FARM CREDIT BANKS AND ASSOCIATIONS CHARTERS.

SEC. 401. FARM CREDIT BANKS AND ASSOCIATIONS CHARTERS. Effective 6 months after the date of enactment of this Act, titles I and II of the Farm Credit Act of 1971 (12 U.S.C. 2000 et seq.) are amended to read as follows: “TITLE I— FARM CREDIT BANKS “SEC. 1.3. ESTABLISHMENT. CHARTERS, TITLES. BRANCHES. “(a) Establishment.— The banks established pursuant to the merger of each District Federal Intermediate Credit Bank and Federal Land Bank (hereinafter referred to in this title as ‘Farm Credit Banks’) shall be Federally chartered instrumentalities of the United States. “(b) Charters.— The charters or organization certificates of Farm Credit Banks may be modified from time to time by the Farm Credit Administration Board, not inconsistent with the provisions of this title, as may be necessary or expedient to implement this Act. “(c) Title.— Each Farm Credit Bank may include in its title the name of the city in which it is located or other geographical designation. “(d) Branches.— Each Farm Credit Bank may establish such branches or other offices as may be appropriate for the effective operation of its business. “SEC. 1.4. BOARD OF DIRECTORS. “Each Farm Credit Bank shall elect from its voting stockholders a board of directors of such number, for such term, in such manner, and with such qualifications, as may be required in its bylaws, except that, at least one member shall be elected by the other directors, which member shall not be a director, officer, employee, or stockholder of a System institution. 101 STAT. 1623 “SEC. 1.5. GENERAL CORPORATE POWERS. “Each Farm Credit Bank shall be a body corporate and, subject to regulation by the Farm Credit Administration, shall have power to— “(1) adopt and use a corporate seal; “(2) have succession until dissolved under the provisions of this Act or other Act of Congress; “(3) make contracts; “(4) sue and be sued; “(5) acquire, hold, dispose, and otherwise exercise all the usual incidents of ownership of real and personal property necessary or convenient to its business; “(6) make, participate in, and discount loans, make commitments for credit, accept advance payments, and provide services as authorized in this Act, and charge fees for such; “(7) operate under the direction of its board of directors; “(8) provide by its board of directors for a president, one or more vice presidents, a secretary, a treasurer, and provide for such other officers, employees, and agents as may be necessary, as provided in this Act, define their duties, and require surety bonds or make other provision against losses occasioned by employees; “(9) prescribe by its board of directors— “(A) the bylaws of such bank that shall not be inconsistent with law, providing for the classes of the stock of the bank and the manner in which such stock shall be issued, transferred, and retired; “(B) the officers, employees, and agents of the bank as provided for; “(C) the property of the bank acquired, held, and transferred; “(D) the loans and discounts made by the bank; “(E) the general business conducted by the bank; and “(F) the privileges granted to the bank by law exercised and enjoyed; “(10) borrow money and issue notes, bonds, debentures, or other obligations individually, or in concert with one or more other banks of the System, of such character, terms, conditions, and rates of interest as may be determined as provided for in this Act; “(11) purchase nonvoting stock in, or pay in surplus to, and accept deposits or securities of funds from associations in its district, and pay interest on such funds; “(12) participate with— “(A) one or more other Farm Credit Banks in loans under this title on such terms as may be agreed on among such banks; “(B) participate with one or more other Farm Credit System institutions in loans made under this title or other titles on the basis prescribed in section 4.18; and “(C) participate with lenders that are not Farm Credit System institutions in loans that the bank is authorized to make under this title; “(13) approve the salary scale of the officers and employees of the associations in its district, and the appointment and compensation of the chief executive officer thereof, and supervise 101 STAT. 1624the exercise by such associations of the functions vested in or delegated to them; “(14) deposit the securities and current funds of the bank with any member bank of the Federal Reserve System or any insured State nonmember bank as defined in section 3 of the Federal Deposit Insurance Act and pay fees and receive interest on such as may be agreed, and when designated for that purpose by the Secretary of the Treasury, such bank— “(A) shall be a depository of public money, except receipts from customs, under such regulations as may be prescribed by the Secretary; “(B) may be employed as a fiscal agent of the Government; and “(C) shall perform all such reasonable duties as a depository of public money or financial agent of the Government as may be required of such bank; except that no Government funds deposited under the provisions of this paragraph shall be invested in loans or bonds or other obligations of the bank; “(15) buy and sell obligations of, or insured by, the United States or any agency thereof, or securities backed by the full faith and credit of any such agency, and make other investments as may be authorized under regulations issued by the Farm Credit