Full text of Federal Reserve Bank of New York Circulars : 5908. Loan Guarantees for Defense Production

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F E D E R A L R E S E R V E BA N K
O F NEW YO R K
Fiscal A gen t o f the U nited States
TCircular N o. 5 9 0 8 "I
L Decem ber 5, 1966 J

LOAN GUARANTEES FOR DEFENSE PRODUCTION

Regulation V Revised and Supplemented
Effective September 27, 1966

To All Banlcs, Other Financing Institutions, and Others Concerned,
in the Second Federal Reserve District:

Enclosed is a copy of Regulation V, Loan Guarantees for Defense Pro­
duction, as amended effective September 27, 1966, and a new Supplement
thereto, also effective September 27, 1966, issued by the Board of Governors of
the Federal Reserve System.
The amended regulation reflects the inclusion of the Atomic Energy Com­
mission, the Defense Supply Agency, and the National Aeronautics and Space
Administration in the list of agencies that guarantee loans made by private
financing institutions for the financing of defense contracts. It also provides
for a supplement (section 7) to the regulation, in which the Board of Governors,
after consultation with the guaranteeing agencies, prescribes the rates of inter­
est, guarantee fees, commitment fees, and other charges that may be made on
such V-loans ; previously such rates, fees, and charges were prescribed by the
Board in announcements that were not formal parts of the regulation.
The supplement prescribes the new maximum rate of interest on Y-loans of
7V2 per cent (announced in our Circular No. 5877, dated September 29), the
current schedule of guarantee fees with respect to such loans, and the rules
governing commitment fees charged for such loans.
Additional copies of the enclosures will be furnished upon request.




A lfred

H ayes,

President.

SUPPLEMENT TO REGULATION V
Section 7— Maximum Rates of Interest, Guarantee Fees,
and Commitment Fees
Issu ed

by

th e

B oard

of

Go v e r n o r s

of

th e

F ederal

R eserve

System

Effective September 27, 1966

Pursuant to the provisions of the Defense Production Act of
1950 and Executive Order No. 10480, dated August 14, 1953, as
amended, the Board of Governors of the Federal Reserve System
hereby prescribes the maximum rate of interest, guarantee fees,
and commitment fees which may be charged with respect to
guaranteed loans executed through the agency of any Federal
Reserve Bank:

(a) Maximum rate of interest.— The maximum interest rate
charged a borrower by a financing institution with respect to a
guaranteed loan shall not exceed 7 % per cent per annum.
(b) Guarantee fees.— The schedule of fees with respect to
guaranteed loans is as follows:
Guarantee Fee

Per cent of
loan guaranteed
70 or less
75
80
85
90
95
Over 95

(Per cent of interest
payable by borrower
on guaranteed portion
of loan)
10
15
20
25
30
35
4 0 -5 0

In any case in which the rate of interest on the loan is in excess
of 6 per cent, the guarantee fee shall be computed as though the
interest rate were 6 per cent.

(c) Commitment fees.— In any case in which a commitment
fee is charged a borrower with respect to a guaranteed loan,
such fee shall not exceed V2 of 1 Per cent per annum. In any
such case, the financing institution will pay to the guaranteeing
agency a percentage of such commitment fee, based on the guar­
anteed portion of the credit, equal to the same percentage of the
interest payable on the loan which is required to be paid by the
financing institution to the guarantor as a guarantee fee.




BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

LOAN GUARANTEES FOR DEFENSE
PRODUCTION

REGULATION V
(32A CFR Ch. X V )
As amended effective September 27, 1966




INQUIRIES WITH RESPECT TO THIS REGULATION
Any inquiry relating to this regulation should be addressed to
the Federal Reserve Bank of the Federal Reserve district in which
the inquiry arises.




