12 C.F.R. Subpart Q—Banks for Cooperatives and Agricultural Credit Banks Financing International Trade
Title 12 - Banks and Banking
(a) Banks for cooperatives and agricultural credit banks, under policies adopted by their boards of directors, are authorized to finance foreign trade receivables on behalf of eligible cooperatives to include the following: (1) Advances against collections; (2) Trade acceptances; (3) Factoring; and (4) Open accounts. (b) To reduce credit, political, and other risks associated with foreign trade receivable financing, the banks for cooperatives and agricultural credit banks shall avail themselves of such guarantee and insurance plans as are available in the United States and other countries, such as the Foreign Credit Insurance Association and the Export-Import Bank of the United States. Exceptions may be made where a prospective borrower has had a longstanding successful business relationship with the eligible cooperative borrower or an eligible cooperative which is not a borrower if the prospective borrower has a high credit rating as determined by the bank. (c) When financing a draft drawn on a foreign importer, the banks should retain recourse to the exporter unless their credit evaluation of and experience with the importer indicate recourse is not necessary or unless appropriate guarantees or insurance plans are used. (d) The financing of foreign trade receivables shall be limited by the policies of each bank's board of directors. The policies shall provide a method of determining the maximum amount in dollars, by country, to be financed and establishing a maximum percentage of the amount of a draft drawn on a foreign party against which the bank may advance funds. The banks shall take into consideration the following factors: (1) The reputation and financial strength of the foreign importer. (2) The reputation and payment record of the class of importers in the same country as the subject importer in regard to prompt payment of drafts drawn upon them. (3) The quality of the supporting documents offered with the draft. (4) The degree of ease with which necessary foreign exchange conversion can be made, or the extent to which foreign currency exposure may be hedged by forward or future contracts. (5) The reputation and financial strength of the exporter. (e) The banks may establish foreign trade receivable financing programs by which eligible parties pledge collections to the bank, and then may borrow from the bank up to a stated maximum percentage of the total amount of receivables pledged at any one time. (f) When financing foreign trade receivables, the banks shall take such precautions and obtain such credit information as necessary to ascertain that all parties to the transaction(s) being financed are reputable and capable of performing their responsibilities under the contract of sale. (g) When financing foreign trade receivables, the banks shall determine that all shipments are covered by maritime insurance while on the high seas. (h) Countries where credit is to be extended will be analyzed periodically and systematically on a centralized basis. The resulting country studies will be disseminated to all banks for cooperatives and agricultural credit banks to be used as inputs in credit grading decisions. [46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24886, June 19, 1990; 62 FR 4445, Jan. 30, 1997] The Funding Corporation is authorized to accept drafts or bills of exchange drawn upon banks for cooperatives and agricultural credit banks. With the exception of acceptances eligible for purchase by the Federal Reserve Banks under the direction and regulation of the Federal Open Market Committee and rediscounted, acceptances shall be subject to the provisions of subpart J of this part and must be combined with any other loan to the account party by the banks for cooperatives and agricultural credit banks for the purpose of applying the lending and leasing limits of §614.4355 of this part. (a) Limitations. (1) The Funding Corporation is authorized to accept drafts or bills of exchange drawn upon a bank for cooperatives or an agricultural credit bank having not more than 6 months' sight to run, exclusive of days of grace, that are derived from transactions involving the importation or exportation of agricultural commodities, farm supplies, or aquatic products into or out of the United States; or are derived from transactions involving the domestic shipment of goods that were produced from agriculture or commerical fishing or that have an agriculturally or aquatically related purpose; or are secured at the time of acceptance by title covering readily marketable staples. (i) The dollar amount of such acceptances outstanding at any one time to any one borrower, exclusive of participations sold to others, shall be limited to 10 percent of the net worth of a bank for cooperatives or an agricultural credit bank as calculated on a monthly basis after eliminating from its net worth an amount equal to the total of the bank's investments made to capitalize participation interests purchased by other institutions. However, if