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FEDERAL RESERVE BOARD
WASHINGTON
X-4453
ADDRESS OFFICIAl. CORRESPONDENCE TO
THE FEDERAl. RESERVE BOARD
November 17, 1925.
SUBJECT:
Closing of Books on December 31, 1925.
Dear Sir;
In considering resolutions for the payment of
dividends by the Federal reserve banks at the end of this
year, and requests for authority to charge earnings with
depreciation allowances, reserves to take care of probable
losses, otG., the Federal Reserve Board will follow the
procedure &~d rule~ adopted last yoar, as outlined in the
Board's letter St.4333 of November 26, 1924, a copy of
which is enclosed. It is therefore requested that the
di-ridend resolution of ycur bank be accompanie(l with
statements similar to those requested in that letter,
and that the resolution and accompanying dc:;.t:-1 be mailed
in time to reach the Board not latar then recember 10,
1925, in order that i t may have rurrplc time to pass upon
all charges to current net earnings which ;your bank
proposes to make when closing its books at the end of
the year.
Very truly yours,
Walter L. Eddy,
Secretary.
TO .ALL CHAIRMEN
Enclosure:
242
FEDERAL RESERVE BOARD
WASHINGTON
November 26, 1924.
St. 4333 •.
stffiJEC'r:
Closing of Books on December 31, 1924..
Dear Sir:
In order tha~ t~ Board may bave anple time to pass upon all
cha.tSf:ls which your b~ propo sea to me.ke aga.inst ourren~ earnings when
tho booJts are closed on recen.ber 31, 1924, for depreciation allowances,
for reserves to take care of probable losses, and for otller extraordinary
purposes; it is requested that t.be dividend resolution of your :Board of
Directors be mailed in time to reach the Board' a offices not later than
Deoember 10, 1924.
b
diVidend resolution should be accompanied w1 th statements
, showing the folloWing inforruation:
1. Estimated gross earnings, current eJCpenses, proposed charges
to current net earnings, zd net earnings available for surplus and framhisa tax, for the calendar year 1924.
2. Unpaid indebtedness of failed or suspended 'oanlts to Federal
reserve liank, giving tbe na:r.es of the banks, indebtedness
of each on November 30, character of aecuri ty, if any, and
estimated losses.
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3. Indebtedness to Federal reserve
bank of 1bember banks 71hiob
are considered to be in an unsafe concli tion, giVing the
names of the banks, indebtedness of ea.on on November }0,
charaotler o1' seouri ty, if any, and probable losses.
4. A statement in the form outlined l'elow, shoWing separa•ly
for each property acquired for Banking Bouse purposes,
(a) the cest, al0012ltS charged off, net book value, mel
eetims.ted market value of land owned;
(b) the coat to NoV9mbsr JO, amounts.cbarged off, reserves
carried, net book va.lue, s.nd estil!.ated replacement cost of
buildings, exclusive of fixed a.aohinery and equipment,
either con.pleted or in course of construott.on;
(c) the cost to Noven.ber 30, aroounts charged off, l'Qserves
carried, a.nd net book. va.lue of fixed maohinery and e.quipment.
.
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243
- 2-
LAND
- C o s t to lJovon.b\lr 30
.Amount c~r~d off
Book value {nat)
Esti:r.a.ted market v~ue
BUI LmNG INCUJDING VAULT
Cost to llovetr.ber 30
Amount charged off
Reserves now carried
Book value (nat)
Esti:natao replacement cost
t------
FIXEr .M!CHINEP.Y .&"'D E9UIP!4ENT
Cost to Novamoer 30
Amount charged off
Raaerves now carried
Book value (net)
In the case of land on wnich a new building .nas been or 1 s to be
constructe(! ths cost of the lancl (tui!ding site) should agree with the amount
reported agg.inst item 6 of q1:artarl;r ba.W: pretr.i ses rc,port (Federal Reserve
Board Fonn St. 2810). In case of buildings purchased and occupied as bank
quarters, the reported cost of land should represent its fair market value
at time of purc:.se.
The Ja.lanca of t~ purchase price should be considered
as the cost of the building.
The following rules have be!n approved by the Federal Reserve Board
for the gllidanoe of the Federal reserve ba:lK-s in subnd. tting requests for permission to make special charges against current net eamings, and for closing
of books on Decembar 31.
