to be genuine. (b) The obligation of the Farm Credit banks and the Funding Corporation to make payments (including payments of interest and principal) with respect to book-entry securities is discharged at the time payment in the appropriate amount is made as follows: (1) Interest or other payments on book-entry securities are either credited by a Federal Reserve Bank to a funds account maintained at the Federal Reserve Bank or otherwise paid as directed by the participant. (2) Book-entry securities are redeemed in accordance with their terms by a Federal Reserve Bank withdrawing the securities from the participant's securities account in which they are maintained and by either crediting the amount of the redemption proceeds, including both principal and interest, where applicable, to a funds account at the Federal Reserve Bank or otherwise paying such principal and interest as directed by the participant. No action by the participant is required in connection with the redemption of a book-entry security. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53229, Oct. 14, 1997] (a) Each Federal Reserve Bank is hereby authorized as fiscal agent of the Farm Credit banks and the Funding Corporation to perform functions with respect to the issuance of book-entry securities offered and sold by the Farm Credit banks and the Funding Corporation to which this subpart applies, in accordance with the terms of the securities documentation and the provisions of this subpart: (1) To service and maintain book-entry securities in accounts established for such purposes; (2) To make payments of principal and interest, as directed by the Farm Credit banks and the Funding Corporation; (3) To effect transfer of book-entry securities between participants' securities accounts as directed by the participants; (4) To effect conversions between book-entry securities and definitive Farm Credit securities with respect to those securities as to which conversion rights are available pursuant to the applicable securities documentation; and (5) To perform such other duties as fiscal agent as may be requested by the Farm Credit banks and the Funding Corporation. (b) Each Federal Reserve Bank may issue Operating Circulars not inconsistent with this subpart, governing the details of its handling of book-entry securities, security entitlements, and the operation of the Book-entry System under this subpart. (a) Eligible book-entry securities may be withdrawn from the Book-entry System by requesting delivery of like definitive Farm Credit securities. (b) A Federal Reserve Bank shall, upon receipt of appropriate instructions to withdraw eligible book-entry securities from book-entry in the Book-entry System, convert such securities into definitive Farm Credit securities and deliver them in accordance with such instructions. (c) Farm Credit securities which are to be delivered upon withdrawal may be issued in either registered or bearer form, to the extent permitted by the applicable securities documentation. (d) All requests for withdrawal of eligible book-entry securities must be made prior to the maturity or the applicable date of call of the Farm Credit securities. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997] The Farm Credit Administration reserves the right, in the Farm Credit Administration's discretion, to waive any provision(s) of the regulations in this subpart in any case or class of cases for the convenience of the Farm Credit banks and the Funding Corporation or in order to relieve any person(s) of unnecessary hardship, if such action is not inconsistent with law, does not adversely affect any substantial existing rights, and the Farm Credit Administration is satisfied that such action will not subject the Farm Credit banks and the Funding Corporation to any substantial expense or liability. The Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks may rely on the information provided in a transfer message or other transaction documentation, and are not required to verify the information. The Farm Credit banks, the Funding Corporation, and the Federal Reserve Banks shall not be liable for any action taken in accordance with the information set out in the transfer message, other transaction documentation, or evidence submitted in support thereof. (a) Additional requirements. In any case or any class of cases arising under the regulations in this subpart, the Farm Credit banks and the Funding Corporation may require such additional evidence and a bond of indemnity, with or without surety, as may in the judgment of the Farm Credit banks and the Funding Corporation be necessary for the protection of the interests of the Farm Credit banks and the Funding Corporation. (b) Notice of attachment for Farm Credit securities in the Book-entry System. The interest of a debtor in a security entitlement may be reached by a creditor only by legal process upon the securities intermediary with whom the debtor's securities account is maintained, except where a security entitlement is maintained in the name of a secured party, in which case the debtor's interest may be reached by legal process upon the secured party. These regulations do not purport to establish whether a Federal Reserve Bank is required to honor an order or other notice of attachment in any particular case or class of cases. (c) Conversion of definitive securities into book-entry securities. Definitive Farm Credit securities may be converted to book-entry form in accordance with the terms of the applicable securities documentation and Federal Reserve Operating Circular. [61 FR 67192, Dec. 20, 1996, as amended at 62 FR 53230, Oct. 14, 1997] (a) Relief on the account of the loss, theft, destruction, mutilation, or defacement of any definitive consolidated or Systemwide securities of the Farm Credit banks and coupons of such securities may be granted on the same basis and to the same extent as relief may be granted under the statutes of the United