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F E D E R AL R E S E R V E B AN K
OF N E W YORK

rCircular No. 3 7 3 6 ~
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I
July 24, 1951
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BULLETINS NOS. 5 AND 6 OF V O L U N T A R Y CRE D IT R E S T R A IN T COM M ITTEE

To all Banks, and Others Interested,
in the Second Federal Reserve District:

F ollow in g is the text o f Bulletin N o. 5 o f the national V oluntary Credit R estraint Com ­
mittee, which was issued J u ly 23, 1951 fo r imm ediate publication:
IN T E R N A T IO N A L FIN A N C IN G
A s a result o f inquiries from regional committees about the status o f foreign borrowings in United
States markets, the national V oluntary Credit Restraint Committee has discussed the status o f such
borrowings under the V oluntary Credit Restraint Program.
The Committee concluded that all such credit applications on behalf o f foreign borrowers should be
screened to the same extent, and with the same purpose tests, as comparable American credits.
It may be difficult in some cases for financing institutions or regional committees to determine
whether a proposed foreign credit would indirectly contribute to defense or other objectives o f the U. S.
Government. It will be particularly desirable, therefore, when foreign cases are submitted for review,
that financing institutions submit full facts to enable a judgm ent as to purpose. In exceptional cases
when a regional committee finds the facts available to it are inadequate to ju dge an application, the
national Committee, if requested, will endeavor to obtain supplementary inform ation from Government
agencies.

F ollow in g is the text o f Bulletin No. 6 o f the national V olu n tary Credit R estraint Com ­
mittee, which was issued today fo r publication J u ly 25, 1951:
LOANS SECURED B Y STOCKS A N D BONDS
The original Statement o f Principles o f the Program fo r V oluntary Credit Restraint provided
that “ the foregoing principles [the antispeculative provisions] should be applied in screening as to
purpose on all loans on securities whether or not covered by Regulation U or T .” * The F irst Am end­
ment to the Statement o f Principles deleted the phrase “ whether o r ” from the Statement. This provi­
sion has been the subject fo r a number o f inquiries. F o r example, the question has been raised as to
whether a loan on securities not covered by Regulation U or T must be screened as to purpose even
though the amount o f credit advanced might be permissible under these regulations. Such an inter­
pretation would appear to treat the loans secured by unlisted stocks more severely than those on listed
*
The Statement o f Principles also provides that “ loans to securities dealers in the normal conduct o f their busi­
ness or to them or others incidental to the flotation and distribution o f securities where the money is being raised fo r any o f
the fo regoin g [proper] pu rposes” should be classified as “ p rop er.”




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(i.e., “ registered” ) securities. In order to cure this ambiguity, the follow ing principles are recom­
mended fo r you r guidance by the national Com mittee:
(1 ) Loans on securities covered by Regulation U or T are basically for the purpose o f pur­
chasing or carrying listed securities. It is recommended, therefore, that all loans on securities for
purchasing or carrying unlisted securities be presumed to be fo r a proper purpose if the amount
o f credit extended is no greater than that permitted in the case o f listed securities by Regulation
U or T.
(2 ) Loans on securities, whether or not listed, but not fo r the purpose o f purchasing or carry­
ing securities, should be made only fo r purposes consistent with the principles o f voluntary credit
restraint.

Additional copies o f this circular will be furnished upon request.




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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102