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F ed eral r e se r v e Ba n k O F DALLAS Dallas, Texas, July 24, 1951 To the Financing Institution Addressed: The texts o f Bulletins Nos. 5 and 6 o f the national Voluntary Credit Restraint Com mittee, which follow, are being forw arded to you at its request. Y ours very truly, R. R. G ILB E R T President B U L L E T IN N U M B E R 5 OF TH E N A T IO N A L V O L U N T A R Y C R E D IT R E S T R A IN T COMMITTEE IN T E R N A T IO N A L FIN AN CIN G A s a result o f inquiries from regional com m ittees about the status o f foreign borrow ings in United States markets, the national V oluntary Credit Restraint Committee has discussed the status o f such borrow ings under the voluntary credit restraint program . The Com m ittee concluded that all such credit applications on behalf o f foreign bor row ers should be screened to the same extent, and with the same purpose tests, as comparable Am erican credits. It m ay be difficult in some cases fo r financing institutions or regional com m ittees to determ ine whether a proposed foreign credit would indirectly contribute to defense or other objectives o f the U. S. Government. It will be particularly desirable, therefore, when foreign cases are submitted fo r review, that financing institutions subm it full facts to enable a judgm ent as to purpose. In exceptional cases when a regional com m ittee finds the facts available to it are inadequate to judge an application, the national committee, if requested, will endeavor to obtain supplementary inform ation from governm ent agencies. (Over) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) B U L L E T IN N U M B E R 6 OF TH E N A T IO N A L V O L U N T A R Y CRED IT R E S T R A IN T COMMITTEE LO A N S SECU RED B Y STOCKS A N D BONDS The original statem ent o f principles o f the program fo r voluntary credit restraint provided that “ the foreg oin g principles (the anti-speculative provisions) should be applied in screening as to purpose on all loans on securities whether or not covered by Regulations U or T .” * The first amendment to the statement o f principles deleted the phrase “ whether or” from the statement. This provision has been the subject fo r a number o f inquiries. For example, the question has been raised as to whether a loan on securities not covered by Regulations U or T m ust be screened as to purpose even though the am ount o f credit advanced m ight be perm issible under these regulations. Such an interpretation would appear to treat the loans secured by unlisted stocks more severely than those on listed (i.e., “ registered” ) securities. In order to cure this am biguity, the follow ing principles are recom m ended fo r your guidance by the national com m ittee: (1 ) Loans on securities covered by Regulations U or T are basically fo r the purpose o f purchasing or carrying listed securities. It is recommended, therefore, that all loans on securities fo r purchasing or carrying unlisted securities be pre sumed to be fo r a proper purpose if the amount o f credit extended is no greater than that perm itted in the case o f listed securities b y Regulations U or T. (2) Loans on securities, w hether or not listed, but not fo r the purpose o f purchasing or carrying securities should be made only fo r purposes consistent with the principles o f voluntary credit restraint. *The Statement of Principles also provides that “ loans to securities dealers in the normal con duct of their business or to them or others incidental to the flotation and distribution of securities where the money is being raised for any of the foregoing [proper] purposes” should be classified as “ proper.”
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