Administration; “(16) sell to lenders that are not Farm Credit System institutions interests in loans, and buy from and sell to Farm Credit System institutions interests in loans and other extensions of credit, and nonvoting stock as may be authorized under regulations issued by the Farm Credit Administration; “(17) conduct studies and make and adopt standards for lending; “(18) delegate to Federal land bank associations such functions as the bank determines appropriate; “(19) amend and modify loan contracts, documents, and payment schedules, and release, subordinate, or substitute security for any of such items; “(20) for loans made by the bank, require associations to endorse notes and other obligations of borrowers from the bank; “(21) exercise through the board of directors or authorized officers, employees, or agents of the bank, all such incidental powers as may be necessary or expedient to carry on the business of the bank; “(22) accept contributions to the capital of the bank from associations and account for such as authorized by the Farm Credit Administration; and “(23) as may be authorized by the board of directors of the bank and approved by the Farm Credit Administration Board, agree with other Farm Credit System institutions to share loan and other losses, whether to protect against capital impairment or for any other purpose. “SEC. 1.6. FARM CREDIT BANK CAPITALIZATION. “In accordance with section 4.3A, the Farm Credit Banks shall provide, through bylaws and subject to Farm Credit Administration regulations, for the capitalization of the bank and the manner in which bank stock shall be issued, held, transferred, and retired and bank earnings distributed. 101 STAT. 1625 “SEC. 1.7. LENDING AUTHORITY. “(a) Real Estate Loans.— The Farm Credit Banks are authorized to make or participate with other lenders in long-term real estate mortgage loans in rural areas, as defined by the Farm Credit Administration, or to producers or harvesters of aquatic products, and make continuing commitments to make such loans under specified circumstances, for a term of not less than 5 nor more than 40 years. “(b) Intermediate Credit.— “(1) In general.— The Farm Credit Banks are authorized to make loans and extend other similar financial assistance to and to discount for or purchase from— “(A) any production credit association, or “(B) any national bank, State bank, trust company, agricultural credit corporation, incorporated livestock loan company, savings institution, credit union, or any association of agricultural producers engaged in the making of loans to farmers and ranchers, and any corporation engaged in the making of loans to producers or harvesters of aquatic products, any note, draft, or other obligation with the institution’s endorsement or guarantee, the proceeds of which note, draft, or other obligation have been advanced to persons and for purposes eligible for financing by production credit associations as authorized by this Act. “(2) Participation with other entities.— The Farm Credit Banks may participate with one or more production credit associations or other Farm Credit Banks in the making of loans to eligible borrowers and may participate with one or more other Farm Credit System institutions in loans made under this title or other titles of this Act on the basis prescribed in section 4.18 of this Act. The banks may own and lease or lease with option to purchase to persons eligible for assistance under this title, equipment needed in the operations of such persons. “(3) Limitations on extension of financial assistance.— “(A) General rule.— No paper shall be purchased from or discounted for, and no loans shall be made or other similar financial assistance extended by a Farm Credit Bank to any entity identified in paragraph (1)(B) of this subsection if the amount of such paper added to the aggregate liabilities of such entity, whether direct or contingent (other than bona fide deposit liabilities), exceeds ten times the paid-in and unimpaired capital and surplus of such entity or the amount of such liabilities permitted under the laws of the jurisdiction creating such institution, whichever is the lesser. “(B) Limitation on national bank.— It shall be unlawful for any national bank which is indebted to any Farm Credit Bank, on paper discounted or purchased under paragraph (1), to incur any additional indebtedness, if by virtue of such additional indebtedness its aggregate liabilities direct or contingent, will exceed the limitation herein contained. “(4) FCA regulations.— “(A) In general.— All of the loans, financial assistance, discounts and purchases authorized by this section shall be subject to regulations of the Farm Credit Administration 101 STAT. 1626and shall be secured by collateral, if any, as may be required in such regulations. “(B) Requirement of regulations.— The regulations shall assure that such loans, financial assistance, discounts, and purchases are available on a reasonable basis to any financing institution authorized to receive such services under paragraph (1)(B) of this subsection, and that— “(i) is significantly involved in lending for agricultural or aquatic purposes; “(ii) demonstrates a continuing need for supplementary sources of funds to meet the credit requirements of its agricultural or aquatic borrowers; “(iii) has limited access to national or regional capital markets; and “(iv) does not use such services to expand its financing activities to persons and for purposes other than those authorized under title II. “(C) Fees.