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Reserve Requirements, Nonpar Banks and Membership
in the Federal Reserve System

Remarks of Andrew F . Brimmer
M e m b e r , Board of Governors of the Federal Reserve System

at the
76th Annual Convention, Minnesota Bankers Association
Minneapolis, Minnesota
June 8, 1966

Reserve Requirements, Nonpar Banks and Membership
in the Federal Reserve System

Unlike Mark Anthony, I came to praise membership in the Federal Reserve System
and - hopefully - to help bury nonpar banking!
I know that before this audience such a topic is not the most popular one. So
I hasten to assure you that by no means was it selected to show ingratitude for your
w a r m invitation to give in Minnesota my maiden speech as a Member of the Board of
Governors of the Federal Reserve System.

Rather, I selected this topic because here in

Minnesota we find:
One of the smallest representations of Commercial banks in the Federal
Reserve System, and
The largest number of nonpar banks in the country.
The first situation is potentially serious, and the second is a prime example
of unnecessary inconvenience and embarrassment in a modern banking system. Since I
also know that w e share a common desire to strengthen and improve the viability of our
monetary system, I gladly grasped the opportunity to visit with you and to examine a
topic of such cardinal concern.
Changes in Membership of the Federal Reserve System 1961 - 1965
One of the most salient features of the dual banking system of the United States
is the freedom of choice offered banks to organize under either a national or state
charter; another is their option to shift charters whenever they find one regime
of public supervision too burdensome.

State chartered banks have the further option

to become members of the Federal Reserve System or to withdraw
assessments of the benefits and costs of membership.

- depending on their

During the last five years,

commercial banks have increasingly examined the prospects of System membership and
found it advantageous not to belong.




2
The total number of insured commercial banks rose from 13, 126

a t

of 1961 to 13,547 at the end of 1965, a gain of 421 banks. (Table 1.)

the beginning
This growth

was the result of a substantial increase in the number of national banks and state
non-member banks.

During the same five years, there was a decline of 236, or

nearly 15 per cent, in the number of state member banks.
In any given period, the major sources of change in the total number of
insured commercial banks are newly organized institutions and banks which disappear
as the result of mergers.

Only a very few banks cease operation because of liquidation,

either voluntary or involuntary.

In addition, substantial changes by class of bank

are due to shifts from one class to another.
Only of the 1,052 new insured commercial banks organized in the 1961-65 period,
slightly more than one-half were chartered as national banks and the remainder
received State charters.

Nearly all of the latter were organized as non-member

insured banks. The 736 banks lost through mergers were more evenly divided by class
of bank. About one-sixth of the merged institutions were state members and the rest were
about evenly split between national and state non-member. The other major increment in
the total number of insured commercial banks was the transfer of 126 banks from noninsured status - nearly all of which became non-member insured state banks.
Changes by class of bank during the five year period were not all one-way.
However, these changes produced a net decline of 236 in the number of State member banks;
a net increase of 285 in national banks, and a net increase of 372 in insured nonmember State banks.
Several cross-currents are evident behind this outcome. The following profile




3

emerges:
(1)

For State Member Banks
Gains:
Newly organized banks
Successors to National banks
Conversion of insured non-members
Conversion of non-insured banks
Gross Increase
Losses:
Absorptions, consolidations and mergers
Liquidations and cessation of operations
Conversion to national banks
Conversion to insured non-members
Total
Net Loss

(2)

16
1
17
37

129
1
38
105
273
236

For National Banks
Gains:
Newly organized banks
Successors to State member banks
Successors to insured State non-members
Conversion of non-insured banks
Gross Increase

541
38
62
3
644

Losses:
Absorptions, consolidations and mergers
Liquidations and cessation of operations
Conversion to State member
Conversion to insured non-member
Total

318
8
1
32
359

Net Gain:
(3)




285

For Non-Member Insured Banks
Gains:
Newly organized banks
Successors to national banks
Successors to State members
Conversion of non-insured banks
Gross Increase

495
32
105
120
752

4
(3) For Non-Member Insured Banks (continued)
Losses:
Absorptions, consolidations and mergers
Liquidations and cessation of operations
Conversion to national banks
Conversion to State member banks
Total
Net Gain
(4)

289
12
62
17
380
372

For Total Federal Reserve Member Banks
Gains:
Newly Organized banks
National banks
State Members
Conversion of insured non-members
National banks
State members
Conversion of non-insured banks
National banks
State members

541
16

557

62
17

79

3
3

6
642

Gross Increase
Losses:
Absorptions, consolidations and mergers
National banks
State Members
Conversion to insured non-members
National banks
State members
Liquidations and Cessation of Operations
National banks
State members

318
129

447

32
105

137

8
1

9

Total
Net Gain

593
49

A number of conclusions can be drawn from the fore-going analysis:
Despite the ebb and flow of change in the banking structure of the Nation
during the last five years, membership in the Federal Reserve System
was virtually stationary.
Virtually all of the newly organized banks which became members were
national banks - which are required by law to join the System.




