bailers, power sprayers, beet harvesters, and power manure loaders, a fifth to a fourth more mechanical corn pickers and combines, and an eighth to a fifth more milking machines and silos.

Other programs

The Department has been working closely with the Department of Labor and the States to analyze the various problems of getting and keeping enough agricultural labor to produce the necessary crops and livestock. Local studies have been made of the availability, utilization, and productivity of farm labor, and the turn-over or losses from the agricultural labor force to the industrial labor force.

For purposes of price control, the Department computes legal minimum prices at which farm commodities are sold, and works closely with the Office of Price Stabilization on price regulations.

Department field representatives cooperate with the Defense Bond Sales Division in a program to stimulate bond sales to farmers.

In cooperation with the national scrap drive to support expanded steel production, the Department and its field representatives through the early part of the 1951-52 period Ɛarried on a campaign to encourage farmers to turn in iron and steel scrap.

Industry advisory committees

To consult with it on food distribution and related problems, the Department has at the present time 30 industry advisory committees. The Secretary appoints the members of these committees on the recommendation of the agencies within the Department having direct operating responsibility for the commodities or activities which are to be the concern of the committee. The membership is carefully selected to represent independent, small, medium, and large enterprises; different segments of the industry; membership and nonmembership in trade associations, and to assure geographical distribution in representation.

Twenty-six of the Department's industry advisory committees are identical in membership with committees appointed by the Office of Price Stabilization and four of the committees are identical in membership with committees appointed by the Defense Fisheries Administration. This follows the Department's general practice of communicating with other Federal agencies in order to avoid committee duplication or overlapping and also to secure a desirable integration of the defense work. This cooperation and coordination between the Department and other defense agencies is continued during the life of the committees. To make the selection of membership to committees and the conduct of committee meetings uniform in practice and to conform to certain legal and other requirements, a printed instruction has been prepared as a guide to officials having responsibilities in this field. This instruction was submitted to and approved by the Department of Justice before issuance.

FEDERAL RESERVE SYSTEM

Hon. BURNET R. MAYBANK,

FEDERAL RESERVE SYSTEM, Washington 25, D. C., October 8, 1952.

Chairman, Joint Committee on Defense Production,

United States Senate, Washington, D. C.

DEAR SENATOR MAYBANK: In response to your letter of August 22, 1952, there is attached, for inclusion in the proposed report of the Joint Committee on Defense Production being prepared pursuant to section 712 (b) of the Defense Production Act, information relating to the operations carried out by the Board under authority of that act.

Sincerely yours,

WM. MCC. MARTIN, Jr.

1. Programs conducted by your agency under authority of the Defense Production Act as implemented by Executive orders, departmental orders, delegations, etc.

Under authority of the Defense Production Act, (a) the Board of Governors, until May 7, 1952, prescribed regulations with respect to consumer credit; (b) the Board, until September 16, 1952, prescribed regulations with respect to real

estate construction credit; (c) the Board, until May 12, 1952, acted to the extent required by law to implement the voluntary credit restraint program; and (d) the Federal Reserve banks, under regulations of the Board of Governors, act as fiscal agents of the United States in connection with the V-loan program for Government guaranties of defense production loans, and the Board of Governors, after consultation with the guaranteeing agencies, prescribes fees, rates, and procedures to be utilized in connection with such guaranties.

2. Authority from which your agency derives its power for such programs

Authority for all of the above programs, except the program for regulation of consumer credit, is vested by the Defense Production Act of 1950 in the President, but, pursuant to section 703 of that act, the President by Executive Order No. 10161, of September 9, 1950, delegated his authority with respect to these matters to the Board of Governors. By virtue of Executive Orders No. 10193 of December 16, 1950, and No. 10281 of August 28, 1951, all functions delegated by the President under Executive Order No. 10161 are performed subject to the direction, control, and coordination of the Director of Defense Mobilization. By Executive Order No. 10200 of January 3, 1951, there was established a Defense Mobilization Board to advise the Director of Defense Mobilization, and the Chairman of the Board of Governors of the Federal Reserve System is a member of that Board.

