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ADVANTAGES o f MEMBERSHIP

in the

Federal Reserve System

FEDERAL RESERVE BANK
OF ST. LOUIS




January 25, 1922.
PURPOSE OF FE D E R A L RESERVE ACT
/"'O N G R E S S passed the Federal Reserve A ct in Decem ber, 1913, and under its provisions the Federal Reserve
Banks were opened on November 16, 1914.
The purpose o f the act was to remedy defects in our
financial structure and to provide a system that would
prevent money panics and enable the banks better to serve
the country.
In the old financial system, the chief defects were (1)
diversion and immobility o f bank reserves, (2) an inelastic
currency, and (3) lack o f an agency to co-ordinate the
banking activities of the country. The first defect was
remedied by pooling the reserves o f member banks in
twelve Federal Reserve Banks and authorizing the reserve
banks to discount for their members. The second defect was
corrected by empowering the Federal Reserve Banks to is­
sue Federal Reserve Notes against the paper acquired and
gold, thus supplying a currency which expands and con­
tracts according to the demands o f business. The third
defect was remedied by enabling banks to co-operate
through the Federal Reserve Banks and in turn placing the
reserve institutions under supervision o f the Federal Re­
serve Board.
The value and effectiveness o f the Federal Reserve
System have been demonstrated in the trying times since
the armistice, as well as during the war. But for the effi­
ciency and stabilizing influence o f the System, the reaction
in com m odity prices which began in 1920 would have
resulted in a most disastrous m oney panic.
M E M B E R S H IP O F T H E S Y S T E M
Under the Federal Reserve Act, only National banks
are required to be members o f the Federal Reserve System.
However, provision is made for the admission o f State
banks and trust companies also.
On Decem ber 31, 1921, the membership o f the Federal
Reserve System included 8,210 National banks and 1,631
State banks and trust companies. The total resources of
the National banks were $19,014,102,000, and the resources
o f the State bank members aggregated $9,951,332,000. The
number o f member banks was only 50% o f the total num­
ber o f banks in the United States eligible to membership,
but their resources represented 76% o f the resources o f all
the eligible banks.
In the Eighth Federal Reserve District, 482 National
banks and 105 State banks and trust companies were mem­
bers of the System. The National banks had resources
amounting to $762,676,000, while the total resources of the
State institutions were $402,537,000. The number o f mem­
ber banks was only 34% of the total number of banks in
the district eligible to membership, but their resources

represented 65% of the resources o f all the eligible banks.



AD V AN TA GE S OF MEMBERSHIP
The Federal Reserve System, in order to be able to
render its maximum o f service, needs to be made as strong
as possible. This can be accomplished by all eligible non­
member State banks and trust companies becom ing mem­
bers and pooling their reserves in the Federal Reserve
Banks. Not only would this strengthen the Federal Reserve
System, but it would also strengthen the banks themselves
and the whole econom ic structure.
Aside from the general advantages, membership in the
System gives a bank specific privileges and advantages o f
great value tc the bank and to the community which it
serves. Notable among these privileges and advantages are
the follow ing:
(1) To rediscount eligible paper with the Federal R e­
serve Bank at its published rates. Eligible paper consists
o f notes, drafts and bills o f exchange, the proceeds of
which have been used or are to be used in producing, pur­
chasing, carrying or marketing goods, wares, merchandise,
or agricultural products including live stock, or for carry­
ing or trading in bonds or notes o f the United States or
bonds o f the W ar Finance Corporation. Paper arising out
of commercial transactions must have a maturity at the
time o f discount o f not more than ninety days, but paper
drawn for agricultural purposes or based on live stock may
have a maturity o f not exceeding six months.
(2) To receive advances from the Federal Reserve
Bank, for periods not exceeding fifteen days, on the mem­
ber bank’s own promissory note, secured by eligible paper
or by bonds or notes of the United States or bonds o f the
W ar Finance Corporation.
(3) To obtain currency and coin, as needed, from the
Federal Reserve Bank. The Federal Reserve Bank pays
the postage, expressage and insurance on shipments o f pa­
per currency, subsidiary silver and minor coin from it to its
member banks and on shipments o f paper currency and all
coin from the member banks to it. A t the request o f a
member bank, the Federal Reserve Bank also ships paper
currency, subsidiary silver and minor coin to any bank or
trust company, either member or non-member, in this dis­
trict. It pays the charges when such shipment is made to
another member bank, but not when made to a non-m em ­
ber. The reserve bank also pays the costs on all telegrams
received from or sent to member banks in connection with
money shipments or deposit transactions.
(4) To participate in the check clearing facilities of the
Federal Reserve System. The Federal Reserve Bank hand­
les fo r its members at par, without charge, checks on the
banks appearing on the par list, giving credit according to
its time schedule. The checks drawn against banks on the
par list are also received at par by all other Federal Re­
serve Banks and branches. By the Federal Reserve sys­
tem o f direct routing, considerable time is saved in the col­
lection o f checks. The funds thus become available for
lending by member banks m ore quickly than under the old
system o f indirect routing.




