[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