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FED ERAL R E SE R V E BANK OF NEW YORK Fiscal A g en t o f the U nited States r Circular No. 3669*1 I March 8, 1951 J TREASURY EXCHANGE OFFERING PRESS STA TEM E N T To all Banking Institutions, and O thers Concerned, in the Second Federal R eserve D istrict: The following statement was made public today: In response to numerous inquiries, the Secretary o f the Treasury announced today that the new investment series o f 2 % percent Treasury bonds which will be offered March 26, 1951, in exchange fo r outstanding 2y2 percent Treasury bonds o f June 15 and December 15, 1967-72, will be dated A p ril 1, 1951, will mature on A pril 1, 1980 and be callable on A p ril 1, 1975. The bonds will be non-marketa.ble and non-transferable, but will be exchangeable into marketable 5 year l 1/^ percent Treasury notes. The notes offered in exchange will be dated A p ril 1 and October 1 o f each year with appropriate interest adjustments to dates o f exchange. Interest on such bonds and notes will be payable semi-annually on the 1st days o f A pril and October in each year. Additional copies of this circular will be furnished upon request. A llan S proul, President. BOARD OF G OVER N O R S OF TH E FEDERAL RESERVE SYSTEM W A S H IN G TO N O F FIC E OF TH E C H A IR M A N March 9, 1951. TO ALL FINANCING INSTITUTIONS IN THE UNITED STATES: Section 708 of the Defense Production Act of 1950 author ized the President to encourage financing institutions to enter into voluntary agreements and programs which will further the objectives of that Act. By Executive Order the President delegated to the Board of Governors of the Federal Reserve System his authority with respect to financing under this section of the Act. A program for voluntary credit restraint has been developed by representatives of financing institutions and has been approved by the appropriate Government officials as required under the Act. It is hoped that you will give your full support to this program, a copy of which is enclosed. The Voluntary Credit Restraint Committee, provided for in the program, is being organized and the subcommittees which are to be designated by the Voluntary Credit Restraint Committee will be appointed as promptly as possible. If you have questions regarding the program or operations under it, it is suggested that you discuss them with the subcommittees. Sincerely, Thomas B. McCabe, Chairman. PROGRAM FOR VOLUNTARY CREDIT RESTRAINT P ream ble D e f in it io n s T h e task o f restrainin g stron g inflatipnary pres sures is o n e o f the m ost difficult and m ost im p o r tant in th e today. w h o le ran ge o f e c o n o m ic problem s cre d it T h e term s “ fin a n cin g in stitu tion ” or “ fin a n cin g in stitu tions” ies, O n e part o f this task— the restraint o f unneces sary A s used h erein: exp an sion — presents a ch a llen ge to the fin a n cin g institutions th rou g h ou t th e nation. Section 708 o f the D efen se P ro d u ctio n m ean banks, life insurance c o m p a n in vestm ent bankers en ga ged in the u n d er w ritin g , distrib u tion , d e a lin g o r pa rticip atin g, as agents or oth erw ise, in th e o ffe rin g , purchase or sale o f securities, and such oth er types o r g rou p s A ct o f o f financial in stitu tions as the B oard o f G ov ern ors 1950 a u th orizes the President to en cou ra ge fin a n c o f the Federal Reserve System m ay in vite to par in g in stitu tions to en ter in to volu n ta ry agreem ents ticipate in the P rogra m . and p rogra m s to restrain cred it, w h ich w ill further the ob jectives o f that A ct. B y execu tive ord er, the President has deleg a ted to the B oard o f G o v The term s “ cred it,” in “ lo a n ,” a d d ition “ loan s,” to “ le n d in g ” and th eir ord in a ry co n n o ta tions, m ean the s u p p ly in g o f fu n d s th rou gh the ern ors o f the Federal R eserve System his authority