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8 614.4031 Policies for delegation of 614.4590 Direct loans to other financing
authority. Institutions. 614.4600 General collateral.
It shall be the responsibility of each 614.4610 Filing and recording assignments bank board to adopt a policy authorizing of security instruments,
the bank to delegate loan making au614.4620 Suspension of right to borrow and thority to bank personnel and associadiscount.
tions. Such policy shall require the bank 614.4630 Credit to other financing Institu
to define authorities to be delegated, protions in special circumstances. 614.4631 Alternate method.
vide for documented evaluation of the 614.4632 Limitation on alternate method. capability and responsibility of indi614.4640 Insolvency of other financing in
viduals or associations where authority stitutions.
is delegated, provide for reporting of ac614.4660 General discount agreement. tions taken under delegated authority, AUTHORITY: The provisions of this part
provide procedures for periodic review 614 issued under secs. 5.9, 5.18, 5.26, 85 Stat.
and enforcement of accountability for 619,621, 624; 12 U.S.C. 2243, 2252, 2001 nt. actions taken under delegated authority, SOURCE: The provisions of this Part 614
and for withdrawal of authority where appear at 37 F.R. 11424, June 7, 1972, unless
appropriate. Where associations are auotherwise noted.
thorized to redelegate loan making au
thority to employees, bank procedure Subpart A-General
shall provide for associations to utilize $614.4000 Basic responsibilities.
similar control measures.
(37 F.R. 28492, Dec. 27, 1972) The Act (sections 1.1(b), 5.18(5) and 5.19) vests certain responsibilities with 8 614.4040 Bank guideline responsibilithe Farm Credit System and the Farm
ties. Credit Administration which pertain to
Under policies of its board, each bank the development of a credit system re- shall conduct studies and make and sponsive to the credit needs of all types adopt standards for lending and develop of eligible applicants having a basis for
and issue adequate credit manuals, opercredit.
ating procedures, and control mecha8614.4010 Supervision by the Farm nisms for guidance in the extension and Credit Administration.
administration of sound and construc
tive credit. The definition of a sound The Farm Credit Administration is
loan, and the five specific credit factors, empowered to exercise general super
along with the total provisions of these vision over the administration of credit;
regulations on loan policies and operato coordinate the activities of the banks
tions shall constitute the guidelines in making studies of lending standards,
under which district policies and proceincluding appraisal and credit standards;
dures shall be constructed. The credit approve national and district standards
manuals setting forth policies and proand procedures; and to supplement the
cedures shall prescribe the forms to be work of the districts under the foregoing where necessary to accomplish the
used, including a loan application and
an adequate credit file; the minimum purposes of the Act.
supporting credit information and veri8614.4020 Delegation.
fication required in relation to loan size, The Act authorizes and directs the
complexity and risk exposure; the format delegation and redelegation of such of
and procedures to be followed in loan the duties, powers, and authority of the
analysis, minimum standards for loan Farm Credit Administration as may be
disbursement, servicing and collections;
and such other standards as are necesdetermined to be in the interest of effec
sary for the safe and professional contive aaministration.
duct of a lending organization. 8614.4030 Intent of delegation.
8 614.4050 Bank supervision of associaThe banks shall provide for the exer
tions. cise of loan making authority by the
Where credit decisions are vested in Associations commensurate with their associations by law or through delegated demonstrated ability to extend and ad- authority, district policies, and proceminister credit soundly on condition that dures shall be designed to regulate, conadequate control and supervisory meas- trol, and review the extension of credit. wes are developed and exercised.