The specific authority for the real-estate construction credit program is section 602 of the Defense Production Act of 1950 and Executive Order No. 10161. This authority, however, has been modified by the following provisions of law:

(a) Section 203 of title II of Public Law 96, Eighty-second Congress, which amends section 204 of the Housing and Rent Act of 1947, as amended, and provides in part that real-estate construction credit controls imposed under title VI of the Defense Production Act of 1950 shall be relaxed to the extent necessary to encourage construction of housing for defense workers and military personnel in critical defense housing areas;

(b) Section 102 of the Defense Housing and Community Facilities and Services Act of 1951 (Public Law 139, 82d Cong.) which provides for the suspension of residential credit restrictions under the Defense Production Act of 1950, as amended, with respect to certain lower-priced housing units in critical housing areas.

The section also permits the President to relax credit restrictions with respect to all other housing when he determines that such action is necessary to obtain the production of such housing needed in the area. Section 606 of the same act provides for maximum down payments in connection with conventional or FHA financing of homes where the transaction price is $12,000 or less; and

(c) Section 607 of the Defense Production Act of 1950, as amended by section 116 (b) of the Defense Production Act amendments of 1952, provides for a relaxation of real-estate credit controls with respect to residential property if housing starts for any consecutive 3 months fall below an annual rate of 1,200,000. In this event a down payment of more than 5 percent of the transaction price may not be required. Under Executive Order No. 10373 of July 14, 1952, the estimates of housing starts are to be made by the Labor Department's Bureau of Labor Statistics which will also make estimates of the annual rate of starts each month adjusted for seasonal variations in the rate of construction. If the estimates show that for each of three consecutive months starts are below a seasonally adjusted annual rate of 1,200,000, then the Board, with the concurrency of the Housing and Home Finance Administrator, will announce a period of residential credit control relaxation to begin not more than a month after termination of the 3 months' period. Such a period of relaxation may be terminated by the Board, with the concurrence of the Administrator, any time after construction starts during each of three consecutive months are found to exceed an annual rate of 1,200,000.

The specific authority for the V-loan program is section 301 of the Defense Production Act of 1950 and Executive Order No. 10161 of September 9, 1950. The specific authority for the voluntary credit restraint program was contained in section 708 of the Defense Production Act of 1950 and Executive Order No. 10161. The voluntary credit program was suspended, effective May 12, 1952, upon the recommendation of the national voluntary credit restraint committee which was concurred in by the Board. The authority for approving and carrying out any voluntary program or agreement for the control of credit was terminated

by section 708 (f) of the Defense Production Act of 1950, added by section 116 (c) of the Defense Production Act Amendments of 1952.

The Board derived its authority for the consumer credit program from section 601 of the Defense Production Act of 1950, as amended, which authority was to be exercised (in accordance with and to carry out the provisions of Executive Order No. 8843 of August 9, 1941) until such time as the President determined that such controls were no longer necessary, but in no event beyond July 1, 1952. While the Board's authority to regulate consumer credit was based upon the President's order and could have been terminated by the President, Congress restricted the authority by the 1951 amendments to the Defense Production Act which limited down payments and maturities that could be prescribed by the Board with respect to extensions of consumer credit. However, section 601 of the Defense Production Act of 1950, as amended, was repealed entirely by section 116 (a) of the Defense Production Act Amendments of 1952.

3. A factual summary of each program including mention of any cooperative operations with other agencies

Regulation of consumer credit.-Following the relaxation of regulation W on July 31, 1951, referred to in our previous report, the Board of Governors adopted several minor amendments in late 1951 and early 1952 designed primarily to make it easier for certain trades to comply with the regulation. Effective May 7, 1952, after a review of developments in the economy generally and in the markets directly affected by the regulation, the Board suspended regulation W. The attached table (exhibit A) shows the minimum down payment and maximum maturity provisions of the regulation in effect at various periods from September 18, 1950, to May 7, 1952.

About 195,000 individuals and firms had registered with the Federal Reserve banks by May 1952 as doing installment credit business subject to the regulation. Of these registrants, approximately half had been examined during the period from September 18, 1950, to May 7, 1952, under the enforcement program conducted by the staffs of the Federal Reserve banks. As a result of these investigations, a total of 150 cases were referred by the Federal Reserve banks to the Board of Governors for further disciplinary action through May 7, 1952. United States district courts issued 16 injunctions against further violations, and the Board suspended licenses for varying periods in 7 cases. In 79 cases the nature of the violations was such that the Board referred the cases to the Department of Justice for action. Of the latter cases, 21 had been disposed of by convictions by September 9, 1952, and there had been no acquittals.

