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and pledge agreement. This agreement, as a condition for continued loans or discount of paper, shall provide for the corporation to furnish the bank periodically with an acceptable audit report made by an independent certified public accountant, or in the case of commercial banks, a copy of the annual bank examination report. The bank shall review and analyze such audit reports for adequacy and completeness. The scope of annual review as required by the bank's policy for credit review (§ 614.4051) shall be expanded to include any additional tests, audit, or fiscal analysis necessary as a result of deficiencies noted in audit reports.

[37 F.R. 28494, Dec. 27, 1972]

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615.5090 Reduction in carrying value of collateral.

Subpart C-Issuance of Bonds, Notes, Debentures, and Similar Obligations Resolution required.

615.5100 615.5101 Lost, stolen, destroyed, mutilated, or defaced consolidated obligations and coupons of the Farm Credit banks.

615.5102 Restrictive endorsements of bearer securities.

615.5103 Loss from payment of spurious debenture.

615.5104 Bonds and debentures as illustrations.

Subpart D-Other Funding

615.5110 Authority to issue.

615.5120 Purchase eligibility requirement. 615.5130 Procedures.

Subpart E-Investments 615.5140 Investment eligibility. 615.5141 Production credit associations. 615.5142 Federal land bank associations. 615.5150 Real and personal property.

615.5151

Additional investments of Federal initermediate credit banks.

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Retirement of Stock

Responsibility.

615.5260 Retirement of capital stock and allocated equities of banks for cooperatives.

615.5270 Purchase of Class B stock of the Federal intermediate credit bank by production credit associations. 615.5280 Equalization of Federal intermediate credit bank class B stock and allocated reserve owned by production credit associations. 615.5290 Purchase of Federal intermediate credit bank participation certificates by other financing institutions.

615.5300 Surrender of Federal intermediate credit bank stock certificates and issuance of new certificates.

615.5310 Lost, destroyed, or stolen Federal intermediate credit bank stock or participation certificates. 615.5320 Retirement of Federal intermediate credit bank class B stock, participation certificates, and allocated legal reserve.

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615.5520 615.5530

Insurance of bond shipments.
Mail shipments.

AUTHORITY: The provisions of this Part 615 issued under sec. 5.9, 5.18, 5.26, 85 Stat. 619, 621, 624; 12 U.S.C. 2243, 2252, 20001 nt.

SOURCE: The provisions of this Part 615 appear at 37 F.R. 11434, June 7, 1972, unless otherwise noted.

Subpart A-Funding

§ 615.5000 General responsibilities.

To assure continuing public confidence in the high quality of Farm Credit bank securities, whenever each bank of the System on consolidated or Systemwide basis obtains loan funds from the sale of obligations, the maturities, rates of interest, and terms and conditions of each issue shall be subject to approval and shall be signed by the Governor of the Farm Credit Administration and the banks shall be liable thereon. It shall be the responsibility of the finance committees or subcommittees of the banks, in consultation with the fiscal agent, to fix interest rates, terms and conditions of their respective issues. In the exercise of responsibility to supervise the funding of the Farm Credit System, the Governor or a designated representative shall at his discretion be present whenever the maturities, rates of interest and terms and conditions of publicly issued obligations are determined. The Farm Credit Administration should keep the U.S. Treasury informed of all public financing plans and actions by the institutions under its supervision.

§ 615.5010 Fiscal Agency.

(a) The Fiscal Agency of the Farm Credit Banks (authorized under title IV, section 4.9 of the Act) shall be responsible for the marketing of securities, the maintenance of accurate and timely records, and assistance to the banks in the orderly investment of funds. The Fiscal Agency shall conduct funding for the banks at the direction of the appropriate finance committees under the broad policy direction of district boards acting in concert. By resolutions of agreement adopted by the board of each of the banks, appropriate committees may be established for the instruction and drection of the Fiscal Agency.

(b) To provide for an adequate and reliable supply of credit to meet the objectives of this Act and to assure cooperation and coordination among the institutions of the System, the Farm Credit Administration shall maintain a general and continuing administrative review of the Fiscal Agency of the banks.

§ 615.5020 Intersystem funds.

Whenever practical the banks should borrow or lend Interbank or intersystem funds prior to borrowing from commercial banks or other financial institutions. § 615.5030 Borrowings from commer cial banks.

The bank boards, by resolution, shall authorize all commercial bank borrowings.

§ 615.5040 Borrowings from financial institutions other than commercial banks.

