writing to the appropriate officer of the interested bank or association and disclose his interest and status in the matter unless, in the case of a loan application, the application itself discloses such information. The interested bank or association is the one that is a party to the transaction and not the employing bank or association unless they happen to be the same.

§ 612.2240 Approval by interested bank or association.

All permitted transactions to which §§ 612.2120, 612.2160, 612.2170, and 612.2210 apply shall be subject to prior approval of the executive committee or loan committee of the interested Farm Credit institution and, unless the board of directors of that institution requires prior board approval of such transactions, shall be reported to the board for review. The officer, director, or employee involved or interested should absent himself from any meeting of the executive or loan committee or of the board, except when the committee or board requests information from him in person, while consideration is being given to the action on the transaction. This section supersedes any vested or delegated authority to the person involved. The final action on such transactions shall be recorded in the minutes of the committee or the board which shall reflect the fact that the person involved was not present when final consideration was given to the transaction.

§ 612.2250 Reports of transactions with directors, officers, or employees.

The associations shall report transactions to which §§ 612.2120, 612.2160, 612.2170, and 612.2210 apply fully in writing to the supervising bank and the bank shall report such final approval of the transaction to the Director of Credit Service unless the Board minutes of the supervising bank disclosing such final action are submitted promptly to the Farm Credit Administration.

§612.2260 Reports of credit extended to financing institutions.

Any bank or association extending credit to a financing institution not in the Farm Credit System upon the basis of any note or other obligation of a director, officer, or employee of a Farm Credit institution, including any obligation or any

endorsement in which such director, officer, or employee has a personal, financial interest, shall be reported to the Director of Credit Service. This section shall not apply to the fulfillment of existing contracts with such institutions in accordance with their terms where there is no change in the parties of interest or the ownership of the related property, sales of surplus equipment and supplies in accordance with the rules of disposition of such property, or the discounting by a Federal intermediate credit bank of a PCA loan, or to the making of a loan by a bank for cooperatives except as such loans or discounts are required by other regulations to be submitted for prior approval.

§ 612.2270

Other reports to the Farm Credit Administration.

Loan transactions, which by other regulations are required to be submitted to the Director of Credit Service for prior approval or for advice and counsel, should be accompanied by the information required by this regulation when applicable, in which event a separate reporting to meet the requirements of this regulation will not be necessary. Such steps as may be necessary should be taken in each bank to see that all officers, directors, and employees are advised of the circumstances in which reports are required of them by this regulation.

§ 612.2280 Fidelity bonds required.

Provision shall be made by the banks for insurance coverage against losses by all bank and association employees through the continuation of present coverage. Bankers Blanket Bond, Standard Form No. 10, or a substitute, may be used. The Act does not require a faithful performance provision in the bond coverage. The district boards shall determine that bond coverage is in an amount that will adequately protect the banks and associations, taking into consideration the increased dollar amount of assets and lending activity of these institutions. § 612.2290 Policy applicable to design and administration of employee benefit programs in the Farm Credit System.

(a) All employee benefits should be developed and based on clearly defined objectives with full coordination of benefits to eliminate coverage gaps and duplication of benefits and costs.

(b) The sharing of cost between the employer and employee should take into consideration current industry and local practices and the tax consequences to both the employer and employee.

(c) All employee benefits should be reviewed periodically to make certain they are competitive as measured by industrial and local standards so that such plans can be used as an effective management tool (incentives, recruitment, etc.).

(d) The selection of insurer to underwrite the Group Insurance Program should be based on sound underwriting principles and an evaluation of operational expenses, risk assumptions, proper accounting concepts and cost control procedures.

(e) The amendment of a pension plan to eliminate future contributions from employees will be permitted under the following conditions:

(1) Prior employee contributions plus interest shall not be immediately refunded to employees in cash. (Options in cases of separation or death before retirement remain the same as under existing programs.) Instead, they will be retained as a part of the pension plan to either reduce employer costs or to provide benefits in addition to those provided by employer contributions, or to do both. This rule shall not prohibit the transfer of prior employee contributions plus interest to a new Thrift Plan which an employer may establish at the same time as future employee contributions are eliminated from the pension plan.

(2) Post-retirement group life insurance benefits to be provided present employees will be either (1) eliminated, (ii) reduced to no more than $2,500, (iii) frozen at the amounts which would have been provided under the group life insurance program had the employee's present rate of earnings continued to retirement. Post-retirement group life insurance for all employees hired in the future will be limited to a maximum of $2,500.

(3) Accidental death and dismemberment included in a group life insurance program will be terminated at the time of the employee's retirement.

(4) The funding medium to be employed to fund pension benefits may involve either a trust fund or a pension investment contract issued by an insurance company of a type which will provide a maximum rate of return commensurate with the degree of risk involved,

maximum flexibility of financing, and expenses which are reasonable and justified, taking into consideration the services being provided by the insurance company.

(5) The overall costs of employee benefits will be determined on a realistic and sound financial basis and be in line with current industrial and local conditions.

