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FEDERAL RESERVE BANK
OF DALLAS
Dallas, Texas, October 10, 1934
H O W IN D U STR IA L LO A N S, M A D E U N D E R PROVISIONS OF SECTION 13(b ) OF
F E D E R A L R E SE R V E A C T , A R E TO BE R E FL E C T E D IN CONDITION
A N D E X A M IN A T IO N REPORTS

To the Member State Bank A ddressed:
The A ct o f Congress approved June 19, 1934, relating to direct loans fo r industrial purposes by
Federal reserve banks, published on pages 430-434 o f the July, 1934, issue o f the Federal Reserve
Bulletin, added a new section, 13 (b ) to the Federal Reserve A ct, paragraph (b ) o f which authorizes
each Federal reserve bank to discount fo r, or purchase from , any m em ber bank or other financing
institution operating in its district, obligations having maturities not exceeding five years entered
into fo r the purpose o f furnishing w orking capital to an established industrial or com m ercial busi­
ness ; to make loans or advances direct to any member bank or financing institution on the security
o f such obligations; and to make com m itm ents with regard thereto, including com m itm ents made
in advance o f the actual undertaking o f such obligations.
The A ct also provides that a m em ber bank or other financing institution, which discounts or
sells such an obligation to a Federal reserve bank, shall obligate itself to the satisfaction o f the
Federal reserve bank fo r at least 20 per cent of any loss which m ay be sustained thereon; also
that, in lieu o f so obligating itself to the Federal reserve bank, a m em ber bank or financing insti­
tution m ay advance at least 20 per cent o f a working capital loan to an established industrial or
commercial business and the Federal reserve bank the remainder, provided the total o f such loan
is considered as one advance and repaym ent made pro rata under such regulations as the Federal
Reserve Board m ay prescribe.
In view o f the apparent m isunderstanding on the part o f some m em ber banks on this subject,
the Federal Reserve Board has requested me to advise you as follow s in regard to the manner in
which these loans should be included in condition reports submitted to the Federal reserve bank
and in exam ination reports made by exam iners fo r the Federal reserve banks:
1. I f your bank discounts with, or sells to, the Federal reserve bank any obligation o f
an industrial or commercial business issued fo r w orking capital purposes, only that portion o f
such obligation rediscounted with, or sold to, the reserve bank on which your bank has obli­
gated itself to the Federal reserve bank fo r any loss sustained thereon is to be included am ong
the assets and liabilities o f your bank in condition reports subm itted to the Federal reserve
bank. The amount o f such obligation on which your bank is liable fo r any loss sustained is
to be included in loans or investm ents and shown am ong liabilities as “ Obligations on indus­
trial advances transferred to Federal Reserve Bank.”
2. If, instead o f discounting a w orking capital obligation with, or selling it to, the Fed­
eral reserve bank, you r bank advances not less than 20 per cent o f such obligation and the
remainder is advanced b y the Federal reserve bank, only the amount o f the advance by your
bank should be included in the loans or investments in condition reports subm itted to the Fed­
eral reserve bank. The amount advanced by the Federal reserve bank should not be included
in the balance sheet o f you r bank.
3. W hen your bank makes an industrial advance o f the kind described in the A ct o f
June 19, 1934, and obtains a com m itm ent from a Federal reserve bank in regard thereto, the
total advance should be included in the loans or investm ents o f y ou r bank in condition reports
submitted to the Federal reserve bank, but the com m itm ent obtained from the Federal reserve
bank should not be shown in the balance sheet o f you r bank.
4. Exam iners fo r the Federal reserve banks have been instructed not to include in the
loan classification the portion o f a w orking capital advance which has been transferred to the
Federal reserve bank w ithout obligation on the part o f your bank fo r any loss thereon or
which, in accordance w ith a com m itm ent obtained from the Federal reserve bank, m ay be so
transferred, and not to classify, except with respect to apparent losses, the remaining portion
o f such w orking capital advance.
Y ours very truly,

Federal Reserve A gent

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