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231 BOARD OF GOVERNORS D F T H E FEDERAL RESERVE SYSTEM W A S H I N G T O N A D D R E S S OFFICIAL C O R R E S P O N D E N C E TO T H E B O A R D X-9324 September 20, 1955. Subject; Basis of issuance of Federal Reserve bank stock. Dear Sir: There is inclosed herewith for your information and guidance, in the event that cases involving similar circumstances como to your attention, a copy of a letter to the Federal Reserve Agent at the Federal Reserve Bank of New York regarding the basis of subscriptions to Federal Reserve bank stock. Very truly yours L. P. Bethea, Bethea Assistant Secretary. Inclosure. TO ALL FEDERAL RESERVE AGENTS EXCEPT dER YORK 232 C O P Y X-9324-a September 20, 1955. Mr. J. H. Case, Federal Reserve Agent, Federal Reserve Bank of New York, New York, N. Y. Dear Mr. Ce.se: Reference is made to Mr. Dillistin's letter of June 20, inquiring whether, in view of the facts outlined, The Bank, , , should apply for additional Federal Reserve bank stock on the basis of the par value of the outstanding preferred and common stock and of its surplus as shown ty its books, or whether such book surplus should be ignored in rmaking application for additional stock. It appears from Mr. Dillistin's letter that the bank has capital stock with an aggregate par value of $575,000 and that its surplus on March 30, 1935, according to its books was $£4,000, on the basis of which it would be required and entitled to hold 240 shares of Federal Reserve bank stock, or 132 shares more than it now holds. It further appears that, although the bank's books showed a surplus on March 50, 1955 of $24,000, the bank at the same time had a deficit of $122,695.91 in its profit, and loss account. In this connec- tion, we have been informally advised by the Office of the Comptroller of the Currency that in its June 29, 1935 condition report the bank showed the net book value of its capital stock as $280,504.84 and no surplus, but that its report of earnings and dividends for the first half of 1935 shows a surplus of $24,860 at the end of the period (including $860 added to surplus during the period) and a deficit in undivided profits account of $119,555.16. Mr • J • H» Case ——2. X-9324-a The Board stated in its letter X-7459 of June 19, 1933, that while any impairment in a member bank's capital stock or surplus should be corrected as soon as possible, its holdings of Federal Reserve bank stock should be based upon the amount of issued and outstanding capital stock and surplus as shown on its books, rather than upon unimpaired capital and surplus. If, however, the aggregate of the capital accounts as shown by its books and reports of condition is no greater than the par value of its outstanding capital stock and capital notes and debentures, the bank has no surplus and the amount of any surplus shown on the books of the bank should not be included in determining its required Federal Reserve bank stock holdings. Likewise, if the bank's books show a deficit in its undivided profits account not in excess of the amount of surplus shown by its books, the amount of the deficit should be deducted from the amount of the surplus shemn by the books, in determining the basis for required Federal Reserve bank stock holdings. In the circumstances and in view of the facts involved in the case of The Bank, the application of that bank for an adjustment in its holdings of stock of the Federal Reserve Bank of New York should be based only upon the par value of its outstanding capital stock and the bank should, therefore, apply for 117 additional shares of such stock. Very truly yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary.
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