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F ederal

Reserve

b a n k

O F DALLAS

Dallas, Texas, August 17, 1959

To the Member Banks
of the Eleventh Federal Reserve District:

Section 13b of the Federal Reserve Act, which authorized
Federal Reserve banks to make direct loans to industrial and
commercial businesses, has been repealed, effective August 21,
1959. A t the same time, Regulation S of the Board of Governors
of the Federal Reserve System will be terminated. This regula­
tion should be removed from your ring binder.
The schedule of rates applicable to advances and commit­
ments under Section 13b, as set forth in our Bulletin No. 1,
dated May 29, 1959, is no longer effective, and appropriate
changes will be made when that bulletin is revised.
Yours very truly,
Watrous H. Irons
President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

IN D U S T R IA L L O A N S B Y F E D E R A L R E SE R V E
BANKS

REGULATION S

This regulation as printed herewith is in the form
as revised effective April 3 0 , 1 94 2

FOREW ORD
(Not a part o f the regulation)

In order to facilitate the participation of Federal Reserve Banks
in the program of war financing contemplated by the President’s Ex­
ecutive Order No. 9112 of March 26, 1942, the Board of Governors
has revised its Regulation S relating to loans by Federal Reserve
Banks to industry and business under the provisions of section 13b
of the Federal Reserve Act. The changes which have been made in
the regulation are merely of a clarifying or technical character.
As heretofore, the regulation leaves the powers granted by Con­
gress to the Federal Reserve Banks unimpaired and prescribes no
restrictions beyond those required by the law itself. Any attempt
to prescribe technical definitions of such terms as “ working capital,”
“ established industrial or commercial business” and “ financing insti­
tutions” has been avoided, lest it have the effect of restricting or
hampering the operations of the Federal Reserve Banks under the
statute. The regulation, therefore, contains little except an analysis
of the law and an outline of the necessary procedure.
The law permits Federal Reserve Banks to make direct loans to
established industrial and commercial businesses only when author­
ized by the Board of Governors of the Federal Reserve System; but,
in order to avoid the necessity of having applications for such accom­
modations passed on in Washington, the Board has continued in the
revised regulation the blanket authority to all Federal Reserve Banks
to grant such accommodations directly on their own responsibility
without reference to Washington.

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

REGULATION S

Revised effective April 30, 1942
IN D U S T R IA L L O A N S B Y F E D E R A L R E SE R V E B A N K S
IN T R O D U C T IO N

This regulation is based upon and issued pursuant to section 13b of
the Federal Reserve Act, as amended, and other provisions of law.
The provisions of section 13b and certain other related statutory pro­
visions are set forth in the Appendix to the regulation.
S E C T IO N

1.

T R A N S A C T IO N S B Y

FE D E RA L R E SE R V E B A N K S

W IT H

F I N A N C I N G IN S T I T U T I O N S

(a)
Legal Requirements.— Under the provisions of subsection (b)
of section 13b of the Federal Reserve Act, a Federal Reserve Bank is
authorized to discount obligations for, purchase obligations from, and
make loans or advances on the security of such obligations direct to,
any bank, trust company, mortgage company, credit corporation for
industry or other financing institution (hereinafter referred to as
“ financing institution” ) operating in its district and to make commit­
ments with regard to such discounts, purchases, loans or advances,
subject to the following requirements:1
3
2
(1) Obligations which are the subject of such discounts, pur­
chases, loans, advances, or commitments must have been or must
be entered into for the purpose of obtaining working capital for
an established industrial or commercial business;
(2) Such obligations must have a maturity of not exceeding
five years;
(3) Each such financing institution shall—
(A) Obligate itself to the satisfaction of the Federal Re­
serve Bank for at least 20 per centum of any loss which
may be sustained by the Reserve Bank upon any such obli­
gation acquired from such financing institution, the existence
and amount of any such loss to be determined in accordance
with subsection (c) of this section; or
(B) In lieu thereof, advance at least 20 per centum of
such working capital and in such event the advances by
both such financing institution and the Federal Reserve
Bank shall be considered as one advance and repayment
shall be made on a pro rata basis.
3

