12 U.S.C. § 2154 — Capital adequacy of banks and institu-

Page 1324 TITLE 12—BANKS AND BANKING § 2154 Subsec. (e). Pub. L. 100–399, § 203(e), substituted ‘‘Sys- tem other than through the’’ for ‘‘System other than through their’’, and substituted ‘‘Federal Farm Credit Banks Funding Corporation’’ for ‘‘fiscal agent’’ in two places. 1985—Pub. L. 99–205 substituted ‘‘regulation by’’ for ‘‘supervision of’’ in provision preceding subsec. (a). Subsec. (b). Pub. L. 99–205 substituted references to section ‘‘2154(c)’’ for ‘‘2154(b)’’ and ‘‘Farm Credit Ad- ministration’’ for ‘‘Governor’’. Subsecs. (c), (d). Pub. L. 99–205 substituted ‘‘Farm Credit Administration’’ for ‘‘Governor’’ wherever ap- pearing. Statutory Notes and Related Subsidiaries 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. 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. § 2154. Capital adequacy of banks and institu- tions (a) Minimum levels of capital The Farm Credit Administration shall cause System institutions to achieve and maintain adequate capital by establishing minimum lev- els 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 min- imum level of capital for a System institution as the Farm Credit Administration, in its dis- cretion, deems to be necessary or appropriate in light of the particular circumstances of the Sys- tem institution. (b) Failure to maintain minimum levels; direc- tives; plans for achieving minimum levels; proposals affecting compliance (1) Failure of a System institution to main- tain capital at or above its minimum level as es- tablished under subsection (a) may be deemed by the Farm Credit Administration, in its discre- tion, to constitute an unsafe and unsound prac- tice within the meaning of this chapter. (2) In addition to, or in lieu of, any other ac- tion authorized by law, including paragraph (1), the Farm Credit Administration may issue a di- rective to a System institution that fails to maintain capital at or above its required level as established under subsection (a). Such direc- tive may require the System institution to sub- mit 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 ma- jority vote of the voting stockholders or the contributors to the guaranty fund of the institu- tion. (3) The Farm Credit Administration may con- sider such System institution’s progress in ad- hering to any plan required under paragraph (2) whenever such System institution, or an affil- iate 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 out- standing for which the bank is primarily liable. (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.) Editorial 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 out- standing 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 ob- ligations and at all times thereafter maintain, free from any lien or other pledge, notes and other obliga- tions 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 Ad- ministration, or cash, in an aggregate value equal to the total amount of long-term notes, bonds, deben- tures, 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) gen- erally. 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, ex- ceeds 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 Admin- istration shall establish by regulation.’’ Page 1325 TITLE 12—BANKS AND BANKING § 2154a Subsecs. (b), (c). Pub. L. 99–205 added subsec. (b) and redesignated former subsec. (b) as (c). Statutory Notes and Related Subsidiaries 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 ad- ministered 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 min- imum permanent capital adequacy standards for Farm Credit System institutions. ‘‘(B) BASIS FOR ESTABLISHMENT.—The standards es- tablished under subparagraph (A) shall apply to an institution based on the financial statements of the institution prepared in accordance with generally ac- cepted accounting principles. ‘‘(C) RATIO OF CAPITAL TO ASSETS.—The standards established under subparagraph (A) shall specify fixed percentages representing the ratio of permanent cap- ital of the institution to the assets of the institution, taking into consideration relative risk factors as de- termined 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 re- spect 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 re- ceivership, conservatorship, liquidation, or enforce- ment 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 ade- quacy 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) [former 12 U.S.C. 2278a]. ‘‘(4) PERMANENT CAPITAL.—For purposes of this sub- section, 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)].’’ § 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 associa- tion 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 re- cipient); (C) all surplus (less allowances for losses); (D) stock issued by a System institution, except— (i) stock that may be retired by the hold- er of the stock on repayment of the hold- er’s loan, or otherwise at the option or re- quest 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 Ad- ministration determines appropriate to be considered permanent capital. (2) Stock The term ‘‘stock’’ means voting and non- voting 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), each bank and association shall adopt bylaws, developed by its board of di- rectors, that provide for the capitalization of the institution in accordance with subsection (c)(1). (c) Requirements of bylaws (1) In general Notwithstanding any other provision of this chapter, the bylaws adopted under subsection (b)— (A) shall provide for such classes, par value, and amounts of the stock of the insti- tution, 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 prod- ucts, and cooperative associations eligible to borrow from System institutions under this chapter; (ii) persons and entities eligible to bor- row from the banks for cooperatives, as de- scribed in section 2124(c)(ii) of this title; (iii) in the case of a Central Bank for Co- operatives, other banks for cooperatives; and (iv) in the case of banks other than banks for cooperatives, System associa- tions;