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News ReleaseFarm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

For Immediate Release
NR-02-04 (03-21-02)
Contact: Hal C. DeCell III or Dana Wyckoff, (703) 883-4056
E-mail: info-line@fca.gov
Web site: http://www.fca.gov

Farm Credit Administration Board Adopts Final Rules on E-Commerce
and Termination of Farm Credit Status

McLEAN, Va., March 21, 2002 — The Farm Credit Administration Board today approved a final rule that removes regulatory barriers to electronic commerce (e-commerce) and allows Farm Credit System (FCS or System) institutions to communicate electronically with their shareholders. In a separate action, the Board approved a final rule that allows a System institution to terminate its FCS charter and become a financial institution under another Federal or state chartering authority.

The Board also heard two reports -- on the recent U.S. General Accounting Office (GAO) review of FCA’s oversight of the System’s mission to serve young, beginning, and small farmers (YBS); and on Other Financing Institutions (OFIs) and alternative funding mechanisms.

E-Commerce Rule

The final rule on e-commerce creates a flexible regulatory environment for the safe and sound use of new technologies by System institutions and their shareholders. The rule explains that System institutions may communicate electronically with their shareholders, use e-signatures, and maintain electronic records.

The rule also amends an existing regulation to specifically allow FCS institutions to issue annual and quarterly reports electronically, with the consent of all parties. The regulation requires System boards and management to adopt e-commerce policies and procedures to ensure the institution’s safety and soundness.

In his comments before the vote, FCA Board Chairman Michael M. Reyna commended fellow Board Member Ann Jorgensen for leading this important effort on behalf of the board.

“As farmers and ranchers continue to use new technologies, they will expect their lenders and regulators to keep a similar pace,” said Board Member Ann Jorgensen. “With the adoption of this rule, we have created a more flexible regulatory environment, facilitating electronic commerce.”

The final rule will become effective 30 days after publication in the Federal Register during which either one or both houses of Congress are in session.

Termination of Farm Credit Status

The final rule on the termination of Farm Credit status will amend existing regulations, in effect since 1991, so they apply to all System banks and associations. The current rule excludes large banks and associations – those whose investment in its affiliated bank is greater than 25 percent of the bank’s capital or when the loan from the bank is greater than 25 percent of the bank’s loans. FCS institutions were given authority to terminate System status by the Agricultural Credit Act of 1987.

The rule provides clear procedures for termination of FCS status and ensures that all stockholders are treated fairly and equitably and that disclosure materials are easy to read and understand. The rule also ensures that non-terminating System institutions can continue to serve the credit needs of farmers, ranchers, and cooperatives.

The final rule will become effective 30 days after publication in the Federal Register during which either one or both houses of Congress are in session.

Reports on GAO Study and on Other Financing Institutions (OFIs)

The FCA Board received a report on the GAO review of the agency’s oversight of Farm Credit System compliance with its mission to serve young, beginning, and small farmers.

The GAO report, released March 8, found that while FCA has issued policies and guidance consistent with the System’s statutory mission to serve YBS, the regulation is open to broad interpretation. GAO noted that the agency has not promulgated a regulation delineating specific standards and programs. The report also identified weaknesses in the agency’s examinations that limited its ability to effectively oversee YBS mission compliance.

GAO also noted that the System’s mission to serve YBS is similar to the Community Reinvestment Act requirement for banks and thrift institutions, whose regulators disclose information on the performance of the individual institutions they regulate.

As a result of its findings, GAO recommended that the FCA Board ensure that examiners follow the guidance and complete the appropriate examination procedures for YBS, and adequately document the work performed and conclusions drawn during examinations. GAO also recommended that FCA promulgate a regulation for System institutions that outlines specific program activities and standards that constitute an acceptable program to implement the statutory requirement; and that FCA publicly disclose the results of examinations for YBS compliance for each System institution.

"I know that the FCA Board is absolutely committed to agriculture, and young, beginning, and small farmers in particular,” said Chairman Reyna following the report. “Similarly, I know our examiners are committed to the thorough oversight of the System’s YBS efforts. Responding to GAO’s findings and recommendations gives us the opportunity to further demonstrate and strengthen that commitment.”

The Board also heard a report on the status of the policy and regulatory initiatives on Other Financing Institutions and alternative funding mechanisms, as part of the Board’s efforts to ensure that farmers and ranchers have easier access to safe and sound, competitive, and reliable sources of credit.

The Farm Credit System is authorized to fund and discount short- and intermediate-term loans to qualified non-System lenders, or OFIs. In April 2000, FCA published an advance notice of proposed rulemaking (ANPRM) seeking ways to revise its regulations to improve and better promote OFI access to System funding. The agency conducted field surveys in July 2001 and held a public meeting in Des Moines, Iowa in August 2001, as part of its effort to improve access to agricultural and rural financing.
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The Farm Credit Administration is the safety and soundness regulator of the Farm Credit System. FCA charters, regulates, and examines the 125 banks, associations, and service corporations of the System. System institutions make loans to agricultural producers and their cooperatives nationwide. Members of the FCA Board are Michael M. Reyna, Chairman and CEO, and Ann Jorgensen.

Note: FCA news releases are available on the Internet. Access the FCA Home Page on the World Wide Web at http://www.fca.gov.