REGULATION V
(32A CFR Ch. X V )
As amended effective September 27, 1966

LOAN GUARANTEES FOR DEFENSE PRODUCTION *
SECTION 1. A U TH O R IT Y

This regulation is based upon and issued pursuant to the De­
fense Production Act of 1950 (referred to in this regulation as
the “ act” ) , and Executive Order No. 10480, dated August 14,
1953 as amended (3 CFR 1949-1953 Comp., p. 962) (referred to
in this regulation as the “ order” ) , and after consultation with
the heads of the guaranteeing agencies designated in the act and
the order, namely, the Department of the Arm y, the Department
of the Navy, the Department of the A ir Force, the Department of
Commerce, the Department of the Interior, the Department of
Agriculture, the General Services Administration, the Atomic
Energy Commission, the Defense Supply Agency, and the N a­
tional Aeronautics and Space Administration.
SECTION 2. OBJECTIVES OF FE D E R A L RESE R V E SYSTEM

In carrying out its functions under the act and the order, it will
be the objective of the Federal Reserve System to facilitate and
expedite to the greatest extent possible the financing of contrac­
tors, subcontractors, and other persons having contracts or en­
gaged in operations deemed by the guaranteeing agencies to be
necessary to expedite production and deliveries or services under
Government contracts for the procurement of materials or the
performance of services for the national defense. The Board of
Governors of the Federal Reserve System (referred to in this
regulation as the “ Board” ) and the Federal Reserve Banks will
cooperate fully with the guaranteeing agencies in order to achieve
this objective and will follow in general and to the extent applica­
ble procedures developed from experience obtained in the ad­
ministration of the V-loan and T-loan programs during World
W ar II.
SECTION 3. PROCEDURES

(a)
Applications.— Any private financing institution may sub­
mit to the Federal Reserve Bank of its district an application for
*
V;

This text corresponds to the Code o f Federal Regulations, title 32A , Chapter X V , Reg.
cited as 32A C FR ch. X V , Reg. V .




2

REGULATION V

S ec. 3

a guarantee of a loan to an eligible borrower. Such application
shall be in such form and contain such information as the Board
may prescribe after consultation with the guaranteeing agencies.
(b) Eligibility of Borrower.— No loan shall be guaranteed un­
less it shall first be determined that the contract or other opera­
tion of the prospective borrower to be financed by such loan is one
which is deemed by the guaranteeing agency involved to be neces­
sary to expedite production and deliveries or services under a
Government contract for the procurement of materials or the
performance of services for the national defense. Such deter­
mination will be made in each case by a duly authorized certifying
officer of the appropriate guaranteeing agency or in such other
manner as the guaranteeing agency may prescribe. The deter­
mination will be made upon the basis of information contained in
the application and accompanying papers filed by the applicant
financing institution, unless in the circumstances of a particular
case it appears that further information is necessary.

(c) Approval of Guarantees.— Each application by a financing
institution for a loan guarantee will be subject to approval by the
appropriate guaranteeing agency in Washington or, to such ex­
tent as the guaranteeing agency may prescribe, by the Federal
Reserve Bank to which the application is submitted. In any case
in which an application is required to be submitted to Washington
for approval, the Federal Reserve Bank will transmit the appli­
cation, together with all necessary supporting information and
the recommendation of the Federal Reserve Bank, through the
Board of Governors to the guaranteeing agency involved. Subject
to determination of the borrower’s eligibility, if the application
is approved by a duly authorized contracting officer of the guar­
anteeing agency, such contracting officer will authorize the Fed­
eral Reserve Bank to execute and deliver the guarantee on behalf
of the guaranteeing agency.

Such authorization will be trans­

mitted to the Federal Reserve Bank through the Board of Gov­
ernors; and, thereupon, the Federal Reserve Bank, acting as fiscal
agent of the United States, will execute and deliver the guarantee
on behalf of the guaranteeing agency in accordance with the
terms of the authorization.

In any case in which the Federal

Reserve Bank is authorized by a guaranteeing agency to approve
applications for guarantees, the Reserve Bank, if it approves the




REGULATION V

S e c s . 3, 4, 5

3

application and subject to determination of the borrower’s eligi­
bility, will execute and deliver the guarantee without submission
of the application for prior approval by any officer of the guaran­
teeing agency; but the Reserve Bank will promptly notify the
guaranteeing agency of the execution of such guarantee.

