OVERSIGHT AND REGULATORY ACTIONS BY THE FARM CREDIT SYSTEM INSURANCE CORPORATION.

SEC. 218. OVERSIGHT AND REGULATORY ACTIONS BY THE FARM CREDIT SYSTEM INSURANCE CORPORATION. The Farm Credit Act of 1971 is amended by inserting after section 5.61 (12 U.S.C. 2279a–10) the following: “SEC. 5.61A. OVERSIGHT ACTIONS BY THE CORPORATION. “(a) Definitions.— In this section, the term ‘institution’ means— “(1) an insured System bank; and “(2) a production credit association or other association making loans under section 7.6 with a direct loan payable to the funding bank of the association that comprises 20 percent or more of the funding bank’s total loan volume net of nonaccrual loans. “(b) Consultation Regarding Participation of Undercapitalized Banks in Issuance of Insured Obligations.— The Farm Credit Administration shall consult with the Corporation 110 STAT. 181prior to approving an insured obligation that is to be issued by or on behalf of, or participated in by, any insured System bank that fails to meet the minimum level for any capital requirement established by the Farm Credit Administration for the bank. “(c) Consultation Regarding Applications for Mergers and Restructurings.— “(1) Corporation to receive copy of transaction applications.— On receiving an application for a merger or restructuring of an institution, the Farm Credit Administration shall forward a copy of the application to the Corporation. “(2) Consultation required.— If the proposed merger or restructuring involves an institution that fails to meet the minimum level for any capital requirement established by the Farm Credit Administration applicable to the institution, the Farm Credit Administration shall allow 30 days within which the Corporation may submit the views and recommendations of the Corporation, including any conditions for approval. In determining whether to approve or disapprove any proposed merger or restructuring, the Farm Credit Administration shall give due consideration to the views and recommendations of the Corporation. “SEC. 5.61B. AUTHORITY TO REGULATE GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS. “(a) Definitions.— In this section: “(1) Golden parachute payment.— The term ‘golden parachute payment’— “(A) means a payment (or any agreement to make a payment) in the nature of compensation for the benefit of any institution-related party under an obligation of any Farm Credit System institution that— “(i) is contingent on the termination of the party’s relationship with the institution; and “(ii) is received on or after the date on which— “ the institution is insolvent; “ a conservator or receiver is appointed for the institution; “) the institution has been assigned by the Farm Credit Administration a composite CAMEL rating of 4 or 5 under the Farm Credit Administra–tion Rating System, or an equivalent rating; or “ the Corporation otherwise determines that the institution is in a troubled condition (as defined in regulations issued by the Corporation); and “(B) includes a payment that would be a golden para–chute payment but for the fact that the payment was made before the date referred to in subparagraph (A)(ii) if the payment was made in contemplation of the occurrence of an event described in any subclause of subparagraph (A); but “(C) does not include— “(i) a payment made under a retirement plan that is qualified (or is intended to be qualified) under section 401 of the Internal Revenue Code of 1986 or other nondiscriminatory benefit plan; 110 STAT. 182 “(ii) a payment made under a bona fide supplemental executive retirement plan, deferred compensa–tion plan, or other arrangement that the Corporation determines, by regulation or order, to be permissible; or “(iii) a payment made by reason of the death or disability of an institution-related party. “(2) Indemnification payment.— The term ‘indemnifica–tion payment’ means a payment (or any agreement to make a payment) by any Farm Credit System institution for the benefit of any person who is or was an institution-related party, to pay or reimburse the person for any liability or legal expense with regard to any administrative proceeding or civil action instituted by the Farm Credit Administration that results in a final order under which the person— “(A) is assessed a civil money penalty; or “(B) is removed or prohibited from participating in the conduct of the affairs of the institution. “(3) Institution-related party.— The term ‘institution-related party’ means— “(A) a director, officer, employee, or agent for a Farm Credit System institution or any conservator or receiver of such an institution; “(B) a stockholder (other than another Farm Credit System institution), consultant, joint venture partner, or any other person determined by the Farm Credit Administration to be a participant in the conduct of the affairs of a Farm Credit System institution; and “(C) an independent contractor (including any attorney, appraiser, or accountant) that knowingly or recklessly participates in any violation of any law or regulation, any breach of fiduciary duty, or any unsafe or unsound practice that caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the Farm Credit System institution. “(4) Liability or legal expense.— The term ‘liability or legal expense’ means— “(A) a legal or other professional expense incurred in connection with any claim, proceeding, or action; “(B) the amount of, ana any cost incurred in connection with, any settlement of any claim, proceeding, or action; and “(C) the amount of, and any cost incurred in connection with, any judgment or penalty imposed with respect to any claim, proceeding, or action. “(5) Payment.— The term ‘payment’ means— “(A) a direct or indirect transfer of any funds or any asset; and “(B) any segregation of any funds or assets for the purpose of making, or under an agreement to make, any payment after the date on which the funds or assets are segregated, without regard to whether the obligation to make the payment is contingent on— “(i) the determination, after that date, of the liability for the payment of the amount; or “(ii) the liquidation, after that date, of the amount of the payment. 110 STAT. 183 “(b) Prohibition.— The Corporation may prohibit or limit, by regulation or order, any golden parachute payment or indemnifica–tion payment by a Farm Credit System institution (including any conservator or receiver of the Federal Agricultural Mortgage Corporation) in troubled condition (as defined in regulations issued by the Corporation). “(c) Factors To Be Taken into Account.— The Corporation shall prescribe, by regulation, the factors to be considered by the Corporation in taking any action under subsection (b). The factors may include— “(1) whether there is a reasonable basis to believe that an institution-related party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the Farm Credit System institution involved that has had a material effect on the financial condition of the institution; “(2) whether there is a reasonable basis to believe that the institution-related party is substantially responsible for the insolvency of the Farm Credit System institution, the appointment of a conservator or receiver for the institution, or the institution’s troubled condition (as defined in regulations prescribed by the Corporation); “(3) whether there is a reasonable basis to believe that the institution-related party has materially violated any applicable law or regulation that has had a material effect on the financial condition of the institution; “(4) whether there is a reasonable basis to believe that the institution-related party has violated or conspired to violate— “(A) section 215, 657, 1006, 1014, or 1344 of title 18, United States Code; or “(B) section 1341 or 1343 of title 18, United States Code, affecting a Farm Credit System institution; “(5) whether the institution-related party was in a position of managerial or fiduciary responsibility; and “(6) the length of time that the party was related to the Farm Credit System institution and the degree to which— “(A) the payment reasonably reflects compensation earned over the period of employment; and “(B) the compensation represents a reasonable payment for services rendered. “(d) Certain Payments Prohibited.— No Farm Credit System institution may prepay the salary or any liability or legal expense of any institution-related party if the payment is made— “(1) in contemplation of the insolvency of the institution or after the commission of an act of insolvency; and “(2) with a view to, or with the result of— “(A) preventing the proper application of the assets of the institution to creditors; or “(B) preferring 1 creditor over another creditor. “(e) Rule of Construction.— Nothing in this section— “(1) prohibits any Farm Credit System institution from purchasing any commercial insurance policy or fidelity bond, so long as the insurance policy or bond does not cover any legal or liability expense of an institution described in subsection (a)(2); or 110 STAT. 184 “(2) limits the powers, functions, or responsibilities of the Farm Credit Administration.”.