The Farm Credit banks may borrow from other financial institutions, such as insurance companies, Federal agencies, or Federal reserve banks only with the approval of the Farm Credit Administration.

Subpart B-Collateral

§ 615.5050 Policy.

(a) Each bank shall have on hand at the time of issuance of any long-term notes, bonds, debentures, or similar obligations, and at all times thereafter, free from any lien or other pledge, assets consisting of notes and other obligations representing loans made under the authority of the Act, notes of Federal land banks, Federal intermediate credit banks, and banks for cooperatives representing secured interbank or intersystem loans. readily marketable securities approved

by the Farm Credit Administration or cash, in an aggregate value equal to the total amount of long-term notes, bonds, debentures, or similar obligations outstanding for which the bank is primarily liable.

(b) The collateral value of eligible securities shall be the lower of par or market value. Par value of securities may be used for report purposes if the use of market value would not result in a deficiency of eligible collateral.

(c) The collateral value of notes and other obligations representing loans made under the authority of any Farm Credit act is the unpaid principal of loans (except as provided for in Section 5090), excluding undisbursed loan funds held by the bank or the association and funds held for account of borrowers and purchasers. For collateral purposes, loans in process of liquidation, foreclosures, judgments, property acquired in the liquidation of loans, and real estate sales contracts shall be valued at their recovery value or investment value, whichever is lower.

(d) When there is loan servicing, such as reamortization, extension, deferment or partial release, the new unpaid balance may be used as the collateral carrying value. In case of land banks the carrying value shall not exceed 85 percent of the appraisal value established by the most recent appraisal report of the primary security.

(e) Each bank shall have procedures which will insure that the bank is in compliance with the statutory requirements for maintenance of collateral. Such procedures shall include provision for:

(1) Adequate safekeeping facilities. (2) Methods to determine that debt instruments meet all requirements of law and regulations.

(3) Certification by a responsible officer of the institution as to eligibility and adequacy of the collateral.

(4) Written procedures and practices to be followed by the collateral custodian to insure that there will be a high degree of accuracy in protecting and accounting for the collateral.

(5) The procedures shall be furnished to the Farm Credit Administration for review.

[39 FR 29585, Aug. 16, 1974]

$615.5060 Special collateral requirement-Federal land banks.

(a) If the chief counsel for a Federal land bank has determined in writing that

bank procedures provide sufficient safeguards to assure that a loan made by the bank will be secured by a first lien or its equivalent on interest in the primary real estate security, an attorney lien certification need not be obtained at the time a note is accepted for collateral. The note shall be withdrawn from collateral upon the expiration of one year from the date of loan closing, unless before the end of such period, an attorney has certified that the interest of the bank in the primary real estate security for that loan is a first lien on the borrower's interest or its equivalent from a security standpoint.

(b) Since by contract with the bondholders specific pledge continues to be attached to collateral for obligations of the Federal land banks issued under the superseded Federal Farm Loan Acts until those obligations are retired, the collateral securing them must be accounted for separately from collateral not specifically pledged in connection with obligations of the banks issued under the provisions of the Farm Credit Act of 1971. [39 FR 29585, Aug. 16, 1974]

§ 615.5090 Reduction in carrying value of collateral.

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, or withdraw the loan from collateral.

[39 FR 29586, Aug. 16, 1974]

Subpart C-Issuance of Bonds, Notes, Debentures and Similar Obligations § 615.5100 Resolution required.

The bank boards shall, by resolutions, authorize the issuance of long-term notes, bonds, debentures or similar obligations in such amounts as may be required to meet bank's needs. Each such resolution shall specify the maximum amount of obligations which shall be outstanding at any one time and authorize the executive committee or appropriate officers of each bank to do all things necessary and proper to participate in such issues.

§ 615.5101

Lost, stolen, destroyed, mutilated or defaced consolidated obligations and coupons of the Farm Credit banks.

(a) Basis of relief. The statutes of the United States, now or hereafter in force, and the regulations of the Treasury Department, now or hereafter in force, governing relief on account of the loss, theft. destruction, mutilation or defacement of U.S. securities, and the regulation of the Treasury Department, now or hereafter in force, governing the payment of mutilated or defaced coupons of U.S. securities, insofar as such statutes and regulations may be applicable, and as modified to relate to the consolidated obligations of the Farm Credit banks and coupons of such obligations shall govern the granting of relief on account of lost, stolen, destroyed, mutilated or defaced consolidated obligations of the Farm Credit banks and mutilated or defaced coupons of such obligations.