States and the regulations of the Department of the Treasury on the account of the loss, theft, destruction, mutilation, or defacement of United States securities and coupons of such securities. (b) Applicants for relief under paragraph (a) of this section, shall present claims and proof of loss: (1) To the Division of Special Investments, Bureau of the Public Debt, P.O. Box 396, Parkersburg, WV 26102–0396, in the case of consolidated or Systemwide securities of the Farm Credit banks issued prior to May 1, 1978; or (2) To the Federal Farm Credit Banks Funding Corporation, 10 Exchange Place, Suite 1401, Jersey City, NJ 07302, in the case of consolidated or Systemwide securities issued on or after May 1, 1978. When consolidated and Systemwide bearer securities of the Farm Credit banks are being presented to Federal Reserve Banks, for redemption, exchange, or conversion to book entry, such securities may be restrictively endorsed. The restrictive endorsement shall be placed thereon in substantially the same manner and with the same effects as prescribed in United States Treasury Department regulations, now or hereafter in force, governing like transactions in United States bonds; and consolidated or Systemwide securities of the Farm Credit banks so endorsed shall be prepared for shipment and shipped in the manner prescribed in such regulations for United States bearer securities. (See 31 CFR part 328.) In this subpart, unless the context otherwise requires or indicates: (a) Global debt securities means consolidated Systemwide debt securities issued by the Funding Corporation on behalf of the Farm Credit banks under section 4.2(d) of the Act through a fiscal agent or agents and distributed either exclusively outside the United States or simultaneously inside and outside the United States. (b) Global agent means any fiscal agent, other than the Federal Reserve Banks, used by the Funding Corporation to facilitate the sale of global debt securities. [60 FR 57919, Nov. 24, 1995] (a) The Funding Corporation may provide for the sale of global debt securities on behalf of the Farm Credit banks through a global agent or agents by negotiation, offer, bid, or syndicate sale, and deliver such obligations by book-entry, wire transfer, or such other means as may be appropriate. (b) The Funding Corporation Board of Directors shall establish appropriate criteria for the selection of global agents and shall approve each global agent. [60 FR 57919, Nov. 24, 1995] Subject to the provisions of §614.4710, banks for cooperatives may rediscount with other purchasers the acceptances they have created. The bank for cooperatives' board of directors, under established policies, may delegate this authority to management. [55 FR 24888, June 19, 1990] (a) The Farm Credit System Financial Assistance Corporation (Financial Assistance Corporation) is a federally chartered instrumentality of the United States, and an institution of the Farm Credit System, subject to the examination and regulation of the Farm Credit Administration. (b) Subject to the approval of the Farm Credit System Assistance Board, the Financial Assistance Corporation is authorized by section 6.26 of the Act to issue uncollateralized bonds, notes, debentures, and similar obligations, guaranteed as to the timely payment of principal and interest by the Secretary of the Treasury, for a term of 15 years (Financial Assistance Corporation securities). The Financial Assistance Corporation may prescribe the forms, the denominations, the rates of interest, the conditions, the manner of issuance and the prices of such Financial Assistance Corporation obligations. (c) Financial Assistance Corporation securities shall be governed by §§615.5450, and 615.5452 through 615.5460. In interpreting those sections for purposes of this subpart, unless the context requires otherwise, the term “Financial Assistance Corporation securities” shall be read for “Farm Credit securities,” and “Financial Assistance Corporation” shall be read for “Farm Credit banks” and “Funding Corporation.” These terms shall be read as though modified where necessary to effectuate the application of the designated sections of subpart O of this part to the Financial Assistance Corporation. [53 FR 12141, Apr. 13, 1988; 53 FR 27156, July 19, 1988, as amended at 61 FR 67195, Dec. 20, 1996] (a) The Federal Agricultural Mortgage Corporation (Farmer Mac) is a Federally chartered instrumentality of the United States and an institution of the Farm Credit System, subject to the examination and regulation of the Farm Credit Administration. (b) Farmer Mac, either in its own name or through an affiliate controlled or owned by Farmer Mac, is authorized by section 8.6 of the Act: (1) To issue and/or guarantee the timely payment of principal and interest on securities representing interests in or obligations backed by pools of agricultural real estate loans (guaranteed securities); and (2) To issue debt obligations (which, together with the guaranteed securities described in paragraph (b)(1) of this section, are referred to as Farmer Mac securities). Farmer Mac may prescribe the forms, the denominations, the rates of interest, the conditions, the manner of issuance, and the prices of Farmer Mac securities. (c) Farmer Mac securities shall be governed by §§615.5450, and 615.5452 through 615.5460. In interpreting those sections for purposes of this subpart, unless the context requires otherwise, the term “Farmer Mac securities” shall be read for “Farm Credit securities,” and “Farmer Mac” shall be read for “Farm Credit banks” and “Funding Corporation.” These terms shall be read as though modified where necessary to effectuate the application of the designated sections of subpart O of this part to Farmer Mac. [61 FR 31394, June 20, 1996, as amended at 61 FR 67195, Dec. 20, 1996]
Title 12: Banks and Banking
PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
Section Contents
§ 615.5000 General responsibilities.