— The regulations may authorize a Farm Credit Bank to charge reasonable fees for any commitment to extend service under this section to such a financing institution. “(D) Subsidiaries and affiliates.— For purposes of this subsection, a financing institution together with the subsidiaries and affiliates of such may be considered as one, but such determination to consider such institution together with the subsidiaries and affiliates of such as one shall be made in the first instance by the bank and in the event of a denial by the bank of its services to a financial institution, then by the Farm Credit Administration on a case-by-case basis with due regard to the total relationship of the financing institution, its subsidiaries, and affiliates. “(5) Effective date.— Nothing in this section shall require termination of discount relationships in existence on the effective date of the Farm Credit Act Amendments of 1980. “SEC. 1.8. INTEREST RATES AND OTHER CHARGES. “(a) In General.— Loans and discounts made by a Farm Credit Bank shall bear interest at a rate or rates, and on such terms and conditions, as may be determined by the board of directors of the bank from time to time. “(b) Setting Rates and Charges.— In setting rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers at the lowest reasonable costs on a sound business basis taking into consideration the cost of money to the bank, necessary reserve and expenses of the bank and associations, and providing services to members. The loan documents or discounting and financing agreements, may provide for the interest rate or rates to vary from time to time during the repayment period of the loan or agreement. “SEC. 1.9. ELIGIBILITY. “The credit and financial services authorized in this title may be made available to persons who are or become stockholders or members of the bank or associations in the district, and who are— “(1) bona fide farmers, ranchers, or producers or harvesters of aquatic products; 101 STAT. 1627 “(2) persons furnishing to farmers and ranchers farm-related services directly related to their on-farm operating needs; or “(3) owners of rural homes. “SEC. 1.10. SECURITY; TERMS. “(a) Real Estate Loans.— “(1) Maximum level of loans.— “(A) In general.— Real estate mortgage loans originated by a Farm Credit Bank, or in which a Farm Credit Bank participates in with a lender that is not a System institution, shall not exceed 85 percent of the appraised value of the real estate security, except as provided for in paragraphs (2) and (3). “(B) Regulation.— The Farm Credit Administration may, by regulation, require that loans not exceed 75 percent of the appraised value of the real estate security. “(C) Guaranteed loans.— If the loan is guaranteed by Federal, State, or other governmental agencies, the loan may not exceed 97 percent of the appraised value of the real estate security, as may be authorized under regulations of the Farm Credit Administration. “(2) Security.— All loans originated or participated in by a bank under this section shall be secured by first liens on interests in real estate of such classes as may be approved by the Farm Credit Administration. “(3) Value of security.— To adequately secure the loan, the value of security shall be determined by appraisal under appraisal standards prescribed by the bank and approved by the Farm Credit Administration. “(4) Additional security.— Additional security for any loan may be required by the bank to supplement real estate security. Credit factors, other than the ratio between the amount of the loan and the security value, shall be given due consideration. “(5) Financial statement.— Each Farm Credit Bank shall require a financial statement from each borrower at least once every 3 years, or during such shorter period of time as may be required under regulations of the Farm Credit Administration. “(b) Intermediate Credit.— Loans, other than real estate loans, and discounts made under the provisions of this title shall be repayable in not more than 7 years (15 years if made to producers or harvester of aquatic products) from the time that such are made or discounted by the Farm Credit Bank, except that the Board of Directors, under regulations of the Farm Credit Administration, may approve policies permitting loans, advances, or discounts (other than those made to producers or harvesters of aquatic products) to be repayable in not more than 10 years from the time that such are made or discounted by such bank. “SEC. 1.11. PURPOSES FOR EXTENSIONS OF CREDIT. “(a) Agricultural or Aquatic Purposes.— Loans made by a Farm Credit Bank to farmers, ranchers, and producers or harvesters of aquatic products may be for any agricultural or aquatic purpose and other credit needs of the applicant, including financing for basic processing and marketing directly related to the applicant’s operations and those of other eligible farmers, ranchers, and producers or harvesters of aquatic products, except that the operations of the applicant shall supply at least 20 percent, or such larger percent as 101 STAT. 1628may be required by the board of directors of the bank under regulations of the Farm Credit Administration, of the total processing or marketing for which financing is extended. “(b) Rural Housing Financing.— “(1) In general.