Procedure in Applying for Membership The procedure for acquiring membership in the federal reserve system is as follows: 1. A resolution by the board of directors, upon a form fur nished by the federal reserve agent, applying for stock in the federal reserve bank. Accompanying the appli cation and as a part of it must be a certified statement of the condition of the applying bank or trust company, a copy of the charter and articles of incorporation, to gether with any amendments thereto, and a statement containing certain additional information requested. The State Banking Department is also requested to furnish the federal reserve bank with two copies of its last report of examination and with copies of all cor respondence relating thereto.
2. Examination by an examiner from the staff of the federal reserve bank.
3. Sending of the application to the Federal Reserve Board, which determines whether or not it shall be approved, and if approved, upon what conditions.
4. If approved, payment of the amount required on the capital stock subscription and the making of the neces sary reserve deposit. 2 Growth in State Bank Membership After the passage of the Federal Reserve Act the state banks and trust companies did not seek admission to the federal reserve system as quickly as was expected. Many banks objected out right to the system and other factors also caused delay. For one reason, the system was new and difficult to understand, and it took time to educate the state bankers to the desirability of join ing. For another reason, many banks preferred to wait until the workability of the system had been proved. Laws had to be passed in some states enabling their banks to join, and in others the bank laws were liberalized and made equal to the national law, so as to keep the state banks from joining the national system. The long-standing jealousy which existed between the state and national banks also kept them aloof, and the permission granted to national banks to do trustee business, to make loans on real estate, and to act as insurance agents further intensified the competition and animosity between these two groups of institutions.
The larger state institutions joined first. Up to February r, 1921, I,sor state banks and trust companies, with aggregate resources of $10,345,000,000, had become members of the federal reserve. The war was a strong factor in securing state bank members. The President, the Council of National Defense, the
Federal Reserve Board, and certain state bank superintendents urged the eligible state institutions to join the system and thereby unify and strengthen it for the heavy burdens of war fi nancing. Legislation to compel them to join was advocated by some parties. The main influence operating to extend the mem bership is the recognition of the benefits derived from the system and the removal of the most serious objections to it.
The growth in the number of member banks in the federal reserve system is shown in the following table: the expense and bother of examinations by both state and na tional examiners have been saved by co-operative arrangements. Only such reasonable standards of admission are enforced as will protect the national banks, whose membership is obligatory; and only such regulations govern their conduct as will insure a reason able conformity to the fundamental principles of the system. To meet the wishes of the state banks, the board had most of its regulations enacted into law on June 21, 1917, so as to give them permanent stability.
It is not expedient to admit all state institutions. Very small banks, though great in number and in the combined amount of their resources, would prove an element of weakness, for too large a part of their funds is loaned on real estate or other non commercial security. Likewise savings banks are non-commercial institutions, as are trust companies that do no commercial bank business. Private banks are excluded because of the character of their business or their lack of regulation. Mutual savings banks without capital stock are excluded because they can make no subscription to federal reserve bank The following are some of the positive objections that have been offered to membership in the system, objections which have not been or cannot be eliminated by amendments to the act: 1. Extra clerical expense.
2. Lack of rediscountable paper and want of provision for loans by the reserve bank on securities collateral.
3. Too much regulation, interference, and federalization.
4. Loss of exchange under "par collection" system.
5. Loss of interest on reserve balances.
6. Limitations on loans.
7. Losses on dividends on federal reserve bank stock.
8. Political character of the Federal Reserve Board and of the Comptroller of the Currency.