SUPPLEMENTARY INFORMATION:

I. Summary of Proposed Objectives and Amendments

The objective of this proposed rule (the “Proposed Rule”) is to address the apportionment of assessments among System banks and associations to account for the size and structure of the System as it exists today, including updating the example formula. Additionally, we propose two technical ( printed page 21735) revisions to remove two references to entities that no longer exist.

The amendments in the Proposed Rule include changes to the regulations set forth in 12 CFR part 607 that:

• Revise the definition in § 607.2 for Non-System entities to remove the reference to the National Cooperative Bank Development Corporation from the regulation given this entity no longer exists.
• Revise the definition in § 607.2 for Other System entities to remove the reference to the Farm Credit Finance Corporation of Puerto Rico from the regulation given this entity no longer exists.
• In § 607.3(b)(1), increase from thirty (30) percent to seventy-five (75) percent the amount of the assessment apportioned to each bank, association, and designated other System entities on the basis of each institution's pro rata share of the total average risk-adjusted asset base.
• In § 607.3(b)(2):

○ Decrease from seventy (70) percent to twenty-five (25) percent the amount of the assessment apportioned to each bank, association, and designated other System entity based upon the amounts of the institution's average risk-adjusted assets that fall within the tiers contained in the table in § 607.3(b)(2).

○ Adjust the average risk-adjusted asset size range (in millions) set forth in the table:

from over “0 to $25” to over “$0 to $900.”

from over “$25 to $50” to over “$900 to $1,825.”

from over “$50 to $100” to over “$1,825 to $4,050.”

from over “$100 to $500” to over “$4,050 to $13,500.”

from over “$500 to $1,000” to over “$13,500 to $19,800.”

from over “$1,000 to $7,000” to over “$19,800 to $85,000.”

from over “$7,000 to $10,000” to over “$85,000 to $120,000.”

from over “$10,000” to over “$120,000.”

○ Update the example set forth in § 607.3(b)(2) to reflect the proposed changes.

FCA does not propose any changes to the regulations set forth in 12 CFR 607.1, covering the purpose and scope of Part 607. Furthermore, FCA does not propose any changes to the regulations set forth in 12 CFR 607.4 through 607.11, covering assessment of other System entities, processes for notice and payment of assessments, late-payment charges, reimbursements for services to non-System entities, reimbursable billings, adjustments for overpayment or underpayment of assessments, and report of assessments and expenses.

Background

A. Law and Regulation

FCA's original assessment regulation, which was located at 12 CFR 618.8230, was promulgated in 1972 before Congress enacted the Agricultural Credit Act of 1987 (1987 Act). As explained in the 1993 preamble, the structural and regulatory changes brought about by the 1987 Act, which are described below, led FCA to evaluate its process to determine whether the assessment regulation remained equitable.^[1] Based on this evaluation, FCA concluded the original assessment formula should be revised.^[2] In 1992, FCA concluded that negotiated rulemaking might provide a creative means to achieve an equitable assessment formula. In 1993, based on the negotiated rulemaking committee's consensus recommendations, FCA promulgated the current regulation, 12 CFR part 607 and rescinded the original regulation.^[3]

Section 5.15(a)(2)(A) of the Act requires FCA to apportion the amount of the assessments among the System institutions on a basis that the agency determines to be equitable. This Proposed Rule, if adopted, would update the regulation to address the current composition of System banks and associations. Over time, the overall number of System banks and associations has significantly decreased; however, the size and complexity of the existing banks and associations has increased since 1993. The changes outlined in this Proposed Rule do not impact the overall total assessment to the System.^[4] The Proposed Rule would reapportion assessments among the individual System banks and associations.

B. Definitions Used in the Preamble

Financial Institution Rating System. FIRS is the rating system adopted by the FCA Board in 2011 and used by the FCA examiners for evaluating and categorizing the safety and soundness of System institutions on an ongoing, uniform and comprehensive basis.