— Loans and discounts may be made to rural residents for rural housing financing under regulations of the Farm Credit Administration. “(2) Limitations.— Rural housing financed under this title shall be for single-family, moderate-priced dwellings and their appurtenances not inconsistent with the general quality and standards of housing existing in, or planned or recommended for, the rural area where it is located, except that a Farm Credit Bank may not at any one time have a total amount of loans outstanding for such rural housing to persons other than farmers or ranchers in amounts exceeding 15 percent of the total of all loans outstanding in such bank. “(3) Rural areas.— For rural housing purposes under this section the term ‘rural areas’ shall not be defined to include any city or village having a population in excess of 2,500 inhabitants. “(c) Farm-Related Services.— “(1) In general.— Loans to persons furnishing farm-related services to farmers and ranchers directly related to their on-farm operating needs may be made for the necessary capital structures and equipment and initial working capital for such services. “(2) Facilities.— The banks may own and lease, or lease with option to purchase, to persons eligible for credit under this title, facilities needed in the operations of such persons. “SEC. 1.12. RELATED SERVICES. “The Farm Credit Banks may provide technical assistance to borrowers, members, and applicants from the bank and associations in the district, including persons obligated on paper discounted by the bank, and may make available to them at their option such financial related services appropriate to their on-farm and aquatic operations as determined to be feasible by the board of directors of each district bank, under regulations of the Farm Credit Administration. “SEC. 1.13. LOANS THROUGH ASSOCIATIONS OR AGENTS. “(a) In General.— The Farm Credit Banks shall, except as otherwise herein provided, make loans of the type authorized under section 1.7(a) through a Federal land bank association chartered to serve the territory in which the real estate of the borrower is located. “(b) No Active Association.— If there is no active association chartered to serve territory where the real estate is located, the bank may make the loan directly or through such bank or trust company or savings or other financial institution as such bank may designate. “(c) Purchase of Stock Required.— When the loan is not made through a Federal land bank association, the applicant shall purchase stock in the bank in accordance with the capitalization requirements provided for in the bylaws of the bank. 101 STAT. 1629 “SEC. 1.14. LIENS ON STOCK. “The Farm Credit Banks shall have a first lien on the stock or participation certificates it issues for the payment of any liability of the stockholders to the bank. “SEC. 1.15. TAXATION. “The Farm Credit Banks and the capital, reserves, and surplus thereof, and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation, except taxes on real estate held by a Farm Credit Bank to the same extent, according to its value, as other similar property held by other persons is taxed. The mortgages held by the Farm Credit Banks and the notes, bonds, debentures, and other obligations issued by the banks shall be considered and held to be instrumentalities of the United States and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 (31 U.S.C. 742(a)). “TITLE II— FARM CREDIT ASSOCIATIONS “Subtitle A— Production Credit Associations “SEC. 2.0. ORGANIZATION AND CHARTERS. “(a) Charter.— Each production credit association shall continue as a Federally chartered instrumentality of the United States. “(b) Organization.— “(1) In general.— Production credit associations may be organized by 10 or more farmers or ranchers or producers or harvesters of aquatic products desiring to borrow money under the provisions of this title. “(2) Articles of association.— The proposed articles of association shall be forwarded to the Farm Credit Bank for the district accompanied by an agreement to subscribe on behalf of the association for stock in the bank in such amounts as may be required by the bank. “(3) Contents of articles.— The articles shall specify in general terms the— “(A) objects for which the association is formed; “(B) the powers to be exercised by the association in carrying out the functions authorized by this part; and “(C) the territory the association proposes to serve. “(4) Signatures.— The articles shall be signed by persons desiring to form such an association and shall be accompanied by a statement signed by each such person establishing eligibility to borrow from the association in which such person will become a stockholder. “(5) Copy to fca.— A copy of the articles of association shall be forwarded to the Farm Credit Administration with the recommendations of the bank concerning the need for such an association in order to adequately serve the credit needs of eligible persons in the proposed territory and whether that territory includes any area described in the charter of another production credit association. 101 STAT. 1630 “(6) Denial of charter.— The Farm Credit Administration for good cause shown may deny the charter. “(7) Approval of articles.— On approval of the proposed articles by the Farm Credit Administration, and on the issuance of a charter, the association shall become as of such date a federally chartered body corporate and an instrumentality of the United States. “(8) Powers of fca.