u n d e rw ritin g a n d distribu tion o f securities (eith er w ith respect to fin a n cin g u n d er this section o f the on a firm co m m itm e n t, agen cy or “ best efforts” A c t u p on the req u ired co n d itio n that it con su lt w ith b a sis), the m a k in g or assisting in the m a k in g o f the A tto rn e y G eneral a n d w ith the C h a irm a n o f d irect placem ents, o r oth erw ise particip atin g in the o ffe rin g o r d istrib u tion o f securities. the Federal T r a d e C o m m is s io n , a n d that it obtain the a pp rova l o f the A ttorn ey G en eral b efore re S t a t e m e n t o f P r in c ip l e s q u estin g actions u n d er such volu ntary agreem ents a n d progra m s. P u rsuan t to the p rovision s o f Section 7 0 8 (a ) o f A t the in vitation o f the B oard, and in com p a n y w ith it, representatives o f the A m erica n A ssocia tion , the L ife In su rance Bankers A ssocia tion of the D efen se P rod u ction A c t o f 1950, and w ith the a pproval o f the B oard o f G o v ern ors o f the F ed eral R eserve System in a ccord a n ce w ith the fu n c A m e rica and the In vestm ent B ankers A ssociation tions delegated to it b y Section 7 0 1 (a ) ( 2 ) o f E x o f A m e rica have been e x a m in in g the possibilities ecu tive O rd e r 10161, this Statem ent o f P rinciples o f this m e th o d o f cred it restraint. has been drafted to w h ich all fin a n cin g institutions W h ile it is re co g n iz e d that the p rop osed P ro are asked to c o n fo r m . gra m is addressed on ly to o n e lim ited source o f It shall be the pu rpose o f fin a n cin g institutions inflationary pressure, the vital im p ortan ce o f this to exten d cred it in such a w a y as to help m aintain p roblem to the stability o f the e c o n o m y , and the and increase the strength o f the d om estic e co n o m y necessity to exten d cred it on ly in such a w a y as to restrain in flationary pressures ou tsid e the fin a n c and at the sam e tim e to h elp fin a n ce the defense in g o f the D e fe n se P rog ra m sh ou ld be em p h a sized to all fin a n cin g institutions. th rou gh the restraint of p rog ra m and th e essential in du stry a n d com m erce. in flationary tendencies needs o f a gricu lture, It is a ppropriate to p oin t ou t that this P rogra m Inflation m ay be d efin ed as a con d ition in w h ich o f volu n ta ry cred it restraint does n ot have to d o the effective d em a n d fo r g o o d s a n d services exceeds w ith such factors as inflationary le n d in g b y fe d the available su p ply, pressure on prices. eral a gen cies, u nnecessary sp en d in g, federal, state o r lo ca l, a n d the w a ge-p rice spiral a n d oth er m u ch m o re seriously co n trib u tin g factors. T h ese sh ou ld be vig o ro u sly dealt w ith at the prop er places. It assum es that th e p rop er g ov ern m en ta l authorities w ill exercise the requ isite fiscal and m onetary con trols. thus exertin g an u pw a rd A n y increase in le n d in g at a m ore rapid rate than p rod u ction ca n be increased exerts an infla tionary influence. U nder present co n d itio n s of very h igh em p lo y m e n t o f la b or, m aterials a n d e q u ip m en t, the extension o f loans to fin a n ce increased ou tp u t w ill have an initial inflationary effect; but [1 ] PROGRAM FOR VOLUNTARY C R E D IT R E S T R A IN T loans w h ich u ltim ately result in a com m en su ra te the a cq u isition o f existin g com p a n ies or plants increase in p r o d u c tio n o f an essential nature are w h ere n o over-all increase o f p ro d u c tio n w o u ld not inflationary result. in th e lo n g ru n w h a tever their tem p ora ry effect m ay be. h o w e v e r, that loans for It is m ost im portan t, nonessential pu rposes 2. be L oa n s for speculative investm ents o r pu r chases. T h e first test o f specu lation is w hether cu rtailed in o rd e r to release som e o f the n a tion ’ s the