Average risk-adjusted asset base. This term is defined in § 607.2 (b). After the implementation of the revised capital framework in 2017, the original metric of risk-adjusted assets used in the assessment apportionment was replaced with risk-weighted assets (RWA).^[5] Within this preamble, we use the term ”risk-adjusted assets” for information presented prior to 2017 and the term “risk-weighted assets” for information presented beginning 2017 and thereafter.

System institutions. This term is defined in § 607.2(k). While Part 607 defines assessment requirements for System and non-System entities, this Proposed Rule would impact only System banks and associations. Therefore, this preamble's references to System institutions include only System banks and associations.

C. Change in the Composition of System Institutions Since 1993

Over thirty years ago, as of June 30, 1993, there were 259 System institutions. The average risk-adjusted assets ranged from approximately $137,000 to $8.8 billion.^[6] As of June 30, 2025, there were 59 System institutions. The average risk-weighted assets for these institutions ranged from $175 million to $103 billion.

From June 30, 1993, to June 30, 2025, the number of institutions declined from 259 to 59 and the average risk-adjusted assets of these institutions increased. However, since 1993, not all institutions experienced risk-adjusted asset growth at similar rates. As a result of the changes to the System, the average risk-weighted assets are assessed, in accordance with the methodology in the existing assessment regulations, at different proportional rates than when the regulations were enacted approximately 30 years ago. Our Proposed Rule would adjust the proportionality based on the current levels of average risk-weighted assets to bring the assessments closer to proportional levels experienced when the rule became effective.

In our analysis as of June 30, 2025, we grouped institutions into three primary groups by average risk-weighted asset size: (1) greater than $10 billion, (2) $1 to $10 billion, and (3) less than $1 billion. For group one, 13 institutions (including all four banks and nine associations) reported average risk-weighted assets greater than $10 billion. This group of institutions held 81.7 percent of the total average risk-weighted assets for all institutions. ( printed page 21736) However, despite holding over 80 percent of the overall total average risk-weighted assets, this group of institutions was only assessed 68.6 percent of the total assessment for all institutions under the existing regulation.

The second group included 32 institutions and included only associations, which reported average risk-weighted assets between $1 and $10 billion. This group held 16.6 percent of total average risk-weighted assets. However, this second group of institutions was assessed 27.6 percent of the total assessment for all institutions.

The third group included 14 associations that reported average risk-weighted assets of less than $1 billion. This third group held 1.7 percent of the total average risk-weighted assets However, these institutions were assessed 3.8 percent of the total assessment for all institutions.

The institutions reporting lower levels of average risk-adjusted assets remain key institutions to the System in serving eligible farmer and producer borrowers in their chartered territories. The boards and management teams for these associations have indicated to FCA the challenges facing their associations, including concerns of experiencing an increased proportional assessment of the total assessment for institutions.

In addition to reviewing System structural changes, we analyzed the change in assessment apportionment ratios from June 30, 1993 (assessment year 1994), to June 30, 2025 (assessment year 2026). We define the assessment apportionment ratio as the ratio of the percentage of assessments for a System institution or group of institutions to the percentage of total average risk-adjusted assets reported by that same institution or group of institutions, where a ratio of 1.0 indicates an institution or group of institutions is assessed at the same exact percentage of its percentage of total average risk-adjusted assets for institutions.

For example, for the group of institutions with less than $1 billion in average risk-adjusted assets, we identified an assessment apportionment ratio of 1.26 in 1993. In 2025 for this group, we identified an assessment apportionment ratio of 2.24, which indicated this group of associations was assessed at over two times the proportionality of their combined share of risk-weighted assets.

For the group of institutions with average risk-adjusted assets of $1 to $10 billion, we identified a ratio of 0.80 in 1993, compared to a ratio of 1.66 in 2025. This difference in assessment apportionment ratio indicates this group of institutions was approximately assessed at over two times the proportionality of their combined share of risk-weighted assets in 2025 than in 1993.