District policies and procedures shall Include guidelines with respect to par- and amount of losses estimated in their ticular enterprise financing, and limita- loan portfolio. tions with respect to lending in special- (11) Scope of review-Federal land ized or hazardous areas. The banks shall bank associations. The scope of review supervise the credit operations, monitor shall include new loans made, partial renanociation performance and take cor- lease and subordination functions, forrective action when deficiencies occur. bearance cases, overall loan servicing, District banks shall also assist and super- the total area of credit administration VINO associations in the credit training of including appraisal accuracy which will employees and loan committees.
be predicated primarily upon the capaN014.4051 Federal land bank and Fed.
bility and responsibility of the associa
tion as reflected in the bank's rating of eral intermediate credit bank credit review.
associations for the purpose of delega
tion of authority and general super(a) It shall be the duty of the super- vision, and a report from the association vising bank to adequately review and board at year end as to the number and evaluate annually the credit quality of amount of losses estimated in their loan loans and related loan assets and the portfolio. quality of credit administration in each (3) An annual written report shall be land bank askociation and each produc- prepared on each land bank association credit association. Each bank board tion and production credit association shall adopt a polley prescribing credit re- detailing: View criteria and providing for the issu- (i) The quality of credit, ance of a report to the association board. (i) The quality of credit administraThe adequacy and reliability of bank re- tion, and Pies and the completeness of reporting (ii) An evaluation of management will he major considerations by Farm and compliance with law, regulations ( Administration examiners in de- and association and bank policies. formand the soup of their audit and (4 Loans shall be classified in acPlan of assiater und banks. cordance with the following system wide 2 nes shall be subm*** to approral loan ciasciscation standards: the form Credit Adastration and (1) Acceptadle loans. Loans of highest mai a inchide at least the following quality, ranging down to and including
those having significant credit weakNaration and repurting shan at !! as the under the scrision of a Problem loans. Loans having sert
e next weer, property trained and Ous credit westnesses requiring more W rarea prin analysing than normal supervision but believed to
grade idam. High risk loans
stin considered codeetabie bat involving Per annular with desigaste probabit of loss in the event repayment
from spadle sources does not
Y Las A Loss en bich se ఇ7 perse is deemed letisie.
analysis of each special lending program. an association may be made, provided Such analysis should cover the reasons such loans are authorized under policies for the program, the selectivity of bor- established by the bank board and aprowers included, the quality of service proved by the Farm Credit Administraand control exercised over the loan, rela- tion. If a loan is made to an eligible tive progress being made by individual borrower whose operation is wholly outborrowers, and the success or failure in
side the chartered territory of the lendmeeting the objectives of the program. ing association, concurrence of like as
(b) Each Federal intermediate credit sociations and the supervising bank in bank policy shall provide for a credit whose territory the operation is located review of other financing institutions shall be obtained. borrowing or discounting paper. The
$ 614.4080 Loans outside of bank's terbank's credit review program shall pre
ritory-banks for cooperatives. scribe & scope of review for such institu
(a) A bank is authorized to make loans tions commensurate with the capability and responsibility of the institution and to cooperatives headquartered in the disthe ratio of peak debt to capital and
trict served by the bank. collateral pledged. Frequency of review,
(b) Cooperatives operating in more and loan classification and reporting
than one district shall apply for loans to
the bank in the district in which the standards, will be generally the same as for production credit associations, recog
headquarters office of the cooperative is nizing that supervisory responsibility is
located. not a factor.
(c) A bank may make loans to an
eligible cooperative headquartered in an(37 FR 28492, Dec. 27, 1972, as amended at 39 FR 29584, Aug. 16, 1974)
other district provided the following con
ditions are met. $ 614.4060 Association responsibilities. (1) The interests of the borrowing co
Associations shall conduct their credit operative would best be served. operations within their vested or dele- (2) The bank in the district in which gated authority in compliance with the the cooperative is headquartered gives its guidelines of these regulations and pro
consent. cedures of the district bank. Demon- (3) The Farm Credit Administration strated capability in extending sound approves. credit, including the extent to which as
Subpart C—Lending Authorities sociation boards have established policies and procedures with adequate
§ 614.4090 Federal land banks. controls and accountability, shall be (a) The banks are authorized to make weighed heavily by the bank in delegat- and participate with other Federal land ing authority and exercising its super- banks in long-term real estate mortgage visory responsibility over association loans in rural areas for a term of not credit operations.
less than 5 years nor more than 40 years.
