MERGER OF SYSTEM INSTITUTIONS.

SEC. 416. MERGER OF SYSTEM INSTITUTIONS. The Act (12 U.S.C. 2001 et seq.) (as amended by section 201 of this Act) is further amended by adding at the end thereof the following new title: 101 STAT. 1645 “TITLE VII— MERGERS OF SYSTEM INSTITUTIONS “Subtitle A— Merger of Banks Within a District “SEC. 7.0. POWER TO MERGE. “Two or more banks within a district may merge into a single entity (hereinafter in this title referred to as a ‘merged bank’) if the plan of merger is approved by— “(1) the Farm Credit Administration Board; “(2) the respective boards of directors of the banks involved; “(3) a majority of the stockholders of each bank voting, in person or by proxy, at a duly authorized stockholders’ meeting in accordance with the provisions of section 5.2(c) relating to the casting of votes by stockholders; and “(4) in the case of a bank for cooperatives, a majority of the total equity interests in such merging bank for cooperatives (including allocated, but not unallocated, surplus and reserves) held by those stockholders or subscribers to the guaranty fund of the bank voting. “SEC. 7.1. BOARD OF DIRECTORS FOR THE DISTRICT. “(a) Composition.— “(1) In general.— Following a merger pursuant to section 7.1, the district Board of Directors shall continue to be composed of seven members as provided in section 5.1. “(2) Regulations.— The Farm Credit Administration shall issue regulations to ensure the fair and equitable representation of the associations of each of the merging banks on the initial Board of Directors of the merged bank. “(b) Election.— Following a merger pursuant to section 7.8, the members of the district board shall be elected pursuant to regulations issued by the Farm Credit Administration prescribing procedures that are as consistent as practicable with those set forth in section 5.2. “SEC. 7.2. POWERS OF MERGED BANKS. “(a) In General.— Except as otherwise provided in this title, a merged bank shall have all of the powers granted to, and shall be subject to all of the obligations imposed on, any of the constituent entities of the merged bank. “(b) Regulations.— The Farm Credit Administration shall issue regulations that establish the manner in which the powers and obligations of the banks that form the merged bank are consolidated, and to the extent necessary, reconciled in the merged bank. “SEC. 7.3. CAPITAL STOCK. “(a) Plan of Merger.— Subject to subsection (c), the number of shares of capital stock issued by a merged bank to stockholders and other owners of any institution involved in the merger, and the rights and privileges of such shares (including voting power, redemption rights, preferences on liquidation, and the right to dividends) shall be determined by the plan of merger adopted by the 101 STAT. 1646banks involved, and shall be consistent with section 4.3A and the regulations issued by the Farm Credit Administration. “(b) Board of Directors.— Subject to subsection (a), the number of shares of capital stock issued by a merged bank, and the rights and privileges thereof, shall be determined by the Board of Directors of the merged bank established under this subtitle. “(c) Voting Stock.— Voting stock of a merged bank shall be held only— “(1) by associations or cooperatives that were, immediately prior to the merger, entitled to hold voting stock of one of the banks that merged; or “(2) by farmers, ranchers, or producers or harvesters of aquatic products that are or were, immediately prior to the merger, direct borrowers from the merged bank or one of the banks that comprise the merged bank. “SEC. 7.4. EARNINGS, RESERVES. AND DISTRIBUTIONS. “(a) Use of Net Earnings.— The Board of Directors of a merged bank shall determine the use or other application of net earnings after payment of operating expenses. “(b) Restoration of Value of Impaired Capital Stock.— Net earnings shall first be applied to restore the value of impaired capital stock. “(c) Other Uses.— After restoration, the application of net earnings may include (but not necessarily in the following order)— “(1) additions to an allocated reserve account; “(2) additions to an unallocated reserve account; “(3) payment of a dividend on capital stock; and “(4) payment of patronage refunds in cash or in stock or other notices of allocation. “(d) Use of Capital and Retained Earnings.— All capital and retained earnings of a merged bank shall be available for use in the activities of the merged bank as the Board of Directors shall determine, without regard to the activities giving rise to such earnings. “SEC. 7.5. REPORTS BY MERGED BANKS FOR COOPERATIVES. “(a) In General.— When two or more banks for cooperatives merge, the resulting bank shall, not later than December 31 of each year of the succeeding 5 years following the date of the merger, file an annual report with the Farm Credit Administration that— “(1) analyzes the effect of the merger; “(2) includes a breakdown of loans outstanding according to the size of the cooperative stockholders of the bank; and “(3) describes the adequacy of credit and other assistance services provided to smaller cooperatives. “(b) Availability.— A copy of the report required in subsection (a) shall be made available to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate. 101 STAT. 1647 “Subtitle B— Mergers, Transfers of Assets, and Powers of Associations Within a District “Chapter 1— Transfers by Federal Land Banks to Federal Land Bank Associations “SEC. 7.6. TRANSFER OF LENDING AUTHORITY. “(a) Assignments.