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3 3 9 FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE T O T H E FEDERAL RESERVE BOARD X-6833 March 5, 1931. SUBJECT: New Regulations of Veterans' Bureau Regarding loans Secured "by Adjusted Service C e r t i f i c a t e s . Dear S i r : Pursuant to the Act of Congress approved February 27, 1931, amending Section 502 of the World War Adjusted Compensation Act with reference t o loans upon adjusted s e r v i c e c e r t i f i c a t e s , the Administrator of Veterans' A f f a i r s has amended h i s regulations on t h i s subject so as to conform to the p r o v i s i o n s of the law as amended and there are enclosed herewith copies of these regulations i n the amended form. Copies of the Federal Reserve Board's Regulation G amended to conform to the new law were forwarded to you i n my l e t t e r of March 2nd. By reference to the new regulations of the Administrator of Veterans' A f f a i r s and to the Board's new Regulation Gr, i t w i l l he noted t h a t , as to a l l loans made on the s e c u r i t y of adjusted s e r v i c e c e r t i f i c a t e s on and a f t e r February 27, 1931, the r a t e of i n t e r e s t must not exceed (a) simple i n t e r e s t at a r a t e not exceeding by more than 2 per cent per annum the rate charged at the date of the loan for the discount of 90 day commercial paper by the Federal reserve bank of the Federal reserve d i s t r i c t in which the lending bank i s l o c a t e d , or (b) 4& per cent per annum compounded annually, whichever i s the lower. I t w i l l a l s o be noted that the Administrator of Veterans' A f f a i r s has prescribed i n h i s regulations a new form of note which may be used by banks i n making loans on the s e c u r i t y of adjusted s e r v i c e c e r t i f i c a t e s , containing a p r o v i s i o n that i f the p r i n c i p a l and i n t e r e s t are not paid at maturity, the maker and a l l endorsers authorize the holder at h i s option, evidenced by the h o l d e r ' s endorsement to that e f f e c t on the n o t e , t o extend i t s maturity for a period of one year and to repeat such extensions from year t o year. The Federal Reserve Board's new Regulation G contains a p r o v i s i o n that where there i s such a provision f o r the extension of maturity of a note from year to year at the option of the holder evidenced by h i s endorsement thereon, the maturity of X-6833 -2- said note ( a f t e r the f i r s t maturity stated therein) s h a l l , f o r the purpose of determining i t s e l i g i b i l i t y f o r rediscount "be deemed to "be that stated i n the l a t e s t extension endorsed thereon "by the holder. The new form of note prescribed by the Administrator of Veterans' A f f a i r s (U.S. Veterans' Bureau Form Ho. 6615-a) w i l l , therefore, be e l i g i b l e for r e discount at a Federal reserve bank whenever the maturity date stated i n the l a t e s t extension endorsed on the note i s not more than nine months a f t e r the date of rediscount provided, of course, that the note complies i n a l l other respects with the requirements of the law and of the regulations. Banks making loans on notes secured by adjusted service c e r t i f i c a t e s , which do not desire to preserve the e l i g i b i l i t y of such notes for rediscount a f t e r the f i r s t maturity may properly use the same form (U. S. Veterans ' Bureau Form No. 6615) which has been used heretofore for making loans on the security of adjusted service c e r t i f i c a t e s . Copies of this l e t t e r and of the enclosures are being sent to a l l the branches of the Federal reserve banks. Very truly yours, E. M. McClelland, Assistant Secretary. Enclosures. TO GOVERNORS WD CfiA-IRMEN OF ALL F» R. BANKS. 3 4 0
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