5
Only a modest number of existing banks joined the S y s t e m , and most of these
adopted national charters - rather than entering as State m e m b e r .
A sizable number of institutions withdrew from the System - and again the
parade was led primarily by State-chartered b a n k s .
The fundamental reasons behind this configuration of withdrawals from the System
undoubtedly can b e traced to the differential reserve requirements of member b a n k s ,
compared with State standards.

In other w o r d s , the vast majority of the banks with-

drew because it was profitable to do so. Just how profitable can be seen readily.
Incentives to Withdraw from Federal Reserve Membership
It seems apparent that most state banks believe that the benefits are outweighed by the costs of membership in the Federal Reserve System.

Among the more

important advantages of membership are:
(1)

the nation-wide collection system for checks,

(2)

cost-free shipments of currency and coin,

(3)

various collection and vault privileges, and

(4)

privileges for rediscounting and borrowing from the Federal Reserve Bank.

The chief disadvantage of membership is the requirement of maintaining
reserves with the Federal Reserve B a n k ,
The reserves set by the Federal Reserve System are higher than those set by
some of the states, but more important many states permit reserves to be held in the
form of deposits with other b a n k s 3 as w e l l as cash in vault.

Since banks need to

have some correspondent balances in any event, the permission to count these as part
of the reserve requirements frees at least a portion of the required reserve to increase
earning assets. M a n y state banks also believe that they can obtain from their city
correspondents, most of the services provided by Federal Reserve Banks - including
not only check clearing services but also extensions of credit w h e n needed.




6

From an examination of the banks which withdrew from the System during the
last few years s one can obtain a fairly good indication of the w a y many banks
view the relative advantages and disadvantages of Federal Reserve membership. Of
the 133 withdrawals during the period 1960 - 1965, 118 9 or 89 per cent occurred
States, the number of
in 10 states „ Among these/
withdrawals during the period ranged from 38 in Texas
to 3 in Minnesota.

(Table 2< )

The remaining 15 withdrawals were widely scattered

among 11 other states.
Among the ten leading states, reserve requirements ranged from none in
Illinois to 23 per cent on demand deposits and 26 per cent of savings deposits
in Nebraska. (Table 3„)

More important, all of these states permit reserves to

be held in deposits with other banks 9 and all except Wisconsin also allow vault
cash to be counted as part of the reserve. Two of these states, Wisconsin and
Pennsylvania, permit reserves to be held in U , So securities,,
Since the relative advantages of switching out of Federal Reserve membership tend to be more important for the smaller banks in outlying areas, services
offered by city correspondents can more closely substitute for Federal Reserve
Bank services for small rural banks than for larger banks. This is borne out by
the size distribution of the banks withdrawing during the six year period.(Table 2.)
Slightly more than one-half of the banks that withdrew had deposits of less than
$5 million.

Only 34 of the withdrawing banks had deposits of over

$10 million, and only 5 banks had over $100 million of deposits„
Desire to Use Cash Held as Reserves
In withdrawing from the Federal Reserve System, the great majority of
banks state that their decision was influenced substantially by the desire to
employ more profitably the relatively large amount of cash held as reserves. Thus,
once they leave the System, one should expect to observe a decline in the ratio




7
of cash assets to total assets (as a result of easier State reserve requirements)
and an accompanying increase in the ratio of earning assets. Cash asset ratios could
be calculated for a number of the banks that withdrew from membership in 1962,
1963

and 1964,and the ratios could be compared before and after the change. The

results show that in nearly all of the cases jthere was a sharp reduction in the
proportion of cash assets very quickly after the banks withdrew from membership.
(Table 4.)

Comparisons could be made for 23 of the banks in Texas that withdrew

from membership in the three years;

these showed an average cash assets ratio

of about 24 per cent in the year before withdrawal, and this declined to an
average of about 16 per cent in the year after withdrawal. The average ratio for
these banks was about the same as for all state member banks in Texas of comparable
deposit size in the year before withdrawal, but a little less than the average
of 18.5 per cent for nonmember state banks in the year after withdrawal.
The picture is similar for other states with several banks withdrawing
in any one year. For the ten banks in Illinois which withdrew in the three year
period, the average cash assets ratio declined from about 17 per cent to
11 per cent.

The average ratios before withdrawal were a little below the

18 per cent average for state member banks in the comparable size groups
and also a little lower than the 12 per cent average ratios for state non-member
banks in the year after withdrawal.
In 1962, there were two banks in Minnesota that withdrew from membership.
For these banks, the average cash assets ratio declined from 14 per cent the
year prior to withdrawal to 8 per cent the year following withdrawal. These
ratios were both below the 15 per cent average for state member banks in the
1 to $10 million deposit size group in 1961

- as well as below the 11 per cent

average for state nonmember banks in this size group in 1963.




8
Parallel Increase in Earning Assets
Since the banks that withdrew from Federal Reserve membership generally
reduced their cash assets, this should be reflected in an increase in earning
assets.

