Full text of Marriner S. Eccles Papers : Letter to J.P. Dreibelbis, Box 20, Folder 3, Item 39

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Y

San F r a n c i s c o , C a l i f o r n i a .
October 1 , 1940.

Dear Mr.

Dreibelbis:

As a background f o r t h i s correspondence, you may
w i s h t o h a v e . w i t h d r a w n f r o m your f i l e s t h e




following:

A p r i l 18, 1940, memorandum "Bank o f America"
(General F i l e s ) by A s s i s t a n t
General Counsel D r e i b e l b i s ;
A p r i l 20,«19l40, l e t t e r f r o m F i r s t V i c e P r e s i d e n t
C l e r k t o A s s i s t a n t General
Counsel D r e i b e l b i s ;
May 2 , 19^0,

l e t t e r from Mr. D r e i b e l b i s t o
Mr. C l e r k , t o g e t h e r w i t h —

A p r i l 29, 191+0, l e t t e r f r o m Mr. C l e r k t o Deputy
C o m p t r o l l e r o f t h e Currency
Mulroney;
May 8 , 191+0,

l e t t e r f r o m Mr. C l e r k t o
Mr. D r e i b e l b i s .

Yours v e r y

truly,

(initialed)

Mr. J . P . D r e i b e l b i s ,
Board of Governors of the
F e d e r a l Reserve System,
W a s h i n g t o n , D. C.

I

. -DERAL RESERVE BAM OF SAN FRANCCO
October 7, 194-0
Mr. J . P. D r e i b e l b i s ,
A s s i s t a n t General Counsel,
Board o f Governors o f t h e F e d e r a l Reserve System,
Washington, D. C.
S u b j e c t : Bank o f America N.T. & S . A .
Dear M r . D r e i b e l b i s :
Bank Premises
S h o r t l y a f t e r the Committee charged w i t h t h e d u t i e s s e t f o r t h
i n Paragraph 5
t h e Requirements o f t h e C o m p t r o l l e r o f the Currency
commenced i t s w o r k , i t became apparent t o me t h a t t h e procedure b e i n g
f o l l o w e d by the Committee would n o t r e a c h t h e g o a l c o n t e m p l a t e d .
You w i l l p r o b a b l y r e c a l l t h a t I have had correspondence and
t e l e p h o n i c c o n v e r s a t i o n s ' w i t h you r e g a r d i n g my m i s g i v i n g s .
I have a l s o
had t e l e p h o n i c c o n v e r s a t i o n s w i t h Governor McXee. On t h e o c c a s i o n o f h i s
r e c e n t v i s i t t o t h e bank, C o m p t r o l l e r o f t h e Currency P r e s t o n Delano was
made f u l l y a c q u a i n t e d w i t h my v i e w s , i n c l u d i n g t h e f e a r t h a t , i f t h e Comm i t t e e d i d not have i t s u n d e r s t a n d i n g s r e v i s e d , an unwarranted b r e a c h
between the management of t h e Bank o f America and t h e C o m p t r o l l e r would
o c c u r . The r e p a i r of- such a breach c o u l d o n l y end i n h u m i l i a t i n g t h e
C o m p t r o l l e r , w h i c h , i t seems t o me, must be a v o i d e d .
Subsequent t o t h e v i s i t o f t h e C o m p t r o l l e r , Chairman Eccles was
h e r e , and t h e o p p o r t u n i t y was t a k e n t o have Mr. West, V i c e P r e s i d e n t i n
charge o f e x a m i n a t i o n s , and a member o f the Committee, o b t a i n an independent
v i e w o f t h e u n d e r s t a n d i n g s l e a d i n g up t o t h e d r a f t i n g o f Paragraph 5 of t h e
Agreement. A f t e r t h i s d i s c u s s i o n w i t h Chairman E c c l e s , M r . West was conv i n c e d t h a t t h e i n t e r p r e t a t i o n s of t h e Agreement g i v e n him and o t h e r members
o f t h e Committee by me were i n accord w i t h the u n d e r s t a n d i n g s reached i n
7;ashington.
There i s e n c l o s e d a copy o f a memorandum addressed by Mr. West t o
me, under d a t e of October 2, w h i c h c o v e r s an o u t l i n e of t h e work o f t h e Comm i t t e e since i t s i n c e p t i o n .
There i s a l s o e n c l o s e d a memorandum, d a t e d
May 8 , 19l40# p r e p a r e d by me f o r the C o m m i t t e e ^ g u i d a n c e .
As you p a r t i c i p a t e d i n t h e d i s c u s s i o n s l e a d i n g up t o t h e language
i n c o r p o r a t e d i n Paragraph 5 of t h e Agreement, I should a p p r e c i a t e your d i s c u s s i n g t h e q u e s t i o n w i t h Chairman Eccles and Governor McKee, and t e n d e r i n g
my recommendation t h a t Messrs. V / r i g h t , Funsten, and West be c a l l e d t o
Washington t o r e v i e w , i n t h e presence o f M e s s r s . E c c l e s , McKee, B e l l , Delano,
and Crowley, t h e p r e s e n t s t a t u s o f t h e Committee's f i n d i n g s .
This would a f f o r d t h e San F r a n c i s c o Committee an o p p o r t u n i t y t o have s e t t l e d any d i v e r g e n c e
of o p i n i o n as t o t h e i n t e r p r e t a t i o n o f t h e Agreement. A l s o , i t w o u l d show
t h a t t h e Washington Committee had been a c t i v e i n seeing t h a t t h e Bank o f
America has no p r o p e r grounds f o r c h a r g i n g t h a t u n w a r r a n t e d d e l a y s have o c c u r r e d i n e n a b l i n g the Bank t o c a r r y o u t the terms o f t h e Agreement because
t h e San F r a n c i s c o Committee l a c k e d proper i n s t r u c t i o n s .
Yours v e r y