Subject to limitations applicable to makSubpart B-Chartered Territories
ing long-term real estate mortgage loans, $614.4070 Loans outside the estab- the banks are authorized to make con
lished territory-Federal land banks, tinuing commitments to lend and to exFederal land bank associations, and tend financial assistance of a similar production credit associations.
nature. Policies as prescribed by the (a) A loan to finance operations
bank's board shall be used in making wholly within the territory of a bank or
loans, continuing commitments for loans, association may be made regardless of
and in extending other financial assistthe residence of the applicant.
ance. Borrowers shall be permitted to
make advance payments on their loans (b) A loan to finance operations which are partially within and partially with
or, under agreement with the banks, out the territory of an association
make advance conditional payments to may be made if such operations are re
be applied on future maturities or to be garded by the association and the bank
available for return to the borrower for as one farming or livestock unit. Concur
purposes for which the bank would inrence of the supervising banks in whose
crease their existing loans. territories the operation is located shall § 614.4100 Federal intermediate credit be obtained.
banks. (c) A loan to finance operations (a) The banks are authorized to make wholly outside the chartered territory of loans and extend other similar financial assistance to and discount for, or pur- reasonably assure repayment, usually chase from, production credit associa- without adversely affecting the borrowtions, with their endorsement or guar- er's financial position. It should be supanty, any note, draft, and other obliga- ported by sufficient equity or collateral, tion presented by such association. In or both, to afford the lender reasonable addition, the banks may participate with protection against loss if adverse condisuch association(s) and one or more tions occur. other intermediate credit banks in mak
$ 614.4150 Credit factors. ing loans to eligible borrowers.
(b) The banks are authorized to dis- Five basic factors pertinent to a sound count for, ur purchase from commercial loan are as follows: banks and other other financial institu
(a) The individual or entity: A pretions, with their endorsement or guar- requisite for a sound loan is an applicant anty, notes and other obligations for of established integrity. Responsible and loans which have been made for agricul- cooperative management must be evitural purposes in accordance with regu- dent. The importance of this factor is of lations contained in § 614.4540.
such significance that it can affect the (c) All of the foregoing shall be sub- weight placed upon the other credit facject to policies prescribed by the bank tors. Analysis shall include a careful board.
evaluation of character, experience, rec
ord and prospects of management in § 614.4110 Production credit associa
finance and operation. tions.
(b) Financial position and progress: Each production credit association, Financial responsibility reflects ability to under policies established by the bank meet obligations, continue business operboard and procedures prescribed by the ations and protect the lender against bank, may make, guarantee, or partici- undue risk. The applicant's total assets pate with other lenders in short- and controlled, equity owned, contingent liaintermediate-term loans and other bilities and history of earnings to date similar financial assistance to eligible are significant measures of financial borrowers for a term not exceeding 7 responsibility. years.
(c) Repayment capacity: The deter§ 614.4120 Banks for cooperatives.
mination of repayment capacity requires
an analysis of cash flow history and The banks are authorized to make
projection. A cash flow projection shall loans and commitments to eligible coop
reflect cash generation from the applieratives and to extend to them other fi
cant's operation and all other sources. nancial assistance, including, but not lim
Generally the flow of cash shall be sufiited to, discounting notes and other cient to meet all obligations and provide obligations, guarantees, collateral cus
a remainder for contingencies. tody, or participation with other banks
(d) Basis of approval: The amount of for cooperatives and commercial banks
loan, use of funds and loan terms are or other financial institutions in loans to
the principal factors over which the lendeligible cooperatives under policies estab
er has direct control. Therefore, the loan lished by the bank board.
shall be constructive in amount and pur$ 614.4130 Approval.
pose and practical as to repayment terms
for both the borrower and lender. Load All district policies mentioned in
conditions such as loan agreements, perthis Subpart C shall be subject to Farm Credit Administration approval.
sonal liability, additional collateral, in
surance, etc., shall be required as condiSubpart D-General Loan Policies for tions warrant. Banks and Associations
(e) Collateral offered or available as
security (section 1.9 Federal land bank, 8 614.4140 Sound loan.