A n examination of the ratios of earning assets to total assets shows

that nearly all of the banks that withdrew in the three years 1962, 1963 and
1964 showed a substantial increase in the proportion of earning assets in the
year following withdrawal.

Table 5 shows the average ratios of earning assets

in the withdrawing banks for those states with more than one withdrawal in the
year prior to and the year after withdrawal. Average ratios for state member
banks in the comparable size groups in the year before withdrawal and for
state nonmember banks in the year after withdrawal are shown for comparison.
In each of the states shown, the increase in the proportion of earning assets was
several percentage points. The average earning assets for the Texas banks that withdrew in the three years and whose ratios could be studied, rose from 75 per cent
before to 81 per cent after withdrawal. For the 10 banks in Illinois, the average
earning assets ratio rose from 82 to 88 per cent.
As Table 5 shows, the average ratios for the withdrawing banks tended to
be fairly close to the state member bank averages for comparable size banks
in the year prior to withdrawal. But in every state they were a little higher
than the average for nonmember banks in the year after withdrawal.

It must be

concluded, therefore, that most of the withdrawing banks were able to shift to
earning assets a sizable share of the funds released by the reduction in their
reserve requirements.
Growth of Loans
The majority of the banks that withdrew in the three year period showed
an increase in their ratios of loans to total assets., This was n o t , however, as




9
general as the increases in the proportion of earning assets.
banks which withdrew in 1962 could be studied closely.

Twenty-three of the

Of these, 14 showed increases

in the ratio of loans to total assets, and 9 showed little change or some decline.
Fourteen of the banks withdrawing in 1963 showed increases in the
proportion of loans, and 5 showed little change or moderate declines. For banks
withdrawing in 1964, there were 10 increases and 6 with little change or some
decline.

In general, the tendency was for an increase in the proportion of loans.

However, the change was not nearly as consistent nor as strong as the shift
toward increased ratios of earning assets. (Table 6.)
Bank Profits v s . Federal Reserve Membership
A reduction in cash assets, a corresponding increase in earning assets and
an improvement in the earning picture were the principal objectives of most banks
which withdrew from Federal Reserve membership.

To determine whether they achieved

their goal, the ratio of net current operating earnings to total assets was
examined.

This is probably the best measure of the result of current operations

since it is not affected by transitory changes in gains and losses on assets nor
by the differential impact of income taxes.
Of the 57 banks which withdrew during the three year period for which
comparable data were available, 33 experienced an improvement in their net current
earnings ratio; 13 showed little change, and 11 had a decline in the net earnings
ratio.

The banks in Texas and Illinois that withdrew in each of the three years

showed significant improvement in the net current earnings ratio. (Table 7.)
In both Texas and Illinois in each year after withdrawal (except for 1962
withdrawals in Texas), these banks had a better earnings record than the average
for nonmember banks of comparable size. This is rather striking in view of the fact
that the banks in the year prior to withdrawal had an earnings performance below
the average for State member banks of comparable size - for the Texas banks




10

withdrawing iri 1962 and for the Illinois banks withdrawing in 1962 and 1964.
The two Minnesota banks that withdrew from membership in 1962 showed a
slight decline in the net current earnings ratio and both the year before and
after these two banks had earnings ratios below the average for comparable groups.
Thus, on balance, it seems to have paid the majority of withdrawing
banks to leave the System, and to employ in another manner the cash held as
reserves.
Underlying Motives for Withdrawal from Membership
Y e t , behind the publicly stated reasons for bank withdrawal from membership

- among which the heavier burden of reserve requirements is the most

frequently mentioned - are many less public and less obvious motives. The
officers and staff w h o carry out the examination and public relations functions
in the Federal Reserve Banks are usually thoroughly familiar with the basic
factors underlying the withdrawal request.

The picture they paint is different

from that presented in the withdrawal application in some respects.
The Examination Departments in several Federal Reserve Banks were asked
to review a number of withdrawals in their Districts over the last 10 years and
to indicate what principal motives seemed to have been at work - on the basis
of the information (much of it informal) received by them.

On the basis

of their observations, at least three interrelated causes can be identified^




(1)

The sale of the State member bank to another controlling interest,
with such purchaser borrowing a major portion of the purchase
price of the bank stock from a city correspondent at a preferred
rate of interest.
The rate of interest is largely influenced by the amount of




11

compensating balance the new purchaser will maintain with the
city correspondent making the loan. In order to maintain such
a compensating balance, the State bank gives up its membership
so it can transfer the amount represented by its required
reserve with the Federal Reserve Bank to the city correspondent
bank.
Of about 60 banks around the country that withdrew from
membership during the ten-year period ended December 31, 1965, and whose cases could be studied closely - the sale of controlling
interest as outlined above was involved in the judgement of the
bank examiners - in just under half the cases.
The desire of the State member bank to use its required reserve
balance with the Federal Reserve Bank as an earning asset*
Country banks usually maintain a sizable deposit with their
city correspondent banks in addition to the required reserve
balance with the Federal Reserve Bank. Apparently many city
correspondent banks encourage such small banks to withdraw from
the System and to place the amount required as a reserve balance
at the Federal Reserve Bank with the city correspondents in exchange for various services. The country banks are frequently
advised that they w i l l receive improved earnings from loans and
and loan participations which will be sold to the country banks
by the city correspondents.
This reason for withdrawal has become more important as the
value of money to the country banks has increased. Faced with
rising expenses, country banks seek to increase their income by