(6) The pension formula will take into consideration, directly or indirectly, present and anticipated future levels of social security benefits.

§ 612.2291 Thrift plan requirements.

Subject to the restrictions previously set forth and those indicated below an employer may adopt an Employee Thrift Plan:

(a) Voluntary employee contributions will be in multiples of 1 percent but not to exceed 6 percent of their earnings, except as provided in paragraph (c) of this section.

(b) Matching employer contributions may be determined by a schedule designed to fit employer objectives but in no event will the rate of matching employer contributions exceed 50 cents for each dollar contributed by an employee.

(c) Voluntary employee contributions in excess of 6 percent but not beyond 10 percent may be permitted but in no event will such excess employee contributions be credited with a matching employer contribution.

(d) In the event prior employee contributions to a pension plan are transferred to the Thrift Plan, the value of such contributions will not be subject to withdrawal while the employee is stil employed except in the event of financial emergencies as defined in the Thriti Plan.

§ 612.2310

District retirement plans.

The district boards and the bank boards shall provide retirement benefits for their employees who are not under the Civil Service Retirement Act. It is recognized that the district retirement plans should be designed to be uniform, as far as practicable, between the various banks and associations in the same district. Retirement benefits, with due allowance for the social security benefits available, should be competitive with industry and area practices with appropriate consideration of the cost. Any such retirement plans, including thrift or savings plans, and any amendments thereto, shall be submitted for the prior approval of the Farm Credit Administration. Approval of the plan by the Internal Revenue Service shall be secured.

§ 612.2320 Personnel reports.

The Farm Credit Administration will request reports of personnel strength and listings of personnel on a semiannual basis.

AUTHORITY: The provisions of this Part 613 issued under secs. 5.9, 5.18, 5.26, 85 Stat. 619, 621, 624; 12 U.S.C. 2243, 2252, 2001 nt.

SOURCE: The provisions of this Part 613 appear at 37 F.R. 11421, June 7, 1972, unless otherwise noted.

Subpart A-General

§ 613.3000 Authority.

The Act, sections 1.8, 2.3, 2.15, authorizes the Federal land banks, Federal intermediate credit banks and production credit associations to make loans to bona fide farmers and ranchers, rural residents and persons furnishing to farmers and ranchers services directly related to their on-farm operating needs. Production credit associations also may make loans to producers or harvesters of aquatic products. Similarly, sections 3.7 and 3.8 of the Act authorize the banks for cooperatives to make loans to eligible cooperatives.

Subpart B-Eligibility To Borrow From Federal Land Banks and Production Credit Associations

§ 613.3010 Person defined.

A "person" is an individual or a legal entity. A "legal entity" is any partnership, corporation, estate, trust or other entity which is legally vested with authority to conduct a business.

§ 613.3015 Combined operations.

(a) Where an applicant's operations include a combination of farming, producing or harvesting aquatic products, or a farm-related business the determination of eligibility can be made on the basis of the criteria set out for either or any combination of these operations. § 613.3020 Farmers and ranchers.

(a) Definition. A bona fide farmer or rancher is a person owning agricultural land, or engaged in the production of agricultural products, including aquatic products under controlled conditions.

(b) To be eligible to borrow, an individual shall establish as a part of his application for credit his qualification as a bona fide farmer or rancher.

(c) A legal entity shall meet these same requirements and at least one of the following qualifications to be eligible to borrow:

(2) More than 50 percent of the value or number of shares of its outstanding

voting stock or equity is owned by the Individuals conducting the farming or livestock operation.

(2) More than 50 percent of the value of its assets consist of assets related to the production of agricultural products.

(3) More than 50 percent of its income orginates from its production of agricultural products.

(d) In addition, any loan to a legal entity in which at least 50 percent of ownership or the control is vested in another legal entity that does not meet at least one of the preceding three requirements shall be subject to prior approval of the appropriate bank and submitted to the Farm Credit Administration for post review. Unless it can be found that such owned or controlled legal entity can operate its business as a counterpart to the normal farm businesses eligible to borrow, without jeopardy to such normal farm businesses or the general agricultural economy, approval will not be granted. Submissions shall fully document the ownership structure, the business affiliations of those owning or controlling the applicant, and the compatibility of the applicant's farming business to the normal farm business operating in the area or to the general agricultural economy.

(e) A legal entity engaged in agriculture for the primary purpose of conducting its operation at a loss to absorb taxable income from nonagricultural sources shall not be eligible.

(f) A legal entity which was a borrower otherwise eligible on the effective date of these regulations and does not materially change its entity structure or control and ownership will continue to be eligible for further borrowing.

[37 FR 11421, June 7, 1972, as amended at 38 FR 27837, Oct. 9, 1973]

meet these same requirements and at least one of the following qualifications:

(1) More than 50 percent of the value or number of shares of its voting stock or equity is owned by the individuals conducting the aquatic operation.

