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F E D E R A L

R E S E R V E

B A N K

O F

N E W

Y O R K

Fiscal Agent of the United States

rCircular No. 2 8 3 71
L September 12, 1944 J

FINANCING OF W A R PRODUCTION AND W A R CONTRACT TERMINATION
To All Banks, Other Financing Institutions and Others Concerned
in the Second Federal Reserve District:

Following is the text of a statement given to the press by the Board of Governors of the Federal Reserve
System for publication today with respect to the issuance of guarantee agreements covering Termination Loans.
The Board of Governors today announced inauguration of the program of guaranteed loans and commitments authorized under the Contract Settlement Act of 1944. Such termination loans, commonly called T Loans,
will be made by private financing institutions, chiefly commercial banks, to war production contractors to liquefy
or "unfreeze" working capital tied up in terminated contracts pending final settlement of claims arising therefrom. Guarantees will be executed by the Federal Reserve Banks as fiscal agents of the United States acting in
behalf of the War Department, the Navy Department, and the United States Maritime Commission. The
Reserve Banks are today distributing to all banks in their districts printed forms and detailed information.
The T Loan program is a logical extension of the V and V T Loan programs under Executive Order 9112,
which provide war contractors with financing necessary for production. V T Loans, in use since September 1,
1943, provide both production and termination financing, but have not been available after cancellation has
taken place. T Loans, which are authorized under the Contract Settlement Act, may be guaranteed after the
Borrower's war production contracts have been terminated. However, commitments for such loans may be guaranteed in advance of cancellation. Thus the program affords war production contractors a means of insurance
against the freezing of their working capital which might result from sudden termination of their war contracts.
New schedules of guarantee fees and commitment fees have been prescribed for T Loans and will also be
made applicable to V T Loans when executed on new forms which will be made effective in the near future.
The new schedule of guarantee fees follows:
T LOANS
Per cent of
loan guaranteed

Guarantee fee (per cent of interest
payable by borrower on
guaranteed portion of loan)

80 or less
10
85
15
90
20
95
30
over 95
50
The maximum commitment fee that may be charged the Borrower by a Financing Institution will be 34 of
1 per cent per annum, or in the alternative a flat fee of not to exceed $50.00. Under the new schedule, the fee
is not shared by the Guarantor.
The maximum rate of interest on any T Loan will be Ay2 per cent per annum, as compared with 5 per cent
heretofore. This maximum will likewise be made applicable to V T Loans on the new forms.
While the prospective need of war production contractors for T Loans cannot be accurately estimated, the
commercial banks should be prepared to make a large number of such loans within the first few weeks after the
end of the European phase of the war. If applications for such loans were not filed until after cancellations occur
in large volume, it might be physically impossible to process them promptly. Therefore, the program will emphasize the desirability of contractors and their banks, in advance of cancellation, negotiating commitments to make
such loans. These commitments will be guaranteed by the Federal Reserve Bank, acting as fiscal agent of the
United States, so that upon termination, Borrowers can promptly obtain such loans and the banks will already
have the protection of the guarantee.
In comparison with the V and V T Loan programs, the T Loan program is simplified and liberalized in
recognition of the obligation of the Government, as expressed in the Contract Settlement Act, to provide prompt
and adequate interim financing to contractors pending final settlement of their claims.
Following is the text of General Regulation No. 1 issued by the Director of Contract Settlement on
August 18, 1944, pursuant to the Contract Settlement Act of 1944. W e call your particular attention to the
policies prescribed by the Director in his Regulation.
OFFICE OF CONTRACT

SETTLEMENT

WASHINGTON, D . C .

August 18, 1944
GENERAL REGULATION NO. 1
Pursuant to the authority conferred upon me by Sections 4 ( b ) and 8 ( c ) of the Contract Settlement Act of
1944, I hereby prescribe the procedure for the guaranteeing of termination loans by the War Department, the
Navy Department and the Maritime Commission through the Federal Reserve Banks, outlined in the Guarantee
Agreement, the Loan Agreement, and Explanatory Notes attached hereto as exhibits A, B, and C, respectively.
Technical amendments not affecting policy may be made in exhibits B and C by agreement among
the W a r and Navy Departments, the Maritime Commission and the Federal Reserve Board.



In the execution of this procedure the following policies will be observed:
1. Termination loan (hereinafter called T - L o a n ) guarantees should not be refused by the contracting agency having the preponderant interest in the borrower's war contracts if the borrower is or
has been engaged in performing an operation connected with or related to war production, except m
in such classes of cases as may be prescribed by the Director. The borrower's certification of his
investment in termination inventories and receivables and of the amounts payable to subcontractors should not be questioned by the Federal Reserve Bank or the contracting agency unless
there is reason to believe that it is substantially overstated in value. Financing institutions should
be encouraged to make unguaranteed production and termination loans, and the fact that a financing institution has made such an unguaranteed loan shall not affect its right subsequently to apply
for a T - L o a n guarantee, even if the proceeds of the T-Loan are used to retire the existing loan.
2. If a contracting agency which utilizes the Federal Reserve Banks as fiscal agents for T-Loan
guarantees has local representatives in connection therewith, it should delegate to such banks
authority to approve, after consultation with and in the absence of objection by such representatives, all applications for guarantees of loans totaling (a) $500,000 or less to any one borrower
when the requested percentage of guarantee is not in excess of 90 per cent, and ( b ) $100,000 or
less to any one borrower when the requested percentage of guarantee is not in excess of 95 per
cent. Any such contracting agency which does not have such local representatives will provide
them in the localities where, and at the times when, it is determined that they are required, in
the light of its prospective volume of contract terminations and after consultation with the Director, and in the absence of such representatives should delegate such authority to the Reserve
Banks as is necessary to insure prompt processing of applications for and execution of such guarantees.
3. Conditions other than those required under the standard loan agreement should be prescribed by
the contracting agencies or the Federal Reserve Banks only in exceptional circumstances and
when they are clearly necessary to protect the Government's interest. Additional conditions
agreed upon by the borrower and the financing institution, if not unreasonable and not inconsistent with the
standard loan agreement, should not be objected to by the contracting agency or the Reserve Banks.
4. The requested percentage of guarantee should not ordinarily be questioned by the Federal Reserve
Bank or the contracting agency if it does not exceed 90 per cent; and a contracting agency should
not authorize a percentage of guarantee in excess of 90 per cent, or 95 per cent in the case of small
loans, unless the circumstances clearly justify the financing institution in requesting it and other
means of interim financing are not promptly available.
5. In general, the percentages in the loan formula certificate agreed upon by the financing institution and the
borrower should not be questioned by the Federal Reserve Bank or the contracting agency. After consultation with the Board of Governors of the Federal Reserve System, the contracting agencies will, to the extent
practicable, specify general criteria or standard maximums which may be employed in typical classes of cases.
(Signed)

ROBERT H .

HINCKLEY

Director
In the case of V , V T and T loans, no termination fee, service fee, or fee of similar character, (other than
the commitment f e e ) , except charges covering out-of-pocket expenses, may be charged a borrower by a
financing institution.
Effective September 11, 1944, the Board of Governors of the Federal Reserve System amended its
Regulation A , "Discounts for and Advances to Member Banks by Federal Reserve Banks", as amended, by
changing the last sentence of subsection ( h ) of Section 1 to read as follows:
"The requirement of this section of the Regulation that a note, draft, or bill of exchange be negotiable shall
not be applicable with respect to any note, draft, or bill of exchange evidencing a loan which is in whole or in
part the subject of a guarantee or commitment made pursuant to Executive Order 9112 or the Contract Settlement Act of 1944."
Also effective September 11, 1944, the Board of Governors revised its Regulation V , "Financing of W a r
Production and W a r Contract Termination". A copy of the revised Regulation is enclosed.
On following pages are copies of the " T - L o a n Guarantee Agreement" and of the "Termination Loan
Agreement", the latter including as Exhibits A to D, inclusive, the prescribed form of note, loan formula
certificate, terminated war contracts certificate, and provision for additions to the standard form of loan agreement. W e have incorporated in these, under the respective sections affected, explanatory notes approved by
the Director of Contract Settlement.
A copy of the form of application for a T - L o a n Guarantee Agreement, which is to be filed with us in
quadruplicate, is also enclosed. Subsections ( a ) to ( d ) of paragraph 2 of the loan formula certificate
(Exhibit B ) need not be filled in as to dollar amounts when the application is filed with this bank, if immediate
borrowing is not contemplated.
Additional copies of this circular, of the revised Regulation V , and of the standard forms of T - L o a n
Guarantee Agreement and Termination Loan Agreement will be furnished upon request.



