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FEDERAL RESERVE BOARD WASHINGTON November 5 . 1 9 2 9 , ADDRESS OFFICIAL CORRESPONDENCE T P T H E FEDERAL RESERVE BOARD SUBJECT: st. 6371. C l o s i n g of Books on December 3 1 . 19^9" Dear S i r : I n a c c o r d a n c e w i t h t h e u s u a l c u s t o m i t w i l l be a p p r e c i a t e d , i f t h e r e s o l u t i o n of y o u r B o a r d o f D i r e c t o r s l o r t h e payment of t h e s e m i - a n n u a l d i v i d e n d and r e q u e s t s f o r a u t h o r i t y to charge earnings with depreciation allowances, reserves f o r probable losses, e t c . , are received a t t h e B o a r d ' s o f f i c e s n o t l a t e r t h a n December 1 0 , I 9 2 9 , and a r e accompanied w i t h t h e f o l l o w i n g i n f o r m a t i o n : 1. Estimated gross earnings, current expenses, a d d i t i o n s t o a n d p r o p o s e d d e d u c t i o n s firom c u r r e n t n e t e a r n i n g s , and n e t e a r n i n g s a v a i l a b l e f o r s u r p l u s and f r a n c h i s e t a x f o r t h e c a l e n d a r y e a r ig29« 2 . I n d e b t e d n e s s t o t h e F e d e r a l r e s e r v e b a n k of ( a ) s u s p e n d e d b a n k s and ( b ) b a n k s c o n s i d e r e d t o b e i n a s e r i o u s l y o v e r e x t e n d e d c o n d i t i o n , g i v i n g t h e names of t h e b a n k s , i n d e b t e d n e s s of e a c h on November 3 0 , a n d p r o b a b l e l o s s i n t h e c a s e of e a c h b a n k . The g e n e r a l p r o c e d u r e f o l l o w e d i n t h e p a s t w i t h r e f e r e n c e t o c h a r g e - o f f s , d e p r e c i a t i o n and o t h e r r e s e r v e s t r a n s f e r s t o s u r p l u s a c c o u n t and payment Of f r a n c h i s e t a x w h i c h i s c o v e r e d b y t h e a t t a c h e d memorandum, w i l l b e f o l l o w e d a t t h e end of t h i s y e a r . Very t r u l y y o u r s , E* M» M c C l e l l a n d , Assistant Secretary. Enclosure. LETTER TO ALL CHAIBMM* Federal Reserve Boarl November 19, 192%. t)o3 GENERAL PRACTICE OF FEDERAL RESERVE BOARD REGARDING DEPRECIATION RESERVES ON BANK PREMISES, RESERVES FOR LOSSES ON PAPER OF FAILED BANKS, MD OTHER CHARGES TO CURRENT NET EARNINGS, MD METHOD OF DETERMINING FRANCHISE TAXES TO BE PAID BY FEDERAL RESERVE BANKS 1. Bank Premises, (a) Land. No charges against current net earnings will be authorized "by the Board to cover depreciation on land where the estimated market value of the land i s equal to or in excess of i t s net book value, ( I D ) Buildings. The Board will in general authorize the "banks to charge current net earnings each year with a depreciation reserve on bank buildings, including vaults but excluding fixed machinery and equipment, of not exceeding 2 per cent of their estimated replacement cost, such replacement cost to be determined in a m a n n e r approved by the Board. Where the book value of a building i s in excess of replacement cost, the Board will consider a request for permission to charge off an amount s u f f i c i e n t to reduce the book value to e s t i mated replacement cost. (c) Fixed machinery and equipment. The Board will authorize the banks to charge current net earnings each year with a depreciation r e serve of not to exceed 10 per cent of the cost of fixed machinery and equipment, such as boilers, engines, dynamos, motors, power pumps, elevators, heating, plumbing, lighting, and ventilating ^rstems, pneumatic tubes, r e f r i g e r a t i o n plant, automatic f i r e sprinkler equipment, and vacuum cleaners. 2. Reserves for losses on paper of suspended banks and banks in an overextended condition. Authorizations to set aside reserves to cover losses on paper of suspended banks or banks in an over-extended condition will be limited to such actual losses, in excess of reserves already carried, as the bank may reasonably be expected to sustain on such paper. 3- Furniture and equipment. I t will be the general practice of the Board to authorize the banks to charge off at the end of the year a l l f u r n i t u r e and equipment purchased during the current year. 4, Other charges to current not earnings. Whore a bank desires to set up any reserve other than those mentioned above or to make any other unusual charge against current earnings at the end of the year, f u l l and complete information should be furnished the Board regarding the necessity for such charge. 5- Surplus and franchise taxes. After a l l current expenses, dividends, depreciation and other reserves, and charge-offs authorized by the Board have been provided f o r , any remaining net .earnings shall be distributed as follows: (a) Transfer to surplus account a l l net earnings unless such transf e r will result in the bank's surplus account being in excess of i t s subscribed c a p i t a l , in which case only such amount should be transferred as i s necessary to increase the surplus account to an amount equal to the subscribed c a p i t a l . (b) Distribute a l l available net earnings a f t e r the bank's surplus account i s equal to i t s subscribed capital as follows: (1) Transfer JO per cent to surplus account. (2) Pay 90 per cent to United States Government as a franchise tax. (St. 5577a)
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