— The Farm Credit Administration shall have the power, under rules and regulations prescribed by the Farm Credit Administration or by prescribing in the terms of the charter or by approval of bylaws of the association to— “(A) provide for the organization of the association; “(B) provide for the initial amount of stock of the association; “(C) provide for the territory within which the association’s operations may be carried on; and “(D) direct at any time such changes in the charter as the Farm Credit Administration finds necessary for the accomplishment of the purposes of this Act. “SEC. 2.1. BOARD OF DIRECTORS. “Each production credit association shall elect from the voting members of such association, a board of directors of such number, for such terms, with such qualifications, and in such manner as may be required by the bylaws of the association, except that, at least one member shall be elected by the other directors, which member shall not be a director, officer, employee, or stockholder of a System institution. “SEC. 2.2. GENERAL CORPORATE POWERS. “Each production credit association shall be a body corporate and, subject to supervision by the Farm Credit Bank for the district and regulation by the Farm Credit Administration, shall have the power to— “(1) have succession until terminated in accordance with this Act or any other Act of Congress; “(2) adopt and use a corporate seal; “(3) make contracts; “(4) sue and be sued; “(5) acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real and personal property necessary or convenient to the business of the association; “(6) operate under the direction of the board of directors of the association in accordance with the provisions of this Act; “(7) subscribe to stock of the bank; “(8) purchase stock of the bank held by other production credit associations and stock of other production credit associations; “(9) contribute to the capital of the bank or other production credit associations; “(10) invest funds of the association as may be approved by the Farm Credit Bank under regulations of the Farm Credit Administration and deposit the current funds and securities of such with the Farm Credit Bank, a member bank of the Federal Reserve System, or any bank insured under the Federal Deposit Insurance Corporation, and may pay fees therefor and receive interest thereon as may be agreed; 101 STAT. 1631 “(11) buy and sell obligations of or insured by the United States or of any agency thereof or of any banks of the Farm Credit System and buy from and sell to such banks, interests in loans and in other financial assistance extended and nonvoting stock, as may be authorized by the Farm Credit Bank in accordance with regulations of the Farm Credit Administration; “(12) borrow money from the Farm Credit Bank, and with the approval of such bank, borrow from and issue notes or other obligations to any commercial bank or other financial institution; “(13) make and participate in loans, accept advance payments, and provide services and other assistance as authorized in this subtitle and charge fees therefor, and when authorized by the bank participate with one or more other Farm Credit System institutions in loans made under this title or other titles of this Act on the basis prescribed in section 4.18 of this Act; “(14) endorse and become liable on loans discounted or pledged to the Farm Credit Bank; “(15) as may be authorized by the Farm Credit Bank in accordance with regulations of the Farm Credit Administration, agree with other Farm Credit System institutions to share loan or other losses, whether to protect against capital impairment or for any other purpose; “(16) prescribe by the board of directors of the association the bylaws not inconsistent with law providing for— “(A) the classes of association stock and the manner in which the stock shall be issued, transferred, and retired; “(B) the officers and employees elected or provided for; “(C) the property acquired, held, and transferred by the association; and “(D) the general business conducted, and the privileges granted to the association by law exercised and enjoyed; “(17) elect by the board of directors of the association a manager or other chief executive officer, and provide for such other officers or employees as may be necessary, including joint employees as provided in this Act, define their duties, and require surety bonds or make other provisions against losses occasioned by employees, but no director shall, within one year after the date when such director ceases to be a member of the board, be elected or designated a salaried employee of the association on the board of which he served; “(18) elect by the board of directors of the association a loan committee with power to approve applications for membership in the association and loans or participations or, with the approval of the bank, delegate the approval of applications for membership and loans or participations within specified limits to other committees or to authorized officers and employees of the association; “(19) perform any functions delegated to the association by the bank; and “(20) exercise by the board of directors or authorized officers or employees of the association, all such incidental powers as may be necessary or expedient to carry on the business of the association. 101 STAT. 1632 “SEC. 2.3. PRODUCTION CREDIT ASSOCIATION CAPITALIZATION. “(a) In General.