ALLAN

2

SPROUL,

President.

[The W a r and Navy Departments and the Maritime Commission, with the approval of the Director
of Contract Settlement, have prescribed standard forms of " T " loan guarantee and loan agreements.
These agreements are set forth below together with Exhibits A to D, inclusive, consisting of the form
of note, loan formula certificate, terminated war contracts certificate, and provision for additions to the
standard form of loan agreement, respectively.
Paragraphs numbered 1 to 47, inclusive, printed in italics, are not a part of the respective sections
of the instruments in which they appear, but are explanatory notes approved by the Director of
Contract Settlement and inserted by us for your convenience. These explanatory notes will not appear
in the documents to be executed upon the issuance of a guarantee.]
(FORM OF SEPTEMBER 1, 1 9 4 4 )

T-LOAN GUARANTEE

AGREEMENT
No

The
(herein called "Guarantor"), acting through the
Federal Reserve Bank of
as fiscal agent of the United States (herein called "Reserve
Bank"), and the Financing Institution hereby agree as follows:
(1) The Guarantee Agreement is issued pursuant to the authority contained in the Contract Settlement Act of 1944,
the First War Powers Act, 1941, Executive Order 9112, the Act of June 11, 1942 (56 Stat. 351), and other pertinent provisions of law. No changes in the Guarantee Agreement will be permitted except in the most unusual cases and then only
ivith the concurrence of the Board of Governors of the Federal Reserve System.
(2) Pursuant to section 10(a)(1) of the Contract Settlement Act of 1944, the Guarantor in its authorization or through
its local representative will notify the Federal Reserve Bank in writing that the Borrower is or has been engaged in performing an operation deemed by the Guarantor to be connected with or related to war production.

Section 1.

Definitions

( A ) "Financing Institution" shall mean
(3) If one Financing Institution is authorized, as agent for a number of participants, to execute a Guarantee Agreement in their behalf, the participants should be referred to as "each bank, trust company or other Financing Institution
ivhich is or shall be a party to the loan described in Appendix I annexed hereto" or by some other appropriate reference
showing the several nature of the agreement.

( B ) "Borrower" shall mean
(Name)

Of

(Address)

( C ) "The loan" shall mean the financing arrangement between the Financing Institution and the
Borrower which is described in Appendix I annexed hereto. In case of any conflict or inconsistency
between the provisions of this agreement and the provisions of Appendix I or any other similar instrument, the provisions of this agreement shall control.
(4) Since the Guarantee Agreement covers only the loan described in Appendix I, any material alteration in the
terms of the loan should be made only with the written consent of the Guarantor in order that the loan, as altered, will
be covered by the guarantee.

( D ) "Obligation" shall mean the instrument or instruments evidencing the Borrower's indebtedness under the loan.
( E ) "Guaranteed percentage" shall mean
(5) The requested percentage of guarantee will not ordinarily be questioned by the Federal Reserve Bank or the
Guarantor if it does not exceed 90 per cent.

Section 2.

Guarantee as to Sharing of Losses and Expenses

( A ) All losses on the loan (i.e., all amounts of principal and interest which are due and unpaid),
and all unreimbursed expenses as defined in Paragraph ( B ) of this section, shall be shared ratably, on




the date of settlement, by the Guarantor and the Financing Institution in accordance with the guaranteed and unguaranteed percentages, respectively. All net recoveries after the date of settlement shall
be shared on the same basis. The date of settlement shall be the thirtieth (30th) day after the date on
which either party, after maturity of the loan, receives from the other party a written request for such
settlement, or any other date agreed on by the parties.

M

( B ) Expenses shall mean all reasonable out-of-pocket expenses (including reasonable counsel fees
incurred by the Financing Institution or the Reserve Bank prior to but not after any purchase under
this agreement) which relate to the enforcement of the loan or the preservation of the collateral and
which are incurred during the period of any default in the payment of principal or interest.
(6) Counsel fees incurred by the Financing Institution after a purchase cannot be shared by the Guarantor because
of the provisions of 5 U.S.C. 314.

Section 3.

Agreement to Purchase

The Guarantor will at any time and from time to time prior to the date of settlement purchase
such portion of the obligation as may be demanded in writing by the Financing Institution, by paying
to the Financing Institution, on the tenth (10th) day after the receipt by the Reserve Bank of such a
demand, the unpaid principal amount of the portion of the obligation to be purchased, as of the date of
the demand, plus all unpaid accrued interest on such amount, with appropriate adjustment for guarantee fees, computed as of the date of purchase; provided that in no event shall the total amount of the
portion of the obligation owned by the Guarantor exceed the guaranteed percentage.
(7) It is contemplated that a purchase made by the Guarantor under this section shall be for cash. However, if the
Guarantor owns an interest in any obligation which has been issued under a revolving credit arrangement, and if, at or
before the maturity of such obligation, the Reserve Bank receives written demand from the Financing Institution for the
purchase of the same or a lesser amount of a new obligation to be issued in place of such maturing obligation, the payment for the portion of the new obligation purchased pursuant to such demand will be made by the Guarantor by surrendering, at or before maturity, its interest in the maturing obligation, in the amount of the demand by the Financing
Institution and without regard to the ten-day period specified in this section.

Section 4.

Voluntary Purchase by Guarantor

The Guarantor may, at any time upon its demand, purchase the guaranteed percentage of the
obligation, less any amounts previously purchased under this agreement and not repaid, and shall pay
therefor on the basis stated in section 3. In such event, at the option of the Financing Institution or
the Guarantor, the Financing Institution shall forthwith transfer possession of the obligation and collateral in the manner provided in section 5.
Section 5.

Administration of Loan and Possession of Obligation and Collateral

( A ) The Financing Institution shall administer the loan until it transfers possession of the obligation and collateral to the Reserve Bank as provided below, and thereafter the Guarantor shall administer
the loan. Whenever the Guarantor purchases any part of the obligation, the Financing Institution shall
forthwith deliver to the Reserve Bank a certificate evidencing the Guarantor's ownership interest in
the obligation and collateral. In any such case, however, upon written demand by the Reserve Bank,
the Financing Institution shall forthwith transfer to the Reserve Bank, without recourse or warranty
except as to the genuineness of the Borrower's signature to any instrument,' such possession of, title
to, and rights to enforce the obligation and all collateral therefor as it may have. Thereupon the
Reserve Bank shall issue to the Financing Institution a certificate evidencing the Financing Institution's ownership interest in the obligation and collateral. Either party administering the loan may (1)
release and dispose of collateral and proceeds thereof, and permit substitution therefor, all in accordance with the terms of the loan, and (2) after five days' written notice to the other party, bring any
action to enforce the loan.
(8) Under the first sentence the Guarantor may, after a purchase and transfer, administer the loan either directly
or through the agency of the Reserve Bank. It is contemplated that such administration will usually be conducted by the
Reserve Bank.




4

i

( B ) Nothing in this agreement shall prevent the Financing Institution from transferring the obligation as collateral for advances by a Federal Reserve Bank.

Section 6.