(b) Claims and proof of loss. Claims shall be presented, and proof shall be made, by applicants for relief on account of the loss, theft, destruction, mutilation or defacement of consolidated obligations of the Farm Credit banks and the mutilation or defacement of coupons of such obligations, in accordance with the statutes of the United States, now or hereafter in force, and the regulations of the Treasury Department, now or hereafter in force, with respect to securities of the United States, and coupons of such securities.

§ 615.5102 Restrictive endorsements of bearer securities.

When consolidated obligations of the Farm Credit banks are being presented to Federal Reserve banks or branches, or to the Treasurer of the United States, by or through banks (including Farm Credit banks) for redemption, such obligations may be restrictively endorsed. The restrictive endorsement shall be placed thereon in substantially the same manner and with the same effects as prescribed in U.S. Treasury Department regulations, now or hereafter in force, governing like transactions in U.S. bonds; and consolidated obligations of the Farm Credit banks so endorsed shall be prepared for shipment and shipped in the manner prescribed in such regulations for United States bonds. (See 31 CFR 328.1-328.6)

§ 615.5103 Loss from payment of spu. rious debenture.

Each of the 12 Federal intermediate credit banks agreed, by resolution adopted by its board of directors in 1963, to share in any loss resulting from the payment of counterfeit, forged, or unauthorized debentures. The agreement provides that such loss shall be shared by all of the banks in the same ratio as their respective participations in debentures issued during the 12 months preceding the date of payment of such counterfeit, forged, or unauthorized debentures. § 615.5104 Bonds and debentures as illustrations.

Illustrations of Farm Credit bonds, debentures and other securities may appear in information and educational materials if printed in black and white, but not in color, and must be less than 34 actual size or more than 11⁄2 times the actual size of the original security. Motion picture and microfilms and slides of such securities are permitted in black and white or color for projection on a screen or for use in telecasting.

Subpart D-Other Funding

§ 615.5110 Authority to issue.

Any Farm Credit Bank may issue Farm Credit Investment Bonds directly to members and employees of the banks, the production credit associations and the Federal land bank associations within limitations set forth in § 615.5120. The bonds are subject to the limitation contained in the Federal Reserve Board's Regulation Q which establishes the amount, the rate, the maturity and the early redemption penalty for consumertype deposits under $100,000.

[39 FR 12355, Apr. 5, 1974]

§ 615.5120 Purchase eligibility require

ment.

(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, and employees of the Farm Credit Administration except officials precluded by regulation. A member of a Farm Credit association or of 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 insti

tutions in the district which offer the purchase program. Patrons, members, employees, or stockholders of other financing institutions discounting loans with the Federal Intermediate 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 stockhloder or participation certificate holder in connection with that loan. Employee means a regular full-time employee of a Farm Credit bank or association or the Farm Credit Administration.

(b) Form and ownership. Farm Credit Investment Bonds are issued only in registered form. The registration used must express the actual ownership of and 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 co-owner, nor any restriction on the right of the owner or co-owner 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 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. 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 co-owner or beneficiary. Co-ownership may not involve a fiduciary or private organization.

(5) In the co-ownership form the connective "or" shall serve the same purpose as "joint tenants with right of survivorship."

[39 FR 12355, Apr. 5, 1974] § 615.5130 Procedures.

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.

Subpart E-Investments

§ 615.5140 Investment eligibility.

In order to provide the System with investment instruments to support its financial operations, to manage its liquidity portfolios and to invest its excess funds, the following obligations are approved.

(a) Consolidated obligations of the Federal land banks, Federal intermediate credit banks and banks for cooperatives. (b) Direct and full faith and credit obligations of the U.S. Government.

(c) Federal Home Loan Bank notes and bonds.

(d) Federal Home Loan Mortgage Corporation obligations.

(e) Federal National Mortgage Association short-term notes, debentures and participation certificates.

(f) Government National Mortgage Association direct or fully guaranteed obligations.

(g) Obligations issued by the Farmers Home Administration.

(h) Tennessee Valley Authority notes and bonds.

(i) Export-Import Bank obligations.
(j) U.S. Postal Service obligations.
(k) Merchant Marine Bonds.

(1) Negotiable certificates of deposit.
(m) Bankers acceptances.

(n) Full faith and credit obligations of a state, municipality, political subdivision, or public agency or instrumentality thereof, when approved by the bank on a case basis within the following limitations: Investments in bonds, except revenue obligations, that have been rated A or better (or the equivalent) by a recognized rating service, that

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