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federal reserve board
456
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
November 20, 1$2S
St.5164.
SUBJECT:
Closing of Books on December 31. 1926.
Dear S i r :
In accordance with the usual custom, i t w i l l "be appreciated*
i f the r e s o l u t i o n of your board of d i r e c t o r s f o r the payment of the
semi-annual dividend, and r e q u e s t s f o r a u t h o r i t y t o charge earnings
with d e p r e c i a t i o n allowances, r e s e r v e s f o r probable l o s s e s , e t c . , are
received a t the B o a r d ' s o f f i c e s not l a t e r than December 10, 1926, and
are accompanied with the f o l l o w i n g information: (1) e s t i m a t e d gross
e a r n i n g s , c u r r e n t expenses, proposed a d d i t i o n s to and deductions from
current net e a r n i n g s , and net earnings 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 tax f o r t h e calendar year 1$26, (2) unpaid indebtedness of
f a i l e d banks t o Federal reserve bank, giving the names of the banks,
indebtedness of each on November 30, c h a r a c t e r of s e c u r i t y , i f any,
and the probable l o s s i n the case of each bank, and (3) indebtedness
to Federal r e s e r v e bank of member banks considered to be i n an unsafe
c o n d i t i o n , giving the names of the banks, indebtedness of each on
November 30, c h a r a c t e r of s e c u r i t y , i f any, and e s t i m a t e d l o s s i n the
case of each bank.
The procedure l a i d down i n the Board's l e t t e r St. 4333 of
November 26, 1924, s u b j e c t "Closing of Books on December 31, 1924,"
r e l a t i n g t o c h a r g e - o f f s and d e p r e c i a t i o n r e s e r v e s on bank premises,
f u r n i t u r e and equipment, d e p r e c i a t i o n on United S t a t e s s e c u r i t i e s ,
and s u r p l u s and f r a n c h i s e t a x , i s s t i l l i n e f f e c t and should be f o l lowed i n submitting your r e q u e s t s a t the end of the y e a r , except t h a t
i t w i l l be unnecessary to f u r n i s h an itemized l i s t of f u r n i t u r e and
equipment c a r r i e d on the books a t the date of your r e q u e s t and which
i t i s proposed t o purchase during the remainder of the y e a r .
With regard to d e p r e c i a t i o n r e s e r v e s and c h a r g e - o f f s on bank
premises, the 1927 e d i t i o n of d a i l y balance s h e e t , - f o r m 34, w i l l show
the book value of Bank Premises divided i n t o (a) Land, (b) B u i l d i n g s ,
i n c l u d i n g v a u l t s , ( c ) Fixed machinery and equipment, and (d) Other r e a l
e s t a t e and New b u i l d i n g account, i n s t e a d of Banking houses ( i n c l u d i n g
l a n d ) , New b u i l d i n g account, and Other r e a l e s t a t e , as a t p r e s e n t . By
r e f e r e n c e t o paragraphs (b) and (c) under Bank Premises on page 2 of
the B o a r d ' s l e t t e r St. 4333 of November l 6 , 1924, you w i l l note t h a t
i t has been the purpose of the Board t o a u t h o r i z e the banks t o charge
off a s u f f i c i e n t amount of the cost of each bank b u i l d i n g to reduce the
book value thereof to estimated replacement c o s t , and t h e r e a f t e r t o
~ 2 -
457
a u t h o r i z e the s e t t i n g up of a d e p r e c i a t i o n reserve of not t o exceed
2 per cent per annum of the replacement c o s t , a l s o to a u t h o r i z e a r e serve to "be set a s i d e each year t o cover d e p r e c i a t i o n on f i x e d machinery
and equipment, the annual a d d i t i o n to such reserve not t o exceed 10 per
cent of c o s t . In accordance with the p r i n c i p l e s l a i d down i n t h a t
l e t t e r , t h e Board would p r e f e r t h a t beginning with January 1, 1927, a l l
Federal reserve "banks c a r r y t h e i r "bank premises accounts on form 3^- as
f o l l o w s : (a) Land on which a "banking house i s l o c a t e d - a t "book v a l u e ,
i . e . , a c t u a l cost l e s s amounts charged o f f ; ("b) Completed "buildings a t replacement c o s t , i . e . , a c t u a l cost l e s s amounts charged off t o r e duce hook value t o e s t i m a t e d replacement c o s t , determined i n accordance
with t h e formula l a i d down i n paragraph (d) of t h e B o a r d ' s l e t t e r
St. 1+333; (c) Fixed machinery and equipment i n completed b u i l d i n g s at a c t u a l c o s t ; and (d) Other r e a l e s t a t e and new "building account (unf i n i s h e d "buildings) at book value, i . e . , a c t u a l cost l e s s amounts
charged o f f . If t h i s i s done, the d e p r e c i a t i o n r e s e r v e s to be set aside
at the end of each year w i l l be based on the ' replacement cost of the
b u i l d i n g s and the a c t u a l cost of f i x e d machinery and equipment, a s
shown on form Jk. The t o t a l of such r e s e r v e s which i s t o be deducted
from the book value of bank premises w i l l then r e p r e s e n t only the annual
d e p r e c i a t i o n charges on b u i l d i n g s and f i x e d machinery and equipment,
i . e . , they w i l l not include charges t o earnings made f o r the purpose
of b r i n g i n g the book value of b u i l d i n g s down to replacement cost nor
any amounts charged off on land.
In order t h a t the bank premises r e c o r d s of the Board may
be checked a g a i n s t those of t h e banks and any d i f f e r e n c e s r e c o n c i l e d
b e f o r e the new accounts are set up on form 3^ beginning with 1927, we
are e n c l o s i n g herewith a statement covering each s e p a r a t e b u i l d i n g
owned by your bank, showing on the f a c e side of the form the cost of
the b u i l d i n g i n d e t a i l , and on the reverse side the amounts charged off
and the d e p r e c i a t i o n r e s e r v e s set aside t o the end of 1925« The r e serves as shown on these statements may aot agree with d e p r e c i a t i o n
r e s e r v e s now shown on form 3^» as we have endeavored i n a l l cases to
follow the plan o u t l i n e d above i n determining whether each amount
should be t r e a t e d as a charge-off or as a d e p r e c i a t i o n r e s e r v e . I t
w i l l be a p p r e c i a t e d i f you w i l l have these statements checked and r e turned, i f p r a c t i c a b l e , with your b a n k ' s request f o r a u t h o r i t y to close
your books, pay the semi-annual dividend, e t c . , at the end of 1926.
Very t r u l y yours,
Walter L. Eddy,
Secretary.
Enclosure.
TO CHAIRMEN OF ALL FEDERAL RESERVE BAMS.
@FedFRASER