In 2025, for the group of institutions reporting average risk-weighted assets greater than $10 billion, we identified an assessment apportionment ratio of 0.84 which indicates this group was assessed less than their proportional share of combined risk-adjusted assets.^[7]

Based on our historical review of the regulation, we propose to maintain the current assessment methodology while continuing to recognize the importance of the economies of scale concept in FCA's oversight and supervision of institutions. Additionally, FCA believes it is important to retain the risk premium concept based on a composite FIRS rating. Based on System changes since 1993 and our analysis of the current assessment formula, we propose changes to two parts of the assessment calculation. First, we propose to revise § 607.3(b)(1) and (2) to increase the portion of the assessment formula that is based on each institution's pro rata share of the total average risk-adjusted asset base. Second, we propose changes to the tier thresholds in the table in § 607.3(b)(2) to adjust the distribution of assessment apportionment among institutions.

Our analysis indicates our Proposed Rule results in assessment apportionment ratios of: 0.97 for the group of institutions that exceed $10 billion in average risk-weighted assets (compared to 0.84 in 2025); 1.12 for those associations that report between $1 and $10 billion in average risk-weighted assets (compared to 0.80 in 1993, and 1.66 in 2025); and 1.20 for the group of associations that report less than $1 billion in average risk-weighted assets (compared to 1.25 in 1993, and 2.24 in 2025). Our Proposed Rule adjusts proportionalities for all institutions and retains the current principles of the formula methodology.

We considered revising only the average risk-adjusted asset size ranges outlined in § 607.3(b)(2); however, the results from revising only the tier ranges were insufficient to bring the proportionality of individual assessments for associations with less than $1 billion in average risk-weighted assets closer to levels of proportionality in 1993. Additionally, although we also considered pro rata amounts of less than 75 percent, these amounts were also insufficient to bring proportionality ratios closer to 1993 levels. Based on our analysis, we believe that a proposed increase to 75 percent for the pro rata calculation of the formula is the most reasonable option.

We also considered a 100 percent pro rata approach, which would result in an exact proportional ratio of 1.0 for each institution and ensure each bank and association is assessed exactly as the percentage of total System average risk-weighted assets held. However, a 100 percent pro rata formula that includes a FIRS risk premium adjustment would allow anyone to determine an institution's assessment exceeds the 100 percent pro rata formula and included a premium based on an adverse composite FIRS rating. Therefore, we determined this type of formula would no longer maintain continued confidentiality in the composite FIRS rating. Additionally, this approach is inconsistent with our intent to continue to account for economies of scale. We believe the proposed methodology provides the most equitable results and maintains the intentions of the original negotiated rulemaking committee.

We specifically propose an increase, from 30 percent to 75 percent, of the portion of the assessment formula that bases the assessment on each institution's pro rata share of the total average risk-adjusted asset base. This change would result in a corresponding decrease in the apportionment calculation outlined in 607.3(b)(2) from 70 percent to 25 percent. We determined a proposed 75 percent pro rata minimum change is necessary to sufficiently adjust the proportionality of assessments for those associations with average risk-weighted assets of less than $1 billion in upholding cooperative principles. Within the calculation outlined in 607.3(b)(2), we also propose an increase in the average risk-adjusted asset tier thresholds to approximate the share of risk-adjusted assets as distributed in each tier in 1993. We propose amending the dollar thresholds to mirror the share of bank and association risk-adjusted assets in each tier for 1993. As a result of the above proposed changes, the ratio of the percentage of assessments to the percentage of average risk-adjusted assets moves each group closer to the proportionality of assessment amounts when the rule was finalized in 1994.

FCA concluded any change in the apportionment of the assessment methodology impacts each individual bank and association differently. However, we strove to ensure any proposed changes to the formula recognized the differences in all institutions, kept the spirit of the 1992 negotiated rulemaking committee's ( printed page 21737) consensus recommendations, and did not place any undue burden on some institutions over others. We recognize these changes increase or decrease the individual assessment for each System bank and association. Based on average risk-weighted assets as of June 30, 2025, if the proposed formula became effective, most institutions' assessments decrease compared to their fiscal year 2026 assessments. However, for institutions reporting average risk-weighted assets of more than $25 billion as of June 30, 2025, assessments increase compared to their fiscal year 2026 assessments.^[8]

Finally, we considered adding a premium based on certain criteria to address institutions with increased complexity; however, we determined the criteria to support such a premium would be difficult to quantify.