truly,

(signed) I .
Enclosures.



Clerk

F i r s t Vice President.

*

COPT
( e n c l o s u r e w i t h M r . C l e r k ' s l e t t e r or 1 0 - 7 - 4 0 )

October 2,

1940.

MEMORANDUM TO MR. CLERK:
I t seems a p p r o p r i a t e s t t h i s t i m e t o r e v i e w t h e a c t i v i t i e s o f t h e
committee charged w i t h t h e r e s p o n s i b i l i t y o f d e t e r m i n i n g t h e f a i r v a l u e o f
bank p r e m i s e s c r i t i c i z e d i n t h e A u g u s t 3 1 , 1939, r e p o r t o f e x a m i n a t i o n o f
t h e Bank o f A m e r i c a N a t i o n a l T r u s t & S a v i n g s A s s o c i a t i o n .
I t w i l l be r e c a l l e d t h a t a t t h e c o n f e r e n c e i n W a s h i n g t o n , D. C . ,
l a s t F e b r u a r y , w h i c h was p a r t i c i p a t e d i n by r e p r e s e n t a t i v e s o f t h e Bank o f
America N a t i o n a l T r u s t & pavings A s s o c i a t i o n , t h e T r e a s u r y , the C o m p t r o l l e r
o f t h e C u r r e n c y , t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n , and t h e B o a r d o f
G o v e r n o r s o f t h e F e d e r a l Reserve System, t h e r e was p r o m u l g a t e d what i s known
as " R e q u i r e m e n t s o f t h e C o m p t r o l l e r o f t h e C u r r e n c y " , e x e c u t e d i n t h e f o r m
o f an agreement w i t h t h e b a n k , d a t e d March 6 , 1940.
T h i s a g r e e m e n t , among o t h e r t h i n g s , p r o v i d e d
o f an u n a l l o c a t e d r e s e r v e o f $ 6 , 9 0 0 , 0 0 0 , and t h a t such
r e d u c e d b y t h e d i f f e r e n c e between t h e p r e s e n t c a r r y i n g
p r e m i s e and t h e v a l u e o f such p r e m i s e as d e t e r m i n e d by
manner s e t f o r t h i n p a r a g r a p h 5 , r e a d i n g as f o l l o w s :

f o r the establishment
r e s e r v e was t o be
v a l u e o f each bank
the committee, i n the

