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41 BOARD O F G O V E R N O R S

O F T H E

FEDERAL RESERVE SYSTEM R_6o2 W A S H I N G T O N

a d o r h i o f f i c i a l c o r r e s p o n d e n c e t o t h e b o a r d

January 25, 1940

Dear Sir:

The enclosed list of topics for discussion at the examination conference February 7-9 has been prepared in the light of the suggestions received in reply to the Board's letter R-584. As stated previously, the conference will be largely e round table discussion and it is expected that the discussion of each topic will be led by the representatives of the Reserve bank or banks which suggested the topic.

In the effort to keep the program to a reasonable length, a number of the suggestions received have not been included in the list of topics. It is hoped, however, that opportunity will be found either to discuss such topics at the conference or to discuss them outside of the conference with those who submitted them.

As mentioned in the Board's letter R-599> a separate conference of trust examiners will not be held at this time, and neither is it planned to devote much of the time of the conference to trust matters. If any of the trust examiners, however, are goirg to attend the Mid-Winter Trust Conference in New York February 13-1$, we would be glad to have them visit us after that conference for informal discussion of any matters of importance in which we may be of assistance.

Please let us know who will represent your bank at our conference r.nd when they expect to arrive. If desired, we shall be glad to moke hotel reservations. In that case, advice as to preferences with respect to hotel or accommodations desired will be helpful.

Very truly yours,

b -O /{, / \^L tc C s, tZ-p Leo H. Paulger, Chief, ' Division of Examinations

Enclosure.

TO PRESIDENTS OF ALL FEDERAL RESERVE BAMS. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

R-602—

TOPICS FOR CONSIDERATION AT CONFERENCE OF REPRESENTATIVES OF THE BANK EXAMINATION DEPARTMENTS OF THE FEDERAL RESERVE BANKS, FEBRUARY 7-9, 1940, FEDERAL RESERVE BUILDING,

WASHINGTON, D.C.

A. Matters pertaining to supervisory practices and policies.

1. Problem banks.

a. Responsibility of Reserve banks in promotion of rehabilitation programs and in the elimination through mergers and liquidation of weak uneco-nomic units.

b. Procedure to effect desired strengthening in man-agement where situation does not warrant use of section 30.

2. Capitalization.

a. Factors determining adequacy of capital. b. Treatment of cases with inadequate capital. c. Policies and practices with respect to retire-

ments of preferred stock and capital debentures.

3. Dividend payments.

a. Factors to be considered in reviewing dividend policies.

b. Treatment of cases where apparently unwarranted dividends are being paid on common or preferred stock (or interest on income debentures)

4. Measures for obtaining desired corrections — letters, conferences, cooperation with other agencies.

5. Frequency of examinations and use of supplemental "credit surveys"; "assets reviews" in case of problem banks.

6. Revised examination procedure.

a. Discussion of experience with procedure. b. Extent to which the revised procedure is used by

State authorities and effect of differences of procedure.

7. Procedure with respect to follow-up of matters of criticism in reports of examination of trust de-partments, as compared with procedure with respect to commercial departments.

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R-602-a

Matters pertaining to examination work.

1. Classification of loans.

a. Particular reference to Classification II. b. Past due and statutory bad debts. c. Type of comments and suggestions with respect to in-

dividual loans and general loaning and credit policies.

2. Securities.

a. Types of comments and suggestions with respect to particular issues or investment policies.

b. Appraisal'and classification of nonmarketable se-curities.

c. Classification of income bonds. d. Amortization of premiums on exempted securities. e. Requirements with respect to use of profits from

sale of securities.

3. Banking premises.

a. Classification II. Basis for inclusion in schedule of nonincome producing assets.

b. Treatment of depreciation allowed by Internal Rev-enue Dept. but.not taken on bank's books.

c. Investment in affiliated safe deposit company representing ownership of bank vaults . fao'iv should it be treated by the examiner — how should it be reported by the bank?

4. Other real estate.

a. Treatment of land contracts — as other real estate or real estate loans.

b. Treatment of "assets indirectly representing other real estate" — item 9 in report of condition.

5- Preparation of reports of examination.

a. Type of comments and conclusions on page 2. b. Adjusted capital.

i. Treatment of excess valuation reserves against securities, loans, other real estate and other assets.

ii. Treatment of nonbook securities. c. Nature and extent of comments regarding earnings of

the bank, including those of trust department.

6. Report of trust department.

a. Preparation of statement of individual- trusts (page T-2) where the records of the bank do not readily show the segregations called for.

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