Ratable Application of Collections

All amounts at any time paid or credited on the obligation, from whatever sources realized, shall be
applied ratably for the benefit of the Financing Institution and the Guarantor according to their respective ownership interests in the obligation. Except as may be provided in the loan, the Financing
Institution shall not be required to credit on the obligation the proceeds of any banker's lien or right of
set-off with respect to funds of the Borrower (exclusive of proceeds of contracts on Exhibit C to
Appendix I) or of other assets, to the extent that the Financing Institution has provided that such lien,
right of set-off or other assets shall be security for other indebtedness of the Borrower to it.
(9) All amounts paid or credited on the obligation after the date of the demand by the Financing Institution or the
Guarantor, as the case may be, for a purchase under this agreement and prior to the date of such purchase will be applied,
as provided in this section, according to the respective interests of the Guarantor and the Financing Institution as such
interests exist immediately after the purchase.
(10) Subject to any special provision which may be contained in Exhibit D, the Financing Institution may make other
loans to the Borrower for the purposes of financing war production or reconversion to civilian business or for other purposes, provided the proceeds of the contracts (as the term "the contracts" is defined in paragraph 1 of Appendix I) or
inventory allocable to the contracts are not pledged as security for such loan. The Financing Institution as security for
the side loan may take other collateral and provide that the side loan shall not be required to share with the guaranteed
loan any banker's lien or right of set-off with respect to funds of the Borrower, exclusive of proceeds of the contracts,
on general deposit with the Financing Institution or specifically pledged as security for such side loan.

Section 7.

Fees Payable to Guarantor

The Financing Institution shall pay to the Reserve Bank at the end of each monthly or quarterly
period, as fixed by the Reserve Bank, an amount equal to
per cent of any interest payable by
the Borrower on the average daily amounts of that part of the unpaid principal of the obligation which
the Guarantor was obligated during such period to purchase upon demand of the Financing Institution.
(11) As previously indicated in this circular, the following schedule of guarantee fees has been prescribed by the
Board of Governors of the Federal Reserve System with, the concurrence of the Director of Contract Settlement:
Guarantee Fees on Termination Loans
Pursuant to the Contract Settlement Act of 1944

Per cent of
loan guaranteed
80 or less
85
90
95
Over 95

Section 8.

Guarantee Fee
(Per cent of interest
payable by Borrower
on guaranteed portion
of loan)
10
15

20
30
50

Effect of Violation of Agreement

( A ) If the Financing Institution shall violate, or fail to comply with, any of the terms of this
agreement or any of the terms or conditions of the loan or shall through gross negligence make a
material misrepresentation of fact in the application therefor, or in anything constituting a part of the
application, it shall become liable to the Guarantor in an amount equal to the damages sustained by the
latter by virtue of such violation, failure to comply, or misrepresentation; but the Guarantor shall not
be relieved by such violation, failure to comply, or misrepresentation from any of its obligations to the
Financing Institution under this agreement.




( B ) In the absence of gross negligence on the part of the Financing Institution, (1) no invalidity
or ineffectiveness of any collateral or of any assignment thereof accepted by the Financing Institution,
and (2) no action or omission to act on the part of the Financing Institution in reliance on a statement
or certificate signed by an appropriate officer or member of the Borrower with respect to the financial
condition, business or operations of the Borrower, shall constitute a violation of, or failure to comply
with, any of the terms of this agreement or any of the terms or conditions of the loan on the part of the
Financing Institution. No invalidity of any provision of the loan arising from statute or decision of any
court shall in any way relieve the Guarantor hereunder.
(12) The word "certificate" in paragraph (B)(2)
with the loan formula.

Section 9.

includes any certificate furnished by the Borrower in connection

Officials Not to Benefit

No member of or delegate to Congress or resident commissioner shall be admitted to any share or
part of this contract or to any benefit that may arise therefrom, but this provision shall not be construed
to extend to this contract if made with a corporation for its general benefit.
IN WITNESS WHEREOF,

the parties have caused this agreement to be executed on their behalf by their

duly authorized agents this

date of

, 194

(Guarantor)

By Federal Reserve Bank of
as Fiscal Agent of the United States
By:

(Name)

(Title)

(SEAL)
(Financing Institution)
ATTEST :

(Name)

(Title)

(Name)

(Title)

(13) Whenever a number of days is specified in the Guarantee Agreement or in the loan agreement the word "days"
shall be deemed to mean calendar days.




(FORM OF SEPTEMBER 1, 1 9 4 4 )

APPENDIX I
TERMINATION LOAN AGREEMENT
Under Guarantee Agreement No

(herein called "Financing Institution") will grant credit to

of

(herein called "Borrower"), up to a maximum

principal amount of $
at any one time outstanding, by lending to the
Borrower at any time and from time to time on promissory notes in the form annexed hereto as Exhibit
A and in accordance with the terms and conditions of this agreement.
(14) If the Borrower and the Financing Institution have agreed upon a non-firm commitment, the words "in its sole
discretion" may be inserted before the word "grant". The second sentence of paragraph 2 applies even in the case of a
non-firm commitment and in such a case no figure should be inserted in paragraph 4.
(15) In the case of a straight loan, the words "at any one time outstanding", should be stricken out.
(16) The note to be used should contain'the provisions which appear in the form annexed as Exhibit A to the standard loan agreement, with the blanks appropriately filled in, and may contain such additional provisions, not inconsistent
therewith or with the terms of the loan agreement, as the Financing Institution and the Borrower may agree. The note
may, for example, contain provisions for sale of collateral in the event of default, allowance for attorneys' fees, etc.

1. Definitions.—All terms defined in the Contract Settlement Act of 1944 and in the Guarantee Agreement shall have the same meaning when used in this agreement. "Terminated war contract" shall
mean a war contract, in its entirety, which has been terminated in whole or in part. " T h e Contracts"
shall mean such terminated war contracts, if any, as may now be listed on Exhibit C annexed, and as
the Borrower may from time to time add thereto by supplement approved by the Financing Institution.
(17) The following terms are defined in section 3 of the Contract Settlement Act of 1944:
" ( a ) The term 'prime contract' means any contract, agreement, or purchase order heretofore or hereafter entered
into by a contracting agency and connected with or related to the prosecution of the tear; and the term 'prime contractor' means any holder of one or more prime contracts.
" ( b ) The term 'subcontract' means any contract, agreement, or purchase order heretofore or hereafter entered
into to perform all or any part of the work, or to make or furnish any material to the extent that such material is
required for the performance of any one or more prime contracts or of any one or more other subcontracts; and the
term 'subcontractor' means any holder of one or more subcontracts.
" ( c ) The term 'war contract' means a prime contract or a subcontract; and the term 'war contractor' means any
holder of one or more war contracts.
"(d) The terms 'termination', 'terminate', and 'terminated? refer to the termination or cancelation, in whole or
in part, of work under a prime contract for the convenience or at the option of the Government (except for default
of the prime contractor) or of work under a subcontract for any reason except the default of the subcontractor.
*

*

*

*

*

" ( g ) The term 'contracting agency' means any government agency which has been or hereafter may be authorized to make contracts pursuant to section 201 of the First War Powers Act, 1941, and includes the Reconstruction
Finance Corporation and any corporation organized pursuant to the Reconstruction Finance Corporation Act (47
Stat. 5), as amended, the Smaller War Plants Corporation, and the War Production Board.
" ( h ) The term 'termination claim' means any claim or demand by a war contractor for fair compensation for
the termination of any war contract and any other claim under a terminated war contract, which regulations prescribed under this act authorize to be asserted and settled in connection with any termination settlement.
*

*

*

*

*

"(m) The term 'final and conclusive,' as applied to any settlement, finding, or decision, means that such settlement, finding, or decision shall not be reopened, annulled, modified, set aside, or disregarded by any officer,
employee, or agent of the United States or in any suit, action, or proceeding except as provided in this act."
With respect to the definition contained in paragraph (g) above, the Director of Contract Settlement will from time to time
issue a list of "contracting agencies" indicating those tvhich are currently guaranteeing loans under this act through the
agency of the Federal Reserve Banks.