(d)
Other Forms and Procedures.— The Board will prescribe
from time to time, after consultation with the guaranteeing
agencies, forms to be followed in the execution of guarantees pur­
suant to this regulation and such other forms as may be neces­
sary. The Board will also prescribe, after consultation with the
guaranteeing agencies, procedures with respect to such matters
as the purchase of guaranteed loans by the Federal Reserve
Banks as fiscal agents, the handling and disposition by the Fed­
eral Reserve Banks of guarantee fees and other fees collected, and
such other procedures as may be found necessary.
SECTION 4. R E SP O N SIB ILITY OF F E D E R A L R E SE R V E BANKS

A Federal Reserve Bank in arranging for or making any
guarantee on behalf of any guaranteeing agency will be expected
to make reasonable efforts to afford such guaranteeing agency the
best available protection against possible financial loss consistent
with the obtaining of national defense production expeditiously.
No Federal Reserve Bank, however, shall have any responsibility
or accountability except as agent in taking any action pursuant
to or under authority of the act, the order, or this regulation.
Each Federal Reserve Bank will be reimbursed by each guaran­
teeing agency in the usual manner for all expenses and losses
incurred by the Reserve Bank in acting as agent on behalf of such
guaranteeing agency, including among such expenses, notwith­
standing any other provision of law, attorneys’ fees and expenses
of litigation.
SECTION 5. RA TE S A N D FE E S

Rates of interest, guarantee fees, commitment fees, and other
charges which may be made with respect to guaranteed loans and
guarantees executed through the agency of any Federal Reserve
Bank under this regulation will from time to time be prescribed,
either specifically or by maximum limits or otherwise, in section
7 (the Supplement) by the Board of Governors after consultation
with the guaranteeing agencies.




REGULATION V

4

S ec . 6

SECTION 6. REPORTS

Each Federal Reserve Bank shall make such reports as the
Board of Governors shall require with respect to its operations
pursuant to the terms of the act, the order and this regulation.
(S E C T IO N
M IT M E N T

7.

M A X IM U M

RATES OF

F E E S , is published separately.)




IN T E R E S T , G U A R A N T E E

FEES, A N D

C OM ­

5

APPENDIX
STA T U T O R Y PROVISIONS

Defense Production Act of 1950
(Pub. No. 774— 81st Cong., Approved September 8, 1950)

TITLE III— E XP A N SIO N OF PRODUCTIVE C AP A C IT Y
A N D SUPPLY

Sec . 301. (a) In order to expedite production and deliveries or
services under Government contracts, the President may author­
ize, subject to such regulations as he may prescribe, the Depart­
ment of the Arm y, the Department of the N avy, the Department
of the A ir Force, the Department of Commerce, and such other
agencies of the United States engaged in procurement for the
national defense as he may designate (hereinafter referred to as
“ guaranteeing agencies” ) , without regard to provisions o f law
relating to the making, performance, amendment, or modification
of contracts, to guarantee in whole or in part any public or
private financing institution (including any Federal Reserve
b a n k ), by commitment to purchase, agreement to share losses, or
otherwise, against loss of principal or interest on any loan, dis­
count, or advance, or on any commitment in connection therewith,
which may be made by such financing institution for the purpose
of financing any contractor, subcontractor, or other person in con­
nection with the performance of any contract or other operation
deemed by the guaranteeing agency to be necessary to expedite
production and deliveries or services under Government contracts
for the procurement of materials or the performance o f services
for the national defense, or for the purpose o f financing any con­
tractor, subcontractor or other person in connection with or in
contemplation of the termination, in the interest of the United
States, of any contract made for the national defense; but no
small-business concern (as defined in section 7 1 4 (a ) (1 ) of this
A ct) shall be held ineligible for the issuance of such a guaranty
by reason of alternative sources of supply.
(b)
Any Federal agency or any Federal Reserve bank, when
designated by the President, is hereby authorized to act, on behalf
of any guaranteeing agency, as fiscal agent o f the United States
in the making of such contracts of guarantee and in otherwise
carrying out the purposes of this section. All such funds as may




