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Letter 41: Investment in Stock of Agriculture Credit Corporation, Sec. 221.04(4m), Wis. Stats.

Your bank may be among those Wisconsin State chartered banks which currently hold stock in an agricultural credit corporation.

This office is developing data on the investment of banks in agricultural credit corporations pursuant to Sec. 221.04(4m), Wis. Stats. If your bank holds an investment in such a corporation, please forward to this office the following materials: (1) a copy of the most recent fiscal year income statement for the agricultural credit corporation; (2) a copy of the most recent fiscal year balance sheet for the corporation; (3) a list of the current shareholders and the number of shares held by each; (4) the carrying value of the bank's investment in the corporation on the books of the bank; and (5) the number and type (common or preferred) of shares held by the bank.

Although this letter is being sent to each bank, it is particularly directed to the attention of those banks which currently hold an investment in an agricultural credit corporation. It is intended to remind those banks that each additional investment, as well as the initial investment in an agricultural credit corporation, requires the approval of this office. The statutory requirement that the commissioner approve each purchase of stock is intended to ensure that the stability of the bank is not threatened by over investment in this area.

This is particularly true when the bank owns at least 80% of the stock in the agricultural credit corporation. In that situation the bank's investment may, under the statute, exceed 20% of the bank's capital and surplus. Where requests for approval to invest more than 20% of the bank's capital and surplus are made this office may examine or review examinations of the loan portfolio of the credit corporation made by other regulatory agencies. In the event the bank is being asked to invest additional capital in order to maintain the solvency of the corporation in the face of anticipated losses, this office may refuse to approve an additional investment by the bank if that investment may impair the safety and soundness of the bank itself.

It has also come to my attention that some banks have written up the value of their investment in an agricultural credit corporation in those years in which the corporation has shown a profit. Banks holding these investments are reminded that a bank may not, at any time, carry any asset on its books at a value exceeding the actual cost to the bank unless the bank receives the prior consent of the commissioner authorizing the revaluation of that particular asset. That requirement is contained in Sec. 221.38(2), Wis. Stats. However, this Office may require the bank to write down the value of this asset in the same manner as it requires banks to write down other substandard assets.

This letter should be circulated among those members of the bank's staff who may be involved in handling the bank's investment in this area.

Bkg. Ltr. #41, May 9, 1985, Commissioner Galecki