/
(18) It ivill be noted that the definition of "terminated war contract" contained in paragraph 1 of the loan agreement is broad enough to permit borrowings against receivables and inventory under that part of a partially cancelled
contract still remaining to be performed; that under paragraph 5 assignment of all moneys due and to become due under
the entire contract may be required; and that the provisions of paragraphs 7(c) and 8 apply to all payments under the
contract.
(19) If the Financing Institution and the Borrower desire to enter into a firm commitment for the financing of
nonterminated contracts existing on the date of execution of the loan agreement when and if such contracts become terminated, a provision may be added to Exhibit D listing such nonterminated war contracts with an agreement by the
Financing Institution that such contracts may, upon termination, be added to Exhibit C without further approval. The
addition of terminated war contracts to Exhibit C shall be made by serially numbered supplements filed in 5 copies with
the Financing Institution. The supplements shall be in the same form as Exhibit C with the following added at the
lower left hand corner thereof:
Approved:

101
(Financing Institution)

By

(Name)

(Title)

If the Financing Institution approves of a supplement, it shall sign all copies, retain one for its files, return one to the
Borrower, and send the other three copies to the Reserve Bank.
(20) Since the termination loan agreement is designed to finance termination claims rather than production, the
Financing Institution may find it advisable to decline to permit inclusion in Exhibit C of contracts which have been
terminated only to a minor extent when the effect of their inclusion would probably be to make the proposed borrowing
in substantial part a loan for production purposes. The Financing Institution may refuse to permit addition to the list
of terminated war contracts contained in Exhibit C of such contracts as are by their terms not assignable, or may require
as a condition of the addition of such contracts to the list that the Borrower obtain an appropriate amendment permitting
such assignment. It should be noted that prime contracts providing for payments aggregating less than $1,000 are not
assignable under the Assignment of Claims Act of 1940.

2. Maturity.—The loan shall mature thirty (30) days after final payment of the amounts due, upon
final and conclusive settlement, on the war contracts of the Borrower or upon
,
194...., whichever is earlier, and all notes issued hereunder shall thereupon become due and payable.
If any note of shorter maturity is issued, the Borrower may from time to time until the maturity of the
loan again borrow hereunder the unpaid amount of such note, subject to the provisions of Paragraph 6
hereof. The Borrower may at any time by written notice reduce the maximum principal amount of
the loan in multiples of $
(21) The notes may be made payable on demand, or may be 90-day notes, or may have such other maturity, not
more than three years after the date of the agreement, as the Financing Institution and the Borrower may agree.
(22) Irrespective of whether or not the Financing Institution is under an obligation under the terms of the agreement
to extend further credit, the second sentence of paragraph 2 is intended to give the Borrower the right to borrow again,
from time to time, up to the amount of the notes which have been given in consideration of the loan until the final
maturity date inserted in paragraph 2 or until the notes are finally paid pursuant to paragraph 8 or otherwise, whichever first occurs.

3. Interest.—The

Borrower shall pay interest as prescribed in Exhibit A.

(23) The maximum interest rate, as prescribed by the Board of Governors of the Federal Reserve System ivith the
concurrence of the Director, is 4y2 per cent per annum simple interest, and interest may not be charged at a greater
rate either before or after maturity.

4. Commitment Fee and Expenses.—The Borrower shall pay quarterly a commitment fee at the rate
of
% per annum on the average daily unused balance of the maximum principal amount of the loan.
The Borrower shall reimburse the Financing Institution for reasonable out-of-pocket expenses incurred
in connection with the loan and the application therefor.
(24) The maximum commitment fee, as prescribed by the Board of Governors of the Federal Reserve System with
the concurrence of the Director, is % of 1 per cent per annum based on the average daily unused balance of the maximum
principal amount of the loan, or a flat fee of not to exceed $50 without regard to the amount or maturity of the commitment. Accordingly, the commitment fee, if any is charged, may not exceed this maximum. If a flat fee is charged, the
first sentence of the Paragraph should be changed to read: "The Borrower shall pay on
a commitment fee of $
(25) No termination fee, service fee, or other fee of a similar character, except charges covering out-of-pocket
expenses of a Financing Institution, may be charged.
(26) Out-of-pocket expenses do not include any overhead expenses.

5. Collateral.—Prior to or contemporaneously with any borrowing hereunder, the Borrower, except
and to the extent that the Financing Institution otherwise agrees in writing, will assign to the Financ-




8

ing Institution as security for the loan all moneys due and to become due on the Contracts. At any
time upon request of the Financing Institution or the Guarantor, the Borrower will furnish additional
security by assigning to the Financing Institution the moneys due and to become due on any or all of
its terminated war contracts which by using its best efforts the Borrower can assign and which have not
been previously assigned hereunder. All proceeds of assignments made hereunder and of any other
collateral taken by the Financing Institution for the loan shall be applied to the indebtedness under the
loan. Except to secure borrowings hereunder, except as provided in Exhibit D, and except to secure
partial payments made to the Borrower by any contracting agency, the Borrower will not (a) assign,
or suffer to remain assigned, moneys due or to become due on any of the Contracts, or ( b ) mortgage,
pledge, or otherwise encumber, or suffer to remain encumbered for more than
days, any inventory allocable to the Contracts.
(27) The obligation imposed upon the Borrower to make assignments includes the obligation to execute such documents and take such action in connection therewith as the Financing Institution may reasonably require including, in the
case of subcontracts, the giving of such notice to the purchasers as may be necessary to perfect the assignments.
(28) The extent to which assignments should be required prior to or contemporaneously with any borrowing under
the first sentence of this paragraph will depend upon the credit standing of the Borrower and upon the practical problems of assignment which may exist in a particular case. The Financing Institution may, by an appropriate writing,
agree to except specific contracts from the requirement of assignment, in which case notice of the contracts so excepted
should be given to the Reserve Bank. The Financing Institution may also provide in Exhibit D for a general exception.
For example, Exhibit D may provide that contracts on Exhibit C as to which the "estimated amount of termination
claim" is less than $
need not be assigned unless subsequently requested by the Financing Institution
or the Guarantor. If such a provision is included in Exhibit D, the dollar amount of contracts so excluded may, if the
Borrower's credit is strong enough to warrant, be made sufficiently high so that paragraph 5 will in effect merely constitute
a covenant to assign upon request of the Financing Institution or the Guarantor.
(29) In the case of a weak credit, the Financing Institution should include, in Exhibit D, a covenant reading substantially as follows:
"At any time upon request of the Financing Institution or the Guarantor, the Borrower ivill pledge or mortgage as
further security for the loan all or any inventory applicable to the contracts."
Any pledge pursuant to such a covenant should contain a provision for release of inventory so pledged to the extent of
payment to the Financing Institution of the cost or proceeds thereof, as the case may be, in accordance with the terms of
paragraph 8 of the loan agreement.
(30) Under the last sentence of this paragraph, the Financing Institution and the Borrower in suitable cases may
agree to a provision in Exhibit D permitting the existence of liens to secure advance payments.
(31) The number of days during which an encumbrance may be permitted to remain on inventory of the Borrower
tvithout creating a default, which is to be inserted in the last sentence of this paragraph, will depend primarily upon the
credit standing of the Borrower.

6. Conditions of Borrowing.—The Financing Institution shall not be required to make any advance
hereunder (a) unless the Borrower furnishes to the Financing Institution a loan formula certificate in
the form annexed hereto as Exhibit B, dated not more than
days before the date of the proposed
borrowing, which shows a borrowing base, calculated in accordance with the percentages therein specified, of not less than the amount that will be outstanding after the proposed borrowing, or ( b ) if any
event exists which constitutes or which, except for notice or lapse of time or both, would constitute a
default specified in this agreement, or ( c ) to the extent that the Financing Institution has reason to
believe that the borrowing base stated in the loan formula certificate is substantially overstated in value
and has so notified the Borrower in writing, provided that the Financing Institution may rely upon the
borrowing base shown in the loan formula certificate.
(32) The Financing Institution shall promptly submit to the Reserve Bank two copies of the loan formula certificate
furnished by the Borrower at the time of the initial borrowing. In the event of a serious dispute between the Financing
Institution and the Borrower as to whether the borrowing base is substantially overstated in value, for the purposes of
this Paragraph or of Paragraph 8, the parties may, if they mutually desire, request the Guarantor to consider the matter.
If at the time of any borrowing, or at any other time, additional security not referred to in the application or loan agreement and not previously reported is furnished, a report thereof should be promptly made by the Financing Institution to
the Reserve Bank.