n

5.
The bank s h a l l , as soon as p o s s i b l e , f u r n i s h t o a c o m m i t t e e
composed o f t h e V i c e P r e s i d e n t i n Charge o f E x a m i n a t i o n s o f t h e
F e d e r a l Reserve Bank o f San F r a n c i s c o , o r some o f f i c e r o f t h e bank
d e s i g n a t e d by h i m , t h e S u p e r v i s i n g E x a m i n e r o f t h e F e d e r a l D e p o s i t
I n s u r a n c e C o r p o r a t i o n f o r t h e T w e l f t h D i s t r i c t , and t h e C h i e f N a t i o n a l
Bank E x a m i n e r f o r t h e T w e l f t h F e d e r a l Reserve D i s t r i c t , a l l o b t a i n a b l e
r e c o r d s and i n f o i m a t i o n w i t h r e s p e c t t o t h e a c q u i s i t i o n o f each b a n k i n g p r e m i s e c r i t i c i z e d i n t h e r e p o r t o f e x a m i n a t i o n o f A u g u s t 3 1 , 1939,
i n c l u d i n g t h o s e shown on t h e b a n k f s books and i n i t s i n v e s t m e n t i n
M e r c h a n t s N a t i o n a l R e a l t y C o r p o r a t i o n , d a t i n g back t o t h e t i m e such
p r e m i s e was a c q u i r e d e i t h e r by t h e bank o r any member ( e i t h e r bank
o r company) o f t h e g r o u p p r e s e n t l y o r t h e n c o m p r i s i n g t h e T r a n s a m e r i c a
organization.
"The Committee s h a l l c o n s i d e r t h e f a i r v a l u e o f each p r e m i s e a t
t h e t i m e o f such a c q u i s i t i o n , and t h e s p e c i a l c o n d i t i o n s w h i c h had t o
be met i n f i x i n g t h e p r i c e p a i d .
From t h e s e c o n s i d e r a t i o n s , t h e
c o m m i t t e e s h a l l d e t e r m i n e t h e amount w h i c h s h a l l be used by t h e
c o m m i t t e e as t h e e s t i m a t e d c o s t amount o f each p r e m i s e t o t h e b a n k .
The v a l u e o f each p r e m i s e s h a l l t h e n be e s t a b l i s h e d a t such e s t i m a t e d
c o s t amount, p l u s t h e amount o f any e x p e n d i t u r e s subsequent t o
a c q u i s i t i o n f o u n d b y t h e c o m m i t t e e t o have been a p p r o p r i a t e l y c a p i t a l i z e d , l e s s t h e a p p r o p r i a t e amount o f d e p r e c i a t i o n a t t h e d e p r e c i a t i o n
r a t e a l l o w e d by t h e B u r e a u o f I n t e r n a l Revenue f o r each y e a r o f ownership.
The u n a l l o c a t e d r e s e r v e s e t up by t h e bank s h a l l be r e d u c e d b y
t h e d i f f e r e n c e between t h e p r e s e n t c a r r y i n g v a l u e o f each such p r e m i s e
and t h e v a l u e o f such p r e m i s e as d e t e r m i n e d by t h e committee i n t h e
manner h e r e i n a b o v e s t a t e d .
The d e c i s i o n o f a m a j o r i t y o f t h e members
o f t h e c o m m i t t e e s h a l l be b i n d i n g .
The r e m a i n d e r o f such r e s e r v e , i f
a
n
y
,
may
be
r
e
t
u
r
n
e
d
t
o
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e
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p r o f i t s account. A p a r t i a l