1. 'Banlt Premises. (a) Land. No charges against current net earnings
Will be authoriiecJ by the Fed!ral Reserve Board to cover depreciation on land
Where the estimated market value of the land is equal to or in excess of its
net book value.
(b) Buildings. In passir.g upon requests to set
up depreciation reserves on bank buildings, the. Board Will in general penni t
a c·:-.arge against current nat eamir.gs of not emeedir..g 2 per cent of estimated
replacement cost, including vaults but excluding fixed n.achinary and equipnent.
In case the net book· value of a. building is in excess of its estimated replacement cost., the Board will consider requests frorr. Fe~era.l reserve banks for permission to write off a depreciation ~barge not exceadi.:1g the an:ount of such
e.xoess.
(c) F!xed n.a.ol:inery and equipment. A reserve
should be set auide each year to cover depreciation en fimc:l machinery and
equipment, such as boilers, engi.-les, dynanos, motors, power pllll!ps, elevators,
heating, plunbing, lighting and ventilating systems, pneunatic tubes, refrigeration plants, automatic fi t'e sprinkler equipn.ant, and vacuum cleaners.
JDnual adc:li tiona to this reserve should b9 based on the estimated life of the
.
-
244
.... J ...
·-.....~~nt, but itt nc caa-' s!':.ou.ld tha a.nr.ual cha.rge emeed 10
per cent-o1' cost. Replacan..ents of Fi:mt.l Machinery and Equipment sltould ae
charged to this reserve.
(d) Estimates of the market value ofland and of
the replacement cost of buildings ei t:':.er cOllq)lated or in course of construction sho~d be obtained from the best available authorities. A copy of the
estimates thus obtained should be enclosed with your request for autbority
to charge current net earnings With depreciation on bank premises un:i.ess
similar estimates have \een previously oubmi.tted to the l!ederal Beserve l'oa.rd.
For the purpose of tbi s report the· estimated replaoer.ent cost of buildings
including vSul.ts, but excluding fi19d machinery anc1 aquipnont, may be arrived
at by deter.nining tte mean of two amounts, namely; (1) the total actual cost
of constl"U.Ction, and (2) the estimated cost of construction based on the
lowest prices that have eXisted during the fifteen 39ars preceeing t:he com-pletion of construotion.
(e) Whara properties ha.'l/e been purchased With the
intention of razing existing buildings and of erecting new banking quarters
tao Board Will consider requests for permission to deduct from current nat
ea...-nings an amount equal to the diffarence between the cost of the property
ano the market value of the building site exclusive of improvemants.
2. Furniture and a guip:r!!?nt. Requa s ts w charge off the ~a.laroe
in the Furniture and Equipment account on Decomber 31 should be
accoq>a.nied w1 th an i te:ui zed 11 sv of all Furniture and Equip:nent carried on
the books as of the date your reqt"~est is submittad a.nd also With a list of
addi tionaJ. furniture, if any, that it is proposed to puroh9.88 during the
remainder of the year.
r~ning
3. Depreciation on United States sacurities. A reserve amounting
to 3 per cent of tbe par value of u. S. conversion bonds :.f 1946-47 n.a.y be
set aside to cover depreciation on such bonds. In case tlie present reserve
for depreciation is in excess o1' actual depreciation as a.Dove determined
such excess should )e cradi ted to Profit and Loss.
4. Surplus and franchise t~s. After all current e~en'les,
dividends, depreciation allowa.roes and other extraordinary charge-offs
authorized by the Federal Reserve Board have l·een provided 1'or, any remaining net earnings shall be distributed as 1'ollows:
(a) Transfer to surplus account all available net ea.ritings
prov-iding tne total surplus will not as a result exceed
the bank's &bscribed capital, in which case only such
amount shall be transferred as is"' necessnry to inorease
the surplus account to an amount equu to the bank's
sub scri beci capital.
(b) Of the balance of mt earnings, if any, 10 per o.ant shall
be trans1'erred to surplus a)COunt, and 90 per cent peid
to the United States Govennent as a franchise tax.
.
245
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Instrt10tions 13.6 to th"' tin.a and rna t.hocl of pa.~nt of tbe franchise tax will as usual be issu3d at a later date by tbe Treasury Department.
Walter L. Edclv •
Secretary.
TO OH.AIBMEN OF ALL PEDERAL RES.&llVE B~'«S.
.,
@FedFRASER