7. Reports.—The Borrower shall maintain proper records and accounts, permit such inspection thereof, and furnish such statements and reports, including audit reports, as the Financing Institution
or the Guarantor may from time to time reasonably request. In any event, within three (3) months
after the initial borrowing and not less than quarterly thereafter the Borrower shall furnish to the
Financing Institution periodic reports in triplicate made up as follows:
(a) A balance sheet, certified by an appropriate officer or member of the Borrower, as of a date not
more than
days prior to the date of furnishing the report.
( b ) A loan formula certificate in the form of Exhibit B, dated not more than




days before the

elate of furnishing the report, unless such a certificate has been furnished within thirty (30) days before
such date.
( c ) A statement of the nature, amounts, and dates of all payments on any assigned terminated war
contracts and on the Contracts, whether or not assigned, in cash or by offset or otherwise (except any
offset theretofore deducted in any loan formula certificate) between the date of the initial borrowing or
the last date covered by the last report, whichever is later, and a date not more than fifteen (15) days
prior to the date of such a statement. Payments shall be deemed to include the proceeds of collateral
taken for the loan, or proceeds of, or specific credit with respect to, any sale, retention or other disposition of inventory allocable to such contracts, approved or authorized by the proper authority, and the
cost or proceeds, whichever is greater, of any such inventory which the Borrower has definitively
elected to retain without specific credit therefor.
(33) The Financing Institution may, for example, deem it desirable to require under the first sentence of this paragraph the furnishing of profit and loss statements, an analysis of surplus, data as to claims under the Borrower's terminated war contracts, and statements as to the insurance required to be maintained by the Borrower under paragraph 10.
(34) One copy of each of the statements to be furnished under subparagraphs (a), (b) and (c) may be retained by
the Financing Institution, and two copies should be forwarded to the Reserve Bank, which will retain one copy and
forward the other to the Guarantor or such person as the Guarantor may designate.
(35) Under the definition of payments, a number of different situations are contemplated:
(a) There may be a sale of inventory specifically approved or authorized by the proper authority. In such
case, the payment will be the amount of the proceeds; the date of payment will be the date of receipt of the proceeds
by the Borrower.
( b ) There may be a retention of inventory approved or authorized by the proper authority with a specific
credit allowed on any claim filed. In such case, the payment will be the amount of the credit allowed; the date of
payment will be the date of the allowance of the credit.
(c) There may be a sale of inventory approved or authorized by the proper authority under a blanket authority to dispose of inventory at not less than cost or at not less than a stated percentage of cost. In such case, the
amount of the payment will be the amount of the proceeds; the date of payment will be the date the proceeds of
the sale are received by the Borrower.
(d) There may be a definitive election to retain inventory not approved or authorized by the proper authority
with a specific credit against the Borrower's claim where claim has been filed or against his potential claim where
none has been filed. Such a definitive election to retain occurs when the Borrower relinquishes the right to include
the cost of such inventory in his claim and may be evidenced by written notice to the proper authority, by sale of
the inventory without specific credit, by incorporation of inventory in civilian products, or by other means. In
such case, the amount of the payment will be the cost of the inventory or, if the act of election is a sale, the proceeds of the sale if that is greater than cost; the date of payment will be the date when the definitive act of election
was made.
In the case of a prime contract the "proper authority" to approve or authorize dispositions or retentions of property is
the contracting agency. In the case of subcontracts the "proper authority" may be the purchaser or the contracting agency
or both depending on the circumstances and the applicable regulations. The word "cost" refers to the Borrower's costs
or expenditures used in computing the borrowing base.

8. Reduction of Notes.—The Borrower shall pay down the unpaid principal amount of the notes by
an amount equal t o : (a) All payments, as described in Paragraph 7 ( c ) , within three (3) days from
the date of any such payment or within such further time as the Financing Institution may prescribe;
and ( b ) any excess of outstanding borrowings over the borrowing base shown in the most recent loan
formula certificate, upon the date of furnishing such certificate, provided that, while the Financing
Institution may rely upon the borrowing base shown in such certificate, such borrowing base shall be
decreased to the extent that the Financing Institution or the Guarantor has reason to believe that it is
substantially overstated in value and has so notified the Borrower in writing, in which event the
Borrower shall pay, in addition, an amount equal to any excess resulting from such decrease, within ten
(10) days after the mailing of such notice.
(36) The Government does not undertake responsibility for assisting in the financing of civilian inventory under the
provisions of the Contract Settlement Act of 1944. Therefore, the Financing Institution, if it prescribes a period in excess
of three days, should prescribe a reasonably short period within which the payments required by paragraph 8 are to be
made. The Financing Institution may prescribe different periods for payments arising out of the several classes of events
upon the happening of which payments are required to be made, and may prescribe a period of grace for small payments.
If the credit of the Borrower is not strong, prompt payment should be required, particularly in the event of inventory
retention.
(37) If either the Financing Institution or the Guarantor notifies the Borrower of an overstatement pursuant to
clause (b) of paragraph 8, it should forthwith notify the other party to the Guarantee Agreement.




9. Maintenance of Working Capital.—The Borrower shall maintain net current assets, as determined
in accordance with generally accepted principles of accounting and including in current liabilities all
borrowings outstanding hereunder, of not less than $
(38) If the Borrower has subsidiaries and if it is desired to use consolidated net current assets as a basis, this
should be specified in Exhibit D. In this event, consideration should be given to ivhether or not any restrictions imposed
upon the parent should also be applied to the subsidiaries.

10. Insurance.—The Borrower shall maintain insurance on its property in such amounts and against
such risks as is customarily maintained by similar businesses operating in the same vicinity.
11. Other Provisions.—The
annexed.

parties hereto agree to any additional provisions appearing in Exhibit D

(39) The standard form of loan agreement is designed for use in connection with a straight loan or a revolving
credit, a firm commitment or a loan under which the Financing Institution is not obligated to extend further credit, a
single bank credit arrangement or a multi-bank credit arrangement, and for a strong credit or a weak credit. It is recognized that the Financing Institution and the Borrower may wish to add in Exhibit D further provisions appropriate for
the particular financing arrangement between them.
(40) Conditions other than those required under Appendix I will be prescribed by the Guarantor or the Federal
Reserve Bank only in exceptional circumstances and when they are clearly necessary to protect the Government's interest; but it is expected that the Financing Institution, in the case of a weak credit, will ordinarily insist upon the inclusion of the provision quoted in explanatory note (29). Additional conditions for inclusion in Exhibit D may be agreed
upon by the Borrower and the Financing Institution and, if not unreasonable or inconsistent with the standard termination loan agreement, such conditions will not be objected to by the Guarantor or the Reserve Bank.
(41) The Guarantor will have no objection to the insertion of a provision requiring the Borrower to apply first to
the Financing Institution before obtaining any other loans. The Financing Institution may also insert an additional provision prohibiting other borrowings, without the consent of the Financing Institution, or placing a ceiling thereon.
(42) In order that additional terms may be clearly distinguished from the provisions of the standard form, all such
additional terms should be set forth in Exhibit D or in a rider attached thereto.
(43) In any case where either the Financing Institution or the Guarantor exercises its option under the loan agreement to terminate the credit and accelerate the notes, it should forthwith notify the other party to the Guarantee
Agreement.

12. •Events of Default.—The
hereunder:

occurrence of any one of the following events shall constitute a default

(a) Any statement, representation, warranty, certificate, schedule or report furnished by the
Borrower in connection with the loan shall prove to have been materially false at the date thereof.
( b ) Nonpayment of the principal of any of the notes outstanding hereunder when due; or nonpayment of interest or any commitment fee within ten (10) days after the due date thereof.
( c ) Breach by the Borrower of any other provision of this agreement.
( d ) The Borrower shall be adjudicated a bankrupt or a trustee or a receiver shall be appointed for
the Borrower or of a substantial part of its property in any involuntary proceeding, or any court shall
have taken jurisdiction of the property of the Borrower or of a substantial part thereof in any involuntary proceeding for the reorganization, dissolution, liquidation or winding up of the Borrower, and
such trustee or receiver shall not be discharged or such jurisdiction relinquished or vacated or stayed
on appeal or otherwise stayed within thirty (30) days, or the Borrower shall file a petition or answer,
not denying jurisdiction, in voluntary bankruptcy or under Chapter X or Chapter X I of the Federal
Bankruptcy Act or any similar law, State or Federal, whether now or hereafter existing, or such a petition filed against the Borrower shall be approved and not vacated or stayed within thirty (30) days, or
shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due, or shall consent to the appointment of a receiver or trustee or
liquidator of all of its property or a substantial part thereof, or shall have failed within thirty (30) days
to bond or otherwise discharge any attachment or to pay any judgment which is unstayed on appeal.
If there shall occur any default as defined in item (a) above or if there shall occur and be continuing any default as defined in items ( b ) or ( c ) above, then upon the election of the Financing Institution
or the Guarantor, evidenced by written notice to the Borrower, or if there shall occur any default as
defined in item ( d ) above, then forthwith and without any election, the obligation, if any, of the




Financing Institution to extend further credit shall terminate and all notes outstanding hereunder shall
become due and payable without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived.
I N WITNESS WHEREOF,

authorized agents, this




the parties have caused this Agreement to be executed on their behalf by their duly
day of

, 194

(Borrower)

By

(Name)

(Title)

(Financing Institution)

By

12

(Name)

(Title)

EXHIBIT A

\

FORM OF NOTE

Place
Date

On or before

194.

