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§ 2154. Capital adequacy of banks and institutions

Version history — every release point where this text changed

Release point 115-45 · current through 08/04/2017

§ 2154.

Capital adequacy of banks and institutions

(a)

Minimum levels of capital

The Farm Credit Administration shall cause System institutions to achieve and maintain adequate capital by establishing minimum levels of capital for such System institutions and by using such other methods as the Farm Credit Administration deems appropriate. The Farm Credit Administration may establish such minimum level of capital for a System institution as the Farm Credit Administration, in its discretion, deems to be necessary or appropriate in light of the particular circumstances of the System institution.

(b)

Failure to maintain minimum levels; directives; plans for achieving minimum levels; proposals affecting compliance

(1)

Failure of a System institution to maintain capital at or above its minimum level as established under subsection (a) may be deemed by the Farm Credit Administration, in its discretion, to constitute an unsafe and unsound practice within the meaning of this chapter.

(2)

In addition to, or in lieu of, any other action authorized by law, including paragraph (1), the Farm Credit Administration may issue a directive to a System institution that fails to maintain capital at or above its required level as established under subsection (a). Such directive may require the System institution to submit and adhere to a plan acceptable to the Farm Credit Administration describing the means and timing by which the System institution shall achieve its required capital level, but may not require merger or consolidation without a majority vote of the voting stockholders or the contributors to the guaranty fund of the institution.

(3)

The Farm Credit Administration may consider such System institution’s progress in adhering to any plan required under paragraph (2) whenever such System institution, or an affiliate thereof, seeks the requisite approval of the Farm Credit Administration for any proposal that would divert earnings, diminish capital, or otherwise impede such System institution’s progress in achieving its minimum capital level. The Farm Credit Administration may deny such approval where it determines that such proposal would adversely affect the ability of the System institution to comply with such plan.

(c)

Enhancement of capital adequacy of banks

Each bank shall have on hand at the time of issuance of any note, bond, debenture, or other similar obligation and at all times thereafter maintain, free from any lien or other pledge, notes and other obligations representing loans made under this chapter or real or personal property acquired in connection with loans made under this chapter, obligations of the United States or any agency thereof direct or fully guaranteed, other bank assets (including marketable securities) approved by the Farm Credit Administration, or cash, in an aggregate value equal to the total amount of notes, bonds, debentures, or other similar obligations outstanding for which the bank is primarily liable.

Source(Pub. L. 92–181, title IV, § 4.3,
Dec. 10, 1971
, 85 Stat. 611; Pub. L. 99–205, title I, § 101(3),
Dec. 23, 1985
, 99 Stat. 1678; Pub. L. 100–233, title III, § 304, title VIII, §§ 804(a)(3), 805(q),
Jan. 6, 1988
, 101 Stat. 1621, 1715, 1716; Pub. L. 100–399, title VII, § 702(b),
Aug. 17, 1988
, 102 Stat. 1006.)
Notes

Amendments

1988—Subsec. (b)(2). Pub. L. 100–233, § 804(a)(3), struck out subpar. (A) designation and struck out subpar. (B) which read as follows: “Any directive issued under this paragraph, including plans submitted pursuant thereto, shall be enforceable under the provisions of section 2267 of this title to the same extent as an effective and outstanding order issued under section 2261 of this title that has become final.”
Subsec. (c). Pub. L. 100–233, § 805(q), which directed the amendment of subsec. (c) by substituting “direct or fully guaranteed” for “direct of fully guaranteed” was repealed by Pub. L. 100–399, § 702(b). See Construction of 1988 Amendment note below.
Pub. L. 100–233, § 304, amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “Each bank shall have on hand at the time of issuance of any long-term notes, bonds, debentures, or other similar obligations and at all times thereafter maintain, free from any lien or other pledge, notes and other obligations representing loans made under the authority of this chapter, obligations of the United States or any agency thereof direct or fully guaranteed, other 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 other similar obligations outstanding for which the bank is primarily liable.”
1985—Pub. L. 99–205 substituted “Capital adequacy of banks and associations” for “Aggregate of obligations; collateral” in section catchline.
Subsec. (a). Pub. L. 99–205 amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “No issue of long-term notes, bonds, debentures, or other similar obligations by a bank or banks shall be approved in an amount which, together with the amount of other bonds, debentures, long-term notes, or other similar obligations issued and outstanding, exceeds twenty times the capital and surplus of all the banks which will be primarily liable on the proposed issue, or such lesser amount as the Farm Credit Administration shall establish by regulation.”
Subsecs. (b), (c). Pub. L. 99–205 added subsec. (b) and redesignated former subsec. (b) as (c).

Effective Date of 1985 Amendment

Amendment by Pub. L. 99–205 effective thirty days after
Dec. 23, 1985
, see section 401 of Pub. L. 99–205, set out as a note under section 2001 of this title.

Construction of 1988 Amendment

Pub. L. 100–399, title VII, § 702(b),
Aug. 17, 1988
, 102 Stat. 1006, provided that section 805(q) of Pub. L. 100–233, cited as a credit to this section, is repealed and that subsec. (c) of this section shall be applied and administered as if such section had not been enacted.

Minimum Capital Adequacy Standards

Pub. L. 100–233, title III, § 301(a),
Jan. 6, 1988
, 101 Stat. 1608, as amended by Pub. L. 100–399, title III, § 301(a),
Aug. 17, 1988
, 102 Stat. 993, provided that:
“(1)

In general.—

“(A)

Establishment.—

Within 120 days after the date of the enactment of this Act [

Jan. 6, 1988
], the Farm Credit Administration shall issue regulations under section 4.3(a) of the Farm Credit Act of 1971 (12 U.S.C. 2154(c) [12 U.S.C. 2154(a)]) that establish minimum permanent capital adequacy standards for Farm Credit System institutions.

“(B)

Basis for establishment.—

The standards established under subparagraph (A) shall apply to an institution based on the financial statements of the institution prepared in accordance with generally accepted accounting principles.

“(C)

Ratio of capital to assets.—

The standards established under subparagraph (A) shall specify fixed percentages representing the ratio of permanent capital of the institution to the assets of the institution, taking into consideration relative risk factors as determined by the Farm Credit Administration.

“(D)

Phase-in period.—

The standards established under subparagraph (A) shall be phased in during the 5-year period beginning on the date of the enactment of this Act [

Jan. 6, 1988
].

“(2)

Emergency power not available.—

The Farm Credit Administration shall not invoke the emergency provisions of section 5.17(c)(2) of the Farm Credit Act of 1971 (12 U.S.C. 2251(c)(2) [12 U.S.C. 2252(c)(2)]) with respect to the issuance of the regulations required under paragraph (1)(A).

“(3)

Prohibitions during transition period.—

During the 5-year period specified in paragraph (1)(D), the Farm Credit Administration shall not initiate any receivership, conservatorship, liquidation, or enforcement action against any System institution certified to issue preferred stock under section 6.27 of the Farm Credit Act of 1971 (as added by section 201 of this Act) [12 U.S.C. 2278b–7], solely because of the failure of such institution to meet minimum permanent capital adequacy standards unless such action is recommended or concurred in by the Farm Credit System Assistance Board established under section 6.0 of such Act (as added by section 201 of this Act) [12 U.S.C. 2278a].

“(4)

Permanent capital.—

For purposes of this subsection, the term ‘permanent capital’ has the same meaning given that term in section 4.3A(a)(1) of the Farm Credit Act of 1971 [12 U.S.C. 2154a(a)(1)].”

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