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R-979
BOARD OF GOVERNORS
75
OF' THE
FEDERAL RESERVE SYSTEM
WASHINGTON
April .30, 1942
ADDREBB OP'P'ICIAL CORRESPONDENCE
TO THE BOARD
Dear Sir:
The Board of Governors has revised its
Regulation S relating to industrial loans qy Federal Reserve Banks effective today. The changes
which have been made in the Regulation are merely
of a clarifying or technical character ar.d are intended to facilitate the participatior. of the Federal Reserve Banks in the program of war financing
contemplated by the President's Executive Order
No. 9112 of March 26, 1942.
The text of the revised Regulation S,
with the exception of the appendix, is enclosed
herewith. Printed copies of the revised Regulation will be mailed ye;u as soon as practicable;
a...!d in this connection it will be appreciated if
you will advise the Board of the number of copies
which will be required for the use of your Bank.
L. P. Bethea,
Assistant Secretary.
Enclosure
TO THE PHESIDENTS OJi' ALL F'EDERAL RESERVE BANKS
76
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Washington
April 30, 1942
Foreword
In order to facilitate the participation of Federal Reserve Banks in the program of war financing contemplated Py the
President's Executive Order No. 9112 of March 26, 1942, the Board
of Governors has revised its Regulation S relating to loans b,y
Federal Reserve Banks to industry and business under the provisions of section 13b of the Federal Reserve Act. The changes
which have been made in the regulation are merely of a clarifying or technical character.
As heretofore, the regulation leaves the powers granted
by Congress to tl:ce Federal Reserve Be.nks unimpaired and prescribes
no restrictions beyond those required by the lav1 itself. Arry at-
tempt to prescribe technical definitions of such terms as 11 vmrking capital", "established industrial or com:nercial business" and
"financing institutions" has been avoided, lost it have the effect of restricting or hampering the operations of the Federal
Reserve Banks under the statute. The regulation, therefore, contains little except an ~nalysis of the law and an outli~e of the
necessary procedure.
The law permits Federal Reser<re Banks to make direct
loru1s to established industrial and commarcial businesses only
when authorized cy the Board of Governors of the Federal Reserve
S,ystem; but, in order to avoid the necessity of having applications for such accommodations passed on in Washington) the Board
has continued in the revised regulation the blanket authority to
all Federal 11eserve Banks to grant such accorru:1ociations directzy
on their ovm responsibility without reference to Washington.
77
REGULATION S
Revised Effective April 30, 1942
INDUSTRIAL LOANS Fl FEDERAL RESFltVE BANKS
INTRODUC'riON
This regulation is based upon and issued pursuant to section 13b
of the Federal Reserve Act, as amended, and other provisions of law. The
provisions of section 13b and certain other related statuto~J provisions
are set forth in the appendix to the regulation.
SECTION 1.
TRANSACTIONS BY FEDERAL RESERVE BANKS
WITH FINANCING INSTITUTIONS
.
I
(a) Legal reguirements. -Under the provtsions of subsection.(b)
of section 13b of the Federal Reserve Act, a Federal Reserve Bank is authorized to discount obligations for, purchase obligations from, and make loans
or advances on the security of such obligations direct to, any bank, trust
company, mortgage company, credit corporation for industr-J or other financing institution {hereinafter referred to as "financing institution") operating in its district and to make commitments with regard to such discounts,
purchases, loans or advances, subject to the following requirements:
(1) Obligations which are the subject of such discounts,
purchases, loans, advances, or commitments must have been or must
be entered into for the purpose of obtaining working capital for
an established industrial or commercial business;
(2) Such obligations must have a
five years;
(3)
maturi~
of not exceeding
Each such financing institution shall -
A. Obligate itself to the satisfaction of the
Federal Reserve Bank for at least 20 per centum of any
loss which may be sustained by the Reserve Bank upon
any such obligation acquired from such financing institution, the existence and amount of aey such loss
to be determined in accordance with subsection (c) of
this section; or
I
B. In lieu thereof, advance at least 20 por centum
of such working capital and in such evE::nt the advances
b,y both such financing institution and the Federal Reserve Bank shall be considered as one advance and rep~ment shall be mude on a pro rata basis.