, 194...., for value received,
hereby promises to pay to the order of
at

(Financing Institution)

(Address)

the principal sum of

Dollars ($

)

in lawful money of the United States, and to pay interest thereon from the date hereof at the rate
of
per cent per annum, prior to maturity, payable on the
and after maturity by acceleration or otherwise at the rate of

day of each
per cent per annum.

This note evidences a borrowing made under and is subject to the terms of a Loan Agreement
dated




, 194...., between the undersigned and the payee hereof.

By

13

(Name)

(Title)

EXHIBIT

B

LOAN FORMULA CERTIFICATE
Pursuant to the Loan Agreement between the undersigned and
dated
belief as follows:

,

194...., the undersigned hereby certifies to the best of its knowledge and

1. (a) Principal amount of borrowings now outstanding

$

(b) Principal amount of proposed borrowing, less outstanding borrowings to
be refunded
TOTAL

$
$

2. The following amounts have been calculated as of
, 194.... (not more than
30 days prior to the date of this certificate) with respect to terminated war contracts listed on or added
to Exhibit C, in accordance with accepted principles of accounting and without duplications:
(a)
% of accounts receivable from Governmental
agencies aggregating not less than $
(b)
than $

contracting
$

% of accounts receivable from others aggregating not less
$

(c)
% of reimbursable expenditures for inventory, including only
direct labor, costs of raw materials, purchased parts and supplies, and manufacturing and administrative overhead aggregating not less than $
$
(d)
°/o of reimbursable amounts for subcontract settlements paid
or to be paid concurrently from any new borrowing for which this certificate is
furnished aggregating not less than $
$
TOTAL

$

Less—
(aa) Unliquidated advance payments, progress and partial payments, and
any other offsets, and any amounts included in (a), (b), ( c ) , or (d) above which
have been disallowed by the contracting agency
BORROWING BASE

$
$

(44) In general, the percentages in the loan formula certificate agreed upon by the Financing Institution and the
Borroiver will not be questioned by the Federal Reserve Bank or the Guarantor.
(45) If a breakdown between manufacturing and administrative overhead is available, it should be furnished by the
Borrower, and in this case the words "and administrative" may be omitted from item (c) and an additional item relating
solely to administrative overhead may be added. Similarly, where circumstances warrant, there may also be added a separate item relating to other reimbursable expenditures, provided that a breakdown of such item is furnished and approved.
In any of the above cases, the additional items will be lettered (e), (f), etc. If a further breakdown of expenditures is
desired, as between fixed-price and cost-plus-a-fixed-fee contracts or as between prime contracts and subcontracts or as
between approved and unapproved subcontract settlements, this may be accomplished by similar procedure.
(46) With reference to (aa), amounts "disallowed by the contracting agency" include any part of a termination claim
disallowed pursuant to section 13 of the act regardless of whether the Borrower has taken an appeal, except to the extent
that such appeal is sustained.

3. N o amount is included in (a), (b), ( c ) , or (d) above with respect to any item on which a termination claim can be based which exceeds the amount of such item in the Borrower's most recent termination claim, if any has been filed. There has been no change in the amount stated in Paragraph 2 since
the date therein specified which would materially decrease the borrowing base.
(47) It is expected that in all cases the Borrower will exercise due diligence in filing termination claims as promptly
as possible. Due to the widely varying factors involved, such as the number of Borrower's cancelled contracts and the
relative simplicity or complexity of preparing his claims, it is not deemed feasible to prescribe any uniform time within
ivhich claims must be filed. However, where the Financing Institution and the Borrower can agree in advance upon a
reasonable time for filing claims, they can of course provide for such a limitation in Exhibit D.

4. No event exists which constitutes, or which except for notice or lapse of time or both would
constitute, a default specified in the Loan Agreement.

Dated:




, 194

(Borrower)

By
"(Name)

14

(Title)

EXHIBIT C
TERMINATED WAR CONTRACTS
The Borrower certifies that, to the best of its knowledge and belief, the following are terminated war
contracts as defined in the Loan Agreement between
and

Contract or
Order Number

dated

Date of Contract
or Order

Dated:




Name of other
Contracting Party

, 194....:
Date
of Notice
of Termination

Estimated
Amount of
Termination
Claim

End Use
of Product

194
(Borrower)

By -

15

(Name)

(Title)

EXHIBIT D

0

OTHER PROVISIONS OF LOAN AGREEMENT
(See Paragraph 11 of Loan Agreement on page 11 of this circular)




/

16

Form of September I . 1944

APPLICATION

\

By
FINANCING INSTITUTION
FOR T (TERMINATION) LOAN GUARANTEE

To Federal Reserve Bank of

, Fiscal Agent of the United States

(Date)

1. Name and location of financing institution:

2. Name and location of prospective borrower:
f
3. Maximum principal amount of loan:
4. Specify or describe war contracts excepted from initial assignment of collateral pursuant to Paragraph 5
of Loan Agreement: (See Explanatory Note No. 28.)

5. Present indebtedness of borrower to financing institution, if any, and statement as to whether it is proposed to refund such indebtedness:

6. If a substantial portion of the stock of borrower or of financing institution is controlled by the other, or a
substantial portion of the stock of both is controlled by the same interests, or if there are any officers or
directors common to both, describe such relationship briefly.

7. E»ch copy of application should be accompanied by:
(a) cofo' of the proposed guarantee agreement and loan agreement, including exhibits,
(b) copy of balance sheet and operating statement for latest fiscal period certified by borrower (audited
statements to be furnished if available),
(c) copy of latest available balance sheet and operating statement since close of fiscal period.




8. ( a ) If borrower is a P R I M E Government war contractor, give the following information with respect to
each prime contract:
_ y C*ovt. agency
/ with which
prime contract
is held

Date
of
contract

Contract
number

Is contract a fixed
price contract?
Cost plus fixed
fee contract?

Uncompleted
amount of
un terminated
contracts

Estimated
claims on
terminated
contracts

Nature
of
product

\

•




| -

Hi

8. ( b ) If borrower is a S U B C O N T R A C T O R , give the following information with respect to each subcontract:

Name and address
of concern issuing
subcontract

Subcontract
or purchase
order number

Govt, agency for which
products are being
provided and prime
contract number
if known

Uncompleted
amount of
unterminated
subcontracts or
purchase orders

Estimated claims
on terminated
subcontracts or
purchase orders

-

II

X



Nature
of
product

9. Statement of financing institution's opinion or belief with respect to each of the following:
(a) whether borrower's general war production record has been satisfactory with special reference to rejection experience,
( b ) ^borrower's general character and reputation,
( c ) adequacy of accounting records and inventory control,
( d ) unusual aspects of financial statements, and
(e) other information which financing institution would ordinarily take into account in considering a loan
to borrower, including respects, if any, in which borrower's financial background has been unsatisfactory.
{Attach rider, if space inadequate)

10. Borrower has been advised that financing institution is applying for this guarantee in the amount and subject to the terms indicated in the proposed loan agreement.




(Full name of financing institution)
28
(Signature)

(Title)

BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

FINANCING OF WAR PRODUCTION AND WAR
CONTRACT TERMINATION

REGULATION V
As Revised Effective September 11, 1944




INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed
to the Federal Reserve Bank or Federal
Reserve branch bank of the district
in which the inquiry arises.




