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Federal Register / Vol. 86, No. 188 / Friday, October 1, 2021 / Rules and Regulations
necessity for minimum holding periods to address the expectation criterion in the Basel III Framework and the U.S.
Rule, maximizing comparability of our rule with the rules applicable to commercial banks.28 We note that, under 628.20f6, System institutions may offset allocated equities against a loan in default if mandated by a court of competent jurisdiction or under 615.5290 in connection with a restructuring plan.
The balance of comments received supported this proposed amendment, and we are adopting it as proposed.
B. Capital Bylaw or Board Resolution To Include Equities in Tier 1 and Tier 2
Capital The 2017 Capital Rule stipulates conditions and criteria that must be met in order to include an instrument in an institutions regulatory capital.29 Among these are the requirements for the institutions board of directors to affirm its commitment to adhere to the regulatory minimum redemption or revolvement periods; to obtain prior approval from FCA prior to redeeming, revolving, redesignating, cancelling or removing equities included in regulatory capital; 30 and to obtain prior approval from FCA for certain other actions that could impact the institutions capital quantity or quality.31 Such affirmation must be set forth in the institutions capitalization bylaws or in a board resolution that the board must re-affirm annually. Where this requirement is satisfied by a board resolution, we proposed to reduce the administrative burden by no longer requiring an annual re-affirmation by the board. We proposed to replace the annual re-affirmation with a one-time requirement to adopt the board resolution and, in subsequent annual capital adequacy plans, to expressly acknowledge the continuing and binding effect of this resolution.
We proposed to move the existing requirements of 615.5200d to a new section, 628.21, and to revise them to 28 See
81 FR 49720, 49732 July 28, 2016.
existing regulations 628.20 and 615.5200d.
30 By meeting the conditions for deemed prior approval under regulation 628.20f5 and 6, an institution effectively obtains FCA prior approval for a given capital distribution.
31 Existing 615.5200d3 requires boards to obtain prior approval before redesignating unallocated retained earnings URE equivalents as redeemable equities; removing equities from regulatory capital other than through repurchase, cancellation, redemption, or revolvement; or redesignating equities from one regulatory capital component to another. Section 615.5200d4
requires that URE equivalents shall not be revolved, except under very limited circumstances i.e., upon dissolution or liquidation.
29 See
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provide that an institutions board must adopt either a capitalization bylaw requirement or a binding board resolution. New 615.5200b would add to existing capital planning provisions a requirement that the capital adequacy plan must expressly acknowledge the continuing and binding effect of all board resolutions adopted pursuant to 628.20b1xiv, c1xiv, and d1xi and 628.21. We proposed conforming changes as necessary to refer to new 628.21 rather than 615.5200d.
We received no specific comments on this amendment and are adopting it as proposed.
C. Common Cooperative Equity Issuance Date Common cooperative equities 32
included in CET1 capital have a minimum holding period of 7 years before redemption or revolvement, and common cooperative equities included in tier 2 capital have a minimum holding period of 5 years.33 These holding periods also must be met for equities other than the statutory borrower stock minimum to be retireable under the Safe Harbor. To clarify when the minimum redemption and revolvement period starts for a common cooperative equity, we proposed to add a new definition, common cooperative equity issuance date, in 628.2 and to make conforming changes to other sections of the regulations. Similar to our guidance in the Capital Bookletter, we proposed to define the common cooperative equity issuance date as the quarter-end in which an institution recognizes newly issued purchased stock in its financial statements and, for newly allocated equities, the quarter-end in which the institutions board has declared a patronage refund and the applicable accounting treatment has taken place.
We provided examples of the proposed treatment in the proposed rule preamble.34
The System Comment Letter and Compeer requested that we eliminate altogether the minimum holding period requirements for allocated equities. The System made the same request and supporting arguments in comments on our 2014 Tier 1/Tier 2 proposed capital rule, and FCA responded to those 32 Common cooperative equities are defined in 628.2.
33 As established in 628.20b1xivA and d1xiA.
34 See 85 FR 55786, 55789 September 10, 2020.

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comments in the final rule preamble to the 2017 Capital Rule.35
The Systems request not only is beyond the scope of this rulemaking but also presents no new arguments that would persuade us to reevaluate the need for minimum holding periods. We discussed at length the stock-like attributes of allocated equities as distinct from unallocated retained earnings and the reasons for the minimum holding periods in the preamble to the 2017 Capital Rule.36
The System Comment Letter suggested we add the word calendar before quarter-end in the proposed definition of common cooperative equity issuance date to clarify that the issuance date would be the calendar quarter-end. We agree and have incorporated the suggestion into the final rule. FCA also fully acknowledges the legal stock issuance date may be different from the quarter-end date used for financial reporting and regulatory capital calculations. Beyond this minor change, we are adopting the new definition as proposed.
D. Farm Credit Leasing Services Corporation The proposed rule would recognize the current ownership status of Farm Credit Leasing as a wholly-owned subsidiary of CoBank, ACB CoBank by removing FCL from the definition of System institution in 615.5201 and 628.2 for the purposes of the regulatory capital requirements.37 In so doing, FCA
would no longer require FCL to meet minimum capital and related regulatory requirements under part 615, subpart H, and part 628 of our regulations on a stand-alone basis. As a wholly-owned subsidiary of CoBank, FCL is a business unit of the bank with profits and losses accrued to the bank, and its assets and liabilities are consolidated with the banks assets and liabilities for financial and regulatory reporting purposes. To the extent the bank is adequately capitalized overall, CoBanks consolidation ensures FCLs assets are adequately capitalized. This amendment will reduce the administrative burden of separately applying the regulatory capital requirements to FCL and will not reduce the capital to be held against FCL and CoBanks combined assets. If 35 See 81 FR 49720, 49732 July 28, 2016. The proposed rule is at 79 FR 52814 September 4, 2014.
36 See 81 FR 49720, 4972649730 July 28, 2016.
37 Farm Credit Leasing is a service corporation chartered under section 4.25 of the Act. A service corporation is an institution of the System that is established by System banks or associations and chartered by FCA, and it is subject to FCA
regulation and examination. See title IV, subpart E
of the Act.

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