W. P . 6 . HARDING, GOVERNOR B X O F F I C I O M E M B E R S ALBERT S T R A U S S . VICE GOVERNOR

— * ADOLPH C. MILLER

JOHNc=™»orLTA„M,s=u,,,,cr FEDERAL RESERVE BOARD w .T c l™.s.™

R. G . E M E R S O N , ASSISTANT SECRETARY

ADDR federal"e3erve board WASHINGTON r,,CAtA9EHt

December 3>1919* x-iyUi

Subjec t : Treatment of Extraordinary Charges aga ins t Earnings of Federal Reserve Banks a t the c los ing of hocks December 31, 1919*

Dear Sir

With the view of maintaining uni formity of p r a c t i c e , the Federal Reserve Board has approved the fol lowing r u l e s to be adopted by the Federal Reserve Banks f o r the treatment of deprec ia t ion and ext raordinary charges agains t ne t earnings and p r o f i t and l o s s a t the c los ing of bocks Dec. J l , 1919*

1 . Cost of Federal Reserve and Federal Reserve Bark Notes.

Balance of account, a s shown by books on Dec. 31» to be charged to current expense account*

2. Furn i ture and SauiTxmnt.

Balance of account, as shown by bocks on Dec. 31» to be charged to current expense account.

3 . Cost of Vaults*

All expenditures made during the year 1919 f o r v a u l t s and vau l t equipment to be charged to current expense account.

4. A l t e r a t i o n s and Improvements.

Charge agains t cur ren t expense account a l l expendi tures made during the year 1919 in r epa i r ing , a l t e r i n g or r e -modeling bank premises.

5. Bank Premises.

(a ) Where p r o p e r t i e s have been purchased with the i n t en t i on of e r e c t i n g new bank bu i ld ings barks w i l l be permit ted to charge aga ins t p r o f i t and l o s s account an amount s u f f i c i e n t to. cover the es t imated value of bu i ld ings which wi l l have to be razed, such es t imated va lua t ion of bu i ld ings to be submitted to the Federal Reserve Board f o r approval be fore deprec ia t ion allowance i s determined.

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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(b) Where p r o p e r t i e s have been remodeled and are now used as permanent banking quar te r s by a Reserve bank, a reasonable deprecia t ion charge w i l l be permit ted but in no case sha l l i t exceed 10 per cent of the estimated value of bu i ld ings on Dec. 31. 1919.

(c ) Where a Reserve bank has purchased or may purchase a s i t e f o r a new bui ld ing i t w i l l be permit ted to charge down the book value of premises now owned and occupied to a f a i r s e l l i n g p r i ce , such p f i c e to be submitted to the Federal Reserve Board f o r approval before depreciat ion allowance i s determined.

6. A"oparent Depreciat ion on Government .Secur i t i es

Fu l l provis ion should be made f o r apparent deprecia t ion (based on market value) on government s e c u r i t i e s before any amount i s t r a n s f e r r e d to surplus account. No change should be made in book value of s e c u r i t i e s but deprecia-t ion allowance should be charged to p r o f i t and l o s s account and ca r r i ed to account Depreciation reserve on U.S. bonds. Adjustments should be f igtired on the bas i s of December 1919, market quota t ions which w i l l be telegraphed to you from Washington on the morning of December 31 "1919. .

7* Surplus snd Franchise Tax .

Af te r a l l cur ren t expenses, extraordinary charge-of fs , and dividend payments have been provided f o r , the balances r e -maining in the p r o f i t and lo s s account should be d i s t r ibu ted as fo l lows :

1 . Transfer to surplus account a l l ne t p r o f i t s u n t i l such surplus account i s equal to 100 per cent of the bank 's subscribed c a p i t a l .

2 . Of the balance, i f any, remaining in the p r o f i t and l o s s account, 10 per cent should be t r ans fe r red to surplus account and 90 per cent paid to the Government as a f r anch i se tax .

Kindly acknowledge rece ip t*

Very t r u l y yours,

Governor.

Le t t e r to Chairmen of a l l F. R. Banks, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis