
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 12USC2154a]

 
                       TITLE 12--BANKS AND BANKING
 
                     CHAPTER 23--FARM CREDIT SYSTEM
 
     SUBCHAPTER IV--PROVISIONS APPLICABLE TO TWO OR MORE CLASSES OF 
                       INSTITUTIONS OF THE SYSTEM
 
                             Part A--Funding
 
Sec. 2154a. Capitalization of System institutions


(a) Definitions

    As used in this section:

                        (1) Permanent capital

        The term ``permanent capital'' means--
            (A) current year retained earnings;
            (B) allocated and unallocated earnings (which, in the case 
        of earnings allocated in any form by a System bank to any 
        association or other recipient and retained by the bank, shall 
        be considered, in whole or in part, permanent capital of the 
        bank or of any such association or other recipient as provided 
        under an agreement between the bank and each such association or 
        other recipient);
            (C) all surplus (less allowances for losses);
            (D) stock issued by a System institution, except--
                (i) stock that may be retired by the holder of the stock 
            on repayment of the holder's loan, or otherwise at the 
            option or request of the holder; or
                (ii) stock that is protected under section 2162 of this 
            title or is otherwise not at risk; and

            (E) any other debt or equity instruments or other accounts 
        that the Farm Credit Administration determines appropriate to be 
        considered permanent capital.

                              (2) Stock

        The term ``stock'' means voting and nonvoting stock (including 
    preferred stock), equivalent contributions to a guaranty fund, 
    participation certificates, allocated equities, and other forms and 
    types of equities.

(b) Adoption of bylaws

    Subject to approval by shareholders under subsection (c)(2) of this 
section, each bank and association shall adopt bylaws, developed by its 
board of directors, that provide for the capitalization of the 
institution in accordance with subsection (c)(1) of this section.

(c) Requirements of bylaws

                           (1) In general

        Notwithstanding any other provision of this chapter, the bylaws 
    adopted under subsection (b) of this section--
            (A) shall provide for such classes, par value, and amounts 
        of the stock of the institution, the manner in which such stock 
        shall be issued, transferred, and retired, and the payment of 
        dividends and patronage refunds, as determined appropriate by 
        the Board of Directors, subject to this section;
            (B) may provide for the charging of loan origination fees as 
        determined appropriate by the Board of Directors;
            (C) shall enable the institution to meet the capital 
        adequacy standards established under the regulations issued 
        under section 2154(a) of this title;
            (D) shall provide for the issuance of voting stock, which 
        may only be held by--
                (i) borrowers who are farmers, ranchers, or producers or 
            harvesters of aquatic products, and cooperative associations 
            eligible to borrow from System institutions under this 
            chapter;
                (ii) in the case of a Central Bank for Cooperatives, 
            other banks for cooperatives; and
                (iii) in the case of banks other than banks for 
            cooperatives, System associations;

            (E) shall require that--
                (i) as a condition of borrowing from or through the 
            institution, any borrower who is entitled to hold voting 
            stock or participation certificates shall, at the time a 
            loan is made, acquire voting stock or participation 
            certificates in an amount not less than $1,000 or 2 percent 
            of the amount of the loan, whichever is less; and
                (ii) within 2 years after the loan of a borrower is 
            repaid in full, any voting stock held by the borrower be 
            converted to nonvoting stock;

            (F) may provide that persons who are not borrowers from the 
        institution may hold nonvoting stock of the institution;
            (G) shall require that any holder of voting stock issued 
        before the adoption of bylaws under this section exchange a 
        portion of such stock for new voting stock;
            (H) do not need to provide for maximum or minimum standards 
        of borrower stock ownership based on a percentage of the loan of 
        the borrower, except as otherwise provided in this section;
            (I) shall permit the retirement of stock at the discretion 
        of the institution if the institution meets the capital adequacy 
        standards established under section 2154(a) of this title; and
            (J) shall permit stock to be transferable.

                         (2) Effective date

        The bylaws adopted by the board of directors of a System 
    institution under subsection (b) of this section shall take effect 
    only on approval of a majority of the stockholders of such 
    institution present and voting, or voting by written proxy, at a 
    duly authorized stockholders' meeting.

(d) Reduction of capital

                          (1) General rule

        Except as provided in paragraph (2), the board of directors of a 
    System institution may not reduce the permanent capital of the 
    institution through the payment of patronage refunds or dividends, 
    or the retirement of stock if, after or due to such action, the 
    permanent capital of the institution would thereafter fail to meet 
    the minimum capital adequacy standards established under section 
    2154(a) of this title.

                           (2) Exceptions

        Paragraph (1) shall not apply to the payment of noncash 
    patronage refunds by any institution exempt from Federal income tax 
    if the entire refund paid qualifies as permanent capital. 
    Notwithstanding paragraph (1), any System institution subject to 
    Federal income tax may pay patronage refunds partially in cash as 
    long as the cash portion of the refund is the minimum amount 
    required to qualify the refund as a deductible patronage 
    distribution for Federal income tax purposes and the remaining 
    portion of the refund paid qualifies as permanent capital.