pu rch ase is fo r any pu rp ose oth er than use or resources d istrib u tion in the n orm a l cou rse o f the b o r r o w fo r exp an sion in m o re vital areas of e r’ s business. p r o d u ctio n . a m ou n ts C o o p e ra tio n w ith this p rog ra m o f cred it restraint T h e secon d test is w h eth er the in v olv ed are d isp rop ortion a te to b o r r o w e r ’ s n orm a l stitutions to screen loan a pplication s on the basis w o u ld in clu d e speculative exp an sion o f real es o f their pu rpose, tate h old in g s o r plan t facilities as w ell as specu T h e criterion for sou n d len d lative a ccu m u la tion o f in ventories in expectation to the usual o f resale instead o f use. in g in a p e rio d o f inflationary da n ger b oils d o w n to the fo llo w in g : T h is tests in a d d ition o f cre d it w orth in ess. business op eration s.* the m ak es it in crea sin gly necessary for fin a n cin g in D o e s it com m ensuratel'y increase T h e fo r e g o in g p rin cip les sh ou ld be a pp lied in o r m ain tain p r o d u c tio n , p rocessin g and distribution screen in g as to pu rpose o n all loans on securities o f essential g o o d s a n d services? w h eth er or n ot covered by R egu la tion s U o r T . In interpretation o f the fo re g o in g , the fo llo w in g # types o f loans w o u ld be classified as p rop er: 1. L oa n s fo r defen se p r od u ction , direct o r in 2. L oa n s fo r the p r o d u c tio n , p rocessin g and staple distrib u tion produ cts, of a gricu ltural in clu d in g exp ort and and # # * R e c o g n iz in g that the m a x im u m estim ate o f the d irect, in clu d in g fuel, p o w e r and transportation. ord e rly # oth er im p ort as w ell as d om estic, and o f g o o d s and services s u p p ly in g the essential day-to-day needs o f the cou n try. 3. L o a n s to a u g m en t w o r k in g capital w h ere h ig h e r w a g e s and prices o f m aterials m a ke such loans necessary to sustain essential p rod u ction , p rocessin g o r distribu tion services. 4. L o a n s to securities dealers in the n orm al co n d u ct o f th eir business or to th em o r others in ciden tal to the flotation and distrib u tion o f se curities w h e re the m on ey is b e in g raised fo r any o f the fo r e g o in g purposes. percentage o f o u r 1951 p ro d u ctio n w h ich w ill be d ev oted directly or in directly to n ational defense is betw een 20 per cen t and 30 per cen t, a very sub stantial p ro p o rtio n o f the le n d in g o f the cou n try w ill be d ev oted to the fin a n cin g o f the p rod u ction and g ro w th o f ou r industrial and com m ercia l c o m m u n ity. In these circum stances, it is felt that each fin a n cin g institution can h elp a ccom p lish the o b jectives ou tlin ed a b ove b y ca refu l screen in g o f each a pp lica tion fo r cred it extension . In ca rry in g o u t such screen in g, fin a n cin g institu tions sh ou ld n ot on ly observe the letter o f the existin g regu lation s o f the B oa rd o f G o v e rn o rs o f the F ed eral R eserve System w ith respect to real estate cred it, con su m er cred it, security loans, etc., but sh ou ld also a p p ly to all th eir le n d in g the spirit o f these and such oth er regu la tion s a n d g u id in g prin cip les as the G o v e rn m e n t m a y fr o m tim e to tim e a n n ou n ce in the fig h t against inflation. T h is P ro g ra m w o u ld n ot seek to restrict loans gu aranteed o r in su red, o r a u th orized as to purpose b y a G o v e rn m e n t agen cy, o n the th eory that they sh ou ld be restricted, in a ccord a n ce w ith national po licy , at the source o f guaranty or a u th oriza tion . F in a n cin g institutions w o u ld n ot be restricted in T h is P rog ra m is necessarily very gen eral in na tu re. It is a volu ntary P rog ra m over-all efforts to restrain in flation. this P rog ra m fin a n cin g to a id m u st rely on th e g o o d