4

REGULATION S

(6) Applications by financing institutions.— An application1 by a
financing institution for the discount or purchase of an obligation en­
tered into for the purpose of obtaining working capital for an estab­
lished industrial or commercial business located in any Federal
Reserve district or for a loan or advance on the security of such an
obligation or for a commitment with regard to such discount, pur­
chase, loan, or advance, may be transmitted to the Federal Reserve
Bank of any district in which the applicant financing institution is
operating and shall be submitted by such Federal Reserve Bank to
the Industrial Advisory Committee of such district. Such applica­
tion may be made on a form furnished for that purpose by the Federal
Reserve Bank and must contain or be accompanied by such informa­
tion, agreements, and documents as the Federal Reserve Bank may
require.
(c) Existence and amount of losses.— The Federal Reserve Bank
shall be deemed to have sustained a loss upon any obligation acquired
from a financing institution in accordance with the provisions of this
section of this regulation whenever the board of directors of the Re­
serve Bank, after investigation, shall have determined that such obli­
gation or any part thereof is a loss and the Reserve Bank shall have
charged off of its books the amount so determined to be a loss, subject
to review by the Board of Governors of the Federal Reserve System.
The amount of loss in any such case shall be deemed to be the amount
so charged off, together with unpaid interest thereon. Such financing
institution shall reimburse the Federal Reserve Bank for the portion
of such loss for which such financing institution shall have obligated
itself, with interest on such portion of such loss until the date of such
reimbursement. If any recovery be realized on the amount of the
loss ascertained in accordance with this subsection, such financing in­
stitution and the Federal Reserve Bank shall be entitled to share pro
rata in the amount so recovered.
S E C T IO N

2.

D IR E C T

E S T A B L IS H E D

T R A N S A C T IO N S
IN D U S T R IA L

BY

OR

FEDERAL

R ESE RV E

C O M M E R C IA L

BANKS

W IT H

B U S IN E S S E S

(a) Legal Requirements.— A Federal Reserve Bank may exercise
its authority to make loans to or purchase obligations of an estab­
lished industrial or commercial business having an office or place of
business in its district or to make commitments with respect thereto
under subsection (a) of section 13b of the Federal Reserve Act: (1) in
1 Attention is invited to the requirements o f subsections (h ) and (k ) o f section 22 o f the Federal
Reserve A ct quoted in the Appendix to this regulation, with regard to material statements or
overvaluation o f security in connection with applications o f this kind and with regard to the giv­
ing or receiving o f fees, commissions, bonuses, or things of value for procuring or endeavoring to
procure from a Federal Reserve Bank any credit accommodation, either directly from such F ed ­
eral Reserve Bank or indirectly through any financing institution.

BEGULATION S

5

exceptional circumstances pursuant to the authority hereinafter
granted by the Board of Governors of the Federal Reserve System;
(2) when it appears to the satisfaction of the Federal Reserve Bank
that such established industrial or commercial business is unable to
obtain requisite financial assistance on a reasonable basis from the
usual sources; (3) for the purpose of providing such established in­
dustrial or commercial business with working capital; (4) on a reason­
able and sound basis; and (5) with respect to obligations which have
maturities not exceeding five years.
(b ) Authorization by Board of Governors of the Federal Reserve
System.— The Board of Governors of the Federal Reserve System,
pursuant to the provisions of subsection (a) of section 13b of the
Federal Reserve Act, hereby authorizes every Federal Reserve Bank,
until such time as the Board of Governors may revoke or modify
such authority, to make loans to and purchase obligations of estab­
lished industrial or commercial businesses, and to make commitments
with respect thereto, subject to the provisions of the law and this
regulation.
(c) Applications by established industrial or commercial busi­
nesses.— An application 1 by an established industrial or commercial
business for a loan to, or the purchase of the obligations of, such busi­
ness, or a commitment with respect to such a loan or purchase, may
be transmitted to the Federal Reserve Bank of any district in which
an office or place of business of the applicant is located and shall be
submitted by such Federal Reserve Bank to the Industrial Advisory
Committee of such district. Such application may be made on a
form furnished for that purpose by the Federal Reserve Bank and
must contain or be accompanied by such information, agreements,
and documents as the Federal Reserve Bank may require.
S E C T IO N 3 .