12

investment in other assets of funds used to maintain required
reserve balances with their Federal Reserve Bank.
(3)

The offer by city correspondent banks to country banks of the
same services available from the Reserve B a n k , plus immediate
credit on cash items, acceptance of unsorted cash letters, the
purchase of loan overlines, and buying and selling of loan
participations.
This approach offers an attractive inducement to small State
member banks. Again, this approach involves freeing the required
reserve balances to be used as a source of increased earnings
Whether the statements of the city correspondent banks involved




are borne out in fact is not the issue.

The promises seem to be

attractive to many country banks.
The bank examiners concluded that just under one-quarter of
the banks withdrew from membership on the belief that their city
correspondent banks could furnish all of the services needed.
Of course these services are not: provided as a gift. The bank
is likely to be asked to increase its correspondent balances to
compensate for the additional services. This might be accomplished
by drawing down balances with other correspondents

In many cases,

however, the withdrawing bank would wish to maintain its other
correspondent relationships and would increase its total correspondent
balances. The fact that such balances can be counted as part of
reserves in most states is another factor tending toward an increase
in correspondent balances.

Some of the withdrawing banks, however,

will shift balances and eliminate correspondent accounts which are
of little use to them.

13
Of 88 banks withdrawing from membership in the period 1960-64,
for which information was available, 62 banks (or 70 per cent)
increased their correspondent balances after withdrawal, and only
26 decreased their balances. And the increase in balances was
substantial, since total correspondent balances for all 88 banks
rose 45 per cent after withdrawal. (Table 8.)
About two-thirds of the banks retained the same list of
correspondents after withdrawal, and about one-fourth of them
increased their number of correspondents. Only 9 banks, or about
10 per cent of the withdrawal group, reduced the number of their
correspondents.

The general pattern of change was similar for

those banks that reduced or increased their total correspondent
balances.
Naturally, the bank examiners attempted to show that for the typical
country bank, all factors considered, the increased earnings resulting from the use
of required reserve balances is relatively small.

However, they found it difficult

to convince many smaller banks of this fact, especially when they were under
pressure from city correspondents anxious to obtain additional funds through
compensating balances.
In general, it can be pointed out to small country banks that - after
considering taxes and free services which they relinquish by giving up membership the increase in earnings will be insignificant. In addition,

the withdrawing

banks give up their right to call on the Reserve Bank for assistance in time of
adversity.

However, these strong and logical reasons are less and less convincing

when rates of interest are high and the demand for loans very strong.




14

Par and Nonpar Banks
Nonpar banks cannot be members of the Federal Reserve System.

Nonpar

banks derive a significant portion of their income from exchange and collection
charges, which usually amount to one-tenth of 1 per cent of the face amount of
each check.

This revenue is offset at least in part, however, by a lower

portion of earnings derived from service charges on deposit accounts.
There has been a steady decline in the number of nonpar banks in the
United States in recent years. At the end of 1960 there were 1672 state commercial
banks operating on a nonpar basis - about 12.5 per cent of the total of 13,383
commercial banks then operating. (Table 9.)

By the end of 1965, the number of

nonpar banks had declined to 1,492 which was only 11 per cent of the total of
13,699 commercial banks. The nonpar banks are concentrated in two areas in the
country, the South and North Central regions. Minnesota has the largest number
with 402 at the end of 1965, over one-fourth of the total. Georgia, Mississippi
and South Dakota were the next ranking states in number of nonpar banks. These
three states had 473 nonpar banks at the end of 1965, or nearly one-third of the
total number. In each of the four states nonpar banks accounted for nearly threefifths of all of the commercial banks in the state. Minnesota and North Dakota
were the only states which showed an increase in the number of nonpar banks
over the last five years. These increases were small, 5 in Minnesota and 2 in
North Dakota, but represented a sharp contrast to the declines in other states,
many of which were substantial.
A comparison of the par with the nonpar nonmember commercial banks in the
four states having the most nonpar banks and the next ten states having large
numbers of nonpar banks shows some interesting differences in operating characteristics: (Table 10.)




15
The nonpar banks derive substantially smaller portions Q f their
operating revenues from service charges on deposit accounts than do
par banks. On the other hand, collection and exchange charges bring
the ratio of "other revenue" reported by nonpar banks to an average
of two to three times the average ratios reported by the par bankse
When these two ratios are added to net out the differences in operation,
the resulting total ratio is still somewhat higher for the nonpar
than par banks in most of the states for both 1961 and 1965.
In Georgia the sum of the two ratios is about the same for par and
nonpar banks in 1965 and only a little higher for nonpar banks in 1961 0
In Minnesota the sum of these two ratios is lower for nonpar than
for par banks in both years.
Par status appears to have no influence on the proportion of earning assets
since par and nonpar banks had similar ratios in both 1961 and 1965.