-2r e l e a s e o f t h e r e s e r v e , o r a decrease i n the amount o f the r e s e r v e
t o be s e t u p , may be made as soon as t h a t procedure i s j u s t i f i e d ,
i n the o p i n i o n of the committee."
I m m e d i a t e l y upon y o u r r e t u r n f r o m t h e conference meetings above
m e n t i o n e d , y o u d e s i g n a t e d t h e w r i t e r t o a c t as a member o f the committee. The
o t h e r members o f the committee are M r . I r w i n D. W r i g h t , C h i e f N a t i o n a l Bank
Examiner f o r t h e T w e l f t h F e d e r a l Reserve D i s t r i c t , and M r . W i l l i a m P . F u n s t e n ,
S u p e r v i s i n g Examiner o f t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n f o r t h e
Twelfth D i s t r i c t .
A t t h e same t i m e y o u asked t h e members o f t h e committee t o
meet w i t h y o u i n o r d e r t h a t they m i g h t have t h e b e n e f i t o f y o u r p e r s o n a l c o n t a c t
d u r i n g t h e d i s c u s s i o n s l e a d i n g t o t h e f i n a l agreement w i t h t h e bank. At t h i s
m e e t i n g y o u emphasized t h a t these d i s c u s s i o n s p r o v i d e d background f o r t h e u n d e r s t a n d i n g t h a t t h e p r i c e p a i d by the bank o r any member o f i t s group o f o r g a n i z a t i o n s , a t t h e t i m e o f a c q u i s i t i o n , f o r any c r i t i c i z e d p r e m i s e , p l u s c a p i t a l i z e d
improvements t o be d e t e r m i n e d p r o p e r by t h e committee, would be c o n s i d e r e d as
t h e c o s t , f r o m w h i c h s h o u l d be deducted a p p r o p r i a t e d e p r e c i a t i o n , and t h a t t h i s
f o r m u l a was t o be used as t h e b a s i s f o r d e t e r m i n i n g t h e b a n k ' s p r e s e n t c a r r y i n g
v a l u e s . I n t h o s e cases where l a n d and b u i l d i n g v a l u e s had n o t been s e g r e g a t e d
o r had a r b i t r a r i l y been a d j u s t e d by the bank a t t h e t i m e o f a c q u i s i t i o n , i t was
u n d e r s t o o d t h a t t h e committee s h o u l d a l l o c a t e a reasonable v a l u e f o r t h e l a n d ,
t h e b a l a n c e t o be c a r r i e d as b u i l d i n g and a p p r o p r i a t e d e p r e c i a t i o n .
I t was agreed t h a t t h e s t a f f o f t h e C h i e f N a t i o n a l Bank Examiner w o u l d
a n a l y z e t h e i n f o r m a t i o n s u b m i t t e d by t h e bank and p r e s e n t such a n a l y s e s t o t h e
committee f o r c o n s i d e r a t i o n .
A day o r two l a t e r an i n f o r m a l m e e t i n g o f t h e committee was h e l d , t o
w h i c h M r . L . M. G i a n n i n i , P r e s i d e n t , and M r . R u s s e l l G. S m i t h , E x e c u t i v e V i c e
P r e s i d e n t , o f t h e Bank o f America N a t i o n a l T r u s t & Savings A s s o c i a t i o n were
i n v i t e d . You a l s o a t t e n d e d t h i s m e e t i n g . There were a g a i n r e v i e w e d t h e d i s c u s s i o n s o f t h e Washington conference p e r t a i n i n g t o t h e m a t t e r o f v a l u a t i o n o f
bank p r e m i s e s , and t h e bank was r e q u e s t e d t o f u r n i s h t h e committee w i t h any
o b t a i n a b l e i n f o r m a t i o n showing t h e c o s t t o i t o r any member o f i t s group o f
o r g a n i z a t i o n s i n c o n n e c t i o n w i t h t h e premises under r e v i e w . I n compliance w i t h
t h e c o m m i t t e e ' s r e q u e s t , t h e bank s u b s e q u e n t l y f u r n i s h e d i n f o r m a t i o n on T r e a s u r y
Department Form 1430, s u p p l e m e n t a l page 1 4 , w h i c h i t f e l t met a l l o f t h e r e q u i r e ments o f t h e agreement t o p r o v i d e d a t a c o v e r i n g t h e c o s t o f each p r o p e r t y a t t h e
t i m e i t was a c q u i r e d , s u p p l e m e n t i n g t h i s w i t h f i g u r e s f r o m / ^ § p r a i s a l r e p o r t
o f t h e American A p p r a i s a l Company.
W h i l e t h e f i g u r e s s u b m i t t e d by t h e bank as t o a c q u i s i t i o n c o s t a r e n o t
c o n c l u s i v e , t h e w r i t e r f e e l s t h a t i t has made r e a s o n a b l e e f f o r t s t o comply w i t h
t h e agreement i n t h i s r e s p e c t .
Formal m e e t i n g s o f t h e committee f o r r e v i e w o f t h e i n f o r m a t i o n s u b m i t t e d
by t h e b a n k , a f t e r a n a l y s i s had been completed by t h e s t a f f o f t h e C h i e f N a t i o n a l
Bank E x a m i n e r , were h e l d as f o l l o w s :
A p r i l 30




