Statement on Regulatory Burden

<RULE> FARM CREDIT ADMINISTRATION <CFR>12 CFR Chapter VI</CFR> <RIN>RIN 3052-AD55</RIN> <SUBJECT>Statement on Regulatory Burden</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Farm Credit Administration. <HD SOURCE="HED">ACTION:</HD> Determination. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document is part of the Farm Credit Administration's (FCA, our, or we) initiative to reduce regulatory burden for Farm Credit System (FCS or System) institutions, including the Federal Agricultural Mortgage Corporation (Farmer Mac). Several System institutions responded to our 2022 request for comments by identifying regulations they considered unnecessary, unduly burdensome or costly, duplicative of other requirements, outmoded, insufficient, ineffective, or not based on law, and this document responds to those comments. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> March 3, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Technical Information:</E> Mark Johansen, Associate Director, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4414, TTY (703) 883-4056, or <E T="03">ORPMailbox@fca.gov</E> ; or <E T="03">Legal Information:</E> Jacqueline Baker, Attorney-Advisor, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4056, or <E T="03">BakerJ@fca.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Objective</HD> The objective of this document is to respond to the comments submitted to us regarding our request to identify regulations that the public considered unnecessary, unduly burdensome or costly, duplicative of other requirements, outmoded, insufficient, ineffective, or not based on law. <HD SOURCE="HD1">II. Background</HD> On July 20, 2022, we published a document in the <E T="04">Federal Register</E> inviting the public to comment on our regulations that may duplicate other requirements, are ineffective, are not based on law, or impose burdens that are greater than the benefits received. <SU>1</SU> <FTREF/> We also expressed interest in understanding how our regulations affect associations differently based on their location, size, and complexity of operations. <FTNT> <SU>1</SU>  87 FR 43227 (July 20, 2022). </FTNT> We received letters from AgFirst, FCB; AgGeorgia, ACA; AgriBank, FCB; AgTexas, ACA; Alabama, ACA; ArborOne, ACA; Central Texas, ACA; CoBank, ACB; Colonial, ACA; Farm Credit East, ACA; Farm Credit Illinois, ACA; Florida, ACA; Farm Credit Bank of Texas; the Farm Credit Council; Farm Credit Mid-America, ACA; First South, ACA; Farm Credit Foundations; the Federal Farm Credit Banks Funding Corporation; High Plains, ACA; Idaho, ACA; Louisiana Land Bank, ACA; Plains Land Bank, FLCA; Premier, ACA; Texas Farm Credit, ACA; and Western AgCredit, ACA. The Farm Credit Council stated that in preparing its response letter on behalf of all FCS institutions, it assembled and coordinated an FCS Regulatory Burden Workgroup of experts representing institutions across all four bank districts. The letters commented on regulations concerning: investments, disclosure requirements, preparing and filing reports, and other FCA regulations and guidance. In addition, we received comments related to the FCA Examination Manual and the examination process. We referred those comments to FCA's Office of Examination. This document restates the comments submitted, with certain non-substantive, technical changes made to improve clarity and readability (under the Comment heading), along with our response to the comments (under the FCA Response heading). Our responses take into consideration the comment and any proposed solution(s) the commenter suggested. FCA organized the comments received into four categories. First, for some of the comments received, we took action between comment submission and publication of this document that addressed the concerns raised. Second, many of the comments we received seek changes that we cannot implement because they are inconsistent with the Farm Credit Act of 1971, as amended (Act), safety and soundness, and/or other FCA guidance or position(s). Third, some comments raise issues that are the subject of existing regulatory projects scheduled for consideration by FCA as set forth in our Fall 2024 Regulatory Projects Plan, which is available on the FCA website, and those issues will be addressed in the planned regulatory projects. Finally, in other cases, commenters identified issues that need further evaluation before we can consider whether changes are appropriate. <HD SOURCE="HD1">III. Action Taken by FCA Related to Comments Received</HD> <HD SOURCE="HD2">A. Accounting and Disclosure of Troubled Debt Restructuring (TDR) (§ 621.6(b))</HD> <E T="03">Comment:</E> GAAP requirements have changed, resulting in the elimination of TDRs. As a result, the maintenance of current requirements for TDRs is operationally burdensome and immaterial to the financial statements and credit