[Federal Register Volume 61, Number 103 (Tuesday, May 28, 1996)]
[Proposed Rules]
[Pages 26471-26473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13225]



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FEDERAL RESERVE SYSTEM
12 CFR Part 245

[Regulation V; Docket No. R-0928]


Loan Guarantees for Defense Production

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to abolish its Regulation V as 
obsolete. This consideration does not represent any major policy 
change, but rather is intended to eliminate an outmoded regulation and 
reduce regulatory burden.

DATES: Comments must be submitted on or before July 29, 1996.

ADDRESSES: Comments, which should refer to Docket No. R-0928, may be 
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551. Comments addressed to Mr. Wiles also may be 
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and 
to the security control room outside of

[[Page 26472]]

those hours. Both the mail room and the security control room are 
accessible from the courtyard entrance on 20th Street between 
Constitution Avenue and C Street, N.W. Comments may be inspected in 
Room M-P-500 between 9:00 a.m. and 5:00 p.m.

FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General 
Counsel (202-452-3625), Heatherun Allison, Attorney (202-452-3565), 
Legal Division; for users of the Telecommunications Device for the Deaf 
(TDD) only, Dorothea Thompson (202-452-3544); Board of Governors of the 
Federal Reserve System, Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

Regulatory Review

    Pursuant to Section 303 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, the Board of Governors of the 
Federal Reserve System (the Board) is conducting a review of its 
regulations and written policies in order to improve efficiency, reduce 
unnecessary costs, eliminate unwarranted constraints on credit 
availability, and to remove inconsistencies and outmoded and 
duplicative requirements. As part of this review, the Board is 
proposing to abolish Regulation V (12 CFR part 245), concerning the 
loan guarantee program under the Defense Production Act of 1950 (50 
App. U.S.C. 2061) (the Act). The Board is requesting public comment on 
this proposed regulatory change, as well as soliciting the views of the 
guaranteeing departments and agencies (as defined in the Act) 
consistent with Executive Order 12919 (June 3, 1994) and Executive 
Order 10789 (Nov. 14, 1958) (as amended), implementing the Act.

Authority for Regulation V

    The Board promulgated Regulation V (12 CFR 245) pursuant to the Act 
``to facilitate the financing of contracts or other operations deemed 
necessary to national defense production.'' Section 301(a)(1) of the 
Act allows the President to authorize ``guaranteeing agencies'' to 
enter into guarantees with public or private financing institutions 
concerning contracts ``deemed by the guaranteeing agency to be 
necessary to expedite or expand production and deliveries or services 
under Government contracts for the procurement of industrial resources 
or critical technology items essential to 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; * * *'' Section 301(a)(1) of the Act defines ``guaranteeing 
agencies'' as the Department of Defense, the Department of Energy, the 
Department of Commerce, ``and such other agencies of the United States 
engaged in procurement for the national defense as he may designate.''
    Exec. Order No. 12,919 (1994) provides that ``the head of each 
Federal department or agency engaged in procurement for the national 
defense * * * and the President and chairman of the Export-Import Bank 
of the United States'' is authorized to guarantee public or private 
financing institutions as provided in Section 301 of the Act.\1\ In 
furtherance of this authorization, Exec. Order No. 12,919 provides that 
``The Board of Governors of the Federal Reserve System is authorized, 
after consultation with heads of guaranteeing departments and agencies, 
the Secretary of the Treasury, and the Director, OMB, to prescribe 
regulations governing procedures, forms, rates of interest, and fees 
for [loan] guarantee contracts.'' Exec. Order. No. 12919, 59 FR 29,525 
(1994).\2\ The Board exercised this authorization in implementing 
Regulation V in the 1950s. Regulation V was modified and streamlined in 
1979.
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    \1\ The ``head of each Federal department or agency engaged in 
procurement for the national defense'' is defined as the head of 
each of the departments and agencies listed in Exec. Order No. 
10,789 (1958), consisting of the following Departments: Defense, 
Army, Navy, Air Force, Treasury, Interior, Agriculture, Commerce, 
Transportation, Nuclear Regulatory Commission, General Services 
Administration, National Aeronautics & Space Administration, 
Tennessee Valley Authority, Government Printing Office, and Federal 
Emergency Management Agency. Exec. Order No. 10,789, 23 Fed. Reg. 
8,897 (1958), as amended.
    \2\ A similar provision was formerly set forth in Section 302(c) 
of Exec. Order No. 10,480 (1953). Exec. Order No. 10,480 was revoked 
by Exec. Order No. 12,919 (1994).
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Purpose of Regulation V