The proportion

of total assets invested in loans is also similar for par and nonpar banks in the
states in which most of the nonpar banks are located. Such differences as appear
show no consistent pattern.
Finally, comparison of the ratio of net current'earnings for par and nonpar
banks offers no conclusive evidence that nonpar operations result in a higher return
from current operations. For the four states with the most nonpar banks, the
differences in the net earnings ratio are within one-tenth of one percentage
point except for South Dakota where nonpar banks reported a slightly higher ratio
than did par banks in both 1961 and 1965. Since there are only a very few nonmember par banks in South Dakota the differences cannot be regarded as significant.
In Minnesota, however, the par banks reported a slightly higher ratio of
net current earnings in 1961 and a slightly lower ratio in 1965.
Thus, one must necessarily conclude that the collection of exchange charges



16
and the perpetuation of the nonpar legacy is not the life-blood of commercial
banking in any state - not even in Minnesota.
Concluding Remarks
The above analysis has demonstrated that the growing reluctance of commercial banks to meet the principal requirement of membership in the Federal
Reserve System may become an increasing obstacle to the effective implementation
of the Nation's monetary and credit policy. The main source of this reluctance
is the heavier burden of member b a n k reserve requirements compared with those
imposed by most States for nonmember banks. In face of this competitive disadvantage, fewer and fewer State-chartered banks have joined the System in
recent years, and withdrawals from membership have been frequent.
While the issue of Federal Reserve membership is by no means n e w , it
has generated a new sense of concern about the long-run ability of our central bank
to influence effectively the course of monetary and credit developments. Because
of this renewed concern, the Board of Governors .of the Federal Reserve System
recommended to Congress in its Annual Reports for both 1964 and 1965, that
legislation be adopted which would:
Give to the Board authority to set graduated reserve requirements
on the baais of the amount of deposits;
m a k e such reserve requirements applicable to all insured commercial
banks,
and open the Federal Reserve discount facilities to all banks meeting
such requirements.
These steps are vitally needed to strengthen the management of monetary
policy. Failure to adopt these measures - or others to achieve the same objectives will continue to place a premium on nonmembership and will add further to the
erosion of the structural underpinnings of our central banking system*



17

While nonmembership in the Federal Reserve System by eligible commercial
banks is potentially a source of trouble for monetary policy, the practice of
nonpar clearance of checks by more than 10 per cent of the banks in the country
is mainly a lingering nuisance from a by-gone era.

Y e t , because the typical

nonpar bank shaves the face amount of each check, it is also an unnecessary
hinderance to the efficient use of demand deposits, which are the principal
component of our money supply.

While the practice is undoubtedly profitable to

nonpar banks, it is simultaneously a means of shifting the cost of check collection
from the bank's customer to a merchant or private individual who has sold goods
and services in good faith with the expectation of full payment. The vast majority
of b a n k s , through the application of service charges or similar measures,
have managed to cover the cost of check collection without shaving a few pennies
from each check presented for payment through the mails.
The Federal Reserve Board has recommended that Congress act to hasten
the disappearance of this legacy of an uncertain and underdeveloped system
of check collection:
By requiring all insured banks to pay at par all checks drawn
upon them.
Or by amending the Federal Reserve Act and the Federal Deposit
Insurance Act to define specifically the absorption of exchange
charges by banks as a payment of interest on demand deposits - and
thus prohibited.
In either case, a long-standing difference of opinion between the
Board and the FCIC about the treatment of nonpar collection would be resolved,
and the relative advantage of nonmember over member banks in this area would be
ended.




Table 1
Changes in Number and Classification of Insured Commercial
Banks in the United States
(1961 - 1965)
1961
A.

Banks beginning operations
1. Total insured commercial
2. National
3. State member
4 . Non-member insured

B . Absorptions, consolidations,
and mergers
1. Total insured commercial
2. National
3 . State member
4 . Non-member insured
C.

Banks liquidating and
ceasing operations
1. Total insured commercial
2. National
3. State member
4 . Non-member insured

D. Non-insured banks becoming
insured
1. Total insured commercial
2. National
3 . State member
4 . Non-member insured
E.

F.

National banks succeeding
state banks
2. National
3. State member
4 . Non-member insured
State banks succeeding
national banks
2. National
3. State member
4 . Non-member insured




1962

1963

1964

1965

Total

+98
+26
+2
+70

+158
+64
+4
+100

+281
+163
+3
+115

+323
200
+3
+120

+182
+88
+4
+90

1052
541
16
495

-135
-49
-29
-57

-176
-80
-35
-61

-150
-63
-28
-59

-133
-66
-18
-49

-142
-60
-19
-63

-736
-318
-129
-289

-5
-2
-1
-2

-2
-1

-3
-1

-8
-2

-3
-2

-1

-2

-6

-1

-21
-8
-1
-12

+30

+19
+2

+39

+21

+17
+1

+1
+29

+17

+2
+37

+21

+16

+126
+3
+3
+120

+9
-4
-5

+11
-3
-8

+26
-8
-18

+32
-13
-19

+22
-10
-12

+100
-38
-62

-1

-6

-13

-7

+1

+6

+13

-6
+1
+5

-33
+1
+32

+7

Table 1 (continued)
1960
G.