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(b) 1\.pplications by financing institutions. - An applicationl by
a financing institution for the dizcount or purchase of an obligation entered
into for the purpose of obtaining working capital for an established industrial or commercial business located in any Federal Reserve district or for
a loan or advance on the securi~ of such an obligation or for a commitment
with regard to such discount, purchase, loan, or advance, may be transmitted
to the Federal Reserve Bank of any district in which the applicant financing
institution is operating and shall be submitted by such Federal Reserve Bank
to the Industrial Advisory Committee of such district. Such application may
be made on a form furnished for that purpo:=;e by the Federal Reserve Bank and
must contain or be accompanied by such information, agreement~{, and documents
as the Federal Reserve Bank may require.
(c) Existence and amount of losses. - The Federal Reserve Bank
shall be deemed to have sustained a loss upon any obligation acquired from
a financing institution in accordance with the provisions of this section
of this regulation whenever the board of directors of the Reserve Bank, after
investigation, shall have determined that sucb. obligation or any part thereof is a loss and the Reserve Bank shall have charged off of its books the
amount so determined to be a loss, subject to review l:lf the Board of Governol'S of the Federal Reserve System. The amount of loss in any such case
shall be deemed to be the amount so charged off, together with unpaid interest thereon. Such financing institution shall reimburse the Federal
Reserve Bank for the portion of such loss for which such financing institution shall have obligated itself, with interest, on such portion of such
loss until the date of such reimbursement. If any recovery be realized on
the amount of the loss ascertained in accordance with this subsection 7 such
financing institution and the Federal Reserve Bank shall be entitled to
share pro rata in the amount so recovered.
SECTION 2. DIRECT TRANSACTIONS BY FEDERAL RESJ<~'~WE BA..liJKS
WITH ESTABLISHED INDUSTRIAL OR COiv1MEJ1CIAL BUSINESSES
(a) Legal requirements. - A Federal .Reserve Bank may exercise its
authority to make loans to or purchase obligations of an established industrial or commercial business having an office or place of business in its
district or to make commitments with respect thereto under subsection {a)
of section 13b of the Federal ResE:rve .Act: (1) in exceptional circumstances
lAttention is invited to the requirements of subsections (h) and (k) of
section 22 of the Federal Reserve Act quoted in the appendix to this regulation, with regard to material statements or overvaluation of security in connection with applications of this kind and with regard to the giving or
receiving of fees, commissions, bonuses, or things of value for procuring
or endeavoring to procure from a Federal Reserve Bank any credit accomnlodation, either directly from :;Juch Federal Reserve Bank or indirectly thi'ough
any financing institution.
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pursuant to the authority hereinafter granted by the Board of Governors of
the Federal Reserve System; (2) when i t appears to the satisfaction of the
Federal Reserve Bank that such established industrial or commercial business is unable to obtain requisite financial assistance on a reasonable
basis from the usual source~; (3) for the purpose of providing such established industrial or commercial business wi:th working capital; U~-) on a
reasonable and sound basis; and (5) with respect to obligations which have
maturities not exceeding five years.
(b) Authorization b.'r Board of Governors of the Federal Reserve
.£;y:stem. - The Board of Governo:cs of the Federal Reserve System, pursuant to
the provisions of subsection (a) of section 13b of the Federal Reserve Act,
hereb;"{ authorizes evory Federal Reserve: Eank, U."ltil such time as the Board
of Governor:3 may revoke or modify such authority, to make loans to and purchase obligations of established industrial or commercial businesses, and
to make commitments with respect thereto, subject to the provisions of the
law and this regulation.
(c) APplications by established industrial or c.:ommercial businesses. - .till applicationl b".r an established industrial or commercial business for a loan to, or ths purchase of the obligations of, such business,
or a comrni tment ·:dt!l respect to such a loan or purchase, may be transmitted
to the Federal Reserve Bank of any district in which an office or place of
business of the applicant is located. and shall be submitted by such Federal
Reserve Bank to the Indust:dal Advisory Committee of such district. Such
application may· be made on a form furnished for that purpose -qy- the Federal
Reserve Bank and must contain or be accompanied by such information, agreements, and documents as the Federal Reserve Bank may require.