— In accordance with section 4.3A, each production credit association shall provide, through its bylaws and subject to Farm Credit Administration regulations, for its capitalization and the manner in which its stock shall be issued, held, transferred, and retired and, except as provided in subsection (b), its earnings distributed. “(b) Application of Earnings.— Each production credit association at the end of each fiscal year shall apply the amount of the earnings of the association for such year in excess of the operating expenses of the association (including provision for valuation reserves against loan assets in an amount equal to one-half of 1 percent of the loans outstanding at the end of the fiscal year to the extent that such earnings in such year in excess of other operating expenses permit, or in such greater amounts as are deemed necessary under generally accepted accounting principles, until such reserves equal or exceed 3½ percent of the loans outstanding at the end of the fiscal year, beyond which 3½ percent further additions to such reserves may be made, if deemed necessary under generally accepted accounting principles) first to the restoration of the impairment, if any, of capital, and second, to the establishment and maintenance of the surplus accounts, the minimum aggregate amount of which shall be prescribed by the Farm Credit Bank. “(c) Patronage.— When the bylaws of an association so provide and subject to the general directions of the Farm Credit Administration, available net earnings at the end of any fiscal year may be distributed on a patronage basis in stock, participation certificates, or in cash. Any part of the earnings of the fiscal year in excess of the operating expenses for such year held in the surplus account may be allocated to patrons on a patronage basis. “SEC. 2.4. SHORT- AND INTERMEDIATE-TERM LOANS; PARTICIPATION; OTHER FINANCIAL ASSISTANCE; TERMS; CONDITIONS; INTEREST; SECURITY. “(a) Short- and Intermediate-Term Loans.— Each production credit association, under standards prescribed by the board of directors of the Farm Credit Bank of the district, may make, guarantee, or participate with other lenders in short- and intermediate-term loans and other similar financial assistance to— “(1) bona fide farmers and ranchers and the producers or harvesters of aquatic products, for agricultural or aquatic purposes and other requirements of such borrowers, including financing for basic processing and marketing directly related to the operations of the borrower and those of other eligible farmers, ranchers, and producers or harvesters of aquatic products, except that the operations of the borrower shall supply at least 20 percent, or such larger percent as is required by the supervising bank under regulations of the Farm Credit Administration, of the total processing or marketing for which financing is extended; “(2) rural residents for housing financing in rural areas, under regulations of the Farm Credit Administration; and “(3) persons furnishing to farmers and ranchers farm-related services directly related to their on-farm operating needs. “(b) Rural Housing.— “(1) In general.— Rural housing financed under this title shall be for single-family, moderate-priced dwellings and the 101 STAT. 1633appurtenances of such not inconsistent with the general quality and standards of housing existing in, planned or recommended for, the rural area where it is located. “(2) Limitation.— The aggregate of such housing loans in an association to persons other than farmers or ranchers shall not exceed 15 percent of the outstanding loans at the end of its preceding fiscal year except on prior approval by the Farm Credit Bank of the district. The aggregate of such housing loans in any farm credit district shall not exceed 15 percent of the outstanding loans of all associations in the district at the end of the preceding fiscal year. “(3) Rural areas.— For rural housing purposes under this section the term ‘rural areas’ shall not be defined to include any city or village having a population in excess of 2,500 inhabitants. “(4) Equipment.— Each association may own and lease, or lease with option to purchase, to stockholders of the association equipment needed in the operations of the stockholder. “(c) Interest rates and charges.— “(1) In general.— Loans authorized in subsection (a) hereof shall bear such rate or rates of interest as are determined under standards prescribed by the board of the bank subject to the provisions of section 4.17 of this Act, and shall be made upon such terms, conditions, and upon such security, if any, as shall be authorized in such standards. “(2) Setting of rates.— In setting rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers, at the lowest reasonable cost on a sound business basis, taking into account the cost of money to the association, necessary reserves and expenses of the association, and services provided to borrowers and members. “(3) Varying rates.— The loan documents may provide for the interest rate or rates to vary from time to time during the repayment period of the loan in accordance with the rate or rates currently being charged by the association. “(4) Prior approval.