§ 615.5010 Funding Corporation.
§ 615.5030 Borrowings from commercial banks.
§ 615.5040 Borrowings from financial institutions other than commercial banks.
§ 615.5045 Definitions.
§ 615.5050 Collateral requirements.
§ 615.5060 Special collateral requirement.
§ 615.5090 Reduction in carrying value of collateral.
§ 615.5100 Authority to issue.
§ 615.5101 Requirements for issuance.
§ 615.5102 Issuance of debt obligations through the Funding Corporation.
§§ 615.5103-615.5104 [Reserved]
§ 615.5105 Consolidated Systemwide notes.
§ 615.5110 Authority to issue (other funding).
§ 615.5120 Purchase eligibility requirement.
§ 615.5130 Procedures.
§ 615.5131 Definitions.
§ 615.5132 Investment purposes.
§ 615.5133 Investment management.
§ 615.5134 Liquidity reserve requirement.
§ 615.5135 Management of interest rate risk.
§ 615.5136 Emergencies impeding normal access of Farm Credit banks to capital markets.
§ 615.5140 Eligible investments.
§ 615.5141 Stress tests for mortgage securities.
§ 615.5142 Association investments.
§ 615.5143 Disposal of ineligible investments.
§ 615.5144 Banks for cooperatives and agricultural credit banks.
§ 615.5170 Real and personal property.
§ 615.5171 Transfer of capital from banks to associations.
§ 615.5172 Production credit association and agricultural credit association investment in farmers' notes given to cooperatives and dealers.
§ 615.5173 Stock of the Federal Agricultural Mortgage Corporation.
§ 615.5174 Farmer Mac securities.
§ 615.5175 Investments in Farm Credit System institution preferred stock.
§ 615.5180 Interest rate risk management by banks—general.
§ 615.5181 Bank interest rate risk management program.
§ 615.5182 Interest rate risk management by associations and other Farm Credit System institutions other than banks.
§ 615.5200 Capital planning.
§ 615.5201 Definitions.
§ 615.5205 Minimum permanent capital standards.
§ 615.5206 Permanent capital ratio computation.
§ 615.5207 Capital adjustments and associated reductions to assets.
§ 615.5208 Allotment of allocated investments.
§ 615.5209 Deferred-tax assets.
§ 615.5210 Risk-adjusted assets.
§ 615.5211 Risk categories—balance sheet assets.
§ 615.5212 Credit conversion factors—off-balance sheet items.
§ 615.5215 Distribution of earnings.
§ 615.5216 [Reserved]
§ 615.5220 Capitalization bylaws.
§ 615.5230 Implementation of cooperative principles.
§ 615.5240 Permanent capital requirements.
§ 615.5245 Limitations on association preferred stock.
§ 615.5250 Disclosure requirements for borrower stock.
§ 615.5255 Disclosure and review requirements for other equities.
§ 615.5260 Retirement of eligible borrower stock.
§ 615.5270 Retirement of other equities.
§ 615.5280 Retirement in event of default.
§ 615.5290 Retirement of capital stock and participation certificates in event of restructuring.
§ 615.5295 Payment of dividends.
§ 615.5301 Definitions.
§ 615.5330 Minimum surplus ratios.
§ 615.5335 Bank net collateral ratio.