6

REGULATION V

be necessary to enable any such fiscal agent to carry out any
guarantee made by it on behalf of any guaranteeing agency shall
be supplied and disbursed by or under authority from such guar­
anteeing agency. No such fiscal agent shall have any responsibil­
ity or accountability except as agent in taking any action pursu­
ant to or under authority of the provisions of this section. Each
such fiscal agent shall be reimbursed by each guaranteeing agency
for all expenses and losses incurred by such fiscal agent in acting
as agent on behalf of such guaranteeing agency, including among
such expenses, notwithstanding any other provision o f law, at­
torneys’ fees and expenses of litigation.
(c) All actions and operations of such fiscal agents under
authority of or pursuant to this section shall be subject to the
supervision o f the President, and to such regulations as he may
prescribe; and the President is authorized to prescribe, either
specifically or by maximum limits or otherwise, rates of interest,
guarantee and commitment fees, and other charges which may be
made in connection with loans, discounts, advances, or commit­
ments guaranteed by the guaranteeing agencies through such
fiscal agents, and to prescribe regulations governing the forms
and procedures (which shall be uniform to the extent practica­
ble) to be utilized in connection with such guarantees.
(d) Each guaranteeing agency is hereby authorized to use for
the purposes of this section any funds which have heretofore been
appropriated or allocated or which hereafter may be appropriated
or allocated to it, or which are or may become available to it, for
such purposes or for the purpose of meeting the necessities o f the
national defense.
[50 App. U.S.C. 2091.]

^

^

TITLE V II— G E N E R A L PROVISIONS

*

*

*

*

*

S ec . 702. A s used in this Act—
(a)
The word “ person” includes an individual, corporation,
partnership, association, or any other organized group of persons,
or legal successor or representative of the foregoing, and includes
the United States or any agency thereof, or any other govern­
ment, or any of its political subdivisions, or any agency of any of
the foregoing: Provided , That no punishment provided by this




REGULATION V

7

A ct shall apply to the United States, or to any such government,
political subdivision, or government agency.
(b) The word “ materials” shall include raw materials, articles,
commodities, products, supplies, components, technical informa­
tion, and processes.
(c) The word “ facilities” shall not include farm s, churches or
other places of worship, or private dwelling houses.
(d) The term “ national defense” means programs for military
and atomic energy production or construction, military assistance
to any foreign nation, stockpiling, and directly related activity.
Sfc

[50 App. U.S.C. 2152.]
S e c . 703. (a) Except as otherwise specifically provided, the
President may delegate any power or authority conferred upon
him by this Act to any officer or agency of the Government, in­
cluding any new agency or agencies (and the President is hereby
authorized to create such new agencies, other than corporate
agencies, as he deems necessary), and he may authorize such re­
delegations by that officer or agency as the President may deem
appropriate. * * *
=fs

*

*

*

*

[50 App. U.S.C. 2153.]
S e c . 704. The President may make such rules, regulations, and

orders as he deems necessary or appropriate to carry out the
provisions of this Act. Any regulation or order under this Act
may be established in such form and manner, may contain such
classifications and differentiations, and may provide for such ad­
justments and reasonable exceptions as in the judgment of the
President are necessary or proper to effectuate the purposes of
this Act, or to prevent circumvention or evasion, or to facilitate
enforcement of this Act, or any rule, regulation, or order issued
under this Act. * * *
[50 App. U.S.C. 2154.]

*

*

*

*

*

Sec . 709. The functions exercised under this Act shall be ex­
cluded from the operation of the Administrative Procedure Act
(60 Stat. 237) except as to the requirements of section 3 thereof.
Any rule, regulation, or order, or amendment thereto, issued




8

REGULATION V

under authority of this A ct shall be accompanied by a statement
that in the formulation thereof there has been consultation with
industry representatives, including trade association representa­
tives, and that consideration has been given to their recommenda­
tions, or that special circumstances have rendered such consulta­
tion impracticable or contrary to the interest o f the national
defense, but no such rule, regulation, or order shall be invalid by
reason of any subsequent finding by judicial or other authority
that such a statement is inaccurate.
[50 App. U .S.C. 2159.]