— Such standards may require prior approval of the bank on certain classes of loans, and may authorize a continuing commitment to a borrower of a line of credit. “SEC. 2.5. OTHER SERVICES. “Each production credit association may provide technical assistance to borrowers, applicants, and members and may make available to them at their option such financial related services appropriate to their on-farm and aquatic operations as is determined feasible by the board of directors of each Farm Credit Bank, under regulations prescribed by the Farm Credit Administration. “SEC. 2.6. TAXATION. “Each production credit association and its obligations are instrumentalities of the United States and as such any and all notes, debentures, and other obligations issued by such associations shall be exempt, both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any State, territorial, or local taxing authority. 101 STAT. 1634 “Subtitle B— Federal Land Bank Associations “SEC. 2.10. ORGANIZATIONS; ARTICLES; CHARTERS; POWERS OF THE FARM CREDIT ADMINISTRATION. “(a) Charter.— Each Federal land bank association shall continue as a federally chartered instrumentality of the United States. “(b) Organization.— “(1) In general.— A Federal land bank association may be organized by any group of 10 or more persons desiring to borrow money from a Farm Credit Bank, including persons to whom the Farm Credit Bank has made a loan directly or through an agent and has taken as security real estate located in the territory proposed to be served by the association. “(2) Articles of association.— “(A) Description of territory.— The articles of association shall describe the territory within which the association proposes to carry on its operations. “(B) Submission to fca.— Proposed articles shall be forwarded to the Farm Credit Bank for the district, accompanied by an agreement to subscribe on behalf of the association for stock in accordance with the bylaws of the Farm Credit Bank. “(C) Stock purchase.— Association stock may be paid for by surrendering for cancellation stock in the bank held by a borrower and the issuance of an equivalent amount of stock to such borrower in the association. “(D) Statement.— The articles shall be accompanied by a statement signed by each of the members of the proposed association establishing— “(i) the individual’s eligibility for, and request or need of the individual of a Farm Credit Bank loan; “(ii) that the real estate with respect to which the individual desires the loan for is not being served by another Federal land bank association; and “(iii) that the individual is or will become a stockholder in the proposed association. “(E) Submission to fca.— A copy of the articles of association shall be forwarded to the Farm Credit Administration with the recommendations of the bank concerning the need for the proposed association in order to adequately serve the credit needs of eligible persons in the proposed territory and a statement as to whether or not the territory includes any territory described in the charter of another Federal land bank association. “(3) Denials of charters.— The Farm Credit Administration for good cause shown may deny the charter applied for. “(4) Approval of articles.— On the approval of the proposed articles by the Farm Credit Administration and the issuance of such charter, the association shall become as of such date a federally chartered body corporate and an instrumentality of the United States. “(c) FCA Authority on Organization.— The Farm Credit Administration shall have power, in the terms of the charter, under rules and regulations prescribed by the Farm Credit Administration or by approving the bylaws of the association, to provide for the— “(1) organization of the association; 101 STAT. 1635 “(2) the initial amount of stock of such association; “(3) the territory within which the operations of the association may be carried on; and “(4) to direct at any time changes in the charter of such association as the Farm Credit Administration finds necessary in accomplishing the purposes of this Act. “SEC. 2.11. BOARD OF DIRECTORS. “Each Federal land bank association shall elect from its voting shareholders a board of directors of such number, for such terms, in such manner, and with such qualifications as may be required by its bylaws except that, at least one member shall be elected by the other directors, which member shall not be a director, officer, employee, or stockholder of a System institution. “SEC. 2.12. GENERAL CORPORATE POWERS. “Each Federal land bank association shall be a body corporate and, subject to supervision of the Farm Credit Bank for the district and the regulation of the Farm Credit Administration, shall have the power to— “(1) adopt and use a corporate seal; “(2) have succession until dissolved under the provisions of this Act or other Act of Congress; “(3) make contracts; “(4) sue and be sued; “(5) acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real estate and personal property necessary or convenient to the business of the association; “(6) operate under the direction of the board of directors of the association in accordance with this Act; “(7) elect by its board of directors a manager or other chief executive officer, and provide for such other officers or employees as may be necessary, including joint employees as provided in this Act, define the duties of such, and require surety bonds or make other provision against losses occasioned by employees, except that no director snail, within one year after the date when such director ceases to be a member of the board, be