REGULATION V
Revised Effective September 11, 1944

FINANCING OF WAR PRODUCTION AND WAR
CONTRACT TERMINATION
SECTION

1.

AUTHORITY

This regulation is based upon and issued pursuant to the Executive
Order of the President, No. 9112, dated March 26, 1942 (herein called
the Executive Order), section 7 of the Act of June 11, 1942, 50 U.S.C.
(Appendix) 1107, the Contract Settlement Act of 1944, approved July
1, 1944 (herein called the Settlement Act) and various provisions of
the Federal Reserve Act, and has been approved by the Director of
Contract Settlement.1
SECTION

2.

OBJECTIVE

OF

THE

FEDERAL

RESERVE

SYSTEM

The objective of the Federal Reserve System in carrying out the
purposes of the applicable provisions of the Executive Order and of
the Settlement Act is to facilitate and expedite the financing of contractors, subcontractors and others in connection with war production
and in connection with claims arising out of the termination of war
contracts or operations. The Board of Governors of the Federal Reserve
System and the Federal Reserve Banks will cooperate fully in order
to achieve this objective. The Federal Reserve Banks have heretofore
been designated as fiscal agents of the United States by the Secretary
of the Treasury pursuant to the terms of the Executive Order and are
authorized by the Settlement Act to act on behalf of the contracting
agencies 2 as fiscal agents of the United States in carrying out the purposes of the Act.
SECTION

3.

OPERATIONS

OF

THE

FEDERAL

RESERVE

BANKS

The operations of the Federal Reserve Banks pursuant to the provisions of the Executive Order and of the Settlement Act will be conducted, under the supervision of the Board of Governors of the Federal Reserve System, in accordance with such instructions as may be
issued by the contracting agencies.
SECTION

4.

RATES

Rates of interest, guarantee and commitment fees, and other charges
with respect to loans made or guaranteed in whole or in part by any
1 T h e Executive Order, section 7 of the Act of June 11, 1942, and pertinent provisions of the
Contract Settlement Act of 1944 are printed in the Appendix.
2 The term '"contracting apencv" is used herein with the same meaning as that given it in the
Contract Settlement Act of 1944.




1

2

REGULATION V

contracting agency through the agency of any Federal Reserve Bank
will from time to time be prescribed, either specifically or by maximum
limits or otherwise, by the Board of Governors of the Federal Reserve
System with the concurrence of the Director of Contract Settlement.
SECTION

5. RESPONSIBILITY AND EXPENSES OF FEDERAL RESERVE BANKS

No Federal Reserve Bank shall have any responsibility or accountability except as agent in taking any action under the Executive Order,
the Settlement Act, or this regulation. In any case in which any Federal Reserve Bank shall make or participate in making any loan, discount, advance, guarantee or commitment as agent of any contracting
agency under authority of the Executive Order or of the Settlement
Act, all such funds as may be necessary to carry out any obligation
assumed on behalf of such contracting agency shall be supplied by and
disbursed under authority from such agency in accordance with such
procedure as it may require. Each Federal Reserve Bank shall be
reimbursed by each contracting agency for all expenses and losses (including, but not limited to, attorneys' fees and expenses of litigation)
incurred by such Federal Reserve Bank in acting as fiscal agent of the
United States on behalf of such contracting agency under or pursuant
to the Executive Order or the Settlement Act.
SECTION 6. REPORTS

Each Federal Reserve Bank shall make such reports as the Board
of Governors of the Federal Reserve System shall require with respect
to its operations pursuant to the terms of the Executive Order or the
Settlement Act and of this regulation.
APPENDIX
EXECUTIVE ORDER NO. 9112

AUTHORIZING

FINANCING

CONTRACTS TO FACILITATE T H E

PROSECUTION

OF THE WAR
W H E R E A S in order that contracts of the War Department, the Navy
Department, and the United States Maritime Commission (hereinafter referred to as Maritime Commission) which are now outstanding or may hereafter be entered into for war production, including the
obtaining or conversion of facilities, may be promptly and effectively
performed, it is essential that additional facilities be provided through
governmental agencies to supply necessary funds to contractors, subcontractors and others engaged in such war production pursuant to




APPENDIX TO REGULATION V

3

such contracts;
W H E R E A S the War Department, the Navy Department, and the
Maritime Commission have available to them amounts appropriated
by Congress which may be used for the purpose of making or guaranteeing loans, discounts or advances or commitments in connection
therewith for the purpose of financing contractors, subcontractors and
others engaged in such production or otherwise to expedite war
production;
W H E R E A S the guaranteeing or making of such loans, discounts, advances and commitments by the War Department, Navy Department
and Maritime Commission will be expedited and facilitated by utilizing in this connection the Federal Reserve Banks and the Board of
Governors of the Federal Reserve System, which are agencies of the
Government exercising functions in connection with the prosecution
of the war effort and which have offices and other facilities, including
experienced personnel, located conveniently throughout the country
and arc in close and frequent contact with banking and other financing
institutions; and
W H E R E A S the guaranteeing or making of such loans, discounts, advances and commitments will greatly facilitate the participation of
small business enterprises in war production;
Now, THEREFORE, by virtue of the authority vested in me by the
various provisions of the First War Powers Act, 1941, approved December 18, 1941, by all other Acts of Congress and by the Constitution of the United States, and as President of the United States and
Commander-in-Chief of the Army and Navy of the United States,
and deeming that such action will facilitate the prosecution of the war,
I do hereby order as follows:
(1) The War Department, Navy Department and the Maritime
Commission arc hereby respectively authorized, without regard to the
provisions of law relating to the making, performance, amendment
or modification of contracts, (a) to enter into contracts with any Federal Reserve Bank, the Reconstruction Finance Corporation, or with
any other financing institution guaranteeing such Reserve Bank, Reconstruction Finance Corporation, or other financing institution against
loss of principal or interest on loans, discounts or advances, or on commitments in connection therewith, which may be made by such Reserve
Bank, Reconstruction Finance Corporation, or other financing institution for the purpose of financing any contractor, subcontractor or
others engaged in any business or operation which is deemed by the
War Department, Navy Department or Maritime Commission to be
necessary, appropriate or convenient for the prosecution of the war,




4

APPENDIX

TO

REGULATION

V

and to pay out funds in accordance with the terms of any such contract
so entered into; and (b) to enter into contracts to make, or to participate with any Federal Reserve Bank, the Reconstruction Finance
Corporation, or other financing institution in making loans, discounts
or advances, or commitments in connection therewith, for the purpose
of financing any contractor, subcontractor or others engaged in any
business or operation which is deemed by the War Department, Navy
Department or Maritime Commission to be necessary, appropriate or
convenient for the prosecution of the war, and to pay out funds in
accordance with the terms of any such contract so entered into.
(2) The authority above conferred may be exercised by the Secretary
of War, the Secretary of the Navy or the Maritime Commission respectively or may also be exercised, in their discretion and by their
direction respectively, through any other officer or officers or civilian
officials of the War or Navy Departments or the Maritime Commission. The Secretary of War, the Secretary of the Navy, and the
Maritime Commission may confer upon any officer or officers in their
respective departments or civilian officials thereof the power to make
further delegations of such powers within the War and Navy Departments and the Maritime Commission.
(3) Any Federal Reserve Bank or any officer thereof may be utilized,
and is herehy authorized to act, as agent of the War Department, the
Navy Department, or the Maritime Commission, respectively, in carrying out any of the provisions of this executive order, and the Secretary
of the Treasury is hereby directed to designate each Federal Reserve
Bank to act as fiscal agent of the United States pursuant to the provisions of section 15 of the Federal Reserve Act in carrying out any
authority granted to it by or pursuant to this executive order. In any
case in which any Federal Reserve Bank shall make or participate in
making any loan, discount or advance or commitment as agent of the
War Department, Navy Department or Maritime Commission under
authority of this order, all such funds as may be necessary therefor
shall be supplied and disbursed by or under authority from the War
Department, Navy Department or .Maritime Commission in accordance with such procedure as they may respectively require. Any
amounts now or hereafter available under any appropriation act to
the War Department, the Navy Department, or the Maritime Commission for the purpose of procuring materials, equipment or supplies,
or of expediting production thereof, may be expended through the
agency of the respective Federal Reserve Banks in accordance with the
provisions of this executive order. In taking any action under any
designation or authority given by or pursuant to this paragraph no




