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Federal Register / Vol. 86, No. 188 / Friday, October 1, 2021 / Rules and Regulations problematic. Many of the comments from System institutions reiterated recommendations they had previously communicated to FCA in comments on the September 4, 2014, proposed rulemaking 18 and requested changes that were beyond the scope of the proposal. The balance of the comments from System institutions were supportive of the proposed amendments or requested specific technical changes.
The ABA asserted that the proposed rule would increase risks to the safety and soundness of the System and increase competitive inequities between the System and commercial banks. The ABA also requested that we clarify certain matters we did not expressly address in the proposal. In some cases, the ABAs comments did not directly relate to the amendments we proposed.
In the preamble to the proposed rule, we discussed certain matters that were not the subject of the proposed rule,19
and we also sought comments on potential changes to our permanent capital regulations to reduce regulatory burden. We may consider proposing specific changes to the permanent capital requirements and calculations in a future rulemaking.
As discussed in Section 2
Substantive Revisions to the Capital Rule and Section 3Clarifying and Other Revisions to the Capital Rule, the final rule adopts the revisions we proposed with minor adjustments in response to comments received.
II. Substantive Revisions to the Capital Rule A. Safe Harbor Deemed Prior Approval Under existing 628.20f, System institutions are required to obtain prior approval from FCA before retiring equities included in tier 1 or tier 2
capital and making cash payments for dividends and patronage collectively, cash distributions. Institutions have deemed prior approval from FCA for such distributions provided the conditions in 628.20f5 and 6 are satisfied Safe Harbor. One of the conditions stipulates that, after any such cash payment, the dollar amount of CET1 capital must equal or exceed the dollar amount of CET1 on the same date in the previous calendar year.20 Using 18 See
79 FR 52814 September 4, 2014.
the proposed rule preamble, we discussed the exclusion of continuously redeemable preferred stock H Stock from tier 1 and tier 2 capital and also commented on issues raised in a 2016 letter we received from the Farm Credit Council. See 85 FR
57786, 55795 September 10, 2020.
20 See existing regulation 628.20f5ii. FCA
considers the date of the cash distribution to be the date on which the institutions board passes a binding resolution declaring an amount it will make 19 In
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the same date in the previous calendar year has made monitoring and enforcing this requirement difficult because regulatory capital numbers for System institutions are reported to FCA
quarterly, rather than daily.
We proposed to simplify the Safe Harbor provisions of 628.20f by replacing the requirement to use the exact calendar date of the cash distribution with a requirement to use the quarter-end date of the quarter in which the cash payment is made. A
System institution would have deemed prior approval from FCA if, after making the cash distribution, the dollar amount of CET1 capital at the quarterend equals or exceeds the dollar amount of CET1 capital on the same quarter-end in the previous calendar year. We provided two examples in the preamble to the proposed rule.21 We stated that we do not believe the amendment as proposed would increase or decrease the amount of cash patronage System institutions would be able to pay when compared to the provision in the 2017
Capital Rule.
The ABA expressed concern that the proposal was liberalizing the provisions of the Safe Harbor Deemed Prior Approval in 628.20f5 and suggested that the Safe Harbor framework gives inadequate consideration to an institutions risk profile. The comments appear to be based in part on concerns regarding the proposals omission of specific reference to capital distribution limitations already in the 2017 Capital Rule and unchanged by the proposal.
We disagree with the assertion that the proposal would liberalize the Safe Harbor. The proposed rule would change the date for determining compliance with the Safe Harbor provision in order to simplify the administration, enforcement, and monitoring of compliance with the Safe Harbor requirements. As we state above, we do not believe the proposal would increase or decrease the amount of cash patronage System institutions could pay when compared to the existing provision. The proposed changes would in no way liberalize the Safe Harbor or create any greater opportunity for capital distributions under the Safe Harbor.
In response to the ABAs concerns regarding the Safe Harbor giving inadequate consideration to an institutions risk profile, the as a cash dividend or patronage refund. This either must be a specified dollar amount or must include language whereby a specific amount can be calculated.
21 See 85 FR 55786, 55788 September 10, 2020.

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commenters assertion that the Safe Harbor permits cash payouts based only on maintaining the dollar amount of CET1 capital in a prior year is incorrect. As we stated in the preamble to the proposed rule, in order to make a cash distribution under the Safe Harbor, a System institution must remain in compliance with all regulatory capital requirements and any supervisory or enforcement actions after such distribution.22 FCAs regulatory capital requirements are comparable to the U.S. Rule and include regulatory capital measures using both riskadjusted and non-risk-adjusted computational methods.23 Furthermore, FCA has comparable authorities to the Federal banking regulatory agencies to establish minimum capital ratios for an individual institution 24 as well as to place further restrictions on institutions capital distributions as part of supervisory agreements and enforcement actions.25 Lastly, cash distributions under the Safe Harbor are subject to the capital buffers in 628.11, which reduce the amount of capital distributions an institution can make when its capital levels fall within the leverage buffer or capital conservation buffer ranges. These requirements are unaltered by the proposed or final rule.
Compeer requested that we expand the Safe Harbor to allow institutions to retire the allocated equities of a borrower, irrespective of compliance with minimum holding periods,26 to offset losses when a borrower defaults on a loan. The commenter asserted that present hurdles to retiring equities in these scenarios i.e., requesting prior approval from FCA under 628.20f present an unnecessary administrative burden.
Compeers requested revision is beyond the scope of the present rulemaking. We note, however, that as we stated in the preamble to the 2017
Capital Rule, equities are issued to capitalize the institution, not the loan.
Accordingly, these equities should not be viewed or treated as compensating loan balances.27 Furthermore, the preamble to the 2017 Capital Rule also explains in detail our position on the 22 See
628.20f5iii.
for example, 628.10 and 628.11
with the OCCs rules at 12 CFR 3.10 and 3.11.
24 Section 4.3a of the Act 12 U.S.C. 2154 and 12 CFR 615.5350.
25 Section 5.25 of the Act 12 U.S.C. 2261.
26 To be included in regulatory capital, common cooperative equities defined at 628.2 must meet minimum holding periods as stipulated in 628.20b1xiv and d1xi. Minimum holding period requirements are further discussed below under Section II, CCommon Cooperative Equity Issuance Date.
27 See 81 FR 49720, 49731 July 28, 2016.
23 Compare,
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