IN D U S T R IA L A D V ISO R Y C O M M IT T E E S

(a) Membership of committees.— The Industrial Advisory Com­
mittee established in each Federal Reserve district under the pro­
visions of subsection (d) of section 13b of the Federal Reserve Act
shall consist of five members actively engaged in some industrial pur­
suit within the Federal Reserve district in which the committee is
established. The membership of such committee shall consist of per­
sons who are familiar with the problems and needs of industry and
commerce in such district.
On or before the 15th day of February of each year, the board of
^Attention is invited to the requirements o f subsections (h ) and (k ) o f section 22 o f the Federal
Reserve Act quoted in the Appendix to this regulation, with regard to material statements or
overvaluation of security in connection with applications of this kind and with regard to the g iv ­
ing or receiving of fees, commissions, bonuses, or things o f value for procuring or endeavoring to
procure from a Federal Reserve Bank any credit accommodation, either directly from such F ed ­
eral Reserve Bank or indirectly through any financing institution.

6

REGULATION S

directors of each Federal Reserve Bank shall submit to the Board of
Governors of the Federal Reserve System the names of the persons
selected to serve for the ensuing year as members of the Industrial Ad­
visory Committee of the district of such Federal Reserve Bank, and,
if approved by the Board of Governors, such persons shall serve for
terms of one year commencing on the 1st day of March of such year.
Vacancies that may occur in the membership of such committees
shall be filled in like manner, and persons appointed to fill such
vacancies shall hold office for the unexpired terms of their predecessors.
(b) Recommendations of committees.— The Industrial Advisory
Committee, to which an application for any such discount, purchase,
loan, advance, or commitment by the Federal Reserve Bank of the
district shall have been submitted, after an examination by it of the
business with respect to which the application is made and a con­
sideration of the necessity and advisability of granting the applica­
tion and of such other factors as it may deem appropriate, shall trans­
mit the application to the Federal Reserve Bank together with the
recommendation of the committee.
S E C T IO N

4.

AGGREGATE

AMOUNT

OF

A C C O M M O D A T IO N S W H I C H

MAY

BE

E X T E N D E D B Y A FE D E RA L RESE RV E B A N K

Except with the permission of the Board of Governors of the Fed­
eral Reserve System, the aggregate amount of loans, advances, and
commitments of each Federal Reserve Bank made pursuant to the pro­
visions of section 13b of the Federal Reserve Act and outstanding,
plus the amount of purchases and discounts acquired under that sec­
tion and held at the same time, shall not exceed the surplus of such
Federal Reserve Bank as of July 1, 1934, plus all amounts paid to
such Federal Reserve Bank by the Secretary of the Treasury under
subsection (e) of section 13b of the Federal Reserve Act.
S E C T IO N 5 .

R A TE S

All rates of interest and of discount established by any Federal Re­
serve Bank with respect to loans, advances, discounts and purchases
made under authority of the provisions of section 13b of the Federal
Reserve Act, and all charges established by any Reserve Bank with
respect to commitments made under such authority, shall be subject
to review and determination of the Board of Governors of the Federal
Reserve System.
S E C T IO N 6 .

R E P O R T S B Y FE D E RA L RESE RV E B A N K S

Each Federal Reserve Bank shall make a daily report to the Board
of Governors of the Federal Reserve System of all transactions entered

REGULATION S

7

into pursuant to the authority conferred by section 13b of the Federal
Reserve Act on the Board’s form B D 4, prescribed for the reporting
of discount transactions.
S E C T IO N

7.

C H A N G E S IN R E G U L A T IO N S

The Board of Governors of the Federal Reserve System, pursuant
to the authority conferred upon it by section 13b of the Federal Re­
serve Act, may alter, modify, or amend the provisions of this regula­
tion from time to time in its discretion.