SECTION 3.
INDUSTRIAL ADVISORY COi'Jll:vii'l'TEES
(e.) Membership of conr:littees. - The Indm;trial Adviso:r7 Committee
established in each Federal Reserve district under the provisions of subsection (d) of section 13b of the Federal Reserve Act shall consist of five
members actively engaged in some industrial pursuit within the Federal Reserve district.in which the comnlittee is established. The membership of
such committee shall consist of persons who are familiar with the problems
and needs of industry and commerce in such district.
lAttention is invited to the requirenents of subsections (h) and (k)
of section 22 of the Federal Reserve Act quoted in the appendix to this regulation, with regard to matorial statements or overvaluation of security in
connection with applications of this kind and. with regard to the giving or
receiving of fees, commissions, bonuseG, or things of value for procuring
or endeavoring to procure :from a federal l1eserve Bank any credit accommodation, either directly from such Federal .Reserve Bank or indirectly through
any financing institution.
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-4On or before the 15th day of February of each year, the board of
dir·ectors of each Federa± Reserve Bank shali submit to tho Board of Governors of the Federal Reserve &;stem the names of the persons selected to
serve for the ensuing year as menber[-; of the Industrial Advisory Committee
of the district of such Federal Reserve Dank, aad, if approved by the Board
of Goverrrors, such persons shall serve for terms of one year co1mnencing on
the 1st day of March of such year. Vacancies that may occur in the membership of such com;ni ttees shall be filled in like manner, and persons appointed
to fill such vacancies shall hold office for the unexpired terms of their
predecessors.
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(b) Recorruaend.a tions of com:'li ttee s. - The Industrial Advisory Committee, to which an ap:;;lication for any such discount, pur·chase, loan, advance, or com;d tment by the Fed·3ral Reserve Bank of the district shall have
been submitted,. after an examination lJ.; it of the business with respect to
which the application is made and a consideration of the necessity and advisability of granting the application and of such other factors as it may
deem appropriate, shall transmit the application to the Federal Reserve Bank
together with the re'commendation of the committee.
SECTION 4.
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AGGHEGATE AMOU1n OF ACCOlV!MODATIOLS VJUCH MAY
BE EXTENDED B! A FEDli;HAL RESERVE BANK
Except with the permission of the Board of Governors of the Federal Reserve System; the aegregate mnol..U\t of loar1s, ac~va.nces, and commitments of each Federal Reserve Bank made pursuant to the provisions of section
l3b of the Federal Reserve Act and outstanding, plus the amount of purchases
and discounts acquired under that section and held at the same time, sball
not exceed the surplus of such Federal Reserve Bank as of July l, 1934, plus
all amounts paid to such Federal Reserve Bank by the Secretary of the Treasur;v under subsection (e) of section 13b of the Federal Reserve Act •
SECTION 5.
....
All rates of interest and of discount established by any Federal
Reserve Bank with respect to loans, advances, discounts and purchases made
under authority of the provisions of section l3b of the iederal J.eserve Act,
and all charges established tr.r any R.eserve Bank with respect to commitments
made under such authority J shall be sub,~ect to review and deter::J.ination of
the Board of Governors of the Federal Ras0rve System •
SECTIOlJ 6.
•
RATES
m~PORTS
BY FZDEHAL HESER.VE BANKS
Each Federal Reserve Bank shall rnake a daily r2port to the Board
of Governors of tho Federal Reserve System of all transactions entered into
pursuant to the authorH.(y conferred by section 13b of the Federal Reserve
/
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Act on the Board's form B D 4, prescribed for the reporting of discount
transactions.
...
SECTION 7.
CHANGES IN REGULATIONS
The Board of Governors of the Federal Reserve s-ystem, pursuant
to the ,authority conferred upon it UJ section l3b of the Federal Reserve
Act, may alter, modify, or am(md the provisions of this regul;c'.tion from
time to time in its discretion •
•
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@FedFRASER