§2131 — Title 12 Banks and Banking | U.S. Code

Summary

Banks that lend to cooperatives set the interest rates. The bank’s board chooses rates. The goal is to give eligible borrowers the credit they need at the lowest reasonable cost while keeping the bank sound. Rates can change during the loan if the loan papers allow the rate to follow what the bank is charging at the time. The bank also sets loan terms, conditions, and any security required, under Farm Credit Administration rules. The bank has first claim on any stock or other owner equity as collateral for that owner’s debt. If a borrower defaults or is being wound up, the bank may retire or cancel some or all of that borrower’s stock, surplus, or other equity at fair market value up to par. The bank cannot do this if it would hurt the bank’s capital structure as the Farm Credit Administration decides.

Title 12, §2131

Banks and Banking — Source: USLM XML via OLRC

(a)Loans made by a bank for cooperatives shall bear interest at a rate or rates determined by the board of directors of the bank from time to time. 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 net cost of money to the bank, necessary reserves and expenses of the bank, and services provided. 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 bank.

(b)Loans shall be made upon such terms, conditions, and security, if any, as may be determined by the bank in accordance with regulations of the Farm Credit Administration.

(c)Each bank for cooperatives shall have a first lien on all stock or other equities in the bank as collateral for the payment of any indebtedness of the owner thereof to the bank.

(d)In any case where the debt of a borrower is in default, or in any case of liquidation or dissolution of a present or former borrower from a bank for cooperatives, the bank may, but shall not be required to, retire and cancel all or a part of the stock, allocated surplus or contingency reserves, or any other equity in the bank owned by or allocated to such borrower, at the fair market value thereof not exceeding par, and, to the extent required in such cases, corresponding shares and allocations and other equity interests held by a bank in another bank for cooperatives (or any successor bank) on account of such indebtedness, shall be retired or equitably adjusted. In no event shall the bank’s equities be retired or canceled if the retirement or cancellation would adversely affect the bank’s capital structure, as determined by the Farm Credit Administration.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (c). Pub. L. 115–334, § 5411(10)(A), struck out at end “In the case of a direct loan to an eligible cooperative by the Central Bank, the Central Bank shall have a first lien on the stock and equities of the borrower in the district bank and the district bank shall have a lien thereon junior only to the lien of the Central Bank.” Subsec. (d). Pub. L. 115–334, § 5411(10)(B), substituted “held by a bank in another bank for cooperatives (or any successor bank) on account of such indebtedness” for “held by a district bank in another district bank on account of such indebtedness”. 1986—Subsec. (a). Pub. L. 99–509 struck out “, with the approval of the Farm Credit Administration as provided in section 2205 of this title” after “from time to time”. 1980—Subsec. (a). Pub. L. 96–592, § 307(1), inserted reference to section 2205 of this title. Subsec. (d). Pub. L. 96–592, § 307(2), substituted “market” for “book” and inserted provisions respecting retirement or cancellation of equities as affected by the capital structure.

§2131 Loans

Summary

Title 12, §2131

Notes & Related Subsidiaries

Editorial Notes

Amendments

Citations & Metadata