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FEDERAL RESERVE BANK
OF NEW YORK
Circular No. 2 4 4 1 1
May 27, 1942 J

REVISION OF REGULATION S

To all Banking Institutions,
in the Second Federal Reserve District:

Enclosed is a copy of Regulation S, relating to industrial loans by Federal
Reserve Banks under section 13b of the Federal Reserve Act, as revised by the
Board of Governors of the Federal Reserve System effective April 30, 1942.
The changes which have been made in the regulation are merely of a clarifying
or technical character and are intended to facilitate the participation of the Federal
Reserve Banks in the program of war financing contemplated by the President's
Executive Order No. 9112 of March 26, 1942.
As stated in the foreword, the regulation leaves the powers granted by Congress
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 institutions" 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.
Additional copies of the regulation will be supplied upon request.




ALLAN SPROTJL,

President.

BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

INDUSTRIAL LOANS BY FEDERAL RESERVE
BANKS

REGULATION S
This regulation as printed herewith is in the form
as revised effective April 30, 1942




FOREWORD
(Not a part of the regulation)
In order to facilitate the participation of Federal Reserve Banks
in the program of war financing contemplated by the President's Executive 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 Congress 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 institutions" 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 authorized by the Board of Governors of the Federal Reserve System; but,
in order to avoid the necessity of having applications for such accommodations 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 of the district
in which the inquiry arises.




REGULATION S
Revised effective April 30, 1942

INDUSTRIAL LOANS BY FEDERAL RESERVE BANKS
INTRODUCTION

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 provisions are set forth in the Appendix to the regulation.
SECTION 1.

TRANSACTIONS BY FEDERAL RESERVE BANKS WITH
FINANCING INSTITUTIONS

(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 commitments with regard to such discounts, purchases, loans or advances,
subject to the following requirements:
(1) Obligations which are the subject of such discounts, purchases, 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 Reserve Bank for at least 20 per centum of any loss which
may be sustained by the Reserve Bank upon any such obligation 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.




4

REGULATION S

(b) Applications by financing institutions.—An application1 by a
financing institution for the discount or purchase of an obligation entered into for the purpose of obtaining working capital for an established 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, purchase, 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 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.
(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 Reserve Bank, after investigation, shall have determined that such obligation 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 institution and the Federal Reserve Bank shall be entitled to share pro
rata in the amount so recovered.
SECTION 2.

DIRECT TRANSACTIONS BY FEDERAL RESERVE BANKS WITH

ESTABLISHED INDUSTRIAL OR COMMERCIAL

BUSINESSES

(a) Legal Requirements.—A Federal Reserve Bank may exercise
its authority to make loans to or purchase obligations of an established 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 of subsections (h) and (k) of section 22 of the Federal
Reserve Act quoted in the Appendix to this regulation, with regard to material statements or
overvaluation «f security in connection with applications of this kind and with regard to the giving or receiving of fees, commissions, bonuses, or things of value for procuring or endeavoring to
procure from a Federal Reserve Honk any credit accommodation, either directly from sucli Federal Reserve Bank or indirectly through any financing institution.




REGULATION S

0

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 industrial or commercial business with working capital; (4) on a reasonable 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 established 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 businesses.—An application 1 by an established industrial or commercial
business for a loan to, or the purchase of the obligations of, such business, 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.
SECTION 3 .

INDUSTRIAL ADVISORY COMMITTEES

(a) Membership of committees.—The Industrial Advisory Committee established in each Federal Reserve district under the provisions of subsection (d) of section 13b of the Federal Reserve Act
shall consist of five members actively engaged in some industrial pursuit within the Federal Reserve district in which the committee is
established. The membership of such committee shall consist of persons 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 tile requirements of suhsections (h) and (k) of section 22 of 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 (riving or receivine of fees, commissions, bonuses, or things of value for procuring or endeavorine to
procure from a Federal Reserve Bank any credit accommodation, either directly from such Federal 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 Advisory 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.
(5) 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 consideration of the necessity and advisability of granting the application and of such other factors as it may deem appropriate, shall transmit the application to the Federal Reserve Bank together with the
recommendation of the committee.
SECTION 4.

AGGREGATE AMOUNT OF ACCOMMODATIONS WHICH MAY BE
EXTENDED BY A FEDERAL RESERVE BANK

Except with the permission of the Board of Governors of the Federal Reserve System, the aggregate amount of loans, advances, and
commitments of each Federal Reserve Bank made pursuant to the provisions of section 13b of the Federal Reserve Act and outstanding,
plus the amount of purchases and discounts acquired under that section 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.
SECTION 5.

RATES

All rates of interest and of discount established by any Federal Reserve 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.
SECTION 6. REPORTS BY FEDERAL RESERVE BANKS

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.
SECTION 7.

CHANGES IN REGULATIONS

The Board of Governors of the Federal Reserve System, pursuant
to the authority conferred u]>on it by section 13b of the Federal Reserve Act, may alter, modify, or amend the provisions of this regulation from time to time in its discretion.




S

REGULATION S

APPENDIX
STATUTORY PROVISIONS

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) 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 authority 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 commitment made hereunder with a maturity exceeding five years.
(b) Each Federal Reserve bank shall also have power to discount 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 obtaining working capital for any such established industrial or commercial 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: Provided, however, That such advances by the financing institution
and the Federal Reserve bank shall be considered as one advance, and repayment shall be made pro rata under such regulations as the Board of Governors of the Federal Reserve System
may prescribe.
(c) The aggregate amount of loans, advances, and commitments of the Federal Reserve banks outstanding under this section 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 section, and all operations of the Federal Reserve banks under this
section shall be subject to such regulations as the Board of Governors 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 established 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 member of such committee shall be actively engaged in some industrial 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 submitted 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 Reserve 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 provided for in this section, the Secretary of the Treasury, on and
after June 19, 1934, is authorized, under such rules and regulations 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 agreement (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 pe;r
centum of the total payment made by the Secretary of the Treasury, 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 Reserve 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 expended 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 President'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 Reserve 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 purpose of influencing in any way the action of a Federal Reserve
bank upon any application, commitment, advance, discount, purchase, 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 misapplies 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, commission, 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 paragraph shall be punishable by imprisonment for not more than
one year or by a fine of not exceeding $5,000, or both. If a director, 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 in 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 Corporation cooperates or purchases a participation under the provisions 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.