Full text of Mimeograph Letters and Statements of the Board : Letter From Secretary Morrill re Depreciation in Securities Held by Member Banks, Number X-7944, Volume 40, Page 401

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FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board

X-7944
June 29, 1934

SUBJECT:

Depreciation in Securities
Held by State Member Banks.

Dear Sir:
There is attached for your information a copy
of a letter addressed by the Board to the Federal Reserve Agent at the Federal Reserve Bank of Cleveland,
with regard to depreciation in securities held by State
member banks.
Very truly yours,

Chester Morrill,
Secretary.

Inclosure.

TO ALL F. R. AGENTS.



!, 402

C O P Y

i-7944-a

June 29, 1934.

Mr. L. B. Williams,
Federal Reserve Agent,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio.
Dear Mr. Williamsi
This refers to the recent telephone conversation "between Mr.
Fletcher, Assistant Federal Reserve Agent, and Mr. Paulger, Chief of the
Board's Division of Examinations, with regard to the amount of depreciation in securities to he charged off or otherwise eliminated "by State
member hanks.

The Board's letter of December 9, 1933, X-7705, stated in

detail the general policy of treating appreciation and depreciation in
securities in connection with applications for membership, and the
Board's letter of April 6, 1934, X-7848, expressed the opinion that State
member hanks should observe the standards prescribed for admission to
membership in the System and that accordingly whenever possible a State
member bank should charge off or otherwise eliminate not only all losses
in loans and other assets and all depreciation in stocks and defaulted
bonds, but also depreciation in all other securities except the four
highest grades as defined in the letter.
The method of determining net depreciation to be eliminated
after allowances for appreciation in other securities, as set forth in
the Board's letter of December 9, 1933, is likewise applicable to the
determination of depreciation in securities to be eliminated after the
examinations of State member banks.

There may be, of course, instances

in which appreciation is in such volatile issues that conservative banking



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3t-7944—a

Mr. 1. B. Williams

— 2 —

practice would not consider such appreciation an appropriate offset to
depreciation in remaining securities.

Such cases, however, are left to

the determination of the examiners and supervisory authorities.
In a recent letter, the Board has advised the Federal Reserve
Agent in another district as follows:
"In this connection it has "been noted that estimated losses as
classified in the report of examination included $89,086.30, the
total amount of depreciation in lower grade securities, although
the total net depreciation in the investment account amounted to
only $81,555.58 on account of appreciation in the higher grade "bonds.
In the circumstances, the Board "believes that it would "be appropriate
to confine the request for elimination of depreciation in securities
to the net depreciation in the entire account.n




Very truly yours,

(Signed)

Chester Morrill
Chester Morrill,
Secretary.