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X-9032 November 28, 1934. SUBJECT: The Use of Valuation Reserves i n Lieu of Actually Charging Off Losses and Depreciation in S e c u r i t i e s . Dear S i r : For your information there are inclosed a copy of a l e t t e r received by the Board from Mr. J. M. Peyton, Chairman of the Board at the Federal Reserve Bank of Minneapolis, dated November 19, 1934, and a copy of the Board's reply thereto, which are self-explanatory. Very truly yours, Chester Morrill, Secretary. Inclosures TO ALL FEDERAL RESERVE AGENTS 368 Copy FEDERAL RESERVE BANK X-9052-a OF MINNEAPOLIS November 19, 1934 Mr. Chester Morrill, Secretary, Federal Reserve Board, Washington, D. C. Dear Mr. Morrill, From your l e t t e r X-9018 of November 10, 1934, I quote as follows: "Prior to the issuance of a limited voting permit the Federal Reserve Agent s h a l l s a t i s f y himself that each of the subsidiary banks of the applicant has charged o f f or otherwise eliminated - ( a ) . * * * * *" Undoubtedly the question w i l l a r i s e as to whether a reserve s e t up against any of those items named i n ( a ) , (b), (c) or (d) of t h i s paragraph w i l l be s a t i s f a c t o r y to the Federal Reserve Agent. Personally, i f any bank desired to s e t up a r e serve adequate to cover the depreciation i n s e c u r i t i e s , assuming that i t has eliminated the other requirements through actual charge o f f , i t would be my i n c l i n a t i o n to recommend the bank f o r a limited voting permit under those conditions. Before taking d e f i n i t e action i n the matter and before advising the banks with regard to t h i s d e t a i l , I would appreciate a word from you informing me i f i t w i l l be s a t i s f a c t o r y to the Board to i s s u e a limited voting permit under these circumstances. Very truly yours, (Sgd.) J. N. Peyton CHAIRMAN OF THE BOARD 369 Copy X-9052-b November £6, 1954. Mr. J . M. P e y t o n , F e d e r a l Reserve Agent, F e d e r a l Reserve Bank of Minneapolis, Minneapolis, Minnesota. Dear Mr. Peyton: R e f e r e n c e i s made t o your l e t t e r of November 19 i n which you r e q u e s t i n f o r m a t i o n a s t o whether o r n o t t h e u s e of r e s e r v e s by s u b s i d i a r y banks c o n s t i t u t e s s a t i s f a c t o r y e l i m i n a t i o n of l o s s e s and d e p r e c i a t i o n a s a c o n d i t i o n p r e c e d e n t t o t h e i s s u a n c e of l i m i t e d v o t i n g p e r m i t s , a s o u t l i n e d i n the B o a r d ' s l e t t e r of November 10, 1934 (X-9018). The Board c o n s i d e r s t h a t t h e charge o f f or e l i m i n a t i o n of e s t i mated l o s s e s and d e p r e c i a t i o n i n a s s e t s a s r e q u i r e d i n p a r a g r a p h numb e r e d 1 on page 5 of such l e t t e r may be e f f e c t e d p r o p e r l y through t h e e s t a b l i s h m e n t and maintenance of v a l u a t i o n r e s e r v e s , p r o v i d e d t h a t i n a l l r e p o r t s and p u b l i s h e d s t a t e m e n t s of c o n d i t i o n such r e s e r v e s be deducted from t h e r e s p e c t i v e a s s e t s a g a i n s t which a l l o c a t e d , t h e r e b y r e p o r t i n g such a s s e t s i n t h e same amounts a s i f t h e charge o f f 3 a c t u a l l y had been made, and t h a t t h e l o s s e s t o p r o v i d e f o r which t h e r e s e r v e s were e s t a b l i s h e d a r e charged a g a i n s t t h e r e s p e c t i v e r e s e r v e s a s soon a s such l o s s e s a r e d e f i n i t e l y d e t e r m i n e d . Very t r u l y y o u r s , (Signed) C h e s t e r M o r r i l l Chester M o r r i l l , Secretary.