The par list consists of all member banks and such
non-member banks as have agreed to remit for checks at
par. Over 92% o f the banks in the United States are on
the par list. In the Eighth District 95% o f the banks are
on the par list, the only non-par banks being 167 in Mis­
sissippi.
(5) To participate in the collection facilities of the
Federal Reserve System. The Federal Reserve Bank re­
ceives from its members for collection such items as notes,
drafts, acceptances, certificates of deposit, bonds, coupons,
etc. No charge is made by the Federal Reserve Bank for
the collection of such items. The only cost is the charge
that may be made by the collecting bank. However, if
such a collection item is returned to the Federal Reserve
Bank unpaid, a charge of fifteen cents is made, which is
turned over to the bank making presentation.
(6) To use the Federal Reserve Bank for the transfer
of funds. Funds may be transferred through the Federal
Reserve Bank to other points in the United States by tele­
graph or by exchange drafts drawn on the Federal
Reserve Bank. All Federal Reserve Banks and branches
are connected by leased wires. This enables the reserve
bank to transfer quickly by wire, free of charge, funds to
any city in the United States where there is a Federal Re­
serve Bank or branch. A member bank may also issue
exchange drafts on its Federal Reserve Bank, which are
available for immediate credit in any city where there is a
Federal Reserve Bank or branch.
(7) To deposit U. S. Government securities with the
Federal Reserve Bank for safekeeping, without charge.
(8) To receive certain forms from the Federal Reserve
Bank, without charge. The Federal Reserve Bank supplies
its members with forms for obtaining financial statements
from (a) farmers, (b ) stockmen, (c ) merchants, and (d)
manufacturers, miners, quarriers, etc. The Federal Reserve
Bank also furnishes drafts to its members for use in draw­
ing against their balances with it.
(9) To receive reports on agricultural, industrial, com­
mercial and financial conditions, without charge. The Fed­
eral Reserve Bank mails to member banks each month a
review of conditions in its district, and the Federal Reserve
Board furnishes member banks the monthly Federal Re­
serve Bulletin, which contains articles on conditions in the
United States and foreign countries and other matter of
interest.
(10) To discontinue or consolidate balances with cor­
respondents. By using the clearing, collection, transfer, re­
discount and other facilities o f the Federal Reserve Bank,
many member banks have been able to consolidate or dis­
continue balances with correspondents and lend or invest
such balances at a rate much higher than the rate usually
paid on bank balances.
(11) To operate with less reserve. M any member
banks which had been accustomed to carry excess reserves
Digitizedhave found that, on account o f the rediscount and other fa­
for FRASER



cilities of the Federal Reserve Bank being at tlieir disposal,
they can safely carry lower excess reserves and lend or in­
vest a considerable part of their former excess reserves.
They consider their eligible paper a secondary reserve.
In addition, the reserve requirements of National
banks were reduced by the Federal Reserve Act, and the
laws o f most o f the States in this district have been
changed so as to provide that when a State bank or trust
company becomes a member of the Federal Reserve Sys­
tem, its required reserves shall be only those specified by
the Federal Reserve Act, which, as a rule, are lower than
those prescribed by State laws for non-member banks.
(12) To receive deposits of postal savings funds. The
law provides that if one or more member banks o f the
Federal Reserve System are established in a city where
postal savings deposits are made, such deposits shall be
placed in such member banks substantially in proportion
to the capital and surplus of each, provided the member
banks qualify to receive such deposits.
(13) To benefit by additional supervision. State bank
and trust company members furnish the Federal Reserve
Agent o f the Federal Reserve Bank not less than three re­
ports of condition each year and semi-annual reports o f
earnings and dividends. They are also examined by the
examining staff o f the Federal Reserve Agent at least
once a year, either independently or jointly with the State
banking authorities. A copy o f the Federal Reserve exam­
iners’ report is furnished to each bank examined.
The Federal Reserve Agent also receives copies o f the
periodical reports of condition and semi-annual reports of
earnings and dividends made by the National banks to the
Comptroller o f the Currency. Copies of the reports of
examinations of the National banks, which are made by
the Comptroller’s examiners at least twice a year, are like­
wise furnished to him. Moreover, the Federal Reserve
Bank may provide for special examination of any National
bank in the district.
In addition, the reserve bank keeps in close touch with
member banks through its daily transactions with them.
(14) To benefit by the prestige afforded by mem­
bership in the System Because of the additional super­
vision and the facilities afforded by membership, the pub­
lic is more and more favoring banks and trust com ­
panies that are members o f the Federal Reserve System.
Many institutions have been able to increase their busi­
ness materially through advertising their membership. Not
only does membership enable them to secure new cus­
tomers, but also to hold their present customers.
State banks and trust companies which become mem­
bers have the following advantages in addition to those
previously enumerated:
(1)
Under Section 9 of the Federal Reserve Act, as
amended June 21, 1917, subject to the provisions of the A ct
and the regulations o f the Federal Reserve Board, a State
 company becom ing a member o f the Federal
bank or trust



