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FEDERAL RESERVE BANK OF NEW YORK Fiscal A g en t o f the U nited States r Circular N o. 3 5 9 9 1 L O ctober 9, 1950 J REGULATION Y LO AN GU A RA N TE E S FO R DEFENSE PR O D U C TIO N To All Banks, Other Financing Institutions and Others Concerned in the Second Federal Reserve District : Enclosed is a copy of Regulation V , entitled “ Loan Guarantees fo r Defense Production,” revised effective September 27, 1950. In our Circular No. 3594, dated September 26, 1950, we quoted the text of a state ment issued by the Board of Governors o f the Federal Reserve System outlining the purposes of the revised regulation and setting forth a schedule of the guarantee fees to be paid by financing institutions to the Federal Reserve Banks, as fiscal agents o f the United States on behalf of the guarantors, out of the interest received from the borrowers with respect to the portions o f loans guaranteed under the regulation. The maximum rate of interest which may be charged to any borrower with respect to a guaranteed loan has been set at 5 per cent. W here the financing institution charges a commitment fee to the borrower on the unused portion o f the loan, such fee cannot exceed % o f 1 per cent, and the guarantor shares in the commitment fee on the same basis as it shares in the interest on the guaranteed portion o f the loan. W e are prepared to receive applications from all banks, both members and non members o f the Federal Reserve System, and from all other financing institutions, in the Second Federal Reserve District. Your cooperation in this program is requested in the interest of expediting defense production. Additional copies of the revised Regulation V, together with copies o f the V-Loan Guarantee Agreement and application form s, and o f this circular, will be furnished upon request. A llan S proul, President. BOARD OF GOVERNORS of th e FEDERAL RESERVE SYSTEM LOAN GUARANTEES FOR DEFENSE PRODUCTION REGULATION V As Revised Effective September 27, 1950 INQUIRIES REGARDING THIS REGULATION Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank o r Federal Reserve branch bank o f the district in which the inquiry arises. REGULATION V Revised Effective September 27, 1950 LOAN GUARANTEES FO R DEFENSE PRODUCTION S E C T IO N 1. A U T H O R IT Y This regulation is based upon and issued pursuant to the Defense Production Act of 1950 (herein referred to as the “ A ct” ), and Execu tive Order No. 10161, dated September 9, 1950 (herein referred to as the ‘‘Order” ), and after consultation with the heads o f the guaran teeing agencies designated in the A ct and the Order, namely, the Department o f the Arm y, the Department o f the N avy, the D epart ment o f the Air Force, the Department o f Commerce, the D epart ment o f the Interior, the Department o f Agriculture, and the General Services Administration. Pertinent portions o f the A ct and the Order are set forth in the appendix to this regulation. S E C T IO N 2 . O B J E C T IV E S OF FE D E RA L R E SE R V E S Y S T E M In carrying out its functions under the A ct and the Order, it will be the objective o f the Federal Reserve System to facilitate and expedite to the greatest extent possible the financing o f contractors, subcon tractors, and other persons having contracts or engaged in operations deemed by the guaranteeing agencies to be necessary to expedite pro duction and deliveries or services under Government .contracts for the procurement o f materials or the performance o f services for the national defense. The Board o f Governors o f the Federal Reserve System (herein referred to as the ‘ B oard” ) and the Federal Reserve Banks will cooperate fully with the guaranteeing agencies in order to achieve this objective and will follow in general and to the extent applicable procedures developed from experience obtained in the ad ministration of the V-loan and T-loan programs during W orld W ar II. S E C T IO N 3 . PR O C ED U R E S (a) Applications. Any private financing institution m ay submit to the Federal Reserve Bank o f its district an application for a guar antee o f a loan to an eligible borrower. Such application shall be in such form and contain such information as the Board may prescribe after consultation with the guaranteeing agencies. ( b ) Eligibility o f B orrow er. N o loan shall be guaranteed unless it shall first be determined that the contract or other operation o f the 1 2 R E G U L A T IO N V S ec. 3 prospective borrower to be financed by such loan is one which is deemed by the guaranteeing agency involved to be necessary to expedite pro duction and deliveries or services under a Government contract for the procurement o f materials or the performance o f services for the national defense. Such determination will be made in each case by a duly authorized certifying officer o f the appropriate guaranteeing agency or in such other manner as the guaranteeing agency m ay pre scribe. The determination will be made upon the basis o f information contained in the application and accom panying papers filed by the applicant financing institution, unless in the circumstances o f a par ticular case it appears that further information is necessary. (c l A pproval o f Guarantees. Each application by a financing institution for a loan guarantee will be subject to approval by the appropriate guaranteeing agency in Washington or, to such extent as the guaranteeing agency may prescribe, by the Federal Reserve Bank to which the application is submitted. In any case in which an ap plication is required to be submitted to Washington for approval, the Federal Reserve Bank will transmit the application, together with all necessary supporting information and the recommendation o f the Federal Reserve Bank, through the Board o f Governors to the guar anteeing agency involved. Subject to determination o f the borrower’s eligibility, if the application is approved by a duly authorized con tracting officer o f the guaranteeing agency, such contracting officer will authorize the Federal Reserve Bank to execute and deliver the guarantee on behalf o f the guaranteeing agency. Such authorization will be transmitted to the Federal Reserve Bank through the Board of G overnors; and, thereupon, the Federal Reserve Bank, acting as fiscal agent o f the United States, will execute and deliver the guarantee on behalf o f the guaranteeing agency in accordance with the terms o f the authorization. In any case in which the Federal Reserve Bank is authorized by a guaranteeing agency to approve applications for guar antees, the Reserve Bank, if it approves the application and subject to determination o f the borrower’s eligibility, will execute and deliver the guarantee without submission o f the application for prior approval by any officer o f the guaranteeing agency; but the Reserve Bank will prom ptly notify the guaranteeing agency o f the execution o f such guarantee. (d) Other Form s and Procedures. The Board will prescribe from time to time, after consultation with the guaranteeing agencies, forms to be followed in the execution o f guarantees pursuant to this regulation and such other forms as m ay be necessary. The Board will R E G U L A T IO N S ecs. 3, 4 ,5 .6 V 3 also prescribe, after consultation with the guaranteeing agencies, procedures with respect to such matters as the purchase o f guaranteed loans by the Federal Reserve Banks as fiscal agents, the handling and disposition by the Federal Reserve Banks o f guarantee fees and other fees collected, and such other procedures as may be found necessary. S E C T IO N 4 . R E S P O N S IB IL IT Y O F FE D E RA L R E SE R V E B A N K S A Federal Reserve Bank in arranging for or .making any guarantee on behalf o f any guaranteeing agency will be expected to make reason able efforts to afford such guaranteeing agency the best available protection against possible financial loss consistent with the obtaining o f national defense production expeditiously. N o Federal Reserve Bank, however, shall have any responsibility or accountability except as agent in taking any action pursuant to or under authority o f the Act, the Order, or this regulation. Each Federal Reserve Bank will be reimbursed by each guaranteeing agency in the usual manner for all expenses and losses incurred by the Reserve Bank in acting as agent on behalf o f such guaranteeing agency, including among such expenses, notwithstanding any other provision o f law, attorneys’ fees and expenses o f litigation. S E C T IO N 5. R A T E S A N D FE ES Rates o f interest, guarantee fees, commitment fees, and other charges which m ay be made with respect to guaranteed loans and guarantees executed through the agency o f any Federal Reserve Bank hereunder will from time to time be prescribed, either specifically or by maximum limits or otherwise, by the Board o f Governors after consultation with the guaranteeing agencies. S E C T IO N 6 . REPO RTS Each Federal Reserve Bank shall make such reports as the Board of Governors shall require with respect to its operations pursuant to the terms o f the A ct, the Order, and this regulation. APPENDIX D E F E N S E P R O D U C T IO N A C T OF 1950 (Pub. N o . 774— 81st Cong.. Approved September 8. 1950) • • • • • T IT L E III— E X P A N S IO N O F P R O D U C T IV E C A P A C IT Y A N D SUPPLY S e c . 301. (a) In order to expedite production and deliveries or services under Government contracts* the President m ay authorize, subject to such regulations as he m ay prescribe, the Department of the A rm y, the Department of the N avy, the Department o f the Air Force, the Department o f Commerce, and such other agencies o f the United States engaged in procurement for the national defense as he m ay designate (hereinafter referred to as “ guaranteeing agencies” ), without regard to provisions o f law relating to the making, perform ance, amendment, or modification o f contracts, to guarantee in whole or in part any public or private financing institution (including any Federal Reserve bank), by commitment to purchase, agreement to share losses, or otherwise, against loss o f principal or interest on any loan, discount, or advance, or on any commitment in connection therewith, which may be made by such financing institution for the purpose of financing any contractor, subcontractor, or other person in connection with the performance, or in connection with or in contemplation o f the termination, o f any contract or other operation deemed by the guaranteeing agency to be necessary to expedite production and de liveries or services under Government contracts for the procurement o f materials or the performance o f services for the national defense. (b l A ny Federal agency or any Federal Reserve bank, when desig nated by the President, is hereby authorized to act, on behalf o f any guaranteeing agency, as fiscal agent o f the United States in the making o f such contracts o f guarantee and in otherwise carrying out the pur poses o f this section. All such funds as may be necessary to enable any such fiscal agent to carry out any guarantee made by it on behalf o f any guaranteeing agency shall be supplied and disbursed by or under authority from such guaranteeing agency. N o such fiscal agent shall have any responsibility or accountability except as agent in taking any action pursuant to or under authority o f the provisions o f this section. Each such fiscal agent shall be reimbursed by each guaranteeing agency for all expenses and losses incurred by such fiscal agent in acting as agent on behalf o f such guaranteeing agency, includ ing among such expenses, notwithstanding any other provision o f law, attorneys’ fees and expenses o f litigation. (c) All actions and operations o f such fiscal agents under authority o f or pursuant to this section shall be subject to the supervision o f the President, and to such regulations as he m ay prescribe; and the President is authorized to prescribe, either specifically or by maximum 4 R E G U L A T IO N V 5 limits or otherwise, rates o f interest, guarantee and commitment fees, and other charges which m ay be made in connection with loans, dis counts, advances, or commitments guaranteed by the guaranteeing agencies through such fiscal agents, and to prescribe regulations gov erning the forms and procedures (which shall be uniform to the extent practicable) to be utilized in connection with such guarantees. (d) Each guaranteeing agency is hereby authorized to use for the purposes o f this section any funds which have heretofore been appro priated or allocated or which hereafter may be appropriated or allo cated to it, or which are or may become available to it, for such pur poses or for the purpose o f meeting the necessities o f the national defense. * * * * * T I T L E V I I — G E N E R A L P R O V IS IO N S • * * * * 702. As used in this A ct— (a ) The word “ person” includes an individual, corj>oration, part nership, association, or any other organized group o f persons, or legal successor or representative o f the foregoing, and includes the United States or any agency thereof, or any other government, or any o f its political subdivisions, or any agency o f any o f the foregoing: Provided, That no punishment provided by this A ct shall apply to the United States, or to any such government, political subdivision, or government agency. (b ) The word “ materials” shall include raw materials, articles, commodities, products, supplies, components, technical information, and processes. (c ) The word “ facilities” shall not include farms, churches or other places o f worship, or private dwelling houses. (d) The term “ national defense” means the operations and activi ties o f the armed forces, the Atom ic Energy Commission, or any other Government department or agency directly or indirectly and sub stantially concerned with the national defense, or operations or activi ties in connection with the Mutual Defense Assistance A ct o f 1949, as amended. Sec. * * * * * S e c . 703. (a) Except as otherwise specifically provided, th<* Presi dent may delegate any power or authority conferred upon him by this A ct to any officer or agency o f the Government, including any new agency or agencies (and the President is hereby authorized to create such new agencies, other than corporate agencies, as he deems neces sary), and he m ay authorize such redelegations by that officer or agency as the President may deem appropriate. * * * * * * * * S e c . 704. The President m ay make such rules, regulations, and orders as he deems necessary or appropriate to carry out the provisions 6 R E G U L A T IO N V o f this A ct. A ny regulation or order under this A ct m ay be estab lished in such form and manner, may contain such classifications and differentiations, and m ay provide for such adjustments and reasonable exceptions as in the judgment o f the President are necessary or proper to effectuate the purposes o f this A ct, or to prevent circumvention or evasion, or to facilitate enforcement o f this A ct, or any rule, regula tion, or order issued under this Act. * * * * * Sec . 