May 1
2
8
9
10
13
14
15

August 22
23
24
26

September 23
24
25
27

October 1

3The work o f a c c u m u l a t i n g and a n a l y z i n g the i n f o r m a t i o n f o r t h e cons i d e r a t i o n o f the committee, as may w e l l he u n d e r s t o o d , was a b i g assignment
and e x p l a i n s why the f i r s t f o r m a l m e e t i n g o f t h e committee f o r c o n s i d e r i n g
such i n f o r m a t i o n was n o t h e l d u n t i l A p r i l 30. The gap between m e e t i n g s o f
May 15 and August
may be e x p l a i n e d by the f a c t t h p t t h e r e was c o n s i d e r a b l e
d e l a y i n o b t a i n i n g a d d i t i o n a l i n f o r m a t i o n r e q u e s t e d by t h e committee f r o m t h e
bank, as w e l l as by t h e n e c e s s i t y f o r M r . W r i g h t * s f r e q u e n t absences f r o m t h e
city.
D u r i n g t h e e a r l y p a r t o f A u g u s t , M r . Funsten and t h e w r i t e r were a l s o
unavailable.
At a l l o t h e r t i m e s , t h e l a t t e r members o f t h e committee h e l d
themselves i n r e a d i n e s s t o meet f o r the c o n s i d e r a t i o n o f any i n f o r m a t i o n w h i c h
M r . W r i g h t was ready t o p r e s e n t .
E a r l y i n t h e d e l i b e r a t i o n s o f the committee, t h e r e developed a d e c i d e d
d i f f e r e n c e o f o p i n i o n as t o whether t h e committee s h o u l d be bound by any s p e c i f i c
f o r m u l a i n t h e d e t e r t a i n a t i o n o f t h e f a i r c a r r y i n g v a l u e s o f each o f t h e c r i t i c i z e d
p r e m i s e s . I t appeared t o be t h e o p i n i o n o f M r . W r i g h t and Mr. Funsten t h a t t h e
agreement, as s i g n e d , l e f t t h e committee w i t h f u l l freedom t o d e t e r m i n e such
v a l u e as i n i t s judgment i t c o n s i d e r e d t o be f a i r as a p p l i e d t o each p r o p e r t y
under p r e s e n t c o n d i t i o n s . When t h i s d i s c u s s i o n a r o s e , y o u f u r n i s h e d the
committee w i t h c o p i e s o f n o t e s w h i c h y o u had made d u r i n g t h e Washington c o n f e r ence, and i n d i c a t e d t h a t o n l y t h r o u g h t h e e s t a b l i s h m e n t o f a d e f i n i t e f o r m u l a
was i t p o s s i b l e t o r e a c h an agreement between the bank and t h e C o m p t r o l l e r o f
t h e C u r r e n c y . The d a t a f u r n i s h e d by you was s u b m i t t e d by b o t h M r . W r i g h t and
M r . Funsten t o t h e i r s u p e r i o r s i n Washington f o r c o n f i r m a t i o n t h a t t h e " c o s t "
f o r m u l a was t o be used. N e i t h e r was a b l e t o o b t a i n a commitment t h a t t h e
committee was t o be bound by any f o r m u l a . I n f a c t , t h e f o l l o w i n g t e l e g r a m f r o m
M r . P r e s t o n D e l a n o , C o m p t r o l l e r o f t h e C u r r e n c y , t o M r . W r i g h t , d a t e d May 2 , 1940,
i n d i c a t e s t h e C o m p t r o l l e r ' s a p p a r e n t d i s i n c l i n a t i o n t o make any commitment:
" A c k n o w l e d g i n g y o u r t e l e g r a m o f A p r i l 30 c o n c e r n i n g t h e
i n t e r p r e t a t i o n o f p a r a g r a p h f i v e o f t h e quote r e q u i r e m e n t s
o f t h e C o m p t r o l l e r o f t h e Currency unquote d a t e d March 6,
1940 i t i s t h e o p i n i o n h e r e t h a t a l l q u e s t i o n s o f t h i s
n a t u r e s h o u l d be r e s o l v e d by t h e committee composed o f
y o u r s e l f M r . C l e r k o r h i s nominee and M r . Funsten s t o p .
At
the time of the d r a f t i n g o f these requirements o f the
C o m p t r o l l e r i t was c l e a r l y u n d e r s t o o d t h a t t h e committee as
named would have a f r e e hand i n i t s d e l i b e r a t i o n s and t h a t
i t s f i n d i n g s would n o t be r e v i e w e d .
DELANO COMPTROLLER"
N o t w i t h s t a n d i n g t h i s d i f f e r e n c e o f o p i n i o n as t o the i n t e r p r e t a t i o n o f
t h e agreement, i t was agreed t h a t M r . W r i g h t ' s o f f i c e s h o u l d develop and a n a l y z e
the i n f o r m a t i o n , b o t h f r o m t h e " c o s t - p l u s " v i e w p o i n t and f r o m the p o i n t o f v i e w
o f what the o t h e r members o f the committee c o n s i d e r e d p r o p e r v a l u e s based on
the r u l e o f r e a s o n . However, as i t has d e v e l o p e d , t h e t h e o i y o f " c o s t - p l u s "
has been a l m o s t t o t a l l y d i s r e g a r d e d , and i n s u b m i t t i n g a n a l y s i s s h e e t s f o r each
o f t h e p r o p e r t i e s t o the committee, t h e r e have been a l l o c a t i o n s o f v a l u a t i o n s ,
b o t h as t o l a n d and b u i l d i n g s , w h i c h i n many cases a r e a r b i t r a r y and w h i c h ,