quality of System institutions. Retaining the legacy reporting requirements for TDRs will require System institutions to maintain two operational and reporting processes for TDRs and modifications under the updated reporting requirements. The legacy process is highly manual and subjective, requiring extensive documentation. The revised GAAP allows for systematic solutions and automated processes for reporting in a more efficient manner. Further, many System institutions plan to repurpose existing fields in loan accounting systems and databases/data warehouses to achieve the new reporting requirements. If FCA retains the legacy reporting requirements for TDRs, then the repurposing of data fields will not be possible and it will, therefore, be more costly to implement an automated and well-controlled solution for modification disclosures under the required GAAP implementation deadline of Q1 2023. <E T="03">FCA Response:</E> In response to the TDR changes under GAAP, we issued an Informational Memorandum (IM) dated December 30, 2022, that, among other things, explained that the TDR loan performance category contained in § 621.6(b) was no longer required under GAAP after January 1, 2023. Our Fall 2024 Regulatory Projects Plan indicates that we plan to propose an update to § 621.6(b) to reflect this change. <HD SOURCE="HD2">B. Call Reporting for Farm Credit Leasing (FCL) (§ 621.12)</HD> <E T="03">Comment:</E> FCA requires a separate Call Report for FCL, which adds burden and costs to prepare and file. This separate Call Report provides no value as FCL's financial results are fully incorporated in the CoBank Call Report and CoBank backstops FCL's obligations. Section 621.12 requires Call Reports to be filed for each institution chartered under the Act. However, wholly owned subsidiaries are typically excluded from the requirement for filing a separate Call Report through administrative action by FCA. In addition, FCA has previously recognized that FCL is integrated into CoBank by waiving the requirement for a separate Annual Report and providing regulatory relief from separate capital requirements. <E T="03">FCA Response:</E> The Farm Credit Leasing Corporation (FCL) is a chartered service corporation. It was chartered under section 4.25 of the Act and is currently wholly owned by CoBank. Unrelated to this comment, FCA determined and notified relevant parties that FCL is no longer required to prepare and file separate Call Reports. The existing structure and financial reporting from CoBank about FCL are sufficient to not require separate Call Reports from FCL. If FCL's structure or financial reporting changes in the future, FCA may require FCL to file Call Reports. <HD SOURCE="HD1">IV. Comments That Will Not Result in Changes</HD> <HD SOURCE="HD2">A. Approval of Equity Investments in Unincorporated Business Entities (UBEs) (§ 611.1155)</HD> <E T="03">Comment:</E> The detailed requirement of the information that must be provided to FCA for its approval (Part 611 Subpart J) before a UBE can be created is administratively burdensome, time consuming, and thus expensive to System institutions. The process for creating and seeking approval for UBEs to protect System institutions in their administration of acquired assets is administratively burdensome and should be simplified. <E T="03">FCA Response:</E> Section 611.1154 requires notice to FCA, and not FCA prior approval, when a System institution wishes to make an equity investment in UBEs whose activities are limited to acquiring and managing unusual or complex collateral associated with loans, providing hail or multi-peril crop insurance services with another System institution in accordance with § 618.8040, or another activity that FCA determines is appropriate for this provision. This provision provides a simplified process that avoids unnecessary administrative burdens and costs for investments in UBEs for the specified activities. For all other UBEs, however, § 611.1155 requires pre-approval. We are not persuaded by the comment that a change is needed for these other UBEs. We continue to believe that it is prudent to have System institutions obtain preapproval for investing in these UBEs to avoid the burden and cost associated with potentially reversing investments if such investments were later deemed through the examination process to be inappropriate, unsafe or unsound, or contrary to law. FCA will, however, consider whether additional categories of UBE investments could be included in the provisions to reduce burden on System institutions. <HD SOURCE="HD2">B. Floor Nominations (§ 611.326)</HD> <E T="03">Comment:</E> The requirement that associations permit voting stockholders to make floor nominations for director positions circumvents the nominating committee's process and cre ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 47k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━