709. The functions exercised under this A ct shall be excluded from the operation o f the Adm inistrative Procedure A ct (60 Stat. 237) except as to the requirements of section 3 thereof. Any rule, regulation, or order, or amendment thereto, issued under authority o f this A ct shall be accompanied by a statement that in the formula tion thereof there has been consultation with industry representatives, including trade association representatives, and that consideration has been given to their recommendations, or that special circumstances have rendered such consultation impracticable or contrary to the interest o f the national defense, but no such rule, regulation, or order shall be invalid by reason o f any subsequent finding b y judicial or other authority that such a statement is inaccurate. * * * * * S e c . 7 1 1 . There are hereby authorized to be appropriated such sums as may be necessary and appropriate for the carrying out of the provisions and purposes of this A ct by the President and such agencies as he may designate or create. Funds made available for the purposes of this A ct may be allocated or transferred for any of the purposes o f this A ct, with the approval of the Bureau o f the Budget, to any agency designated to assist in carrying out this A ct. Funds so allocated or transferred shall remain available for such period as may be specified in the Acts making such funds available. * 9 * it * S ec. 716. (a) Titles I, II, III , and V II of this A ct and all authority conferred thereunder shall terminate at the close of June 30, 1952, but such titles shall be effective after June 30, 1951 only to the extent necessary to aid in carrying out contracts relating to the national defense entered into by the Government prior to July 1, 1951. (b ) Titles IV , V , and V I of this A ct and all authority conferred thereunder shall terminate at the close of June 30, 1951. (c) Notwithstanding the foregoing— (1) The Congress by concurrent resolution or the President by proclamation m ay terminate this A ct prior to the termination otherwise provided therefor. (2) The Congress may also provide by concurrent resolution R E G U L A T IO N V 7 that any section o f this A ct and all authority conferred there under shall terminate prior to the termination otherwise provided therefor. (3) Any agency created under this A ct may be continued in existence for purposes o f liquidation for not to exceed six months after the termination o f the provision authorizing the creation of such agency. (d ) The termination of any section of this A ct, or o f any agency or corporation utilized under this A ct, shall not affect the disbursement o f funds under, or the carrying out of, any contract, guarantee, com mitment or other obligation entered into pursuant to this A ct prior to the date of such termination, or the taking of any action necessary to preserve or protect the interests o f the United States in any amounts advanced or paid out in carrying on operations under this Act. E X E C U T IV E O R D E R NO. 10161 Approved September 9, 1950 D E L E G A T IN G C E R T A IN F U N C T IO N S OF T H E P R E S ID E N T U N D E R T H E D E F E N S E P R O D U C T IO N A C T OF 1950 B y virtue o f the authority vested in me by the Constitution and statutes, including the Defense Production A ct o f 1950, and as President of the United States and Commander in Chief o f the armed forces, it is hereby ordered as follows: » P A R T III. « * « » E X P A N S IO N O F P R O D U C T IV E C A P A C IT Y A N D SUPPLY S e c . 301. The Department of the Arm y, the Department of the N avy, the Department of the Air Force, the Department of C om merce, the Department o f the Interior, the Department of Agriculture, and the General Services Administration, in this Part referred to as guaranteeing agencies, and each delegate under section 101 of this Executive order shall develop and promote measures for the expansion o f productive capacity and of production and supply of materials and facilities necessary for the national defense. S e c . 302. (a) Each guaranteeing agency is hereby authorized, in accordance with section 301 of the Defense Production A ct o f 1950, subject to the provisions of this section, in order to expedite production and deliveries or services under Government contracts, and without regard to provisions of law relating to the making, performance, amendment, or modification of contracts, to guarantee in whole or in part any public or private financing institution (including any Federal Reserve B an k ), by commitment to purchase, agreement to share losses, or otherwise, against loss of principal or interest on any loan, discount, or advance, or on any commitment in connection therewith, which m ay be made by such financing institution for the purpose o f financ 8 R E G U L A T IO N V ing