such acceptances are secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance, the 10-percent limit shall not apply. (ii) The sum of all acceptance liabilities outstanding described in paragraph (a)(1) of this section, exclusive of participations sold to others, issued to all borrowers shall not exceed 150 percent of the bank for cooperatives' or agricultural credit bank's net worth, but the aggregate of acceptances growing out of domestic transactions shall not exceed 50 percent of net worth calculated on a monthly basis. (2) The limit specified in paragraph (a)(1)(i) of this section is separate from and in addition to the lending and leasing limits of §614.4355 of this part if the acceptances are rediscounted. (3) During any period within which a bank for cooperatives or an agricultural credit bank holds its own acceptance, having given value therefor, the amount thereof shall be included against the lending and leasing limits set forth in §614.4355 of this part of the customer for whom the acceptance was made. (4) The terms and requirements for the offering and purchase of participations in acceptance financing shall be the same as those for loans made under §614.4020(b) of this part. (5) When acceptances denominated in foreign currencies are not funded in the same currency, the bank for cooperatives or an agricultural credit bank shall take corresponding action to minimize foreign exchange risk. (b) Purchases of participations in bankers acceptances. (1) A bank for cooperatives or an agricultural credit bank shall determine limits on purchasing participations in discounted acceptances of another bank for cooperatives or an agricultural credit bank on the same basis as prescribed in §614.4355 of this part for purchasing participations in loans of another bank for cooperatives or an agricultural credit bank. (2) Participations in discounted acceptances shall be offered in accordance with §614.4020(b) of this part. (c) Funding Corporation. All acceptances created by the banks for cooperatives or agricultural credit banks shall be physically accepted by the Funding Corporation when intended for rediscount. [55 FR 24886, June 19, 1990, as amended at 57 FR 38250, Aug. 24, 1992; 58 FR 40324, July 28, 1993; 59 FR 37404, July 22, 1994; 62 FR 4445, Jan. 30, 1997; 64 FR 34518, June 28, 1999] Banks for cooperatives and agricultural credit banks, under policies adopted by their boards of directors, may issue, advise, or confirm import or export letters of credit in accordance with the Uniform Commercial Code, or the Uniform Customs and Practice for Documentary Credits, to or on behalf of its customers. In addition, as a matter of sound banking practice, letters of credit shall be issued in conformity with the list which follows. (a) Each letter of credit shall be in writing and shall conspicuously state that it is a letter of credit, or be conspicuously entitled as such. (b) The letter of credit shall contain a specified expiration date or be for a definite term. (c) The letter of credit shall contain a sum certain. (d) The bank's obligation to pay should arise only upon fulfilling the terms and conditions as specified in the letter of credit. The bank must not be called upon to determine questions of fact or law at issue between the account party and the beneficiary. (e) The bank's customer should have an unqualified obligation to reimburse the bank for payments made under the letter of credit. (f) All letters of credit shall be irrevocable. [46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997; 64 FR 43049, Aug. 9, 1999] A bank for cooperatives or an agricultural credit bank, under a policy approved by the bank's board of directors, may lend its credit, be itself a surety to indemnify another, or otherwise become a guarantor if an eligible cooperative substantially benefits from the performance of the transaction involved. A bank may guarantee the debt of eligible cooperatives and foreign parties or otherwise agree to make payments on the occurrence of readily ascertainable events if the guarantee or agreement specifies a maximum monetary liability. Guarantees may be secured or unsecured, and can include, but are not limited to, such events as nonpayment of taxes, rentals, customs duties, costs of transport, and loss of or nonconformance of shipping documents. The bank's customer shall have an unqualified obligation to reimburse the bank for payments made under a guarantee or surety. [55 FR 24887, June 19, 1990, as amended at 62 FR 4445, Jan. 30, 1997] (a) The banks for cooperatives and agricultural credit banks are authorized to issue on behalf of parties eligible for financing under regulations §614.4010(d) or §614.4020 standby letters of credit that represent an obligation to the beneficiary on the part of the issuer: (1) To repay money borrowed by, advanced to, or for the account of the account party, or (2) To make payment on account of any indebtedness undertaken by the account party, or (3) To make payment on account of any default by the account party in the performance of an obligation. (b) As a matter of sound banking practice, banks