-4i n the w r i t e r ' s o p i n i o n , would be v e r y d i f f i c u l t f o r t h e committee t o s u b s t a n t i a t e .
I t should a l s o be mentioned here t h a t , w h i l e t h e agreement p r o v i d e s t h e d e p r e c i a t i o n d e d u c t i o n s h a l l be a t t h e r a t e s a l l o w e d by the Bureau o f I n t e r n a l Revenue,
such r a t e s have n o t been used i n a l l i n s t a n c e s i n the a n a l y s e s f u r n i s h e d t o t h e
committee f o r c o n s i d e r a t i o n .
From t h e i n f o i m a t i o n f u r n i s h e d t o t h e committee, i t would appear t h a t
t h e r e a r e many i n s t a n c e s where t h e premises a r e b e i n g c a r r i e d by t h e bank a t
v a l u e s and i n amounts c o n s i d e r a b l y i n excess o f those w h i c h p r u d e n t management
would d i c t a t e .
However, i n v i e w o f the b a n k ' s apparent u n d e r s t a n d i n g w i t h t h e
F e d e r a l agencies w h i c h f o r m u l a t e d t h e agreement s u b s c r i b e d t o , r e g a r d i n g t h e
method t o be u s e d . i n a r r i v i n g a t a f a i r c a r r y i n g v a l u e , and t h e d i f f i c u l t i e s
t h a t would r e s u l t fft)m an a t t e m p t t o v a l u e the p r o p e r t i e s on a b a s i s o f
a p p r a i s a l , i t seems t o t h e w r i t e r t h a t t h e f o r m u l a b a s i s as r e f e r r e d t o h e r e i n
o f f e r s the most p r a c t i c a l approach t o the p r o b l e m . W h i l e t h i s w i l l r e s u l t i n
some excess v a l u a t i o n i n c e r t a i n p r o p e r t i e s under p r e s e n t c o n d i t i o n s , a f a i r
a l l o c a t i o n o f l a n d v a l u e s i n most i n s t a n c e s would e v e n t u a l l y r e s u l t i n r e a s o n a b l e
c a r r y i n g values through f u t u r e d e p r e c i a t i o n charges.
The .committee has J u s t f i n i s h e d i t s f i n a l r e v i e w o f t h e i n f o r m a t i o n
w h i c h has been p r e s e n t e d t o i t , and t h e r e s u l t i s a l o s s a l l o c a t i o n by t h e C h i e f
N a t i o n a l Bank Examiner o f f 6 , 5 4 3 , 0 2 3 . 0 8 .
The w r i t e r * s i m p r e s s i o n i s t h a t a
m a j o r i t y o f t h e committee would be u n w i l l i n g t o concur i n a r e p o r t based on t h e
i n f o r m a t i o n as p r e s e n t l y d e v e l o p e d .
The w r i t e r has a t a l l t i m e s t a k e n the p o s i t i o n t h a t t h e agreement as
f i n a l l y concluded s h o u l d be i n t e r p r e t e d i n t h e l i g h t o f t h e i n f o r m a t i o n and
background w h i c h has been s u b m i t t e d t o t h e committee by y o u . A l l o f t h e d a t a
and correspondence r e c e i v e d f r o m the bank w h i c h i s i n t h e hands o f t h e committee
i n d i c a t e s t h a t t h e bank u n q u e s t i o n a b l y has the u n d e r s t a n d i n g t h a t i t s o r i g i n a l
c o s t f i g u r e f o r each premise s h o u l d be used as t h e b a s i s f o r a l l o c a t i n g a f a i r
value of the property at a c q u i s i t i o n .
The w r i t e r h a s , t h e r e f o r e , p o i n t e d o u t
on s e v e r a l o c c a s i o n s t h a t t h e b a n k , h a v i n g r e c e i v e d apparent assurances s u p p o r t i n g i t s u n d e r s t a n d i n g , m i g h t c o n s i d e r any o t h e r i n t e r p r e t a t i o n as h o t h a v i n g
been a r r i v e d a t i n good f a i t h and i n ^accordance w i t h t h e u n d e r s t a n d i n g reached
i n Washington.
As t h e m a t t e r now s t a n d s , M r . W r i g h t i s t o s u b m i t , i n f o r m a l l y , t o t h e
C o m p t r o l l e r o f t h e C u r r e n c y , t h e a n a l y s i s o f i n f o r m a t i o n prepared on each bank
p r e m i s e , t o g e t h e r w i t h a l i s t showing the amount o f l o s s as d e t e r m i n e d by such
a n a l y s i s , and r e q u e s t h i s comments. I t i s t h e w r i t e r ' s u n d e r s t a n d i n g t h a t t h i s
i n f o r m a t i o n w i l l n o t be s u b m i t t e d t o the C o m p t r o l l e r as h a v i n g t h e a p p r o v a l o f
t h e c o m m i t t e e , b u t r a t h e r as a r e p r e s e n t a t i o n o f t h e C h i e f N a t i o n a l Bank
E x a m i n e r ' s v i e w s . M r . W r i g h t s t a t e d a t t h e O c t o b e r 1 m e e t i n g t h a t he w o u l d
a l s o w r i t e an i n f o r m a l n o t e t o M r . Upham, p r i o r t o s u b m i s s i o n o f t h e i n f o r m a t i o n
t o t h e C o m p t r o l l e r , s t a t i n g t h a t t h e r e was n o t agreement among t h e members o f t h e
committee and a d v i s i n g him t o be p r e p a r e d f o r t h e i n f o r m a l r e p o r t , and making
t h e s u g g e s t i o n t o M r . Upham t h a t , i f t h e C o m p t r o l l e r was n o t i n agreement w i t h
t h e a n a l y s i s , t h e committee be c a l l e d t o Washington f o r t h e purpose o f g e t t i n g
the m a t t e r s t r a i g h t e n e d o u t .




