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Dallas, Texas, September 15, 1943

To all Banking Institutions, and Others Concerned,
in the Eleventh Federal Reserve District:

There is quoted below the text of a press statement issued by the Board of Governors of the
Federal Reserve System, on September 1, 1943, relating to Regulation V loans:
“ Government guaranteed V loans will be made available to war contractors and sub­
contractors on a much broader basis than heretofore, effective immediately, under a plan
jointly announced today by the War and Navy Departments, the U. S. Maritime Commis­
sion and the Federal Reserve Board.
“ The plan is designed to assure contractors that their working capital invested in
war production will not be frozen in the event ©f contract terminations. Interest on loans
guaranteed under the new program will be assumed by the Government upon termination
of contracts as under present Regulation V guarantees.
“ This decision to broaden industrial credit facilities was reached with a view to pre­
venting any lag in war production, which might be caused by fear on the part of contrac­
tors that their capital would be tied up as contracts are cancelled in response to swiftly
changing war requirements. This broadened V loan will go far toward allaying such fears.
“ In the past, advances under V loans have been restricted, in general, to working
capital needs for war production. The broadening of the plan will enable contractors to
obtain the use of most of their own working capital immediately upon termination of
their contracts. Banks will be enabled to make such advances at once, and with a minimum
of complications. The establishment of such credit arrangements will greatly minimize
the problem of termination of war contracts.
“ The Services stress the fact that cancellation of contracts must not be construed
as marking the beginning of a general curtailment of war production. On the contrary,
with the war rapidly becoming one of movement, with great allied offensives in progress
and in prospect, materiel requirements are subject to sudden and unavoidable changes,
and it is essential to remove all possible causes of delays in war production.
“ Details of the procedure for obtaining the liberalized V loans have gone forward to
all Federal Reserve Banks from Washington/’
The following additional information is furnished regarding the broadened program:
Guarantees under Regulation V will be made available for financing war production contrac­
tors, for the purpose o f providing both for the needs of any such contractor for borrowed working
capital and for freeing his own working capital upon cancellation of his war production contracts
which may occur after the execution of the guarantee.
The contractor or subcontractor will obtain a V loan exactly as at present except that, if a
substantial portion of the loan is intended to free his own working capital upon termination of
contracts, then there are to be two changes in the present guarantee agreement, viz.:
(1) The bank will be required at all times to have a participation in the loan and, accordingly,
the original percentage of guarantee specified in the guarantee agreement will not be increased
by reason of contract cancellations, and

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(2) If the financing institution charges the borrower a fee in connection with a commitment
to make a guaranteed loan, the bank must share with the Government such commitment fee, which
may not exceed
of 1 per cent per annum on the undisbursed portion of the credit, in the same
proportion that the guarantee fee now bears to the interest payable on V loans, viz.: If the per­
centage of guarantee is
60%, the Government’s share is 10% of the commitment fee





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The amount of loans which a contractor will be entitled to obtain in the event of cancellation
of his contracts will be stated in the loan agreement as a percentage of inventories, work in process,
accounts receivable, and (without duplication) amounts paid or concurrently to be paid by him to
subcontractors or suppliers by reason of contract cancellations. Subcontractors and suppliers will
receive protection under this program, because a borrower will be required to pay them whatever
he owes them in connection with the items used as a basis for the borrowing.
Loan agreements under the new program will include provision for such amounts of working
capital to carry out war production contracts, as may be needed by the contractor in the particular
case. In general, where the amount of credit needed to carry out the war production contracts is
small in proportion to the amounts needed to free his own working capital upon contract termina­
tions, the maturity of the credits under the new program may be longer and a minimum of restric­
tions will be placed upon the borrower by the guaranteeing agencies.
When cancellations of the borrower’s contracts occur, the maturity of that part of the loan
proportionate to the amount of the contracts cancelled will be suspended and interest waived thereon,
as is now provided under V guarantees. This suspension of maturity and waiver of interest will
apply whether the funds have been advanced to the borrower before or after the cancellations have
occurred. In other words, where a bank makes a loan after cancellation, under a commitment there­
tofore given, interest is waived, and the guarantor pays interest on a portion of the loan propor­
tionate to the amount of cancellations.
Where a borrower is presently being financed by a Regulation V loan and if a termination
loan appears desirable, the existing loan may be converted into a larger loan.
Credit available on cancellation of war production contracts is to be made available to sub­
contractors as well as prime contractors.
The loan agreements for the new type loan, or for a combination of the old type and the new
type, should provide for a maximum over-all dollar credit under which advances would be made
on a basis of a percentage of inventory, work in process and receivables, as well as upon the amount
of outstanding war contracts. We shall be glad to furnish samples of the so-called “ formula” type
loan agreements which have been used and are being used, and we shall also be glad to discuss this
phase with persons interested.
We feel that until the plan has been more fully developed, it is advisable, in each instance
where a new type loan is desired, to take the matter up with us, either by letter or in person, so
that we may assist in setting up the loan in a manner which is in conformity with the policy of
the Service involved.
Yours very truly,

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