D. Improve the Equitability of the Assessment Across System Institutions by Bringing the Proportionality of Assessments Closer to Levels Experienced When the Rule Became Effective

FCA proposes revisions to significantly improve the assessment equitability by adjusting the proportionality of assessments in relation to the level of risk-adjusted assets across all institutions.

These revisions would:

○ Increase the pro rata percentage of assessment to 75 percent allocated to each institution to account for the growth and the reduced number of institutions and adjust the proportionality of an individual institution's assessment in relation to the level of risk-adjusted assets held.

○ Preserve the economies of scale concept by continuing to apportion a minimum 25 percent of each individual institution's holding of risk-adjusted assets assessment through a declining rate formula.

○ Revise the average risk-adjusted asset tier thresholds to allocate the average risk-adjusted assets at System institutions in tiers, consistent with the distribution of average risk-adjusted assets across the tiers established when the rule was finalized in 1994.

○ Retain the risk concept through the composite FIRS rating premium.

○ Keep the current formula to maintain the confidentiality of the composite FIRS rating in the calculation of any risk premium for those institutions assigned composite FIRS ratings of 3, 4, or 5.

III. Proposed Rule

A. Amendments to § 607.2

FCA proposes amendments to § 607.2 to update the calculation of assessments on System banks, associations, and other System entities, update the example calculation, and eliminate references to the National Cooperative Bank Development Corporation and the Farm Credit Finance Corporation of Puerto Rico that no longer in existence.

B. Amendments to § 607.3

FCA proposes amendments to § 607.3 (b)(1) and (2) to update the formula and example for the calculation of assessments.

IV. Regulatory Matters

A. Determination Under Executive Order 12866 and Expected Determination Under Executive Order 14192

The Office of Management and Budget's Office of Information and Regulatory Affairs has determined that this proposed rule is not a “significant regulatory action” as defined by Section 3(f) of Executive Order 12866, made applicable to FCA by Executive Order 14215. This action, if finalized as proposed, is expected to be neither an Executive Order 14192 deregulatory action nor an Executive Order 14192 regulatory action.

B. Regulatory Flexibility Act

Pursuant to § 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), FCA hereby certifies that the Proposed Rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the Farm Credit System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, Farm Credit System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

C. Providing Accountability Through Transparency Act of 2023

The Providing Accountability Through Transparency Act of 2023 requires a notice of proposed rulemaking to include the internet address of a posted summary of the proposed rule, in plain language and less than 100 words. Public commenters may access the summary for this rulemaking under RIN 3052-AD66 at https://ww3.fca.gov/​news/​Lists/​News%20Releases/​Attachments/​738/​NR-26-03-3-12-26%20.pdf.

For the reasons stated in the preamble, the Farm Credit Administration proposes to amend parts 607 of chapter VI, title 12 of the Code of Federal Regulations as follows:

1. The authority citation for part 607 continues to read as follows:

Authority: Secs. 5.15, 5.17 of the Farm Credit Act (12 U.S.C. 2250, 2252); and 12 U.S.C. 3025.

2. Amend § 607.2 by removing “the National Cooperative Bank Development Corporation” in paragraph (h).

3. Amend § 607.2 by removing “the Farm Credit Finance Corporation of Puerto Rico” in paragraph (j).

4. Amend § 607.3(b)(1) by replacing “Thirty (30) percent” with “Seventy-five (75) percent”.

5. Amend § 607.3(b)(2) by replacing “Seventy (70) percent” with “Twenty-five percent”.

6. Amend the table in § 607.3(b)(2) as follows:

From:

To:

11. Amend the example set forth in § 607.3(b)(2) from the existing example to reflect the revisions detailed above as follows:

Example: XYZ association has a composite FIRS rating of 2 and average risk-adjusted assets of $2 billion. The value of X₁ has been determined to be .0000837, based on an FCA budget of $100.4 million.

91 FR 21734