elected or designated a salaried employee of the association on the board of which such director served; “(8) prescribe by its board of directors, association bylaws, not inconsistent with law, providing for the classes of association stock and the manner in which such stock shall be issued, transferred, and retired; the officers and employees of the association elected or provided for, the property of the association that is acquired, held, and transferred, the general business of the association conducted, and the privileges granted to the association by law exercised and enjoyed; “(9) accept applications for Farm Credit Bank loans and receive from such bank and disburse to the borrowers the proceeds of such loans; “(10) subscribe to stock of the Farm Credit Bank of the district; “(11) elect by its board of directors a loan committee with power to elect applicants for membership in the association and recommend loans to the Farm Credit Bank, or with the approval of the Farm Credit Bank, delegate the election of applicants for membership and the approval of loans within 101 STAT. 1636specified limits to other committees or to authorized employees of the association; “(12) on agreement with the bank, take such additional actions with respect to applications and loans and perform such functions as are vested by law in the Farm Credit Banks as may be agreed to or delegated to the association; “(13) endorse and become liable to the bank on loans it makes to association members; “(14) receive such compensation and deduct such sums from loan proceeds with respect to each loan as may be agreed between the association and the bank and make such other charges for services as may be approved by the bank; “(15) provide technical assistance to members, borrowers, applicants, and other eligible persons and make available to them, at their option, such financial related services appropriate to their operations as it determines, with Farm Credit Bank approval, are feasible, under regulations of the Farm Credit Administration; “(16) borrow money from the bank and, with the approval of such bank, borrow from and issue association notes or other obligations to any commercial bank or other financial institution; “(17) buy and sell obligations of or insured by the United States or any agency thereof or of any banks of the Farm Credit System; “(18) invest association funds in such obligations as may be authorized in regulations of the Farm Credit Administration and approved by the bank and deposit securities and current funds of the association with any member bank of the Federal Reserve System, with the Farm Credit Bank, or with any bank insured by the Federal Deposit Insurance Corporation, and pay fees therefor and receive interest thereon as may be agreed; “(19) perform such other function delegated to the association by the Farm Credit Bank of the district; “(20) exercise by its board of directors or authorized officers or agents all such incidental powers as may be necessary or expedient in the conduct of its business; and “(21) contribute to the capital of the bank. “SEC. 2.13. FEDERAL LAND BANK ASSOCIATION CAPITALIZATION. “In accordance with section 4.3A, the Federal land bank association shall provide, through its bylaws and subject to Farm Credit Administration regulations, for its capitalization and the manner in which its stock shall be issued, held, transferred, and retired and its earnings distributed. “SEC. 2.14. LIQUIDATION. “Whenever any Federal land bank association is liquidated, a sum equal to its reserve account as required in this Act shall be paid and become the property of the bank in which such association is a shareholder. “SEC. 2.15. AGREEMENTS FOR SHARING GAINS OR LOSSES. “Each Farm Credit Bank may enter into agreements with Federal land bank associations in its district for sharing the gain or losses on loans or on security held therefor or acquired in liquidation thereof, and associations are authorized to enter into any such agreements 101 STAT. 1637and also, subject to bank approval, agreements with other associations in the district for sharing the risk of loss on loans endorsed by each such association. As may be authorized by the bank in accordance with regulations of the Farm Credit Administration, associations also may enter into agreements with other Farm Credit System institutions to share loan and other losses, whether to protect against capital impairment or for any other purpose. “SEC. 2.16. LIENS ON STOCK. “Each Federal land bank association shall have a first lien on the stock and participation certificates it issues, except on stock or participation certificates held by other Farm Credit System institutions, for the payment of any liability of the stockholder to the association or to the bank, or to both of them. “SEC. 2.17. TAXATION. “Each Federal land bank association and the capital, reserves, and surplus thereof, and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation, except taxes on real estate held by a Federal land bank association to the same extent, according to its value, as other similar property held by other persons is taxed. The mortgages held by the Federal land bank associations and the notes, bonds, debentures, and other obligations issued by the banks shall be considered and held to be instrumentalities of the United States and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 (31 U.S.C. 742(a)).”.