8

REGULATION S

APPENDIX
STATU TORY

P R O V IS IO N S

Section 13b of the Federal Reserve Act, as added by Act of June 19,
1934, and amended by Act of August 23, 1935, provides as follows:
Sec. 13b. (a I In exceptional circumstances, when it appears to
the satisfaction of a Federal Reserve bank that an established
industrial or commercial business located in its district is unable
to obtain requisite financial assistance on a reasonable basis from
the usual sources, the Federal Reserve bank, pursuant to author­
ity granted by the Board of Governors of the Federal Reserve
System, may make loans to, or purchase obligations of, such
business, or may make commitments with respect thereto, on a
reasonable and sound basis, for the purpose of providing it with
working capital, but no obligation shall be acquired or commit­
ment made hereunder with a maturity exceeding five years.
(b) Each Federal Reserve bank shall also have power to dis­
count for, or purchase from, any bank, trust company, mortgage
company, credit corporation for industry, or other financing
institution operating in its district, obligations having maturities
not exceeding five years, entered into for the purpose of obtain­
ing working capital for any such established industrial or com­
mercial business; to make loans or advances direct to any such
financing institution on the security of such obligations; and to
make commitments with regard to such discount or purchase of
obligations or with respect to such loans or advances on the
security thereof, including commitments made in advance of
the actual undertaking of such obligations. Each such financing
institution shall obligate itself to the satisfaction of the Federal
Reserve bank for at least 20 per centum of any loss which may
be sustained by such bank upon any of the obligations acquired
from such financing institution, the existence and amount of any
such loss to be determined in accordance with regulations of the
Board of Governors of the Federal Reserve System: Provided,
That in lieu of such obligation against loss any such financing
institution may advance at least 20 per centum of such working
capital for any established industrial or commercial business
without obligating itself to the Federal Reserve bank against
loss on the amount advanced by the Federal Reserve bank: Pro­
vided, hov^ever, That such advances by the financing institution
and the Federal Reserve bank shall be considered as one ad­
vance, and repayment shall be made pro rata under such regula­
tions as the Board of Governors of the Federal Reserve System
may prescribe.
(cl The aggregate amount of loans, advances, and commit­
ments of the Federal Reserve banks outstanding under this sec­
tion at any one time, plus the amount of purchases and discounts
under this section held at the same time, shall not exceed the

REGULATION S

9

combined surplus of the Federal Reserve banks as of July 1,
1934, plus all amounts paid to the Federal Reserve banks by
the Secretary of the Treasury under subsection (e) of this sec­
tion, and all operations of the Federal Reserve banks under this
section shall be subject to such regulations as the Board of Gov­
ernors of the Federal Reserve System may prescribe.
(d) For the purpose of aiding the Federal Reserve banks in
carrying out the provisions of this section, there is hereby estab­
lished in each Federal Reserve district an industrial advisory
committee, to be appointed by the Federal Reserve bank subject
to the approval and regulations of the Board of Governors
of the Federal Reserve System, and to be composed of not less
than three nor more than five members as determined by the
Board of Governors of the Federal Reserve System. Each mem­
ber of such committee shall be actively engaged in some in­
dustrial pursuit within the Federal Reserve district in which the
committee is established, and each such member shall serve
without compensation but shall be entitled to receive from the
Federal Reserve bank of such district his necessary expenses
while engaged in the business of the committee, or a per diem
allowance in lieu thereof to be fixed by the Board of Governors
of the Federal Reserve System. Each application for any such
loan, advance, purchase, discount, or commitment shall be sub­
mitted to the appropriate committee and, after an examination
by it of the business with respect to which the application is
made, the application shall be transmitted to the Federal Re­
serve bank, together with the recommendation of the committee.
(e) In order to enable the Federal Reserve banks to make the
loans, discounts, advances, purchases, and commitments pro­
vided for in this section, the Secretary of the Treasury, on and
after June 19, 1934, is authorized, under such rules and regula­
tions as he shall prescribe, to pay to each Federal Reserve bank
not to exceed such portion of the sum of $139,299,557 as may
be represented by the amount paid by each Federal Reserve
bank for stock of the Federal Deposit Insurance Corporation,
upon the execution by each Federal Reserve bank of its agree­
ment (to be endorsed on the certificate of such stock) to hold
such stock unencumbered and to pay to the United States all
dividends, all payments on liquidation, and all other proceeds of
such stock, for which dividends, payments, and proceeds the
United States shall be secured by such stock itself up to the total
amount paid to each Federal Reserve bank by the Secretary of
the Treasury under this section. Each Federal Reserve bank, in
addition, shall agree that, in the event such dividends, payments,
and other proceeds in any calendar year do not aggregate 2 per
centum of the total payment made by the Secretary of the Treas­
ury, under this section, it will pay to the United States in such
year such further amount, if any, up to 2 per centum of the
said total payment, as shall be covered by the net earnings of
the bank for that year derived from the use of the sum so paid
by the Secretary of the Treasury, and that for said amount so
due the United States shall have a first claim against such earn­

10

REGULATION S

ings and stock, and further that it will continue such payments
until the final liquidation of said stock by the Federal Deposit
Insurance Corporation. The sum so paid to each Federal Re­
serve bank by the Secretary of the Treasury shall become a
part of the surplus fund of such Federal Reserve bank within
the meaning of this section. All amounts required to be ex­
pended by the Secretary of the Treasury in order to carry out the
provisions of this section shall be paid out of the miscellaneous
receipts of the Treasury created by the increment resulting from
the reduction of the weight of the gold dollar under the Presi­
dent’s proclamation of January 31, 1934; and there is hereby
appropriated, out of such receipts, such sum as shall be required
for such purpose.
Subsections (h), (i), (j) and (k) of section 22 of the Federal Re­
serve Act, as amended by the Act of June 19, 1934, provide as
follows:
(h) Whoever makes any material statement, knowing it to be
false, or whoever willfully overvalues any security, for the pur­
pose of influencing in any way the action of a Federal Reserve
bank upon any application, commitment, advance, discount, pur­
chase, or loan, or any extension thereof by renewal, deferment
of action, or otherwise, or the acceptance, release, or substitution
of security therefor, shall be punished by a fine of not more than
$5,000 or by imprisonment for not more than two years, or both.
(i) Whoever, being connected in any capacity with a Federal
Reserve bank (1) embezzles, abstracts, purloins, or willfully mis­
applies any moneys, funds, securities, or other things of value,
whether belonging to it or pledged or otherwise entrusted to it,
or (2) with intent to defraud any Federal Reserve bank, or any
other body politic or corporate, or any individual, or to deceive
any officer, auditor, or examiner, makes any false entry in any
book, report, or statement of or to a Federal Reserve bank, or,
without being duly authorized, draws any order or issues, puts
forth, or assigns any note, debenture, bond, or other obligation,
or draft, mortgage, judgment, or decree shall be punished by a
fine of not more than $10,000 or by imprisonment for not more
than five years, or both.
(j) The provisions of sections 112, 113, 114, 115, 116, and 117
of the Criminal Code of the United States, insofar as applicable,
are extended to apply to contracts or agreements of any Federal
Reserve bank under this Act, which, for the purposes hereof,
shall be held to include advances, loans, discounts, purchase, and
repurchase agreements; extensions and renewals thereof; and
acceptances, releases, and substitutions of security therefor.
(k) It shall be unlawful for any person to stipulate for or give
or receive, or consent or agree to give or receive, any fee, com­
mission, bonus, or thing of value for procuring or endeavoring to
procure from any Federal Reserve bank any advance, loan, or
extension of credit or discount or purchase of any obligation or
commitment with respect thereto, either directly from such Fed­

REGULATION S

11

eral Reserve bank or indirectly through any financing institution
unless such fee, commission, bonus, or thing of value and all
material facts with respect to the arrangement or understanding
therefor shall be disclosed in writing in the application or request
for such advance, loan, extension of credit, discount, purchase,
or commitment. Any violation of the provisions of this para­
graph shall be punishable by imprisonment for not more than
one year or by a fine of not exceeding $5,000, or both. If a di­
rector, officer, employee, or agent of any Federal Reserve bank
shall knowingly violate this paragraph, he shall be held liable
in his personal and individual capacity for any loss or damage
sustained by such Federal Reserve bank in consequence of such
violation.
The third paragraph of section 24 of the Federal Reserve Act, as
added by Act of August 23, 1935, provides as follows:
Loans made to established industrial or commercial businesses
(a) which are i n whole or in part discounted or purchased or
loaned against as security by a Federal Reserve bank under the
provisions of section 13b of this Act, (b) for any part of which a
commitment shall have been made by a Federal Reserve bank
under the provisions of said section, (c) in the making of which
a Federal Reserve bank participates under the provisions of
said section, or (d) in which the Reconstruction Finance Cor­
poration cooperates or purchases a participation under the pro­
visions of section 5d of the Reconstruction Finance Corporation
Act, shall not be subject to the restrictions or limitations of this
section upon loans secured by real estate.