Reserve System retains its full charter and statutory rights
and may continue to exercise all corporate powers granted
it by the State in which it was created, as well as enjoy
the privileges o f member banks. A member State bank
therefore may continue to make loans in accordance with
the laws o f its State, but the Federal Reserve Bank cannot
discount any o f the paper o f a person, firm or corporation
that is liable to the member bank for borrowed m oney in
excess o f 10% o f its capital and surplus.
(2) The Federal Reserve Board, acting under an
opinion from the office o f the Attorney General o f the
United States, has ruled that State bank and trust company
members o f the Federal Reserve System are not subject
to the provisions o f the Clayton Act, regarding the inter­
locking o f directorates.
(3) State banks and trust companies may withdraw
from membership in the System, after six months’ notice.
Membership in the Federal Reserve System is a good
thing from the point of view of the customer, the stock­
holder, and the officers and directors. It inspires an in­
creased sense of security in the depositor and makes the
borrower feel more certain of receiving accommodation.
It makes a stockholder feel that his bank is better guarded
against the possibility of liquidation, and, consequently,
that his stock is a safer investment. The officers and di­
rectors, knowing that the Federal Reserve Bank stands
ready to help in time of need, are saved anxiety.
REQUIREM ENTS OF M EM BERSHIP
A bank or trust company to be eligible for mem­
bership in the Federal -Reserve System must be incorporat­
ed and must have a minimum paid-up unimpaired capital
stock as follow s:
(a) In towns not exceeding 3,000 inhabitants, $25,000;
(b ) In towns exceeding 3,000 but not exceeding 6,000
inhabitants, $50,000.
(c ) In cities exceeding 6,000 but not exceeding 50,000
inhabitants, $100,000.
(d) In cities exceeding 50,000 inhabitants, $200,000.
Member banks are required to hold stock in the Fed­
eral Reserve Bank equal to 6 per cent of their capital and
surplus. Only one-half o f the par value o f the stock is paid,
the other one-half remaining subject to call by the Federal
Reserve Board. Upon the amount paid in, the Federal Re­
serve Bank pays a cumulative dividend at the rate o f 6 per
cent per annum.
Member banks must maintain with the Federal Re­
serve Bank the reserves required by the Federal Reserve
Act, which are as follows:
(a) If not in a reserve or central reserve city, 7% of
demand deposits and 3% o f time deposits;
(b) If in a reserve city, 10% o f demand deposits and
3% of time deposits;
.(c ) If in a central reserve city, 13% o f demand de­
posits and 3% o f time deposits.
However, if located in the outlying districts o f a re­
serve FRASER
Digitized for or central reserve city, a member bank may, upon