Other Federal and State supervisory agencies, cooperating with the Board in enforcing the regulation for financial institutions under their jurisdiction, reported a total of 37,130 investigations (including reinvestigations) during the period September 18, 1950, to May 7, 1952.

Regulation of real-estate credit.-During the period beginning with the second half of 1951, the terms of regulation X were relaxed on two occasions prior to the suspension of the regulation on September 16, 1952. Credit restrictions on one- to four-family residences were relaxed on September 1, 1951, in accordance with the provisions of the Defense Housing and Community Facilties and Services Act of 1951. After consideration of economic conditions generally and the equities involved in the September 1 relaxation, a further relaxation was made on June 11, 1952, in credit terms on one- to four-family residences in price ranges which were not materially affected by the September 1, 1951, relaxation and on multiunit residences which had been subject to the original terms of January 12, 1951. (See exhibit C for original terms and all subsequent changes.) The regulation was also amended in several respects to improve its technical operation, to provide for the equitable treatment of certain types of hardship cases, and to facilitate the defense program or other governmental programs without sacrificing the over-all objective of restraining inflationary forces. The Housing and Home Finance Administrator concurred in the Board's actions. Representatives of the real-estate finance and building industries were consulted extensively concerning the technical and industry problems involved in the process of amending the regulation.

The authority of the President to regulate real estate construction credit was modified by the Defense Production Act amendments of 1952. Section 607 of this act provides that, if in each of three successive months the number of housing starts falls below a seasonally adjusted annual rate of 1,200,000, a "period of residential real estate credit control relaxation" must be announced in the Federal Register by the first of the second calendar month following such three

consecutive months. During any such period minimum down payments required by the regulations may not be in excess of 5 percent of the transaction price. The seasonally adjusted annual rate for each of the months of June, July, and August 1952, as estimated by the Bureau of Labor Statistics, was below the stipulated annual rate. In accordance with section 607 of the act, the Board, with the concurrence of the Housing and Home Finance Administrator, announced a "period of residential credit control relaxation" effective September 16, 1952, and at that time suspended regulation X.

During the period prior to suspension of the regulation, the Board continued its program of periodic meetings of groups of Federal Reserve banks for the purpose of discussing administrative and enforcement problems. A System conference, attended by representatives of the 12 Federal Reserve banks, was held in September 1952, and 4 regional conferences, in each of which 3 Reserve banks participated, were held in January and February 1952.

The Housing and Home Finance Agency, the Federal Housing Administration, the Veterans' Administration, and the Federal Reserve System continued their program of cooperative research and statistical reporting to ascertain the effectiveness and equitableness of regulation X and the companion real estate credit regulations.

From October 12, 1950, to August 31, 1952, Federal Reserve bank investigators conducted 8,600 investigations of the 50,000 individuals and firms engaged in the business of extending real estate credit and registered with the Federal Reserve banks. During the same period, the Federal supervisory agencies which cooperated in the enforcement program of regulation X reported 10,000 investigations for compliance with the regulation. The supervisory agencies (other than the Federal Reserve) discovered 400 technical violators of the regulation, which resulted from a lack of understanding, and corrective action was taken. Federal Reserve bank investigators discovered 500 similar violators and 30 violators of a more serious nature with whom compliance conferences were held. Only three cases were referred to the Board. In one case a consent injunction, enjoining the violator concerned from further violation of the regulation, was obtained. In the other two cases, the preliminary investigation was in progress when the regulation was suspended. The record indicates a high degree of cooperation on the part of registered lenders in complying with the provisions of the regulation.

Guaranty of defense production loans.-The Defense Production Act of 1950 provided for the guaranty of loans made by commercial banks and other private financing institutions to contractors, subcontractors, and others engaged in the performance of Government defense contracts for the purpose of expediting production and deliveries or services for the defense program. The original Executive Order No. 10161, issued September 9, 1950, named as guaranteeing agencies the Departments of the Army, Navy, Air Force, Commerce, Agriculture, and Interior, and the General Services Administration. During 1951 the Atomic Energy Commission and the Defense Materials Procurement Agency were designated by Executive order to act as guaranteeing agencies.

The Federal Reserve banks act as fiscal agents of the guaranteeing agencies in these transactions and the procedure is governed by regulation V of the Board of Governors, as revised September 27, 1950.