any contractor, subcontractor, or other person in connection with the performance, or in connection with or in contemplation o f the termination, o f any contract or other operation deemed by the guaran teeing agency to be necessary to expedite production and deliveries or services under Government contracts for the procurement of m a terials or the performance of services for the national defense. (b ) Each Federal Reserve Bank is hereby designated and author ized to act, on behalf o f any guaranteeing agency, as fiscal agent of the United States in the making of such contracts of guarantee and in otherwise carrying out the purposes of the said section 301, in respect o f private financing institutions. (c) All actions and operations o f Federal Reserve Banks, under authority o f or pursuant to the said section 301 of the Defense Pro duction A ct of 1950, shall be subject to the supervision of the Board o f Governors o f the Federal Reserve System. Said Board is hereby authorized, after consultation with the heads o f the guaranteeing agencies, (1) to prescribe such regulations governing the actions and operations of fiscal agents hereunder as it may deem necessary, (2) to prescribe, either specifically or by maximum limits or otherwise, rates of interest, guarantee and commitment fees, and other charges which may be made in connection with loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through such fiscal agents, and (3) to prescribe regulations governing the forms and procedures (which shall be uniform to the extent practicable) to be utilized in connection with such guarantees. * PART IX . * * * * G E N E R A L P R O V IS IO N S S e c . 902. (a) Except as otherwise provided in section 9 0 2 (c) of this Executive order, each officer or agency having functions under the Defense Production A ct o f 1950 delegated or assigned thereto by this Executive order may exercise and perform, with respect to such functions, the functions vested in the President by Title V II of the said Act. (b ) The functions which may be exercised and performed pursuant to the authority of section 902(a) o f this Executive order shall include, but not by way o f limitation, (1) except as otherwise provided in section 701 (c) of this Executive order, and except as otherwise required by section 403 of the Defense Production A ct of 1950, the power to redelegate functions, and to authorize the successive redelegation of functions, to agencies, officers, and employees o f the Government, (2) the power to create an agency or agencies, under the jurisdiction of the officer concerned, to administer functions delegated by this Execu tive order, and (3) in respect o f Parts I, II, IV , and V o f this Execu tive order, the power o f subpoena: Provided, That the subpoena power shall be utilized only after the scope and purpose o f the investi gation, inspection, or inquiry to which the subpoena relates have been defined either by the appropriate officer referred to in section 902(a) R E G U L A T IO N V 9 of this Executive order or by such other person or persons as he shall designate. (c) There are excluded from the functions delegated by section 902(a) o f this Executive order (1) the functions delegated by Part V II o f this Executive order, (2) the. functions o f the President under sec tions 703(b) and 710 (a ) o f the Defense Production A ct o f 1950, (3) the functions o f the President with respect to regulations under sections 7 1 0 (b ), 7 1 0 (c), and 710(d) o f the said A ct, and (4) the functions of the President with respect to fixing compensation under section 703(a) o f the said Act. S e c . 903. All agencies o f the Government (including departments, establishments, and corporations) shall furnish to each officer to whom functions are delegated or assigned by this Executive order such infor mation relating to defense production or procurement, or otherwise relating to the functions delegated or assigned to such officer by this Executive order, as he may deem necessary. S e c . 904. Each delegate referred to in section 101 o f this Executive order shall, when and if he shall deem it necessary and appropriate, appoint a committee composed o f representatives o f such agencies of the Government as he may determine. Any committee so appointed shall advise and consult with the delegate concerned, as he m ay request, in connection with the carrying out o f the functions delegated to him by sections 101, 201, and 302 o f this Executive order, and shall advise the delegate concerned regarding requirements of materials and facili ties. H a r r y S. T ru m a n The W hite House, September 9, 1950. OA 3 X 9 7 F E D E R A L R E S E R V E BANK O F N EW YORK October 10, 1950. T o all Banking Institutions in the Second Federal R eserve D istrict: W e are pleased to announce that Bank of Allwood, a newly organized bank in Clifton, New Jersey, which formally opened for business today, is a member o f the Federal Reserve System. A llan S proul, President.