( s i g n e d ) R. B . WEST

COPY
( e n c l o s u r e w i t h Mr. C l e r k ' s l e t

MEMORANDUM FOR COMMITTEE

^ r o f 10/7/40)

May 8, 1940
(Copies d e l i v e r e d t o M r . W r i g h t , Mr. Funsten, and
Mr. West)

SUBJECT:. Requirements o f the C o m p t r o l l e r o f t h e Currency Bank o f -America n a t i o n a l T r u s t & Savings Assn. I n R e l a t i o n t o C a r r y i n g Value o f Bank Premises.

I n t h e d i s c u s s i o n s i n r e g a r d t o t h e p o l i c i e s f o l l o w e d by t h e bank
i n d e a l i n g w i t h i t s banking premises, t h e f o l l o w i n g charges had been made by
t h e examiners:
Charge A
That c e r t a i n banking premises were e n t e r e d on the books o f t h e Bank o f
America N. T . & S. A . , o r o f one o f i t s a s s o c i a t e d predecessors, a t a
v a l u e g r e a t e r t h a n t h a t p a i d when a c q u i r e d i n t h e f i r s t i n s t a n c e by a
member o f t h e Transamerica f a m i l y o f o r g a n i z a t i o n s .
I n t h e course o f a r g u i n g t h e m e r i t s o f t h i s c l a i m , i t became
obvious t h a t many elements had t o be considered i n d e t e r m i n i n g t h e a c t u a l
p r i c e p a i d f o r banking p r e m i s e s . I t was agreed, however, t h a t a w r i t e - u p
was j u s t i f i e d whenever i t c o u l d be shown t h a t :
1.

The purchase p r i c e o f t h e shares o f t h e s e l l i n g bank were i n c r e a s e d
by t h e d i f f e r e n c e between t h e amount a t w h i c h t h e premises were c a r r i e d on t h e books o f t h e s e l l e r , and t h e amount agreed upon by
s p e c i f i c n e g o t i a t i o n s as b e i n g t h e f a i r v a l u e o f t h e p r e m i s e s .

2.

The premises were c a r r i e d on t h e books o f t h e s e l l e r a t a nominal
amount, o b v i o u s l y f a r below t h e f a i r v a l u e .

3.

The premises were c a r r i e d on the books o f t h e s e l l e r below t h e i r
f a i r v a l u e because o f e x t r a o r d i n a r y unearned i n c r e m e n t .

Charge B
That i n e n t e r i n g c e r t a i n banking premises on t h e books o f t h e Bank o f
America N. T . & S. A.» o r o f one o f i t s a s s o c i a t e d p r e d e c e s s o r s , a
g r e a t e r v a l u e t h a n j u s t i f i e d was p l a c e d on t h e l a n d , so as t o a v o i d
t h e a n n u a l d e p r e c i a t i o n charge r e q u i r e d on improvements.
I t was agreed t h a t t h e Committee should determine a f a i r v a l u e
f o r t h e l a n d and r e q u i r e t h e p r e s c r i b e d d e p r e c i a t i o n on t h e improvements.
Charge C
That i n a c q u i r i n g c e r t a i n s i t e s f o r FUTURE premises ( s i n c e improved and
o c c u p i e d ) , t h e f u l l purchase p r i c e , i n c l u d i n g t h e c o s t o f d e m o l i s h i n g t h e
o l d s t r u c t u r e , was i n c l u d e d and c a r r i e d as t h e v a l u e o f t h e l a n d .
I t was agreed t h a t t h e p r i c e p a i d f o r t h e l a a i and p r e m i s e s , i n c l u d
i n g t h e c o s t o f d e m o l i s h i n g , was t o be c o n s i d e r e d t h e p r i c e p a i d f o r t h e l a n d
Note:



T h i s does not a p p l y t o cases i n w h i c h t h e bank demolished b a n k i n g
premises being occupied by i t t o reconstruct a new b u i l d i n g . I n such

2—MEMORANDUM FOE COMIvlITTLE,

5/8/40.