institutions and the in the T o be h elp fu l, w ill o f all over-all intention to c o m p ly w ith its spirit. h o n o rin g p reviou s com m itm en ts. P rocedure T h e fo llo w in g are types o f loans w h ich in g e n for I m p l e m e n t in g th e P rogram Pursuant to the p rovision s o f S ection 7 0 8 (b ) and eral fin a n cin g institutions sh ou ld n ot m a k e u n d er (c ) present co n d ition s, unless m o d ifie d b y the c irc u m stances o f the particu lar loan so as n ot to be in o f the D efen se P ro d u ctio n A c t o f 1950, a n d * Loans additional to those needed for a borrower's normal business may, o f course, be regarded as proper when they 1. L o a n s to retire o r a cq u ire corp ora te equities are for the purpose o f defense production or otherwise con form to the types of loans listed as proper in this Statement in the hands o f the p u b lic, in clu d in g loans for of Principles. consistent w ith th e principles o f this p rog ra m : [ 2] PROGRAM FOR VOLUNTARY C R E D IT R E S T R A IN T Federal R eserve Bank o r branch th ereof w ill be u p o n fu ll co m p lia n ce w ith the term s a n d con d ition s a F ed eral R eserve th e re o f: representative design ated by the B oa rd o f G o v e rn o rs o f the Federal Reserve 1. A “ V o lu n ta ry C red it R estraint C o m m itte e ” (h e re in a fte r referred to as “ the C o m m itte e ) System or by such Federal Reserve Bank or b ra n ch ; and such m em b er shall attend each m eet w ill be a p p o in te d b y the B oa rd o f G ov ern ors in g o f the su b com m ittee. o f th e F ed eral R eserve System b ankers, the life insurance com p a n ies, and the ferred to as “ the B oa rd ” ) . (h erein a fter re M em b ers shall be F o r the investm ent banks there m ay in each case be on e or m ore sub a p p oin ted fo r such term s as th e B oa rd m ay pre com m ittees o rg a n iz e d . scribe. In itially, th e C o m m itte e w ill consist o f w ill m eet on ly fo r the purposes specified in the tw elve m em b ers, fo u r rep resen tin g the life in P r o g ra m ; w ill m ain tain record s o f their action s; surance co m p a n ies, fo u r rep resen tin g the invest a n d w ill m a k e reports directly to the C om m ittee m en t bankers, a n d fo u r rep resen tin g the banks. reg a rd in g the actions taken b y th em , in clu d in g T h e m e m b ersh ip o f the C o m m itte e m ay fro m statem ents o f th e types o f cases con sid ered and the tim e to tim e be exp an d ed as d eem ed advisable nature o f the a d v ice g iv en . o r app ropria te by th e B oard to insure adequ ate w ill be available for con su ltation w ith in dividual representation thereon o f oth er types o r g rou p s fin a n cin g institutions to assist th em in d eterm in A ll such subcom m ittees T h e subcom m ittees o f fin a n cin g institutions w h ich m ay participate in g the a pp lica tion o f the Statem ent o f P rinciples in a p p oin tin g w ith respect to specific loans fo r w h ich app lica the m em b ers o f the C om m ittee, the B oa rd shall tion has been m a d e to such fin a n cin g institutions. have d u e regard to fair representation thereon In con su ltin g w ith a su b com m ittee, a fin a n cin g the P ro g ra m . In selecting a n d fo r sm all, fo r m e d iu m and fo r la rge fin a n cin g in stitutions, areas. and fo r d ifferen t institution shall n ot be req u ired to disclose the geograp h ical iden tity o f the app lica n t for any loan. T h e C o m m itte e w ill: N o finan c in g institution shall be req u ired to con su lt w ith ( a ) W it h such assistance fr o m the B oard a n d the Federal R eserve B anks as m ay be necessary, distribute this statem ent o f the P ro g ra m , in clu d in g the Statem ent o f P rincip les, to fin a n cin g in stitu tions to such extent as m ay be d e em ed desirable in v ie w o f any dis tribution previou sly m a d e; ( b ) A p p o in t th e su b com m ittees