— A Federal land bank or a merged bank having a Federal land bank as one of its constituents, may assign to a Federal land bank association, and the association may assume, the authority of the transferring bank in the territorial area served by the association, to make and participate in long-term real estate mortgage loans under sections 1.6 through 1.9 if the assignment is approved by— “(1) the Farm Credit Administration Board; “(2) the Board of Directors of both institutions; and “(3) a majority of the stockholders of the bank and of the association, in accordance with the voting provisions of sections 7.0 and 7.6. “(b) Direct Loans and Financial Assistance.— After an assignment described in subsection (a)— “(1) the Federal land bank association shall possess all of the direct long-term real estate mortgage loan authority, formerly possessed by the transferring bank, in the territory served by the association; and “(2) the Federal land bank may provide and extend financial assistance to, and discount for, or purchase from, the transferee Federal land bank association any note, draft, or other obligation with the endorsement or guarantee of the association, the proceeds of which have been advanced to persons eligible and for purposes of financing by the association under subsection (a). “(c) Regulations.— The Farm Credit Administration shall issue regulations that establish the manner in which the powers and obligations of the banks that make assignments or transfers are consolidated and, to the extent necessary, reconciled in the association referred to in subsection (a). Following a transfer or assignment under subsection (a), the provisions of section 4.3A shall be applicable to the association. “Chapter 2— Merger of Like and Unlike Associations “SEC. 7.7. MERGERS OF UNLIKE ASSOCIATIONS. “On the merger of one or more production credit associations with one or more Federal land bank associations, the bank supervising the Federal land bank association shall transfer all of its direct lending authority of the bank to such association under section 7.8. “SEC. 7.8. MERGER OF ASSOCIATIONS. “(a) In General.— Two or more associations within the same district, whether or not organized under the same title of this Act, may merge into a single entity (hereinafter in this title referred to as a ‘merged association’) if the plan of merger is approved by— “(1) the Farm Credit Administration Board; “(2) the boards of directors of the associations; 101 STAT. 1648 “(3) a majority of the shareholders of each association voting, in person or by proxy, at a duly authorized stockholders’ meeting; and “(4) the Farm Credit Bank. “(b) Powers, Obligations, and Consolidation.— “(1) Powers and obligations.— Except as otherwise provided by this title, a merged association shall— “(A) possess all powers granted under this Act to the associations forming the merged association; and “(B) be subject to all of the obligations imposed under this Act on the associations forming the merged association. “(2) Consolidation.— The Farm Credit Administration shall issue regulations that establish the manner in which the powers and obligations of the associations that form the merged association are consolidated and, to the extent necessary, reconciled in the merged association. Following a merger under subsection (a), the provisions of section 4.3A shall be applicable to the merged association. “(c) Stock Issuance.— “(1) Plan of merger.— Subject to section 4.3A, the number of shares of capital stock issued by a merged association to the stockholders of any association forming such merged association, and the rights and privileges of such shares (including voting power, preferences on liquidation, and the right to dividends), shall be determined by the plan of merger adopted by the merged associations. “(2) Plan of capitalization.— The number of shares of capital stock, and the rights and privileges thereof, issued by a merged association after a merger shall be determined by the Board of Directors of the merged association, with the approval of the supervising bank, and shall be consistent with section 4.3A and the regulations issued by the Farm Credit Administration. “(3) Voting stock.— Voting stock of a merged association shall be issued to and held by farmers, ranchers, or producers or harvesters of aquatic products who are or were, immediately prior to the merger, direct borrowers from one of the associations forming the merged association or the supervising bank of such merged association. “(d) Capitalization.— The plan of merger shall provide for the issuance, transfer, and retirement of stock and the distribution of earnings in accordance with the provisions of section 4.3A. “SEC. 7.9. RECONSIDERATION. “(a) Period.— A stockholder vote in favor of— “(1) the merger of districts under section 5.17(a)(2); “(2) the merger of banks within a district under section 7.0; “(3) the transfer of the lending authority of a Federal land bank or a merged bank having a Federal land bank as one of its constituents, under section 7.6; “(5) the merger of two or more associations under section 7.8; “(6) the termination of the status of an institution as a System institution under section 7.10; and “(7) the merger of similar banks under section 7.13; shall not take effect except in accordance with subsection (b). “(b) Reconsideration.— 101 STAT. 1649 “(1) Notice.— Not later than 30 days after a stockholder vote in favor of any of the actions described in subsection (a), the officer or employee that records such vote shall ensure that all stockholders of the voting entity receive notice of the final results of the vote. “(2) Effective date.