for cooperatives and agricultural credit banks shall evaluate applications for standby letters of credit on the basis of the loan underwriting standards adopted pursuant to §614.4150 of the regulations. [46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997; 62 FR 51015, Sept. 30, 1997] (a) Before a bank for cooperatives or an agricultural credit bank may engage in any financial transaction which transports monetary instruments from any place within the United States to or through any place outside the United States or to any place within the United States, the bank must have policies adopted by the bank's board of directors governing such transactions and must have established bank procedures to safeguard the interests of the stockholders of the bank in regard to such transactions. (b) Under policies adopted by the bank's board of directors, a bank for cooperatives or an agricultural credit bank may engage in currency exchange activities necessary to service individual transactions that may be financed under the regulations authorizing export, import, and other internationally related credit and financial services. These currency exchange activities shall not include any loans or commitments intended to finance speculative futures transactions by eligible borrowers in foreign currencies. The bank may engage, on behalf of the eligible borrowers or on its own behalf, in bona fide hedging transactions and positions, where such transactions or positions normally reduce risks in the conduct and management of international financial activities. The bank's policies should include established guidelines for: (1) Net overnight positions, by currency. (2) Maturity distribution, by currency, of foreign currency assets, liabilities, and foreign exchange contracts. (3) Outstanding contracts with individual customers and banks. (4) Credit approval procedures safeguarding against delivery or settlement risk. (5) Total value of outstanding contracts—spot and forward. (c) A bank for cooperatives or an agricultural credit bank is responsible for its compliance with the laws of the United States in regard to reporting requirements of the Department of the Treasury pertaining to currency exchange activities and international transfers of monetary instruments. (d) A bank for cooperatives or an agricultural credit bank engaged in foreign exchange trading shall have written policies describing the scope of trading activity authorized, delegation of authority, types of services offered, trading limits, reporting requirements, and internal accounting controls. (e) The bank's trading guideline policies should provide for reporting procedures adequate to inform management properly of trading activities and to facilitate detection of lack of compliance with policy directives. (f) The bank's policies shall establish foreign exchange delivery limits for eligible customers with relationship to the customer's financial capability to bear the financial risks assumed. The bank will be expected to maintain documentary evidence that a customer's delivery exposure is reasonable, and that responsible bank officers routinely review outstanding delivery exposure of individual customers. (g) The bank's personnel policies shall include written standards of conduct for those involved with foreign exchange activities, including the following which should be prohibited: (1) Trading with entities affiliated with the bank or with members of the board of directors. (2) Foreign exchange and deposit transactions with other bank employees. (3) Personal business relationships with foreign exchange and money brokers with whom the bank deals. (h) The bank's policies should provide detailed instructions regarding the need for bank officers to disclose the limits of responsibility and liability of the bank when it holds positions or executes contracts for the account of eligible parties. The bank's policies regarding the respective procedures should provide reasonable assurance that reports on trading activities are current and complete, and that the opportunity for concealment of unauthorized transactions is kept at the absolute minimum. (i) The banks for cooperatives and agricultural credit banks shall use the Funding Corporation for purposes of trading foreign exchange. All foreign exchange transactions shall be made by the Funding Corporation on behalf of the banks consistent with instructions received from the respective banks. (j) Guidelines (b) through (i) of this section will not apply if a bank purchases or sells foreign exchange through a commercial bank and has no foreign exchange risk exposure. [46 FR 51879, Oct. 22, 1981, as amended at 55 FR 24887, June 19, 1990; 62 FR 4445, Jan. 30, 1997]
Title 12: Banks and Banking
PART 614—LOAN POLICIES AND OPERATIONS
Subpart Q—Banks for Cooperatives and Agricultural Credit Banks Financing International Trade
§ 614.4700 Financing foreign trade receivables.
§ 614.4710 Bankers acceptance financing.
§ 614.4720 Letters of credit.
§ 614.4800 Guarantees and contracts of suretyship.
§ 614.4810 Standby letters of credit.
§ 614.4900 Foreign exchange.