2.15 production credit association, and A sound loan is one made to a respon
3.10(b) bank for cooperatives of the Act). sible individual or entity of established Collateral needs are contingent upon the integrity who has a creditable operating requirements of the law and as dictated and financial record, or equivalent char- by the strengths or weaknesses of all acteristics if a new business, in an credit factors. The requirement of colamount sufficient to accomplish a useful lateral and collateral taken shall reaspurpose. It should be made in an amount onably protect the lender, provide the and under terms and conditions that will necessary control of equity and repayment, and leave the borrower in a posi- formed for members, and risk protection tion to constructively manage his busi- afforded the lender. ness. In addition, personal liability or (c) Each bank board shall adopt pollentity liability in the form of comakers or cies adequate to provide the direction it guarantors may provide added strength desires management to follow in adminin extending credit. Sufficient analysis istering credit and lending standards to shall be made of credit factors relevant ensure attainment of the System's objecto such comakers or guarantors as is tive. Bank management shall prescribe necessary to assure that their signatures operating procedures to effectively adactually provide the desired support for minister board policies including provithe loan.
sion that proper weight be given the in
finite combination of person, property, Subpart E-Application of Credit
and purpose which can exist. Guidelines Standards
shall be included which provide for iden$ 614.4160 Lending objective.
tification of that portion of mixed value
(agricultural and nonagricultural) assets (a) It is the objective of the Farm
which may be considered agricultural for Credit System to ensure the availability
lending purposes. of: (1) full credit, to the extent of credit
(38 FR 27837, Oct. 9, 1973] worthiness, to the full-time bona fide farmer (farming is his primary business § 614.4165 Special credit needs. and vocation) and (2) conservative cred
(a) In the formulation of board poliit to less than full-time farmers for agri
cies and bank procedures, consideration cultural enterprises, and more restricted
shall be given to the peculiar credit needs credit for other credit requirements as of farmers engaged in highly specialized, needed to ensure a sound credit package
high risk enterprises and the special or to accommodate a borrower's needs as
credit needs of young farmers to the exlong as the total credit results in being
tent the bank and/or association has primarily an agricultural loan. However,
financial resources and staff capabilities the part-time farmer who needs to seek to do so on a sound and constructive off-farm employment to supplement his basis. farm income or who desires to supple- (1) Specialized enterprises. Considerament his off-farm income by living in a tion can be given to organizing groups rural area and is carrying on a valid of similar borrowers into pools by which farming operation, shall have availabil- banks or associations may be afforded ity of credit for mortgages, other agri- increased protection from the higher cultural purposes, and family needs in risk occasioned by financing their spethe preferred position along with full- cialized enterprises. time farmers. Loans to farmers shall be
(2) Young farmers. Consideration can on an increasingly conservative basis as be given to special lending programs for the emphasis moves away from the full- young farmers placing emphasis upon time bona fide farmer, to the point where sound credit service to those entering agricultural needs only will be financed farming in a low equity-high risk posifor the applicant whose business is es- tion but demonstrating high managesentially other than farming. Credit shall ment ability and earning capacity, therenot be extended where investment in by providing service to high potential agricultural assets for speculative appre- persons within the broad category of ciation is a primary factor.
young farmers who might otherwise not (b) It is also the objective of the Farm have an opportunity to enter into farmCredit System to provide a full range of ing. Programs shall limit total lending credit services to farmer cooperatives to by a Federal land bank or production assist them in increasing the income of credit association to an amount not extheir members as patrons. The type of ceeding five percent of their preceding farmer cooperative operation, quality of year's peak loans outstanding. This same management, and basic financial factors limitation will generally be applied by shall be carefully evaluated as to their Federal land banks when authorizing effect upon the long-range benefit to Federal land bank association programs. members. Bank boards shall establish (b) Where special lending programs policies and banks for cooperatives, de- are authorized, district and bank boards velop procedures for administration of shall adopt appropriate policies that quality standards that fully consider the (1) Assure coordination between needs of, support by, and service per- banks,