§ 615.5336 Compliance and reporting.
§ 615.5350 General—Applicability.
§ 615.5351 Standards for determination of appropriate individual institution minimum capital ratios.
§ 615.5352 Procedures.
§ 615.5353 Relation to other actions.
§ 615.5354 Enforcement.
§ 615.5355 Purpose and scope.
§ 615.5356 Notice of intent to issue a capital directive.
§ 615.5357 Response to notice.
§ 615.5358 Decision.
§ 615.5359 Issuance of a capital directive.
§ 615.5360 Reconsideration based on change in circumstances.
§ 615.5361 Relation to other administrative actions.
§ 615.5450 Definitions.
§ 615.5451 Book-entry and definitive securities.
§ 615.5452 Law governing rights and obligations of Federal Reserve Banks, Farm Credit banks, and Funding Corporation; rights of any person against Federal Reserve Banks, Farm Credit banks, and Funding Corporation.
§ 615.5453 Law governing other interests.
§ 615.5454 Creation of participant's security entitlement; security interests.
§ 615.5455 Obligations of the Farm Credit banks and the Funding Corporation; no adverse claims.
§ 615.5456 Authority of Federal Reserve Banks.
§ 615.5457 Withdrawal of eligible book-entry securities for conversion to definitive form.
§ 615.5458 Waiver of regulations.
§ 615.5459 Liability of Farm Credit banks, Funding Corporation and Federal Reserve Banks.
§ 615.5460 Additional provisions.
§ 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit securities, including coupons.
§ 615.5462 Restrictive endorsement of bearer securities.
§ 615.5500 Definitions.
§ 615.5502 Issuance of global debt securities.
§ 615.5550 Bankers acceptances.
§ 615.5560 Book-entry Procedure for Farm Credit System Financial Assistance Corporation Securities.
§ 615.5570 Book-entry procedures for Federal Agricultural Mortgage Corporation Securities.
Subpart A—Funding
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§ 615.5000 General responsibilities.
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§ 615.5010 Funding Corporation.
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§ 615.5030 Borrowings from commercial banks.
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§ 615.5040 Borrowings from financial institutions other than commercial banks.
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Subpart B—Collateral
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§ 615.5045 Definitions.
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§ 615.5050 Collateral requirements.
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§ 615.5060 Special collateral requirement.
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§ 615.5090 Reduction in carrying value of collateral.
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Subpart C—Issuance of Bonds, Notes, Debentures and Similar Obligations
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§ 615.5100 Authority to issue.
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§ 615.5101 Requirements for issuance.
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§ 615.5102 Issuance of debt obligations through the Funding Corporation.
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§§ 615.5103-615.5104 [Reserved]
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§ 615.5105 Consolidated Systemwide notes.
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Subpart D—Other Funding
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§ 615.5110 Authority to issue (other funding).
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§ 615.5120 Purchase eligibility requirement.
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§ 615.5130 Procedures.
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Subpart E—Investment Management
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§ 615.5131 Definitions.
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§ 615.5132 Investment purposes.
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§ 615.5133 Investment management.
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§ 615.5134 Liquidity reserve requirement.
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§ 615.5135 Management of interest rate risk.
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§ 615.5136 Emergencies impeding normal access of Farm Credit banks to capital markets.
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§ 615.5140 Eligible investments.
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§ 615.5141 Stress tests for mortgage securities.
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§ 615.5142 Association investments.
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§ 615.5143 Disposal of ineligible investments.
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§ 615.5144 Banks for cooperatives and agricultural credit banks.
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Subpart F—Property, Transfers of Capital, and Other Investments
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§ 615.5170 Real and personal property.
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§ 615.5171 Transfer of capital from banks to associations.
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§ 615.5172 Production credit association and agricultural credit association investment in farmers' notes given to cooperatives and dealers.
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§ 615.5173 Stock of the Federal Agricultural Mortgage Corporation.
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§ 615.5174 Farmer Mac securities.
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§ 615.5175 Investments in Farm Credit System institution preferred stock.
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Subpart G—Risk Assessment and Management
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§ 615.5180 Interest rate risk management by banks—general.
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§ 615.5181 Bank interest rate risk management program.
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§ 615.5182 Interest rate risk management by associations and other Farm Credit System institutions other than banks.
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Subpart H—Capital Adequacy
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§ 615.5200 Capital planning.