During the early part of 1951 some defense contractors were unable to obtain necessary financing for the performance of their defense contracts because of the reluctance of banks to make loans on the security of the assignment of proceeds under Government contracts. The reluctance of banks to provide such financing arose from the fact that certain rulings of the Comptroller General of the United States under the Assignment of Claims Act of 1940 made it hazardous for private financing institutions to accept assigned contracts as collateral for loans. This situation created a serious impediment to the success of the guaranteed loan program, and in order to meet this problem the Board of Governors, together with other interested Government agencies, recommended an amendment to the Assignment of Claims Act of 1940 designed to remove the deterrent to participation by banks in the financing of defense contractors. By act of Congress dated May 15, 1951, the recommended amendment was approved, and following the passage of this act there was a substantial increase in the number of applications for guaranteed loans.

During 1951 the Federal Reserve banks received 879 applications for guaranties of loans aggregating $1,411 million. The guaranteeing agencies authorized the issuance of guaranty agreements covering loans amounting to $1,364 million On December 3, 1951, credit available, including loans outstanding, to borrowers

under guaranty agreements in force amounted to $1,148 million. On the same date there were outstanding loans aggregating $675 million.

Voluntary credit restraint program.-The voluntary credit restraint program was in effect from March 9, 1951, through May 12, 1952. Its objective was to secure the cooperation of financing institutions of all types throughout the country in extending credit in such a way as to help maintain and increase the strength of the domestic economy through the restraint of inflationary tendencies and at the same time to help finance the defense program and the essential needs of agriculture, industry, and commerce.

The program was administered by a national committee appointed by the Board of Governors of the Federal Reserve System and 43 regional committees appointed by the national committee. Five principal types of lending institutions were represented on the national committee-commercial banks, insurance companies, investment bankers, savings banks, and savings and loan associations. A member of the Board of Governors served as chairman. The national committee, which met periodically during the period that the program was in existence, directed general policy within the framework of the statement of principles of the Program for Voluntary Credit Restraint, a document prepared by private financial leaders and approved by the Board after consultation with the Attorney General and the Chairman of the Federal Trade Commission, as required by section 708 (c) of the Defense Production Act of 1950. The national committee also had the task of studying credit developments to appraise the effectiveness of the program and applying the principles of the program to various types of problems. Acting pursuant to authority given to it under the Program for Voluntary Credit Restraint, the committee issued several general bulletins implementing or clarifying the statement of principles of that document with regard to specific areas of financing. It also issued numerous memoranda to the regional committees relating to the program and related credit problems.

The regional committees were available for consultation with individual financing institutions to assist them in determining the application of the statement of principles of the program to specific loans for which application had been made to such financing institutions. Consultation with a regional committee was wholly within the discretion of a financing institution, and the final decision with respect to making or refusing to make any loan or loans was likewise wholly within the discretion of each financial institution whether or not it had consulted with any of the regional committees.

Certain minor changes in the Program for Voluntary Credit Restraint, having been approved pursuant to methods prescribed by the Defense Production Act, became effective April 20, 1951. The program was further amended, effective April 17, 1952, to specify that, in accordance with the request of the President transmitted to the Director of Defense Mobilization on March 24, 1952, it would no longer seek to restrain and would not apply to the financing of or loans to States or local governments including counties, municipalities, districts, or other political subdivisions.

On May 2, 1952, the national committee recommended to the Board that the screening of applications for financing in accordance with the principles of the program be suspended in the light of current circumstances. The Board concurred in this recommendation and, effective May 12, 1952, withdrew its request to financing institutions to act and to refrain from acting pursuant to and in accordance with the provisions of the program.

4. A factual statement on the effectiveness of the program

Regulation of consumer credit.-In the 7 months' period from October 1951 through April 1952, consumer installment credit increased about $152 million, primarily in response to seasonal influences. The total outstanding on April 30, 1952, was $13.3 billion, of which about three-fourths was subject to the regulation. This total outstanding compared with $13 billion on August 31, 1950, prior to issuance of the regulation. In the 3 months' period May through July 1952, consumer installment credit outstanding increased by $1.4 to $14.7 billion. The attached table (exhibit B) shows the monthly changes in the amount of consumer installment credit outstanding from January 1950, through July 1952. Regulation of real-estate credit.-It was indicated in the first annual report that, during the first 8 months of regulation, real-estate activity was restrained but not markedly reduced because of the exemption of preregulation X financing commitments. The regulation became increasingly effective during subsequent months and, reflecting particularly a sharp decline in the rate of starts during