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duction, the maturity shall be not more than two years from the date of discount or pledge; provided that, in either case, such notes are payable in regular monthly or semi-monthly installments in amounts ordinarily sufficient to liquidate the paper within such period but consistent with sound farming practices of the operator. In the discretion of the intermediate credit bank, such installments may be for fixed amounts or for a percentage of proceeds from dairy products and should, ordinarily, be covered by assignment of an appropriate part of future milk or cream checks. (Secs. 209, 202 (c), as added by sec. 2, 42 Stat. 1459, 1456; 12 U.S.C. 1101, 1033) 42.306 Notes of farming corporations-(a) Eligibility. Notes of a corporation are eligible for discount only if the corporation is principally engaged in farming or in raising, breeding, fattening, or marketing of livestock. To be considered so principally engaged, the major portion of the corporation's assets must be represented by property actually devoted to farming and/or livestock production; at least half of its gross income must be derived from such operations; and at least half of the time of its active officers and personnel must be spent in the conduct of such business.

(b) Indorsements of stockholders. (1) Notes of a farming corporation (as herein defined), to be accepted for discount or as collateral for a loan by a Federal intermediate credit bank, will be required to be indorsed, or signed as co-maker (s) by (i) the holder or holders of at least the majority of the outstanding shares of voting stock of the corporation or (ii) under certain conditions, by the principal stockholder or stockholders; or the bank will require that such stockholders execute a continuing guaranty of all indebtedness of such corporation to the financing institution and its successors or assigns.

(2) The Federal intermediate credit banks will require such stockholders' indorsements or guaranties on any renewals or extensions of obligations of farming corporations whose paper they may now hold, as a condition precedent to accepting such renewals or extensions. This requirement may not be waived in any case except with the express consent of the Intermediate Credit Commissioner.t (Secs. 209, 202 (a), as added by sec. 2, 42 Stat. 1459, 1455; 12 U.S.C. 1101, 1031, and Sup.)

42.308 Rates of interest or discount charged note makers by financing institutions. The rate of interest or discount charged farmers and stockmen on notes or other obligations that may be discounted for, or accepted as collateral for loans to, production credit associations and other financing institutions shall not exceed by more than 3 percent per annum the loan and discount rate of the Federal intermediate credit bank in effect at the time the loan is made.t (Secs. 209, 204 (b), as added by sec. 2, 42 Stat. 1459, 1457; 12 U.S.C. 1101, 1052)

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42.309 Fees and other charges. No paper shall be eligible for discount, or as collateral for a loan by Federal intermediate credit bank, if the financing institution ch from interest at a rate conformin

v fee or commission aside rulations of the Farm

+For source citation, see no

Page

Credit Administration and reimbursement for reasonable and necessary actual costs incurred by the financing institution in making the loan, such as the expenses of necessary inspections of the security, obtaining chattel mortgage abstracts or other evidences of title and priority of its liens, and filing or recording mortgages.† (Secs. 209, 204 (b), as added by sec. 2, 42 Stat. 1459, 1457; 12 U.S.C. 1101, 1052) PART 43-PRIVATELY CAPITALIZED FINANCING

Sec.

INSTITUTIONS

43.501 Eligibility of institutions.

(a) Incorporation and capital-
ization.

(b) Compliance with statutes.
(c) Nature of principal business.
(d) Corporations acting under
banking laws.

43.504 Loans to financing institutions.

Sec.

43.505 Eligibility of paper.

(a) Summary of eligibility re-
quirements.

(b) Notes given to merchants.
(c) Notes of irrigation com-
panies, etc.

(d) Maximum individual notes
eligible for discount.

43.507 Insolvent financing institutions.

Section 43.501 Eligibility of institutions-(a) Incorporation and capitalization. In order to be eligible to obtain credit from a Federal intermediate credit bank, a privately capitalized financing institution must meet the following requirements:

It must be incorporated with a paid-in and unimpaired capital commensurate with the volume of business it expects to handle and, in any event, not less than $10,000.