H.

1963

1964

1965

+5
-5

+3
-3

+4
+4

+1
-1

+17
-17

-16

-26
+26

-22

+22

-19
+19

-22

+16

+22

-105
+105

-11
-17
-43
+49

Withdrawals from Federal
Reserve System
2 . National
3 . State member
4 . Non-member insured

1962

+4
-4

Additions to Federal
Reserve System
2 . National
3 . State member
4 . Non-member insured

1961

Total

+9
-10
-56
+75

+167
+112
-50
+105

+202
+158
-41
+85

+54
+42
-46
+58

•421
• 285
-236
+372

NET CHANGE
Total insured commercial
National
State member
Non-member insured
TOTAL BANKS - End of Year
Total insured commercial
National
State member
Non-member insured

13,126
4,530
1,641
6,955

13,115
4,513
1,598
7,004

13,124 13,291
4,503 4,615
1,542 1,492
7,079 7,184

13,493 13,547
4,773 4,815
1,451 1,405
7,269 7,327
NET
CHANGE

SUMMARY 1961 - 1965
1.

2.

TOTAL INSURED COMMERCIAL BANKS
A X + Bx + Ci + Di + Ei
(1052) + (-736) + (-21) + (126)

+421

NATIONAL BANKS
A£ + B2 + C2 + D2 + E2 + F2
(541) + (-318) + ( - 8 ) + (3) + (100) + (-33)

3.

+421

+285

STATE MEMBER BANKS
A3 + B 3 + C3 + D 3 + E 3 + F3 + G 3 + H 3
(16) + (-129) + ( - 1 ) + (+3) + (-38) +(+1) + (17) + (-105) -

4.

+285

-236

•236

NON-MEMBER INSURED BANKS
A4 + B4 + C4 + D4 + E4 + F4 + G4 + H4
(495) + (-289) + (-12) + (120) + (-62) +(+32) + (-17) + (105) = +372




+372

Table 2
Number of Banks Withdrawing From
Federal Reserve Membership, 1960 - 1965
States

1960

1961

1962

Texas
Illinois

6
1

5
2

11
3

9
4

4
3

3
3

38
16

Missouri
Wisconsin

2
2

1
1

2
2

5

2
2

3
4

15
11

Indiana
Iowa

3
3

r

_

_

2

-

-

3
1

5
1

11
7

Pennsylvania
Nebraska

-

2
1

2
2

1
1

1
1

3

-

9
5

Kentucky
Minnesota

2
1

-

1
2

-

-

-

-

-

-

Other states

_6

_3

_1

_2

_2

Total

26

17

26

22

19

23

133

Under 5
5-10
10-15
15-100
Over 100

14
6
4
1
_1

11
3
2
1

12
6
6
1
_1

14
4
2
2
-

7
7
1
3
JL

12
3
2
4
_2

70
29
17
12
5

Total

26

17

26

22

19

23

133

-

1963

-

1964

1965

-

Total

3
3
15

Deposit-size
classes
(in millions;




Table 3
Reserve Requirements for Country Member Banks and
State Nonmember Banks
1965
Reserve Requirements
Time
Demand
deposits
deposits

Vault
cash

Deposits with
other banks

5.0

X

X

—

-

-

15.0

3.0

X

X

Wisconsin *

12.0

12.0

-

X

Indiana

12.5

3.0

X

X

7.0

3.0

X

X

Pennsylvania

12.0

4.0

X

X

Nebraska *

23.0

26.0

X

U.S.
securities

X

State Uonmember Banks
Texas

15.0

Illinois(no reserve requiremaits)
Missouri

Iowa

ie

ic

Kentucky

*

7.0

3.0

X

X

Minnesota

*

12.0

5.0

X

X

12.0

4.0

Country Member Banks

Reserves may be Maintained as
Vault Cash or Deposits with
Federal Reserve Banks

* Reserve requirements differ, depending on State laws, for banks designated as Reserve agents
or depositories, for banks in designated Reserve cities, or for banks in places with population
exceeding stated amounts. Source of information on nonmember bank reserve requirements:
National Association of Supervisors of State Banks, A Profile of State Chartered Banking,
(August, 1965), p. 41.




