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293 b w. P. G. HARDING, GOVIBNOI. - DI'J'ICIO MIEMBI:IIll ALBERT STRAUSS, VJCI GOVIBROI ADOLPH C. MILLER CH.t.RLES S. HAMLIN HENRY A. MOEHLENPAH »AVID• F. HlJuSTON JIICBITJ.IY ep THI TRIASU IT C::HAIRMAN FEDERAL... RESERVE BOARD JOHN SKELTON WILLIAMS COIItT.OLLIR OF THI CURRIN~T W. T. CHAPMAN, SECRETART R. G. EMERSON, AIIISTAM'f SECRET.U:Y ,.DDRI!S!II RIIPL. Y TO FEPERAL. RE$ERVJ!: BOARP W.M,IMLAY.FIJCAL AlENT WASHINGTON April 3,1920. ' X-181:'0 .. Subject: Tax on Deficiencies in Reserves against Deposits- Sir:Under terms of Section 11, sub-section (c) of the Federal Reserve Act, the Federal Reserve Board is authorized and empowered to suspend any reserve requirement s-pecified in the Federal Reserve Act, "Provided, That i t shall establish a graduated tax upon the amounts by which the reserve requirements of this Act may b~ permitted to fall below the level hereinafter specified~" Section 16 of the Federal Reserve Act provides in part th~t 11Every Federal Reserve Barik shall maintain reserves in gold or lawful money of not less than thirty-five per centum against its deposits and reserves in gold . of not less than forty per centum against its Federal Reserve notes in actual circulation. 11 The Federal Reserve Board has al~eady by regulation established a graduated tax upon the deficiency in note reserves in the manner expressly required by the second proviso· . of sub-section (c) of Section 11, but i t has not heretofore established any specified graduated 'tax v:pon a deficiency in reserves against d~osits. You are advised therefore, that in accordance with the requirements of the law the Board has now established a te.:x of one per centum per annum upon the amount of the deficiency in reserves against deuosits provided, however, that whenever those reserves fall below thirty per centUm the tax upon the amount by which they have fallen below that limit shall be increased by one per centum per annum v.pon each five per centum or fraction thereof that such reserve falls below thirty per centum. You are advised that the rate of tax hereby established is retroactive and that any barur to which it applies shall forward each month to the appropriate officials of the Treasury Department, the full amount of any tax due and payable by such bank for the preceding month. This ruling is made by the Board in order to comply with the requirements of the Section of the Act above quoted but is not intended to change the Board* s present policy of requiring Federal Reserve Banks to ·keep as far as nossible the legal reserves required by rediscounting with other Federal Reserve Banks. \ ) . 294 .. X-1880 -2- There is enclosed for yo~ further information copy of a letter frorr. the Secretary of the Treasury describing the manner in which taxes on account of reserve deficiencies shall be paid. .. Very truly yours, Enclosure. Governor. To Chairmen of all F.R. Banks. ·- •
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