— A voluntary merger, transfer, or termination that is approved by a vote of the stockholders of two or more banks or associations, shall not take effect until the expiration of 30 days after the date on which the stockholders of such associations are notified of the final result of the vote in accordance with paragraph (1). “(3) Petition filed.— If a petition for reconsideration of a merger, transfer, or termination vote, signed by at least 15 percent of the stockholders of one or more of the affected banks or associations, is presented to the Farm Credit Administration within 30 days after the date of the notification required under paragraph (1)— “(A) a voluntary merger, transfer, or termination shall not take effect until the expiration of 60 days after the date on which the stockholders were notified of the final result of the vote; and “(B) a special meeting of the stockholders of the affected banks or associations shall be held during the period referred to in subparagraph (A) to reconsider the vote. “(4) Vote on reconsideration.— If a majority of stockholders of any one of the affected banks or associations voting, in person or by written proxy, at a duly authorized stockholders’ meeting, vote against the proposed merger, transfer, or termination, such action shall not take place. “(5) Failure to file petition.— If a petition for reconsideration of such vote is either not filed prior to the 60th day after the vote or, if timely filed, is not signed by at least 15 percent of the stockholders, the merger, transfer, or termination shall become effective in accordance with the plan of merger, transfer, or termination. “(c) Special Reconsideration.— “(1) Issuance of regulations.— Notwithstanding any other provision of this Act, the Farm Credit Administration shall issue regulations under which the stockholders of any association that voluntarily merged with one or more associations after December 23, 1985, and before the date of the enactment of this section, may petition for the opportunity to organize as a separate association. “(2) Requirements.— The regulations issued by the Farm Credit Administration shall require that— “(A) the petition be filed within 1 year after the date of the implementation of such regulations; “(B) the petition be signed by at least 15 percent of the stockholders of any one of the associations that merged during the period; “(C) the petition describe the territory in which the proposed separate association will operate; “(D) if the petition is approved— “(i) the loans of the members of the new association will be transferred from the current association to such new association; 101 STAT. 1650 “(ii) the stock, participation certificates, and other similar equities of the current association held by members of the new association will be retired at book value and the proceeds of such will be transferred to the new association, and an equivalent amount of stock, participation certificates, and other similar equities will be issued to the members by the new association; and “(iii) the other assets of the current association will be distributed equitably among the current association and any resulting new association. “(3) Notification.— “(A) In general.— Not later than 30 days after the filing of the petition for organization, the current association shall notify its stockholders that a petition to establish the separate association has been filed. “(B) Contents.— The notification required under this paragraph shall contain— “(i) the date of a special stockholders’ meeting to consider the petition for organization; and “(ii) an enumerated statement of the anticipated benefits and the potential disadvantages to such stockholders if the new association is established. “(C) FCA approval.— “(i) In general.— All notifications under this paragraph shall be submitted to the Farm Credit Administration Board for approval prior to being distributed to the stockholders. “(ii) Amending notification.— The Farm Credit Administration Board shall require that, prior to the distribution of the notification to the stockholders, the notification be amended as determined necessary by the Board to provide accurate information to the stockholders that will enable such stockholders to make an informed decision as to the advisability of establishing a new association. “(D) Special stockholders’ meeting.— “(i) Timing of meeting.— The special stockholders’ meeting to consider the petition shall be held within 60 days after the filing of the petition. “(ii) Approval.— If, at the special stockholders’ meeting, a majority of the stockholders of the current association who would be served by the new association approve, by voting in person or by proxy, the establishment of the separate association, the Farm Credit Administration shall, within 30 days of such vote, issue a charter to the new association and amend the charter of the current association to reflect the territory to be served by the new association. “Chapter 3— Termination and Dissolution of Institutions “SEC. 7.10. TERMINATION OF SYSTEM INSTITUTION STATUS. “(a) Conditions.