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93 ' BOARD OF GOVERNORS . CF" THE FEDERAL RESERVE SYSTEM S-559 WASHINGTON ADDRESS OF'F'ICIAL CORRESPONDENCE TO THE BOARD September 26, 1942. Dear Sir: For your information there is enclosed a copy of a letter which tho Board ha~> received from the Maritime Commis- sian, dated September 22, 1942, signed by R. E. Anderson, Director of Finance, suggesting tha.t we call your attention • to the following questions which have ari3en in connection with the various applications received .from financing institu- .. tions for Regulation V loans: l. 2. 3. 4. • Dividend policy of the borrower. ExeGutive salary poliey of the borrmver. Tax liability poJicy of the borrow8r. Financial arrangements for additional business. Very Enclosure TO THE PRESIDENTS OF ALL FEDERAL HESERVE .BANKS. 94 UNITED S'l'ATES MAli.ITIME COlvllvliSSION ~· . ' S-559-a WASHINGTON ... Mr. K. R. Cravens War Loans Administrator Board of Governors of the Federal R.eserve System Washington, D. C. September 22; lC)L;2 Dear Mr. Cravens: Without in any way desiring to restrict the judgment of' the Federal Reserve Banks, who are agents for the Maritime Commission in executing loans guaranteed under Executive Order No. 9112, it is suggested that you bring to the attention of all Federal Reserve Banks the following questions which have arisen in connection with the various applications received from financi.t'Ig institutions for Regulation V loans: .,_ • .•. ,.;. l. Dividend policy of the borrower. Ordinarily, it is appropriate to require that there be no payment of dividends during the existence of the guarantee. However, there In·'3.Y be conditions where the continm.tion of a regularly established · dividend policy is proper, or where other special considerations may govern the matter of dividend policy. 2. Executive salary polic4' of the borrovrer. It is frequently approprhte to examine the IIL::J"tter of salaries paid. Obviously, there can be no fixed rule, but considerable judgment should be exercised to insure thnt such salaries are reasonable and not disproportionate to the volume and character of the business and responsibility of the individuals, and particularly to safeguard against any extraordinary increases of sal:irles incident to the taking on of Government business. 3. Tax liability policy of the borrower. Since it is the policy of the Commission to consider Regulation V loans for E,"11arantee onl.y for workine capital purposes, the provision of funds for taxes based upon profits growing out of the contracts being financed by such loans is ordim.rily o.utomc'.tically cared for; howevt.:r, tax liabilities existing at the time of the loan, and arising from other business, should be tnken into consider.::tion, :J.nd great care should be taken tr""1.t profits subject to tax are not used for fixed asset purposes or otherwise made unavailable for discharge of tax liabilities, thus imperiling a loan.· 4. Financial arrangements for additional business. The necessity of seeing to it that any ~:~dd:Ltional business taken on aft·,~r the negotiation of guaranteed loans is otherwi:;e adequBt€-ly financed sometimes calls for special attention, pe,rticularly, when the ~1dditional business i.s r81atively substantial in amount. ,, VerJ tru1;r yours, (Signed) R. E. Andnr-son H. E. Anderson Director of Fi~ance.
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