S ec . 711. There are hereby authorized to be appropriated such
sums as may be necessary and appropriate for the carrying out
of the provisions arid purposes of this Act by the President and
such agencies as he may designate or create. Funds made avail­
able for the purposes of this A ct may be allocated or transferred
for any of the purposes of this Act, with the approval o f the
Bureau of the Budget, to any agency designated to assist in carry­
ing out this Act. Funds so allocated or transferred shall remain
available for such period as may be specified in the Acts making
such funds available.
[50 App. U.S.C. 2161.]

S ec . 717. (a) Title I (except section 1 0 4 ), title III, and title
V II (except section 714) of this Act, and all authority conferred
thereunder, shall terminate at the close of June 3 0 ,1 9 6 8 . Section
714 of this Act, and all authority conferred thereunder, shall
terminate at the close of July 31, 1953. Section 104, title II, and
title V I of this Act, and all authority conferred thereunder, shall
terminate at the close of June 30, 1953. Titles IV and V o f this
Act, and all authority conferred thereunder, shall terminate at
the close of April 30, 1953.
(b) Not withstanding the foregoing—
(1) The Congress by concurrent resolution or the Presi­
dent by proclamation may terminate this A ct prior to the
termination otherwise provided therefor.
(2) The Congress may also provide by concurrent resolu­
tion that any section of this Act and all authority conferred




REGULATION V

9

thereunder shall terminate prior to the termination other­
wise provided therefor.
(3)
Any agency created under this Act may be continued
in existence for purposes of liquidation for not to exceed six
months after the termination of the provision authorizing
the creation of such agency.
(c)
The termination of any section of this Act, or of any
agency or corporation utilized under this Act, shall not affect the
disbursement of funds under, or the carrying out of, any contract,
guarantee, commitment or other obligation entered in pursuant
to this Act prior to the date of such termination, or the taking of
any action necessary to preserve or protect the interests of the
United States in any amounts advanced or paid out in carrying
on operations under this Act, or the taking of any action (includ­
ing the making of new guarantees) deemed by a guaranteeing
agency to be necessary to accomplish the orderly liquidation,
adjustment or settlement of any loans guaranteed under this
Act, including actions deemed necessary to avoid undue hardship
to borrowers in reconverting to normal civilian production; and
all of the authority granted to the President, guaranteeing agen­
cies, and fiscal agents, under section 301 of this Act shall be
applicable to actions taken pursuant to the authority contained
in this subsection.
He

♦

♦

[50 App. U.S.C. 2166.]

E X E C U T IV E O RD ER NO. 10480
[3 CFR 1949-1953 Comp. 962.]

A s amended by Executive Orders 10574, 10662, 10773, 10782
(3 CFR 1954-1958 Comp. 212, 318, 416, and 422 respectively)
and 10819, 11051, and 11062 (3 CFR 1959-1963 Comp. 352, 635,
and 652 respectively).
F U R T H E R P R O V ID IN G FOR T H E A D M IN IS T R A T IO N OF
T H E D E F E N S E M O B IL IZ A T IO N PR O G RAM
By virtue of the authority vested in me by the Constitution
and laws of the United States, including the Defense Production
Act of 1950, as amended (50 U.S.C. App. 2061 et seq.), and as




10

REGULATION V

President of the United States and Commander in Chief of the
armed forces of the United States, it is hereby ordered as follows:
PART III. E X P A N SIO N OF PRODUCTIVE C A P A C IT Y A N D SU P P LY