referred to b e lo w in 2; ( c ) M e e t fo r the pu rpose o f co n sid e rin g the fu n ctio n in g o f the P r o g ra m , a d v isin g the B oa rd w ith respect th ereto, and su g gestin g for the con sidera tion o f the B oard such ch a n ges in th e P ro g ra m , in clu d in g th e Statem ent o f P rin cip les, as m ay fr o m tim e to tim e appear ap propriate. M eetin gs o f the C o m m itte e shall be held at th e call o f an official o f the Federal R eserve System , design a ted b y the B oa rd ; shall be u n d e r the ch a irm a n sh ip o f such an official; a n d an agen da for such m eetin gs shall be prepared b y such an official. Fu ll and co m p le te m inu tes o f each m eetin g shall be m a d e b y such an official a n d cop ies shall be any su b com m ittee w ith respect to any loan or loans, or any a pp lication o r a pplication s th ere fo r. C on su ltation w ith a su b com m ittee shall be w h o lly w ith in in depen den t T h e final d ecision w ith respect to m a k in g o r refu sin g to m a k e any particu lar loan o r loans shall likew ise rem ain w h o lly w ith in the in d ivid u a l and in d e p en d en t discretion o f each fin a n cin g institution, w h eth er o r n ot it has con su lted w ith any o f the su b com m ittees. In setting u p the su b com m ittees, the C o m m it tee shall have d u e regard fo r fair representation th ereon fo r fin a n cin g sm all, fo r institutions, gra p h ica l areas. m ed iu m and for and fo r large differen t geo It shall also in fo rm the B oard o f all su b com m ittee app ointm en ts. 3. T h e C o m m itte e shall be fu rn ish ed w ith such com p ila tion s o f statistical data on extension o f cred it by fin a n cin g institutions as m ay be q u ired to s h ow k ept in the files o f the B oa rd available for pu b lic in spection. cred it use and 2. the B oard. S u b com m ittees m ay be established fo r each the in d ivid u a l and discretion o f a fin a n cin g in stitu tion. P rog ra m . the a m ou n ts and re direction o f to w atch th e op eration o f the Su ch statistics shall be co m p ile d by T o assist the B oa rd in m a k in g such type o f fin a n cin g institution pa rticip atin g in the com p ila tion s, data shall be sup plied for the in P ro g ra m . O n e o f the m em b ers o f each s u b com vestm ent m ittee located in any city in w h ich there is a B ankers A ssocia tion a n d th e N a tion a l A ssocia [3] bankers, join tly by the In vestm ent PROGRAM FOR VOLUNTARY C R E D IT R E S T R A IN T tion o f Securities D ealers, a n d fo r the life in w ith suran ce co m p a n ies, join tly b y the L ife Insurance D efen se P ro d u ctio n A c t o f 1950. A sso cia tio n o f A m e rica a n d the A m e rica n L ife C o n v e n tio n . th e B oa rd C o m p ila tio n s of data m ade by shall n ot reveal the iden tity o f in d iv id u a l fin a n cin g institutions or b orrow ers. Such the req u irem en ts o f S ection 708 of the A ll actions pu rsuan t to a n d u n d er th e P rogra m w ill be a u tom atically term in ated b y all participat in g fin a n cin g institutions as o f the term in a tion o f the a uthority con ferred u n d er S ection 708 o f the D e co m p ila tio n s shall be k ept on file w ith the B oard a n d shall be available fo r p u b lic in spection. fense P rod u ction A c t o f 1950; or u p o n w ith draw a l 4. F in a n c in g institutions pa rticip atin g in the b y the B oa rd o f its requ est fo r a ction u n d er the P ro g ra m w ill k eep record s o f in d ivid u a l loans, P rog ra m . as to p u rp ose, in such fo r m as to be available op eration fo r fu tu re analysis. n o lon g er necessary or is n ot m a k in g a substantial 5. A n y ch a n g e in the P rog ra m , in c lu d in g the I f the C o m m itte e , after stu dy o f the of con trib u tion the to P rog ra m , con clu d es that it the solu tion o f th e p ro b le m is for Statem ent o f P rin cip