(b) Compliance with statutes. It must comply with State laws applicable to it. Violations of State laws will be cause for revocation by an intermediate credit bank of the borrowing and rediscounting privilege of any concern which does not immediately rectify such conditions upon notice from the bank. Particular attention should be given to the corporation's articles of incorporation and bylaws; the issuance, sale, and retirement of its capital stock or other securities; and, in the case of foreign corporations, evidence will be required that the concern has complied with the laws of the State in which it is operating.

(c) Nature of principal business. It must be engaged, principally, in the business of extending seasonal short-term credit for agricultural and livestock production purposes.

(d) Corporations acting under banking laws. A corporation engaged in a banking business and operating under the banking laws of a State, but having the powers of an agricultural credit corporation, livestock loan company, or similar financing institution, must be limited to the amount of credit which may be granted to a banking institution under section 202 (b) of the Federal Farm Loan Act, as amended.tt (Secs. 209, 202 (a), (b), as added by sec. 2, 42 Stat. 1459, 1455; 12 U.S.C. 1101, 1031, 1032, and Sup.)

In 88 43.501 to 43.507, inclusive, the numbers to the right of the decimal point correspond with the respective section numbers in the Manual for Federal Intermediate Credit Banks issued as of September 1, 1937.

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For source citation, see note to § 42.301.

43.504 Loans to financing institutions. Loans may be made to a financing institution (other than a bank for cooperatives or a production credit association organized under the Farm Credit Act of 1933, as amended, or a production credit association in which a production credit corporation organized under that Act owns stock) only when such loans are secured by paper that is in itself eligible for discount, that is, "the proceeds of which have been advanced or used in the first instance for any agricultural purpose or for the raising, breeding, fattening, or marketing of livestock," and which otherwise conforms to the requirements of eligibility for discount.t (Secs. 209, 202 (a), as added by sec. 2, 42 Stat. 1459, 1455; 12 U.S.C. 1101, 1031, and Sup.)

2

43.505 Eligibility of paper-(a) Summary of eligibility requirements. To be eligible for discount or as collateral for loans, notes offered to a Federal intermediate credit bank by privately capitalized financing institutions must meet the following require

ments:

(1) The rate of interest or discount charged the note maker may not exceed the limitations set out in the rules and regulations promulgated by the Farm Credit Administration.

(2) Maturity dates may not exceed the limitations fixed by Farm Credit Administration rules and regulations and may not, in any event, exceed the legal limit of three years from the date discounted or accepted as collateral by the banks.

(3) The total indebtedness of the note maker to the financing institution may not exceed the maximum amount permitted by rules and regulations of the Farm Credit Administration.

(4) The proceeds of the notes must have been advanced or used in the first instance for an agricultural purpose, as defined by the Farm Credit Administration, and the Federal intermediate credit bank will require appropriate certificates or other suitable evidence that the proceeds have been or will be so used.

(b) Notes given to merchants. Notes given by farmers and stockmen to dealers or merchants for the purchase of livestock, machinery, farm supplies, fertilizer, etc., ordinarily are not eligible for discount by (or as collateral for loans from) a Federal intermediate credit bank.

Where the proceeds of such notes are used primarily for the benefit of a merchant or dealer, rather than a farmer (e. g., to finance a merchant's credit sales) the purpose is commercial, or mercantile, not agricultural. A farmer's note given to a financing institution, when the proceeds have been used to purchase for cash from a merchant, or to pay a merchant for, farm supplies, machinery, fertilizer, etc., if otherwise acceptable, is eligible for discount by Federal intermediate credit bank.

(c) Notes of irrigation companies, etc. Notes of irrigation companies, canal companies, and similar concerns engaged in the business of supplying farmers with irrigation water or other services or supplies, are not eligible for discount by (or as collateral for loans from) a Federal intermediate credit bank.

+For source citation, see note to § 43.501.

Page 105

(d) Maximum individual notes eligible for discount. The maximum amount of any person's obligations which may be discounted for (or accepted as collateral for loans to) a financing institution shall not, except with the consent of the Intermediate Credit Commissioner, exceed the following limitations: (1) 20 percent of the paid-in and unimpaired capital and surplus of the financing institution, in the case of crop production and general agricultural paper; or (2) 50 percent of the paid-in and unimpaired capital and surplus of such institution, if the notes or other obligations are adequately secured by warehouse receipts representing readily marketable and nonperishable staple agricultural commodities, or by chattel mortgages on livestock; and shall be subject to such further limitations as may be imposed by the laws governing the operations of the financing institution concerned.