5

APPENDIX TO REGULATION V

Federal Reserve Bank shall have any responsibility or accountability
except as agent of the War Department, Navy Department, or Maritime Commission, as the case may be.
(4) All actions and operations of any Federal Reserve Bank under
authority of or pursuant to the terms of this executive order shall be
subject to the supervision of the Board of Governors of the Federal
Reserve System and to such directions and conditions as the Board
of Governors of the Federal Reserve System may prescribe, by regulation or otherwise, after consultation with the Secretary of War, the
Secretary of the Navy, or the Maritime Commission, or their authorized representatives.
(5) The War Department, the Navy Department and the Maritime
Commission shall make reports of all contracts entered into by them
respectively pursuant to the terms of this executive order, in accordance
with the provisions of paragraph 1 of the regulations prescribed in
Title II of Executive Order No. 9001 dated December 27, 1941.
(6) Interest, fees and other charges derived by the War Department,
Navy Department and Maritime Commission, respectively, from operations pursuant to the terms of this executive order may be held by the
Federal Reserve Banks and shall first be used for the purpose of
meeting expenses and losses (including but not limited to attorneys'
fees and„expenses of litigation) incurred by the Federal Reserve Banks
in acting as agents under or pursuant to the provisions of this executive order; and to the extent that the amount of such interest, fees or
other charges is insufficient for this purpose the Federal Reserve Banks
shall be reimbursed for such expenses and losses by the War Department, the Navy Department or the Maritime Commission, as the
case may be.
™

„ „

X

TT

The white House,
March 26, 1942.

FRANKLIN D .

ROOSEVELT

A C T OF JUNE 11, 1942
(Pub. No. 603, 77th Cong.)

SEC. 7. The War Department, the Navy Department, and the Maritime Commission are hereby authorized to make or participate in
loans, guaranties, -and commitments in accordance with Executive
Order Numbered 9112 of March 26, 1942, and to participate in or to
guarantee any loans made pursuant to this Act with a view to increasing the production of war materials, supplies, or equipment; and in
connection therewith they may use any funds heretofore or hereafter
made available to them for purposes of procuring war materials, supplies, and equipment, or of expediting the production thereof.




6

APPENDIX TO REGULATION V 6

C O N T R A C T S E T T L E M E N T A C T OF 1944
(Pub. No. 395, 78th Cong., Approved July 1, 1944)
*
«
•
*
I N T E R I M FINANCING

SEC. 8. (a) It is the policy of the Government, and it shall be the
responsibility of the contracting agencies and the Director, in accordance with and subject to the provisions of this Act, to provide war
contractors having any termination claim or claims, pending their
settlement, with adequate interim financing, within thirty days after
proper application therefor.
(b) Each contracting agency shall, to the greatest extent it deems
practicable, make available interim financing through loans and discounts, and commitments and guaranties in connection therewith, in
contemplation of or related to termination of war contracts.
«

*

*

*

SEC. 10. (a) Any contracting agency is authorized—
(1) to enter into contracts with any Federal Reserve bank, or
other public or private financing institution, guaranteeing such
financing institution against loss of principal or interest on loans,
discounts, or advances or on commitments in connection therewith, which such financing institution may make to any war contractor or to any person who is or has been engaged in performing
any operation deemed by such contracting agency to be connected
with or related to war production, for the purpose of financing
such war contractor or other person in connection with or in contemplation of the termination of one or more such war contracts
or operations; and
(2) to make, enter into contracts to make, or to participate with
any Government agency, any Federal Reserve bank or public or
private financing institution in making loans, discounts, or advances, or commitments in connection therewith, for the purpose
of financing any such war contractor or other person in connection with or in contemplation of the termination of such war contracts or operations.
(b) Any such loan, discount, advance, guaranty, or commitment in
connection therewith may be secured by assignment of, or covenants
to assign, some or all of the rights of such war contractor or other
person in connection with the termination of such war contracts or
operations, or in such other manner as the contracting agency may
prescribe.
(c) Subject to such regulations as the Board of Governors of the
Federal Reserve System may prescribe with the approval of the Director, any Federal Reserve bank is authorized to act, on behalf of the
contracting agencies, as fiscal agent of the United States in carrying
out the purposes of this Act.
(d) This section shall not limit or affect any authority of any contracting agency, under any other statute, to make loans, discounts or
advances, or commitments in connection therewith or guaranties
thereof.



F E D E R A L
O F

R E S E R V E
N E W

B A N K

Y O R K

Fiscal Agent of the United States

September 12, 1944.

To the President of the Bank Addressed:

There is being sent to your bank today a copy of our Circular No. 2837, dated September 12, 1944, which
gives you complete information concerning the so-called T loan program authorized by the Contract Settlement
Act of 1944. This program should play an important part in the transition of our economy from war to peace,
and is of particular interest to commercial banks and to their customers. I am addressing this special letter to
you, therefore, to urge your cooperation in the program.
In the Contract Settlement Act of 1944, Congress made it the responsibility of the War Department, the
Navy Department and the United States Maritime Commission and other contracting agencies, and of the Director of Contract Settlement, to provide war contractors having termination claims "with adequate interim financing, within thirty days after proper application therefor", pending the settlement of such claims. The interim
financing on terminated war contracts contemplated by the Government will be furnished either through advance
and partial payments or through T loans. The Services and the Director of Contract Settlement have stated
that it is their belief that partial payments can be handled expeditiously in respect of prime contractors and first
tier subcontractors, but that nevertheless it will be in the interest of many such contractors to provide for their
requirements through T loans.
In substantially all cases of subcontractors below the first tier, it is believed that T loans will be the most
feasible and expeditious type of interim financing. There are a great number of such subcontractors, and the
financing of their termination requirements is essential, if the Congressional commitment contained in the Contract Settlement Act of 1944 is to be successfully implemented. For that reason the Director of Contract Settlement and the War and Navy Departments and the United States Maritime Commission are placing great reliance on the T loan program. It also has the united support of the Federal Reserve System, and it deserves the
united support of the banks of the country which, in cooperation with the Federal Reserve Banks and their
branches, constitute the field force necessary to carry out the program.
The T loan program has been simplified and liberalized as compared with the preceding V and VT loan
programs. The War Department and the Maritime Commission have delegated to the Federal Reserve Banks
increased authority for the execution of guarantees, without prior reference to these agencies at Washington.
If the volume of applications justifies it, these delegations can be increased, and the Navy Department can make
similar delegations. The forms to be used in the loans have been simplified, the guarantee fees reduced, and the
commitment fee is not to be shared with the guarantor. These are improvements in procedure which should
stimulate the participation of banks in the program. Prospective borrowers will also be aided by t i e simplification of procedure and attracted by the reduction in the permitted maximum rate of interest from 5
to 4 % %
per annum, and in the maximum commitment fee from y 2 of 1 % to ^ of 1 % .
I suggest that it would be appropriate for you to bring this new T loan program to the immediate attention
of every customer of your bank, who may need to have recourse to it, as a means of securing funds which would
otherwise be frozen pending settlement of terminated war contracts. The program affords the private banking
system of the country a two-fold opportunity. First, it will permit it to serve the National interest by assisting in an orderly transition of our economy from war to peace. Second, it should help to generate commercial
bank loans and thus reduce the volume of direct Government lending. In this way the creation of new or the
expansion of existing Government lending agencies may be avoided.
The Federal Reserve Bank of New York will give the fullest measure of cooperation to the commercial
banks in this district in making the T loan program effective. Our officers will be glad to consult with you and
your customers concerning the use of T loans and the procedures to be followed.




Yours sincerely,

F E D E R A L
O F

R E S E R V E
N E W

B A N K

Y O R K

September 13, 1944.

To all Banking Institutions in the
Second Federal Reserve District:

W e are pleased to announce that Union County Trust
Company, Elizabeth, New Jersey, has become a member of the
Federal Reserve System effective September 13, 1944.




ALLAN

SPROUL,

President.

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