les, shall be passed u p o n b y w h ich the P rog ra m w as established, it shall so a d th e C o m m itte e and shall be m a d e in a ccord a n ce vise the B oard. REQUEST T O FIN AN CIN G IN STITU TION S BY BOARD OF GOVERNORS OF TH E FEDERAL RESERVE SYSTEM T O A C T PU RSUANT T O A PROGRAM FOR V O L U N TA R Y CREDIT RESTRAINT UNDER SECTION 708 OF DEFENSE PRODUCTION A C T OF 1950 T h is “ R e q u est” is addressed to all fin a n cin g in the p roh ib ition s o f the antitrust law s o r th e F e d stitutions in the U n ited States, in clu d in g w ith ou t eral T r a d e C o m m is s io n A c t o f th e U n ited States. lim ita tion all in d ivid u a ls, firm s, partnerships, co r p oration s and oth er org a n iza tion s of any k in d T h e B oa rd o f G o v e rn o rs o f the F ed eral Reserve System has con su lted w ith the A tto rn e y G eneral w h ich are e n g a g e d in the business o f ex ten d in g and cred it, m a k in g loans, or pu rch a sin g, d iscou n tin g, C o m m is s io n o n a n d b e fo r e F eb ru a ry 5, 1951, said selling, d istrib u tin g , d e a lin g in, o r u n d erw ritin g date b e in g n ot less than 10 days b e fo re the date securities, any and all o f such in stitu tions b ein g o f this R eq u est, w ith regard to the p rovision s o f h ereinafter referred to as “ fin a n cin g in stitu tions.” the P u rsuan t to the p rovision s o f section 708 o f the w ith th e P rogra m , m en tion ed and C h a irm a n the fin d in g this of by R eq u est; the F ed era l the and B oard the T rade above A ttorn ey D e fe n se P r o d u c tio n A c t o f 1950 (h erein a fter called G en eral has giv en his a pp rova l to the m a k in g o f th e “ A c t ” ) and o f section 701 o f E xecu tive O rd er N o . 10161, the B oa rd o f G o v e rn o rs o f the Federal R eserve System has con su lted w ith representatives this R equest. o f fin a n cin g w ith a v ie w to en co u ra g in g the m a k in g o f the Federal Reserve System to act, a n d to refrain o f v olu n ta ry agreem ents a n d p rogra m s to further fr o m a ctin g, pu rsuan t to and in a ccord a n ce w ith the ob jectives o f the A ct. the p rovision s o f the P rog ra m . A s a result o f such E very fin a n cin g in stitu tion in the U n ited States is h ereb y requested b y the B oard o f G o v ern ors T h e national c o m con su ltation s, such representatives have prepared a m ittee w h ich is to be set u p pu rsuan t to the p r o “ P ro g ra m fo r V o lu n ta ry C red it R estrain t,” in clu d in g as a part th ereof a Statem ent o f P rincip les, the vision s o f the P rog ra m , each and every s u b co m m ittee set u p pu rsuan t to the p rovision s o f the entire d o c u m e n t b e in g h ereinafter referred to as P rog ra m , and each and every in d ivid u a l w h o m ay the “ P r o g ra m .” T h e P rog ra m is attached hereto. b e co m e a m e m b e r o f said n ational com m ittee or o f T h e B oa rd o f G o v ern ors o f the Federal Reserve any o f said su b com m ittees are h ereby requested by System h ereby a pp roves the P rog ra m and fin d s the the B oard P ro g ra m to be in the p u b lic interest as con trib u t System to act, and to refrain fr o m a ctin g, pu rsuan t in g to th e n ational defen se. to and in a ccord a n ce w ith the p rovision s o f the U n d e r section 708 o f the A c t and section 701 o f the said O rd e r, acts o r om ission s to act pursuant to this R eq u est and the P ro g ra m w h ich occu r w h ile said section 708 is in effect and before the w ith d ra w a l R eq u est o r o f the fin d in g o f the B oa rd of this in the p re ce d in g sentence are n ot con stru ed to be w ith in [4] o f G o v ern ors o f th e F ed eral Reserve P rogra m . B y o rd e r o f the B oard o f G o v e rn o rs o f the F e d eral R eserve System this 9th da y o f M a rch , 1951. S. R . C arpen ter, Secretary.
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