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§ 615.5201 Definitions.
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§ 615.5205 Minimum permanent capital standards.
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§ 615.5206 Permanent capital ratio computation.
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§ 615.5207 Capital adjustments and associated reductions to assets.
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§ 615.5208 Allotment of allocated investments.
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§ 615.5209 Deferred-tax assets.
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§ 615.5210 Risk-adjusted assets.
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§ 615.5211 Risk categories—balance sheet assets.
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§ 615.5212 Credit conversion factors—off-balance sheet items.
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Conversion Factor Matrix (In percent)------------------------------------------------------------------------ Interest Exchange Remaining maturity rate rate Commodity------------------------------------------------------------------------1 year or less...................... 0.0 1.0 10.0Over 1 to 5 years................... 0.5 5.0 12.0Over 5 years........................ 1.5 7.5 15.0------------------------------------------------------------------------
§ 615.5215 Distribution of earnings.
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§ 615.5216 [Reserved]
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Subpart I—Issuance of Equities
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§ 615.5220 Capitalization bylaws.
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§ 615.5230 Implementation of cooperative principles.
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§ 615.5240 Permanent capital requirements.
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§ 615.5245 Limitations on association preferred stock.
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§ 615.5250 Disclosure requirements for borrower stock.
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§ 615.5255 Disclosure and review requirements for other equities.
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Subpart J—Retirement of Equities and Payment of Dividends
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§ 615.5260 Retirement of eligible borrower stock.
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§ 615.5270 Retirement of other equities.
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§ 615.5280 Retirement in event of default.
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§ 615.5290 Retirement of capital stock and participation certificates in event of restructuring.
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§ 615.5295 Payment of dividends.
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Subpart K—Surplus and Collateral Requirements
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§ 615.5301 Definitions.
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§ 615.5330 Minimum surplus ratios.
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§ 615.5335 Bank net collateral ratio.
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§ 615.5336 Compliance and reporting.
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Subpart L—Establishment of Minimum Capital Ratios for an Individual Institution
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§ 615.5350 General—Applicability.
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§ 615.5351 Standards for determination of appropriate individual institution minimum capital ratios.
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§ 615.5352 Procedures.
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§ 615.5353 Relation to other actions.
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§ 615.5354 Enforcement.
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Subpart M—Issuance of a Capital Directive
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§ 615.5355 Purpose and scope.
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§ 615.5356 Notice of intent to issue a capital directive.
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§ 615.5357 Response to notice.
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§ 615.5358 Decision.
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§ 615.5359 Issuance of a capital directive.
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§ 615.5360 Reconsideration based on change in circumstances.
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§ 615.5361 Relation to other administrative actions.
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Subpart N [Reserved]
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Subpart O—Book-Entry Procedures for Farm Credit Securities
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§ 615.5450 Definitions.
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§ 615.5451 Book-entry and definitive securities.
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§ 615.5452 Law governing rights and obligations of Federal Reserve Banks, Farm Credit banks, and Funding Corporation; rights of any person against Federal Reserve Banks, Farm Credit banks, and Funding Corporation.
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§ 615.5453 Law governing other interests.
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§ 615.5454 Creation of participant's security entitlement; security interests.
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§ 615.5455 Obligations of the Farm Credit banks and the Funding Corporation; no adverse claims.
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§ 615.5456 Authority of Federal Reserve Banks.
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§ 615.5457 Withdrawal of eligible book-entry securities for conversion to definitive form.
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§ 615.5458 Waiver of regulations.
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§ 615.5459 Liability of Farm Credit banks, Funding Corporation and Federal Reserve Banks.
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§ 615.5460 Additional provisions.
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§ 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit securities, including coupons.
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§ 615.5462 Restrictive endorsement of bearer securities.
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Subpart P—Global Debt Securities
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§ 615.5500 Definitions.
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§ 615.5502 Issuance of global debt securities.
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Subpart Q—Bankers Acceptances
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§ 615.5550 Bankers acceptances.
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Subpart R—Farm Credit System Financial Assistance Corporation Securities
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§ 615.5560 Book-entry Procedure for Farm Credit System Financial Assistance Corporation Securities.
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Subpart S—Federal Agricultural Mortgage Corporation Securities
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§ 615.5570 Book-entry procedures for Federal Agricultural Mortgage Corporation Securities.
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