S ec . 301. The Department of Defense, the Atom ic Energy
Commission, the Department of Commerce, the Department of
the Interior, the Department of Agriculture, the General Services
Administration, and the National Aeronautics and Space Adm in­
istration, in this Part referred to as guaranteeing agencies, each
officer having functions delegated to him pursuant to section
2 0 1 (a ) of this order, and each other agency of the Government
having mobilization functions, shall, within areas of production
designated by Director of the Office of Emergency Planning, de­
velop and promote measures for the expansion of productive
capacity and of production and supply of materials and facilities
necessary for the national defense.
S ec . 302. (a) Each guaranteeing agency is hereby authorized,
in accordance with section 301 of the Defense Production A ct of
1950, as amended, subject to the provisions of this section, in
order to expedite production and deliveries or services under
Government contracts, and without regard to provisions of law
relating to the making, performance, amendment, or modification
of contracts, to guarantee in whole or in part any public or
private financing institution (including any Federal Reserve
B ank), by commitment to purchase, agreement to share losses,
or otherwise, against loss of principal or interest on any loan,
discount, or advance, or on any commitment in connection there­
with, which may be made by such financing institution for the
purpose of financing any contractor, subcontractor, or other per­
son in connection with the performance of any contract or other
operation deemed by the guaranteeing agency to be necessary to
expedite production and deliveries or services under Government
contracts for the procurement of materials or the performance of
services for the national defense, or for the purpose of financing
any contractor, subcontractor, or other person in connection with
or in contemplation of the termination, in the interest of the
United States, of any contract made for the national defense; but
no small business concern (as defined in section 7 1 4 (a ) (1 ) of the
said A ct) shall be held ineligible for the issuance o f such a
guaranty by reason of alternative sources of supply.




REGULATION V

11

(b) Each Federal Reserve Bank is hereby designated and au­
thorized to act, on behalf of any guaranteeing agency, as fiscal
agent of the United States in the making of such contracts of
guarantee and in otherwise carrying out the purposes of section
301 of the said Act, as amended, in respect to private financing
institution.
(c) All actions and operations of Federal Reserve Banks,
under authority of or pursuant to the section 301 of the said Act,
as amended, shall be subject to the supervision of the Board of
Governors of the Federal Reserve System. Said Board is hereby
authorized, after consultation with the heads of the guaranteeing
agencies, (1) to prescribe such regulations governing the actions
and operations of fiscal agents hereunder as it may deem neces­
sary, (2) to prescribe, either specifically or by maximum limits
or otherwise, rates of interest, guarantee and commitment fees,
and other charges which may be made in connection with loans,
discounts, advances, or commitments guaranteed by the guaran­
teeing agencies through such fiscal agents, and (3 ) to prescribe
regulations governing the forms and procedures (which shall be
uniform to the extent practicable) to be utilized in connection
with such guarantees.
*

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PART VI. G E N E R A L PROVISIONS

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*

S e c . 602. (a) Except as otherwise provided in section 6 02 (c)
of this order, each officer or agency of the Government having
functions under the Defense Production Act of 1950, as amended,
delegated or assigned thereto by or pursuant to this Executive
order may exercise and perform, with respect to such functions,

the functions vested in the President by Title V II of the said Act.
(b)
The functions which may be exercised and performed pur­
suant to the authority of section 6 0 2 (a ) of this order shall in­
clude, but not by way of limitation, (1) except as otherwise
provided in section 7 0 8 (c ) of the Defense Production A ct of 1950,
as amended, the power to redelegate functions, and to authorize
the successive redelegation of functions, to agencies, officers, and
employees of the Government, (2) the power to create an agency
or agencies, under the jurisdiction of the officer concerned, to ad­




12

REGULATION V

minister functions delegated or assigned by or pursuant to this
order, and (3 ) in respect of Part II of this order, the power of
subpoena: Provided, That the subpoena power shall be utilized
only after the scope and purpose of the investigation, inspection,
or inquiry to which the subpoena relates have been defined either
by the appropriate officer referred to in section 6 0 2 (a ) of this
order or by such other person or persons as he shall designate.
(c)
There are excluded from the functions delegated by section
6 0 2 (a ) of this order (1 ) the functions delegated by Part V of
this order, (2) the functions of the President under section
7 1 0 (b ), (c ), (d ), and (e) of the Defense Production A ct of 1950,
as amended, and (3 ) the functions of the President with respect
to fixing compensation under section 7 0 3 (a ) of the said Act.
S ec . 603. All agencies of the Government (including, as used
in this order, departments, establishments, and corporations)
shall furnish to each officer of the Government to whom functions
under the Defense Production A ct of 1950, as amended, are dele­
gated or assigned by or pursuant to this order such information
relating to defense production or procurement, or otherwise re­
lating to the said functions delegated or assigned to such officer
by or pursuant to this order as may be required to perform
those functions.




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