an i n s t a n c e , t h e Committee s h o u l d d e t e r m i n e what would be
c o n s i d e r e d a f a i r v a l u e f o r t h e l a n d on w h i c h t o superimpose
t h e c o s t o f c o n s t r u c t i n g t h e new b u i l d i n g .
Charge D
That i n c e r t a i n i n s t a n c e s , e x p e n d i t u r e s had been c a p i t a l i z e d w h i c h
p r o p e r l y s h o u l d have been charged t o c u r r e n t expenses.
I t was agreed t h a t t h e Committee d e t e r m i n e w h i c h e x p e n d i t u r e s
may p r o p e r l y be c a p i t a l i z e d .
Charge E
That c e r t a i n banking premises had been s o l d t o members o f t h e T r a n s a m e r i c a f a m i l y o f o r g a n i z a t i o n s f o r an amount g r e a t e r t h a n t h e i r
c a r r y i n g v a l u e , and t h a t s u b s e q u e n t l y t h e bank r e a c q u i r e d t h e same
property at the increased sale p r i c e .
The Committee was t o r e g a r d such a t r a n s a c t i o n as a w r i t e - u p
be charged a g a i n s t t h e u n a l l o c a t e d r e s e r v e o f 1 6 , 9 0 0 , 0 0 0 .

to

I n t h e d i s c u s s i o n s between t h e b a n k ' s r e p r e s e n t a t i v e s and t h o s e
a c t i n g as a c o m m i t t e e , c o m p r i s i n g t h e C o m p t r o l l e r , t h e Under S e c r e t a r y , t h e
Chairman o f t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n , and two members o f
t h e Board o f G o v e r n o r s , t h e f o r e g o i n g expresses b r i e f l y t h e g u i d i n g p r i n c i p l e s f o r t h e Committee o f t h r e e . I t w i l l be observed t h a t n o t h i n g i n
t h e C o m p t r o l l e r ' s r e q u i r e m e n t s d i r e c t s t h e Committee t o a p p r a i s e t h e
p r e s e n t v a l u e o f premises c r i t i c i z e d i n t h e August 3 1 , 1939, r e p o r t o f
e x a m i n a t i o n . On t h e c o n t r a r y , t h e burden o f t h e i n s t r u c t i o n s i s t o d e t e r mine t h e f a i r v a l u e o f t h e premises a t t h e t i m e o f a c q u i s i t i o n ,
after taking
i n t o c o n s i d e r a t i o n any s p e c i a l c o n d i t i o n s w h i c h had t o be met i n f i x i n g t h e
p r i c e p a i d . Any unwarranted w r i t e - u p i s t o be e l i m i n a t e d and t h e c a r r y i n g
v a l u e o f t h e p r o p e r t y a d j u s t e d by t h e a p p r o p r i a t e d e p r e c i a t i o n .




(Stamped)

IRA CLERK

TELEGRAM
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Leased Wire S e r v i c e
Received a t Washington, D. Co

WA17WASH GL\26 SF 9-150
DREIBELBIS

PRONTO.

RETEL 9TH.

I N MY OPINION COMMITTEE HAS NOT DEVELOPED

INFORMATION WHICH COULD BE USED TO ESTABLISH AMOUNT REQUIRED TO
BE CHARGED AGAINST SPECIAL RESERVE BASED UPON TERMS OF AGREEMENT
AND UNDERSTANDINGS REACHED I N WASHINGTON.

FOR THIS REASON MO

DEPENDABLE ESTIMATE CAN BE MADE OF DIFFERENCE I N AMOUNTS LIKELY
TO BE REACHED ACCORDING TO THE SEPARATE VIEWPOINTS OF COMMITTEE
MEMBERS.

I AM OF THE FURTHER OPINION THAT USING THE PRESENTLY

DEVELOPED INFORMATION WOULD LEAD TO ESTABLISHMENT OF AN AMOUNT
SUBSTANTIALLY IN EXCESS OF THAT WHICH MAY BE ESTABLISHED
I F ANALYSIS WERE MADE ACCORDING TO AGREEMENT AS UNDERSTOOD
BY ME AND OTHERS I N WASHINGTON




CLERK.

c
0
p

y

TELEGRAM
Board of Governors
of t h e
Federal Reserve System
Leased Wire Service
Received a t Washington, D. C.

19UO OGT 24 AM 9 h5
WA12WASH G37 SF 2 3 - i ^ k
DREIBELBIS

AT TODAY'S MEETING BANK PREMISES COMMITTEE DECIDED TO RE-ANALYZE
PROPERTY VALUATIONS.

HOWEVER THIS SHOULD NOT BE TAKEN AS

INDICATION THAT CONCLUSIONS WILL BE BASED UPON KY UNDERSTANDING
OF WASHINGTON AGREEMENT.




CLERK
2k.