X

X

Table 4
Comparison of Ratio of Cash
Assets to Total Assets*

Withdrawals

Banks withdrawing in 1962
1961
1963

Texas
State member banks
State nonmember banks

11

23.3
26.3
21.6

15.5
22.2
19.1

Illinois
State member banks
State nonmember banks

3

18.7
18.7
14.6

11.0
16.5
13.0

Minnesota
State member banks
State nonmember banks

2

13.8
15.0
12.4

8.1
13.1
10.9

Nebraska
State member banks
State nonmember banks

2

20.0
19.8
16.7

12.0
17 9
,14.7

Withdrawals

Banks withdrawing in 1963
1962
1964

Texas
State member banks
State nonmember banks

8

24.1
25.3
20.9

16.0
21.4
18.4

Illinois
State member banks
State nonmember banks

4

18.0
19.0
14.7

11.8
16.0
11.8

Missouri
State member banks
State nonmember banks

3

20.7
19.9
17.8

12.0
16.5
13.5

* Banks withdrawing include those with less than $15 million of
deposits. The groups selected for comparison are the member banks
with deposits of $1 to $10 million in the year before withdrawal and
the nonmember banks in this deposit group in the year after withdrawal.
Information was available for only 43 of the 46 withdrawing banks.




Table 4 (continued)

Withdrawals

Banks withdrawing in 1964
1963
1965

Texas
State member banks
State nonmember banks

4

24.8
22.2
19.1

17.9
21.0
18.4

Illinois
State member banks
State nonmember banks

3

14.1
16.5
13.0

10.3
16.1
12.2

Indiana
State member banks
State nonmember banks

3

14.9
15.7
14.2

8.9
15.1
13.0




Table 5
Comparison of Ratio of Earning
Assets to Total Assets*
Withdrawals

Banks withdrawing in 1962
1961
1963

Texas
State member banks
State nonmember banks

11

76
73
76

82
76
79

Illinois
State member banks
State nonmember banks

3

80
81
84

88
83
86

Minnesota
State member banks
State nonmember banks

2

86
84
87

91
85
88

Nebraska
State member banks
State nonmember banks

2

79
79
83

87
81
85

Withdrawals

Banks withdrawing in 1963
1962
1964

Texas
State member banks
State nonmember banks

8

74
73
77

81
77
79

Illinois
State member banks
State nonmember banks

4

81
80
84

87
83
87

Missouri
State member banks
State nonmember banks

3

79
79
81

87
82
85

* Banks withdrawing include those with less than $15 million of
deposits. The groups selected for comparison are the member banks
with deposits of $1 to $10 million in the year before withdrawal and
the nonmember banks in this deposit group in the year after withdrawal,,
Information was available for only 43 of the 46 withdrawing banks.




Table 5 (continued)
Banks withdrawing in 1964
Withdrawals

1963

1965

Texas
State member banks
State nonmember banks

4

73
76
79

81
78
79

Illinois
State member banks
State nonmember banks

3

85
83
86

89
83
86

Indiana
State member banks
State nonmember banks

3

84
83
85

90
84
86




Table 6
Comparison of Ratio of Loans
to Total Assets*
Banks withdrawing in 1962
Withdrawals

1961

1963

Texas
State member banks
State nonmember banks

11

42
36
42

52
40
45

Illinois
State member banks
State nonmember banks

3

37
34
37

44
36
40

Minnesota
State member banks
State nonmember banks

2

51
45
44

52
46
45

Nebraska
State member banks
State nonmember banks

2

36
42
46

43
43
49

Banks withdrawing in 1963
Withdrawals

1962

1964

Texas
State member banks
State nonmember banks

8

35
36
43

41
40
48

Illinois
State member banks
State nonmember banks

4

41
34
38

40
35
41

Missouri
State member banks
State nonmember banks

3

41
38
42

44
40
45

* Banks withdrawing include those with less than $15 million of
deposits. The groups selected for comparison are the member banks
with deposits of $1 to $10 million in the year before withdrawal and
the nonmember banks in this deposit group in the year after withdrawal.
Information was available for only 43 of the 46 withdrawing banks.




Table 6 (continued)
Banks withdrawing in 1964
Withdrawals

1963

1965

Texas
State member banks
State nonmember banks

4

42
40
45

48
43
49

Illinois
,
State member banks
State nonmember banks

3

44
36
40

50
36
41

Indiana
State member banks
State nonmember banks

3

42
37
39

42
39
40




Table 7
Comparison of Ratio of Net Current Earnings
to Total Assets*
Banks withdrawing in 1962
Withdrawals

1961

1963

Texas
State member banks
State nonmember banks

11

1.17
1.26
1.27

1.26
1.25
1.37

Illinois
State member banks
State nonmember banks

3

.99
1.17
1.08

1.16
1.06
1.02

Minnesota
State member banks
State nonmember banks

2

.87
1.13
1.19

.71
.97
1.01

Nebraska
State member banks
State nonmember banks

2

1.69
1.31
1.48

1.69
1.39
1.47

Banks withdrawing in 1963
Withdrawals

1962

1964

Texas
State member banks
State nonmember banks

8

1.13
1.12
1.34

1.70
1.39
1.40

Illinois
State member banks
State nonmember banks

4

1.27
1.12
1.10

1.52
1.14
1.13

Missouri
State member banks
State nonmember banks

3

1.36
1.39
1.39

1.64
1.39
1.39

* Banks withdrawing include those with less than $15 million of
deposits. The groups selected for comparison are the member banks
with deposits of $1 to $10 million in the year before withdrawal and
the nonmember banks in this deposit group in the year after withdrawal.
Information was available for only 43 of the 46 withdrawing banks.




