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FEDERAL RESERVE BOARD WASHINGTON November X-325s SUBJECT: igSl. D e p r e c i a t i o n -Allowances f o r F e d e r a l Reserve Bank B u i l d i n g s . Dear S i r : The Board h a s had under c o n s i d e r a t i o n f o r some t i m e p a s t t h e q u e s t i o n of d e p r e c i a t i o n a l l o w a n c e s f o r t h e b u i l d i n g s of F e d e r a l Reserve Banks, T h i s m a t t e r has a l s o been t h e s u b j e c t of c o r r e s p o n d e n c e and conv e r s a t i o n s between members of t h e Board and t h e Governors of s e v e r a l of t h e F e d e r a l Reserve Banks. The b u i l d i n g o p e r a t i o n s which have been engaged i n have a l l involved h i g h e r c o n s t r u c t i o n c o s t s t h a n a r e r e g a r d e d a s normal, and t h e Board r e c o g n i z e s t h e f o r c e of t h e argument which h a s b e e n made i n f a v o r of s e t t i n g up r e s e r v e s d u r i n g t h e t i m e t h a t t h e b u i l d i n g s a r e i n course of c o n s t r u c t i o n , i n o r d e r t o r e d u c e t h e a c t u a l c o n s t r u c t i o n c o s t t o a f i g u r e which upon completion of t h e work w i l l approximate t h e mean between t h e p r e s e n t and p r e - w a r c o s t s . I n a n t i c i p a t i o n of a p o s s i b l e prolonged p e r i o d of s m a l l e r e a r n i n g s , F e d e r a l Reserve Banks g e n e r a l l y have evinced a d e s i r e t o charge off c o m p a r a t i v e l y l a r g e amounts a g a i n s t t h e i r b u i l d i n g s a t t h e c l o s e of t h e p r e s e n t y e a r . The Board t a k e s t h e view t h a t i t i s d e s i r a b l e t h a t b u i l d i n g s be c a r r i e d on t h e books of t h e banks a t a r e a s o n a b l e v a l u a t i o n , but i t must t a k e i n t o c o n s i d e r a t i o n t h e p r o p r i e t y of p e r m i t t i n g F e d e r a l Reserve Banks t o charge off t h e s e amounts out of c u r r e n t n e t e a r n i n g s , thus, d e p r i v i n g t h e Treasury of t h e United S t a t e s of sums which would o t h e r w i s e be p a i d t o i t a s f r a n c h i s e t a x e s . The Board h a s reached t h e c o n c l u s i o n t h a t i t would be p r o p e r f o r F e d e r a l Reserve Banks t o charge o f f out of c u r r e n t n e t e a r n i n g s each y e a r an amount not i n e x c e s s of two p e r cent of t h e book v a l u e of t h e i r b u i l d i n g s , b u t i f i t i s d e s i r e d by any F e d e r a l Reserve Bank t o charge off an a d d i t i o n a l sum or t o p r o v i d e a r e s e r v e f o r d e p r e c i a t i o n , t h e charge should be made not a g a i n s t c u r r e n t n e t e a r n i n g s but a g a i n s t t h e s u p e r s u r p l u s f u n d . I n p r a c t i c a l l y a l l c a s e s , t h e s u p e r - s u r p l u s a t t h e end of t h i s y e a r w i l l be l a r g e enough t o e n a b l e t h e F e d e r a l Reserve Banks t o e s t a b l i s h a r e s e r v e f o r d e p r e c i a t i o n or t o make t h e d e s i r e d r e d u c t i o n i n t h e i r b u i l d i n g a c c o u n t s w i t h o u t d i m i n i s h i n g t h e i r payments t o t h e Government on account of f r a n c h i s e t a x e s . You a r e r e q u e s t e d t o a d v i s e t h e Board b e f o r e t h e end of t h e y e a r of t h e amount t h a t y=ur d i r e c t o r s may d e s i r e t o s e t up a s d e p r e c i a t i o n r e s e r v e or t o charge o f f f o r p r e s e n t or a n t i c i p a t e d d e p r e c i a t i o n of buildings. Very t r u l y y o u r s , CHAIRMEN OF ALL F.R.BANKS http://fraser.stlouisfed.org/ COPIES TO GOVERNORS. Federal Reserve Bank of St. Louis G o v e r n o r .
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