approval of the Federal Reserve Board, have its reserve
requirements reduced to those specified in (a) or (b ). St.
Louis is the only central reserve city and Little Rock,
Louisville and Memphis the only reserve cities in the Eighth
District.
The reserve account maintained with the Federal Re­
serve Bank may be made as active as desired. It may be
freely checked against, and balances built up by shipping
currency at the expense o f the Federal Reserve Bank, by
depositing checks and drafts, or by rediscounting. A ccum ­
ulated surplus funds in the account may be freely trans­
ferred to other banks or to other points in the United
States, by mail or telegraph, without cost. In short, it
may be treated practically the same as an account carried
with a correspondent.
The Federal Reserve Bank o f St. Louis has established
branches in Little Rock, Louisville and Memphis, and a
member bank carries its reserve account either with the
parent bank or one o f these branches.
H O W LOSS OF INTEREST ON RESERVE
IS OFFSET
Like the reserve-holding banks o f other nations, the
Federal Reserve Banks do not pay interest on the reserve
deposits o f member banks. If interest were paid, it might
be necessary for the reserve banks to become competitors
of commercial banks. The reserves are for the protection
o f the member banks, and should be kept constantly
available.
However, by taking advantage of the privileges of
membership previously explained, many banks have been
able to more than offset the loss of interest on the reserve
deposit. The principal ways o f offsetting this apparent
loss are summarized as follow s:
(1) By establishing part o f the reserve out o f cash
carried in vault.
(2) By lending or investing the reserves released
through membership.
(3) By consolidating or discontinuing balances with
correspondents and lending or investing such balances.
(4) By the savings effected through the Federal Re­
serve system o f collecting checks at par and routing them
direct.
(5) By increasing business through advertising mem­
bership in the System.
(6) By the special benefits extended by the Federal
Reserve Bank.
It is hoped that every well-conducted, eligible non­
member bank will carefully consider this matter and join
the System. This would strengthen the whole financial,
industrial and commercial situation and prove mutually
beneficial.
Blanks for use in making application for membership,
or additional information, will be furnished upon request.
W IL L IA M McC. M A R T IN ,
Chairman of the Board

and Federal Reserve Agent.



FEDERAL RESERVE B AN K OF ST. LOUIS
DIRECTORS
CLASS C
W M , McC. MARTIN", Chairman of the Board, St. Louis, Mo.
JOHN W . BO EH N E, Deputy Chairman, Evansville, Ind.
C. P. J. M O O N E Y , Memphis, Tenn.
Class A
JO H N G. LO N SD ALE,
St. Louis, Mo.
J. C. U TTER BACK ,
Paducah, Ky.
SAM. A. ZIEGLER ,
Albion, 111.

Class B
L E R O Y PERCY,
Greenville, Miss.
W . B. P L U N K ETT,
Little Rock, Ark.
R OLL A W E L L S,
St. Louis, Mo.

M EM BER FEDERAL A D V ISO R Y COUNCIL
F R A N K O. W A T T S, St. Louis, Mo.

OFFICERS
W M . McC. M A R TIN ,
Chairman of the Board and
Federal Reserve Agent
C. M. STEW ART,
Asst. Federal Reserve Agent
E. J. N O V Y ,
General Auditor
L. H . B A IL E Y ,
H. L. T RAFTON,
A. E. DEBRECHT,
E. I. N O W O T N Y ,
L. A. M OO RE,
C. E. M AR TIN ,
L. T. W A L K E R ,
Assistant Auditors

D. C. BIGGS,
Governor
O L IN M. A T T E B E R Y ,
Deputy Governor
J. G. M cC O N K EY,
Counsel and Secretary
J. W . W H IT E ,
Cashier
A. H. H A IL L ,
J. W . R IN K L E F F ,
W . H. GLASG OW ,
S. F. G ILM ORE,
E. C. ADAM S,
F. N. H A L L ,
Assistant Cashiers

LO U ISV IL L E BRANCH
OFFICERS
W . P. K IN C H E L O E ,
Manager
JO H N T. M OO RE,
Cashier
E A R L R. M UIR,
Assistant Cashier

DIRECTORS
GEO. W . NORTON
W . C. M O N TG O M ER Y
W . P. K IN C H E L O E
F. M. SACKETT
E M B R Y L . SW E A R IN G E N

M EM PHIS BRANCH
OFFICERS
JNO. J. H E F L IN ,
Manager
A . J. W IL L IA M S ,
Cashier
V. S. F U Q U A,
Assistant Cashier

DIRECTORS
R. B. SN O W D E N
J. D. M cD O W E L L
JNO. J. H E F L IN
T. K . R ID D IC K
S. E. R AG LA N D

LIT T L E ROCK BRANCH
OFFICERS
A. F. B A IL E Y ,
Manager
M. H . LONG,
Cashier
F. A. COE,
Assistant Cashier




DIRECTORS
C. A. PRATT
J. E. EN G L A N D , Jr.
A. F. B A IL E Y
M O O R H E A D W R IG H T
GEO. W . ROGERS "


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102