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X-4-351 FEDERAL RESERVE BOARD <?<> WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO T H E FEDERAL RESERVE BOARD SUBJECT: .Tlinfl 1 2 , 1925* Eight of member "bank i n computing i t s reserve to deduct "balances due from foreign branches of domestic banks from balances due to other banks. Dear S i r : The Federal Reserve Board has r e c e n t l y been requested to r u l e on the question whether balances due from f o r e i g n branches of banks l o c a t e d i n t h i s country can be t r e a t e d a s a part of the item "duo from banks" to be deducted from t h e item "due to banks" i n computing r e s e r v e s of member banks under S e c t i o n 19 of the Federal Reserve A c t . The Board has h e r e t o f o r e ruled that balances due from f o r e i g n banks could not be deducted by a member bank i n computing i t s r e s e r v e . In accord with t h i s p o s i t i o n the Board now r u l e s that a balance due from a f o r e i g n branch of a domestic bank may not be deducted from b a l a n c e s due to banks by a member bank i n computing i t s reserve when the balance due from the f o r e i g n branch i s payable i n f o r e i g n currency. The Board b e l i e v e s that the phrase "the net d i f f e r e n c e of amounts due to and from other banks" contained i n S e c t i o n 19 of the Act has r e f e r e n c e only to balances payable i n d o l l a r s and does not include balances payable i n f o r e i g n currency. I f , however, the balance due from a f o r e i g n branch of a domestic bank i s payable i n d o l l a r s i n s t e a d of i n f o r e i g n currency, such balance may properly be deducted by a member bank from b a l a n c e s due to other banks. The f o r e i g n branch of a domestic bank and the domestic bank i t s e l f c o n s t i t u t e but one l e g a l e n t i t y and a balance payable i n d o l l a r s due from any part of that l e g a l e n t i t y reg a r d l e s s of where l o c a t e d i s b e l i e v e d to be a proper deduction from balances due to other banks i n computing reserves under the p r o v i s i o n s of S e c t i o n 19. The Board a l s o considered another q u e s t i o n very c l o s e l y r e l a t e d t o that j u s t d i s c u s s e d , namely whether a member bank i n c a l c u l a t i n g i t s own . reserve requirements may deduct balances due from i t s own f o r e i g n branch. The Board has f r e q u e n t l y h e l d that a bank and i t s branches cons t i t u t e but one l e g a l e n t i t y and s i n c e s e c t i o n 19 r e f e r s t o b a l a n c e s due to and from other banks the Board r u l e s that balances due from a f o r e i g n branch of a member bank to i t s home o f f i c e are not properly d e d u c t i b l e from balances due to other banks i n computing the reserves of the member bank. The Board's r u l i n g s nay bo s o t out i n b r i e f f o i n a s f o l l o w s : 1. Balances payable i n f o r e i g n curroncy duo from a f o r e i g n branch of a domestic bank nay not bo deducted by a member bank i n computing i t s r e s e r v e from balances duo to other banks. 3 3 7 - x~U351 2 - 2. Balances payable i n d o l l a r s due from a f o r e i g n branch of a domest i c bank may be deducted by a member bank in c o n f u t i n g i t s r e s e r v e from balances due to other banks. 3. Balances payable e i t h e r i n d o l l a r s or in f o r e i g n currency due to a member bank from i t s own foreign branch may not be deducted from balances due to other banks by the menker bank in comp u t i n g i t s reserve. By order of the Federal Reserve Board. Walter L. Eddy, Secretary. TO THE GOVERNORS OF ALL F. B. BANKS EXCEPT KANSAS CITY.
@FedFRASER