(e) Compliance

    The Farm Credit Administration may issue a directive that requires 
compliance with subsection (d) of this section, to the board of 
directors of any System institution that fails to comply therewith.

(f) Loans designated for sale or sold into secondary market

                           (1) In general

        Subject to paragraph (2) and notwithstanding any other provision 
    of this section, the bylaws adopted by a bank or association under 
    subsection (b) of this section may provide--
            (A) in the case of a loan made on or after February 10, 
        1996, that is designated, at the time the loan is made, for sale 
        into a secondary market, that no voting stock or participation 
        certificate purchase requirement shall apply to the borrower for 
        the loan; and
            (B) in the case of a loan made before February 10, 1996, 
        that is sold into a secondary market, that all outstanding 
        voting stock or participation certificates held by the borrower 
        with respect to the loan shall, subject to subsection (d)(1) of 
        this section, be retired.

                          (2) Applicability

        Notwithstanding any other provision of this section, in the case 
    of a loan sold to a secondary market under subchapter VIII of this 
    chapter, paragraph (1) shall apply regardless of whether the bank or 
    association retains a subordinated participation interest in a loan 
    or pool of loans or contributes to a cash reserve.

                            (3) Exception

        (A) In general

            Subject to subparagraph (B) and notwithstanding any other 
        provision of this section, if a loan designated for sale under 
        paragraph (1)(A) is not sold into a secondary market during the 
        180-day period that begins on the date of the designation, the 
        voting stock or participation certificate purchase requirement 
        that would otherwise apply to the loan in the absence of a bylaw 
        provision described in paragraph (1)(A) shall be effective.

        (B) Retirement

            The bylaws adopted by a bank or association under subsection 
        (b) of this section may provide that if a loan described in 
        subparagraph (A) is sold into a secondary market after the end 
        of the 180-day period described in the subparagraph, all 
        outstanding voting stock or participation certificates held by 
        the borrower with respect to the loan shall, subject to 
        subsection (d)(1) of this section, be retired.

(g) Construction

    This section shall not be construed to affect the provisions of this 
chapter that confer on System institutions a lien on borrower stock or 
other equities and the privilege to retire or cancel such stock or other 
equities for application against the indebtedness on a defaulted or 
restructured loan.

(h) Controlling authority

    To the extent that any provision of this section is inconsistent 
with any other provision of this chapter (other than section 2162 of 
this title), the provision of this section shall control.

(Pub. L. 92-181, title IV, Sec. 4.3A, as added Pub. L. 100-233, title 
III, Sec. 301(b), Jan. 6, 1988, 101 Stat. 1608; amended Pub. L. 100-399, 
title III, Sec. 301(b)-(f), Aug. 17, 1988, 102 Stat. 994; Pub. L. 102-
552, title I, Sec. 101, Oct. 28, 1992, 106 Stat. 4103; Pub. L. 104-105, 
title II, Sec. 206, Feb. 10, 1996, 110 Stat. 173.)


                               Amendments

    1996--Subsecs. (f) to (h). Pub. L. 104-105 added subsec. (f) and 
redesignated former subsecs. (f) and (g) as (g) and (h), respectively.
    1992--Subsec. (a)(1). Pub. L. 102-552 amended par. (1) generally. 
Prior to amendment, par. (1) read as follows: ``The term `permanent 
capital' means current year retained earnings, allocated and unallocated 
earnings, all surplus (less allowances for losses), and stock issued by 
a System institution, except stock that--
        ``(A) may be retired by the holder thereof on repayment of the 
    holder's loan, or otherwise at the option or request of the holder; 
    or
        ``(B) is protected under section 2162 of this title or is 
    otherwise not at risk.''
    1988--Subsec. (a)(1)(B). Pub. L. 100-399, Sec. 301(b), substituted 
``section 2162 of this title'' for ``section 4.9B''.
    Subsec. (c)(1)(D)(i). Pub. L. 100-399, Sec. 301(c)(1), substituted 
``producers or'' for ``producers, or''.
    Subsec. (c)(1)(G). Pub. L. 100-399, Sec. 301(c)(2), substituted 
``voting stock issued'' for ``stock issued''.
    Subsec. (c)(1)(H). Pub. L. 100-399, Sec. 301(d), inserted ``, except 
as otherwise provided in this section'' after ``the borrower''.
    Subsec. (c)(1)(I). Pub. L. 100-399, Sec. 301(e), struck out 
``standards issued under'' after ``established under''.
    Subsec. (d)(1). Pub. L. 100-399, Sec. 301(f), struck out ``and in 
section 2162 of this title'' after ``paragraph (2)'' and ``or allocated 
equities'' after ``retirement of stock''.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-399 effective as if enacted immediately 
after enactment of Pub. L. 100-233, which was approved Jan. 6, 1988, see 
section 1001(a) of Pub. L. 100-399, set out as a note under section 2002 
of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 2014, 2074, 2094, 2146, 
2162, 2267, 2268, 2279a-3, 2279c-1 of this title.