A Federal intermediate credit bank may not, except with the approval of the Intermediate Credit Commissioner, discount or make loans upon the security of any part of the obligations of a person whose indebtedness to the financing institution offering such paper to the bank exceeds the limitations prescribed herein, since undue concentration of credit in large lines involves special hazards which may impair the ability of the financing institution to meet its liabilities to the bank.

The term "obligations", as used in this section, includes all paper upon which one person is liable, whether as borrower, co-maker, indorser, or guarantor; Provided, however, That a Federal intermediate credit bank may, with the approval of the Intermediate Credit Commissioner, fix a different maximum amount of paper acceptable to it and bearing the indorsement for security only of a person having no direct interest in the farming operations being financed with the proceeds of such notes.t (Secs. 209, 202 (a), (b), as added by sec. 2, 42 Stat. 1459, 1455; 12 U.S.C. 1101, 1031, 1032, and Sup.)

43.507 Insolvent financing institutions. In any case where a financing institution becomes insolvent, or is in process of liquidation, particularly if it will not properly service its paper, and where supervision and orderly liquidation will be facilitated by direct handling of the obligations of the borrowers, a Federal intermediate credit bank may, with the consent of the Intermediate Credit Commissioner, take over such paper and at maturity accept renewals thereof made payable directly to the bank. Notes or other obligations pledged with an intermediate credit bank by a financing institution, either as collateral for a direct loan or as additional security for any and all indebtedness of the corporation to the bank, also may be taken over by the bank and handled directly with the makers after title has been acquired by the bank in accordance with the provisions of applicable State laws and the terms of the pledge agreements executed by the financing institution.

It is the policy of the Farm Credit Administration, in so far as is possible without jeopardizing the interests of the Federal inter

Page 106

For source citation, see note to § 43.501.

mediate credit banks, and within the limitations of the law governing their operations, to avoid the enforced liquidation of privately capitalized financing institutions as well as their borrowers whose paper may be held by the intermediate credit banks. Therefore, direct liquidation of paper carried for a financing institution should be resorted to only in cases where other measures have failed and it is apparent that direct liquidation is the only practicable means available to the bank for the protection of its interests. When it is determined by a bank that the affairs of a financing institution are to be closed out through the foregoing procedure, a complete statement of the facts shall be submitted to the Intermediate Credit Commissioner before definite action is taken by the bank.

Paper handled for insolvent financing institutions under the foregoing procedure will not be assigned to the farm loan registrar as collateral for debentures.† (Sec. 209, as added by sec. 2, 42 Stat. 1459; 12 U.S.C. 1101)

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Loans by Farm Security Administration to community and cooperative associations: See Part 304.

Loans to Indian corporations and cooperative associations: See Indians, 25 CFR Parts 21-24, 27, 28.

Section 44.701 Eligibility requirements. Only bona fide cooperative associations, composed of persons who are engaged in producing and marketing staple agricultural products or livestock, are eligible for loans from a Federal intermediate credit bank. Any properly organized cooperative association which complies with the provisions of section 12 of the Farm Credit Act of 1935, (49 Stat. 317; 12 U.S.C., Sup., 1141j) and meets the foregoing requirements shall be deemed to be eligible for credit from a Federal intermediate credit bank.

Loans may be made to farmers' cooperative associations engaged in purchasing, testing, grading, processing, distributing, and/or furnishing farm supplies and/or farm business services as well as to associations engaged in processing, handling, and/or marketing farm products for their members. Loans to cooperative marketing associations will be made only to permit such associations to carry out an orderly marketing program, as distinguished from a speculative holding venture. (Secs. 209, 202 (a) as added by sec. 2, 42 Stat. 1459, 1455; 12 U.S.C. 1101, 1031, and Sup.)

††In 88 44.701 to 44.710, inclusive, the numbers to the right of the decimal point correspond with the respective section numbers in the Manual for Federal Intermediate Credit Banks issued as of September 1, 1937.

CROSS REFERENCE: For wool and mohair loan requirements from Commodity Credit Corporation to cooperative marketing associations, see § 202.4.

For source citation, see note to § 43.501.

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