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X-7367 78 TELEGRAM FEDERAL RESERVE BCMD WASHINGTON March 8, 1933 Young Boston Fancher Cleveland McDougal Chicago Hamilton Kansas City Harrison Hew York Seay Richmond Martin S t . Louis McKinney Dallas Norris Philadelphia Black Atlanta G-eery Minneapolis Calkins San Francisco TRAILS. HO. 1580 E f f e c t i v e March 1, 1933, the Federal Reserve Board has amended Paragraph numbered Ten of i t s Regulation 0, S e r i e s of 1915, e s t a b l i s h i n g a graduated tax on d e f i c i e n c i e s i n the gold r e s e r v e s required t o he held against Federal r e s e r v e notes i n a c t u a l c i r c u l a t i o n , t o read as f o l l o w s : QUOTE (10) I f at any time the gold r e s e r v e s required by law t o he held by a Federal Reserve Bank a g a i n s t Federal r e s e r v e n o t e s i s s u e d t o i t f a l l below f o r t y per cent (including t h e r e i n the gold redemption fund required to be maintained on deposit i n the Treasury o f the United S t a t e s ) the Federal Reserve Agent s h a l l at once n o t i f y the Federal Reserve Board, and thereupon u n t i l otherwise d i r e c t e d by the Federal Reserve Board, a graduated t a x upon such d e f i c i e n c y as required by subsect i o n ( c ) of s e c t i o n eleven of the Federal Reserve Act s h a l l be e s t a b l i s h e d and s h a l l be computed as f o l l o w s : When such r e s e r v e s f a l l below f o r t y per cent but are not l e s s than t h i r t y - t w o and one-half per c e n t , the tax upon t h e d e f i c i e n c y s h a l l be at the r a t e of one tenth of one per cent per annum; When such r e s e r v e s f a l l below t h i r t y - t w o and one-half per cent but are not l e s s than t h i r t y per c e n t , the t a x X-7367 -3- upon the e n t i r e d e f i c i e n c y "below f o r t y per cent s h a l l he at t h e r a t e of one and s i x - t e n t h s per cent per annum: When such r e s e r v e s f a l l below t h i r t y per cent "but are not l e s s than twenty-seven and one-half per c e n t , the tax upon the e n t i r e d e f i ciency below f o r t y per cent s h a l l he at the r a t e of three and o n e - t e n t h per cent per annum; and so on, i n c r e a s i n g the tax at the r a t e of one and one-half per cent per annum with each f u r t h e r d e f i c i e n c y i n such r e s e r v e s amounting to two and one-half per cent or any f r a c t i o n t h e r e o f . UNQUOTE. In connection with the Board's l e t t e r of A p r i l 3 , 1920, (X-1880), you are advised t h a t , i n l i e u of the t a x p r e s c r i b e d t h e r e i n on d e f i c i e n c i e s i n r e s e r v e s a g a i n s t d e p o s i t s r e c e i v e d by a Federal r e s e r v e bank, the Board has prescribed, e f f e c t i v e March 1, 1933, a tax of one-tenth of one per cent per annum upon the amount of such d e f i c i e n c i e s , provided, however, that whenever reserves a g a i n s t d e p o s i t s f a l l below t h i r t y per c e n t , the t a x upon the amount by r h i c h they have f a l l e n below that l i m i t s h a l l be increased by one-tenth of one per cent per annum upon each f i v e per cent or f r a c t i o n thereof that such r e s e r v e s f a l l below t h i r t y per c e n t . In t h i s connection, a t t e n t i o n i s c a l l e d to the opinion of Counsel transmitted with Board's l e t t e r of A p r i l 10, 1920 (X-1894) that under prov i s i o n s of S e c t i o n 1 1 ( c ) of Federal Reserve Act, an amount equal to the t a x paid by the Federal reserve bank on d e f i c i e n c i e s i n r e s e r v e s a g a i n s t Federal r e s e r v e n o t e s s h a l l be added to r a t e s of i n t e r e s t and discount f i x e d by f e d e r a l Reserve Board, but that an amount equal to the tax paid 80 X-7367 -3"oy the Federal r e s e r v e "bank on d e f i c i e n c i e s i n r e s e r v e s a g a i n s t d e p o s i t s i s not to "be added to r a t e s of i n t e r e s t and discount f i x e d "by the Federal Reserve Board. MORRILL
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