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446 BOARD OF GOVERNORS S-28 Sec. 5136 R.S. CJF THE FEDERAL RESERVE SYSTEM WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD Saptem~or Subject: 2, 1937. Method of amortizing premium on different lots of bonds of same issue under Comptroller's regulations rega:r·ding investment securities. Dear Sir: Thore is inclosed herewith for your information ,' T a copy of r. letter from the Comptroller of the Currency expressing his views upon the question whother the amortization of investment securities should be based on the aver[ige cost of bonds of D.. given issue or upon the specific cost of each lot of bonds of such issue held by a member bcnk. Very truly yours, > • L. P. Bethea, Assistant Secretary. Inclosure. TO PHESIDENTS OF ALL FEDERAL RESERVE BANKS. 447 S-2tl-a ::~ec. 5136 R.s. -2- the broker in two or three installments, at vc.rying pr.ices. In such. case, it is suggested that the overage price may be tn.ken r~s the purchc se price of each of the bonds involved for the purpose of t:.pplying the amortization requirements of the regulations. Vor~ truly yours, (Signed) GIBBS LYONS GIBBS LYO~S Deputy Comptroller ' j 448 .. S-28-a COPY f)ec. 5136 R.S. TREASURY DEP .~RTMENT CURRENCY WASHINGTON COMPTROLLER OF THE tugust 27, 195'7. Mr. L. P. Bethea, Af;sistant Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. De:::r Sir: Reference is made to your letter of Augu2t 2, 1937, with which you inclose copy of a letter from ·Mr. h. B. Spear, E;xecutive vice presi.dE::nt of the Depositors Trust Compe.ny, Augusta, Maine, presenting a question regording amortization of premium on investment securities under regulations of this office. The question, as stated by Mr. Spear, is as follows: " ••••• we have ;;p2o,ooo bonds of n particular issue which cost us 105 5/4. Within s few days, due to "the decline ir1 the bond market, we have been able to buy ~:~0,000 morn bonds of the same issue, identical with the ones we held, at a price vvhich brings the aver::1ge cost for the forty bonds to 99 l/2. The question then arises an to whe;thor wE, should still continue under the regulation to amortize the premium on the first 1i20,000 bonds purchased at E~ :premium, or whether because their t,verage cost is bolo'?: par, there is no need of further omortization on that particular issue." r Section II ( 4) of the reguL1tions prohibits the purch~cse of an "Investment security" at a price exceeding par unless regular amortization of premium is provided by the b~:.nk through one of two methods specified. Hence, it is necessary for premium on e.s.ch bond purchased above par in the c::.se cited by rJir. Spear to be amortiz8d, and therefore it would not be permissible for the same to be used to equalize the.carrying values of the bonds subsequently bought below par. In practic.'ll application of the above rule, it me.y be found in some instances as a matter of fact that E, bank lms purch;:J.Sed bonds of the same issue at varying prices under circumstances·which warrant a consideration of the individual purchases as part of a single transaction - such r:..s where the bank may have placed an ordsr for the purchase of a cert::dn number of such bonds but the actual purchas~~s are made by
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