    The loan guarantee provisions of the Act were intended to permit 
defense agencies to enter into defense-related contracts without regard 
to whether appropriations had been made for the underlying projects. 
Without the appropriations, defense agencies would lack the legal 
authority to make progress payments to defense contractors. Without 
progress payments, contractors would not have the working capital to 
perform their contracts unless they could obtain financing from private 
banking institutions, which might be reluctant to lend for the 
performance of contracts if the funds for the contract had not been 
appropriated. Thus, while the Act contemplates that defense-contract 
funding would be obtained from private banks, the loan guarantees 
provisions of the Act would enable the funding and therefore the 
continued production of items deemed necessary to the national defense 
by ensuring private banks of repayment when the contract was completed. 
Regulation V sets forth applicable procedures, forms, fees, charges and 
rates of interest for these loan guarantees, in which a Federal Reserve 
Bank acts as the fiscal agent of one or more specified federal 
departments or agencies for the guarantee by that department or agency 
of a defense production loan made by a private financing institution.

Decline in Use of Regulation V

    The Act and the Executive Orders implementing it have periodically 
expired and subsequently been reauthorized. However, in 1975, the Act 
was amended to make the guarantee provisions unnecessary for most 
practical purposes. These amendments provided that ``all authority 
hereby or hereafter extended under title III [relating to expansion of 
productive capacity and supply, including loan guarantee provisions] 
shall be effective for any fiscal year only to such extent or in such 
amounts as are provided in advance in appropriation Acts.'' 50 U.S.C. 
App. 2166(a). Thus, under the 1975 amendments, defense agencies that 
have authority to authorize loan guarantees have authority to do so 
only if funds have been appropriated for the contract in question. Once 
funds have been appropriated, however, there is little need for the 
guarantee, because the appropriated funds can be paid timely in 
accordance with the defense contracts. Notwithstanding the 1975 
amendments, the loan guarantee provisions of the Act were not deleted. 
No loan guarantees are currently outstanding and no applications for 
loan guarantees have been filed for several years.

Current Regulatory Review Proposal

    Repealing Regulation V would achieve the objectives of Section 303 
of the Riegle Community Development and Regulatory Improvement Act of 
1994 by improving efficiency and removing outmoded requirements while 
at the same time not adversely affecting the abilities of any parties 
to participate in a loan guarantee should the need arise. Repealing 
Regulation V would not affect the existence or availability of the loan 
guarantee program as provided by the Act. Although the 1975 amendments 
to the Act make it unlikely that a loan guarantee application will be 
filed, the Board and the Federal Reserve Banks would be able to perform 
their fiscal

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agency and application coordination responsibilities under the Act if 
such an application were filed using fiscal agency procedures already 
in place in other contexts and on a case-by-case basis.

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
agency to publish an initial regulatory flexibility analysis with any 
notice of proposed rulemaking. Two of the requirements of an initial 
regulatory flexibility analysis (5 U.S.C. 603(b) (1)-(2)), a 
description of the reasons why action by the agency is being considered 
and a statement of the objectives of, and legal basis for, the 
proposal, are contained in the supplementary material above. The 
proposal rule imposes no additional reporting or recordkeeping 
requirements and does not overlap with other federal rules. (5 U.S.C. 
603(b) (4)-(5).)
    Another requirement for the initial regulatory flexibility analysis 
is a description of and, where feasible, an estimate of the number of 
small entities to which the proposed rule will apply. (5 U.S.C. 
603(b)(3).) The proposal will apply to all depository institutions 
regardless of size. The proposal seeks to eliminate an obsolete 
regulatory provision and does not impose any substantial economic 
burden on small entities.

    By order of the Board of Governors of the Federal Reserve 
System, May 21, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-13225 Filed 5-24-96; 8:45 am]
BILLING CODE 6210-01-P