Table 7 (continued)
Banks withdrawing in 1964
Withdrawals

1963

1965

Texas
State member banks
State nonmember banks

4

1.30
1.25
1.37

1.55
1.36
1.38

Illinois
State member banks
State nonmember banks

3

.99
1.21
1.02

1.21
1.09
1.14

Indiana
State member banks
State nonmember banks

3

1.16
1.15
1.24

1.26
1.13
1.17




Table 8
Correspondent Relations for Banks Withdrawing from
Federal Reserve Membership, 1960 - 64
Year of Withdrawal
1962
1961
1963

1960
Total Number of Correspondents
Before withdrawal
After withdrawal
Average Number of Correspondents
Before withdrawal
After withdrawal
Number of Withdrawing Banks Which:
Increased the number of
correspondents after withdrawal
Decreased the number of
correspondents after withdrawal
Maintained the same number of
correspondents after withdrawal
Total Correspondent Balances
(in thoudands)
Before withdrawal
After withdrawal
Average Correspondent Balances
(in thousands)
Before withdrawal
After withdrawal
Number of Withdrawing Banks Which:
Increased correspondent balances
after withdrawal
Decreased correspondent balances
after withdrawal
Note:



91
94

40
40

103
116

Totals
1960-64

1964

59
70

56
56

349
376
4.1
4.4

4.6
4.7

5.0
5.0

4.5
5.0

3.1
3.7

3.7
3.7

4

1

8

5

1

19

2

1

1

4

1

9

13

7

14

10

13

57

18,381
21,073

6,666
8,588

16,081
33,436

11,648
14,071

8,016
11,225

60,792
88,393

691
1,004

606
781

699
1,454

582
704

534
748

691
1,004

15

7

18

15

7

62

4

4

5

5

8

26

Information on correspondent balances was available on only 88 of the withdrawing

Table 9

Number of Far and Nonpar Banks, 1960 and 1965
Total
banks

Member

13,383

6,169

5,542

1,672

Minnesota

688

208

83

397

Georgia

421

67

73

281

Mississippi

193

35

19

139

South Dakota

174

59

12

103

Other states

11,907

5,800

5,355

752

13,699

6,219

5,988

1,492

Minnesota

721

221

98

402

Georgia

429

71

104

254

Mississippi

196

43

35

118

South Dakota

170

58

11

101

Other states

12,183

5,826

5,740

617

1960
United States, total

PAR
Nonmember

Nonpar

1965
United States, total

Source: "Federal Reserve Par List", Federal Reserve' Bulletin
(February 1961-1966).







Table 10
Comparison of Operating Ratios of Far and Nonpar Banks, 1961 and 1965

1961
Georgia
Par
Nonpar

Ratios to total
operating revenue
Other
Service
Sum o£
charges
revenue
1 + 2
(1)
(2)
(3)

Ratios to total assets
Net
Earnings
Loans
earnings _assets_
(4)
(5)
(6)

10.51
4.77

4.80
11.40

15.31
16.17

1.35
1.32

82.16
77.86

15.89
21.16

11.52
4.00

6.23
12.61

17.75
16.61

1.24
1.16

85.21
86.62

12.81
12.53

Mississippi
Par
Nonpar

6.66
4.25

5.36
9.99

12.02
14.24

1.30
1.38

79.70
79.00

18.95
19.83

South Dakota
Par
Nonpar

6.90
3.88

4.05
12.00

10.90
15.88

1.24
1.59

85.53
86.24

13.67
13.18

10 States Total
Par
Nonpar

7.30
3.89

3.25
10.75

10.55
14.64

1.30
1.48

79.71
79.38

18.64
19.52

Minnesota
Par
Nonpar




Table 10 (continued)

1965

(1)

(2)

(3)

(U)

(5)

Georgia
Par
Nonpar

9.51
U.79

5.12
10.12

III .63

1.1*5
1.53

82.99

lli.8l

81.61

17.13

Minnesota
Par
Nonpar

10.32
3.92

5.15

15.U7
1U.32

.91
.99

86.68

io.UO

11.1a

Mississippi
• Par
Nonpar

5.75
U.29

U.07
9.09

9.82
13.38

1.29
1.35

82.20

16.0U

South Dakota
Par
Nonpar

5.38
3#67

U.55
9.36

9.93
13.03

1.08
1.U3

88.U;

86.28

12. U2

10 States Total
Par
Nonpar

6.51
3.27

2.95
9.23

9.1*6

1.35

82.6U

15.51

12.1*0

1 .lil*

88.38

79.58

82.1a

(6)
1k.$9

10.73

19.05

10.76

l6„5l