[Federal Register Volume 61, Number 197 (Wednesday, October 9, 1996)]
[Rules and Regulations]
[Pages 52875-52876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25867]
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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: Final rule.
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SUMMARY: The Board is repealing its Regulation V on loan guarantees for
defense production as obsolete. This action does not represent any
policy change, but rather eliminates an outmoded regulation and reduces
regulatory burden.
EFFECTIVE DATE: October 9, 1996.
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:
I. Background
Pursuant to Section 303 of the Riegle Community Development and
Regulatory Improvement Act of 1994, requiring the Board of Governors of
the Federal Reserve System (the Board) to conduct 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, the Board proposed to repeal Regulation V,
concerning the loan guarantee program under the Defense Production Act
of 1950 (50 U.S.C. app. 2061) (the Act). The Board requested public
comment on this proposed regulatory change on May 28, 1996 (61 FR
26471). Board staff also solicited 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
(November 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. 12919 (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. 12919 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 29525
(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. 10789
(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, General Printing Office, and Federal
Emergency Management Agency. Exec. Order No. 10789, 23 FR 8897
(1958), as amended.
\2\ A similar provision was formerly set forth in Section 302(c)
of Exec. Order No. 10480 (1953). Exec. Order No. 10480 was revoked
by Exec. Order No. 12919 (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
[[Page 52876]]
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.
Repeal of Regulation V
Repealing Regulation V will 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 will 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 will be able to perform
their fiscal agency and application coordination responsibilities under
the Act in the event such an application is filed using fiscal agency
procedures already in place in other contexts and on a case-by-case
basis.
II. Overview of Comments Received
The Board received 5 comment letters on the proposal. The comment
letters consisted of 4 letters from Federal Reserve Banks and one
letter from the National Aeronautics and Space Administration. In
addition, in response to its solicitation of the views of
``guaranteeing agencies'' under the Act, the Board received a letter
from the United States Government Printing Office and a letter from the
Department of Agriculture. All commenters expressed support for the
proposal.
III. Description of the Final Rule
The final rule deletes 12 CFR 245 as obsolete.
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
Board hereby certifies that this final rule will not have a significant
economic impact on a substantial number of small entities. The final
rule does not impose any requirements, but rather deletes an outmoded
regulation as obsolete.
V. Paperwork Reduction Act of 1995
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under
the authority delegated to the Board by the Office of Management and
Budget. No collections of information pursuant to the Paperwork
Reduction Act are contained in the final rule.
List of Subjects in 12 CFR Part 245
Federal Reserve System, Government contracts, Loan programs-
National defense, National defense.
For the reasons set forth in the preamble, and in accordance with
its authority under 50 U.S.C. app. 2061 et seq., the Board of Governors
of the Federal Reserve is amending Title 12 of the Code of Federal
Regulations, Chapter II as follows:
PART 245--[REMOVED]
1. Part 245 is removed.
By order of the Board of Governors of the Federal Reserve
System, October 3, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-25867 Filed 10-8-96; 8:45 am]
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