— A System institution may terminate the status of the institution as a System institution if— 101 STAT. 1651 “(1) the institution provides written notice to the Farm Credit Administration Board not later than 90 days prior to the proposed termination date; “(2) the termination is approved by the Farm Credit Administration Board; “(3) the appropriate Federal or State authority grants approval to charter the institution as a bank, savings and loan association, or other financial institution; “(4) the institution pays to the Farm Credit Assistance Fund, as created under section 6.25, if the termination is prior to January 1, 1992, or pays to the Farm Credit Insurance Fund, if the termination is after such date, the amount by which the total capital of the institution exceeds, 6 percent of the assets; “(5) the institution pays or makes adequate provision for payment of all outstanding debt obligations of the institution; “(6) the termination is approved by a majority of the stockholders of the institution voting, in person or by written proxy, at a duly authorized stockholders’ meeting, held prior to giving notice to the Farm Credit Administration Board; and “(7) the institution meets such other conditions as the Farm Credit Administration Board by regulation considers appropriate. “(b) Effect.— On termination of its status as a System institution— “(1) the Farm Credit Administration Board shall revoke the charter of the institution; and “(2) the institution shall no longer be an instrumentality of the United States under this Act. “Subtitle C— Approval of Disclosure Information and Issuance of Charters by the Farm Credit Administration Board “SEC. 7.11. APPROVAL OF DISCLOSURE INFORMATION AND ISSUANCE OF CHARTERS. “(a) Disclosure of Information.— “(1) Approval of plan.— With respect to any plan of merger, transfer or assignment of lending authority, dissolution, or termination, prior to submission to the voters (voting stockholders and, where required, contributors to guaranty funds) of such institutions, such plan shall be submitted to the Farm Credit Administration Board, together with all information that is to be distributed to the voters with respect to the contemplated action, including an enumerated statement of the anticipated benefits and potential disadvantages of such action. “(2) Notice of approval.— On notification that the Farm Credit Administration Board has approved such plan for submission to the stockholders, or after 30 days of no action on the plan by the Board, the submitting institutions may submit the plan, together with the disclosure information, to the voters for the prescribed vote. “(b) Notice of Reasons for Disapproval.— If the Farm Credit Administration Board disapproves the plan for submission to the stockholders, notification to the submitting institutions shall specify 101 STAT. 1652the reasons for the determination by the Board. If such plan is determined to be inadequate, it shall not be submitted to the voters for a vote. “(c) Federal Charter.— Each plan of merger or transfer of lending authority may include a proposed new or revised Federal charter for the merged or transferee entity. The Farm Credit Administration Board shall issue such charter on the approval of the plan, as prescribed in this title, unless the Board determines that the charter submitted is not consistent with this Act. “Subtitle D— Mergers of Like Entities “SEC. 7.12. MERGER OF SIMILAR BANKS. “(a) In General.— Banks organized or operating under this Act may merge with banks in other districts operating under the same title if the plan of merger is approved by— “(1) the Farm Credit Administration Board; “(2) the respective Boards of Directors of the banks involved; “(3) a majority vote of the stockholders of each bank voting, in person or by proxy, at a duly authorized stockholders’ meeting, with each association having a number of votes equal to the number of such association’s voting stockholders; and “(4) in the case of a bank for cooperatives, a majority of the total equity interests in such merging bank for cooperatives (including allocated, but not unallocated, surplus and reserves) held by those stockholders or subscribers to the guaranty fund of the bank voting. “(b) Procedures.— The provisions of sections 7.2 through 7.4 shall apply to banks merged under this section. “(c) Board of Directors.— “(1) In general.— After a merger under subsection (a), a board of directors shall be created for the resulting bank “(2) Composition.— The board shall be composed of— “(A) two directors elected by each of the bank boards, with at least one such director from each bank being elected by the eligible stockholders of, or subscribers to, the guaranty fund of the merging banks; and “(B) one outside director elected by the members elected under subparagraph (A). “(3) Outside director.— “(A) Qualifications.— The outside director elected under paragraph (2)(B) shall be experienced in financial services and credit, and within the 2-year period prior to such election, shall not have been a borrower from, shareholder in, or director, officer, employee, or agent of any institution of the Farm Credit System. “(B) Failure to elect.— If the other members of the board fail to elect an outside director, the Farm Credit Administration Board shall appoint a qualified person to serve on the board of directors until such member is so elected. “(4) Bylaws.— Notwithstanding paragraph (2), the bylaws of the merged bank may, with the approval of the Farm Credit Administration, provide for a different number of directors to be selected in a different manner, except that the bylaws shall provide for at least one outside director. 101 STAT. 1653 “SEC. 7.13. MERGER OF SIMILAR ASSOCIATIONS. “(a) In General.— Associations may voluntarily merge with other like associations if the plan of merger is approved by— “(1) the Farm Credit Administration Board; “(2) the respective Boards of Directors of the associations involved; “(3) a majority vote of the stockholders of each association voting, in person or by proxy, at a duly authorized stockholders’ meeting; and “(4) the Farm Credit Bank. “(b) Procedures.— The provisions of subsections (b), (c), and (d) of section 7.8 shall apply to associations merged under this section.”.