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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. * * * * * PART VI. G E N E R A L PROVISIONS * * * * * 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. * * * *