(2) More than 50 percent of the value of its assets consist of assets related to the production or harvesting of aquatic products.

(3) More than 50 percent of the income originates from its production or harvesting of aquatic products.

(c) Scope of financing. Production credit associations are authorized to make loans to producers or harvesters of aquatic products for aquatic needs and other requirements of the borrower. The total credit extended for other requirements shall not exceed the value of assets devoted to the production or harvesting of aquatic products. When the aquatic operation represents less than 50 percent of the borrowers' total business, credit extended for other requirements shall be on a conservative basis scaled down proportionately as the aquatic assets become less significant in the total operation.

[37 F.R. 11421, June 7, 1972, as amended at 37 FR 28492, Dec. 27, 1972; 38 FR 22468, Aug. 21, 1973]

(a) Eligibility of the user. To be eligible to borrow an individual shall establish as part of his application for credit his qualification as a rural resident. However, a borrower shall not have loans on more than one rural residence at any one time and no loan shall be made to an individual to purchase or construct a rural residence for the express purpose of rental or resale.

(b) A rural resident is an owneroccupant of a rural residence located in a rural area.

(c) Rural residence. A rural residence is a single-family, moderate-priced dwelling used as a permanent, yearround residence with appropriate appurtenances and an appropriate site sufficiently large to provide a proper surrounding for a residence both in terms of the physical requirements for access, equipment, utilities and services and the community standards for aesthetic suitability. Rural residences may include conventional housing, modular housing or mobile homes. However, a mobile home must be related to a specific real estate site. This shall involve the following.

(1) Its being fixed on a permanent or semipermanent foundation.

(2) The intent of the owners at the time affixed.

(3) Its intended use as permanent housing.

(4) Further, the mobile home shall be connected to a sewage system, water system and other utilities, and the owneroccupant shall own land or hold a suitable long-term lease which is assignable on the land on which it is located.

(d) The bank shall prescribe appropriate procedures subject to the approval of the bank board as to types of housing that may be used as security for loans to rural residents within the district.

(e) Moderate-priced dwelling: A moderate priced dwelling is adequate but not in excess of the living standards of persons in the middle range of income for that area of the Farm Credit district. Due to the wide variations in housing costs, income levels, and area standards for housing, the determination of the ranges of value which constitutes moderate priced housing will vary between localities. A loan shall not be made if the value of the dwelling exceeds the standards defined herein.

(f) The bank shall prescribe appropriate procedures subject to approval of the bank board as to ranges of value which constitute a moderate-priced dwelling with the district.

(g) Rural area. (1) For the purposes of nonfarm home lending only, a rural area is agricultural open country which may include rural subdivisions or any city or village with a population not exceeding 2,500 persons. A rural area does not include subdivisions or villages associated with or adjacent to a larger population center. The intent is to avoid lending in concentrated, high density residential areas or villages which are a part of an urbanizing area surrounding or immediately adjoining an urban area of a larger population center.

(2) Rural areas may include open areas which are undeveloped for housing and still devoted to agricultural use within other political subdivisions including "towns" exceeding 2,500 persons designated by the district board with the approval of the Farm Credit Administration. In making this designation, consideration shall be given to the character of local governmental powers, the availability of municipal type services, and the land ownership and probable resi

Idential growth patterns of the community.

(h) Scope of financing: Loans may be made to owner-occupants of rural residences for the purposes of buying, building, remodeling, improvements, and repair of such residence, the cost of participation certificates and closing costs and to refinance existing indebtedness on such residences. The total amount of credit that may be extended for such purposes shall not exceed 85 percent of the appraised value.

(i) The establishment of standards of rural subdivision design shall encourage an orderly development of economically stable communities in a healthful rural living environment. The bank shall prescribe appropriate standards subject to the approval of the district board for eligible subdivisions located in rural areas. Standards for rural subdivisions shall be designed to assure:

(1) Conformation where applicable with general planning policies of the planning agency having jurisdiction;

(2) Compliance with all local regulations, ordinances, and codes;

(3) Adequate and dependable water and waste disposal system;

(4) Adequate, economic, safe and dependable streets, lot layout, utilities, grading and drainage; and

(5) That the location will provide desirable permanent living conditions for the residents so as to insure long-term market demand and acceptability.

[37 FR 11421, June 7, 1972, as amended at 38 FR 6376, Mar. 9, 1973; 38 FR 16654, June 25, 1973]

§ 613.3050 Farm-related businesses.

(a) Definition. A farm-related business is a person engaged in furnishing to farmers or ranchers custom-type farm-related services, performed on the farm and directly related to their onfarm operating needs.

(b) Eligibility. (1) To be eligible to borrow, a person shall establish as part of his application for credit his qualifications as a farm-related business.

(2) Loans shall not be made to commercial businesses which purchase farm products from or sell inputs to farmers or ranchers unless substantially all of such inputs handled are used incident to the services provided.

(c) Scope of financing. Federal land banks may make loans to farm-related businesses for necessary sites, capital