12. Advantages offered.—Certain advantages are held out to state banks as an inducement to enter the system. In time, member banks will undoubtedly come to enjoy a certain prestige. They will have the privilege of making rediscounts and, as a corollary to that privilege, they will not need to maintain so large a call loan as they now do. The advantage which promises to be most important, however, is the pro posed clearing of checks thru the reserve banks. Many other things are mentioned, such as serving as a depositary for government funds. When all these arguments in favor of joining the system are consid ered, it is evident that some reason other than the ordinary conservatism of the banking fraternity must be found to explain the tardiness with which state banks are falling into line.
13. State banks' objections raised by state banks are numerous. Of these, four at least are raised by almost every state banker who is ap proached on the question. The first is a matter of stock earnings. If the state banks should join the system, they would be forced to subscribe to the stock of their reserve bank a sum equal to six per cent of their own capital and surplus. The dividend on this stock subscription is limited to six per cent per an num. Some state banks feel that they can make their capital earn more than six per cent. On the whole, however, this does not seem to be an insurmountable difficulty.
Some of our state bankers, especially those in the West and the South, still cling somewhat tenaciously to the doctrine of state rights. They fear that j oin ing the Federal Reserve system would subject them to all sorts of vexatious control and regulation from Washington, and they object to this on principle as well as from sentiment. A more serious objection is raised on economic grounds. They fear that their banks will be examined by men sent out from Wash ington who may have very little knowledge of local conditions, and especially of the laws of the various states. It must be remembered that the state banks would still be regulated in many ways by the state laws, even after they had joined the Federal Reserve system. For that matter, even national banks are regulated to a certain extent by state laws. It is easy for a Montana banker to see how ridiculous it would be for the government to send an examiner out there whose experience and knowledge of banking had been limited entirely to conditions that obtain in Florida and on the Gulf coast. This very thing has been done before in the national banking system, and it has re sulted in embarrassment for both the examiner and the bank. The law states that in the case of state
banks and trust companies the Reserve Board may accept the examination by state authority in lieu of the regular Federal Bank examination, but the banks are not certain of the extent to which this course will be followed.
14. Lack of clearness in the are sev eral questions regarding state banks on which the Act is not explicit. Much is left to the discretion of • the Board. State banks do not quite like the Act, even where it is specific, and they like it even less where it is vague and where it delegates decision to the Re serve Board. National banks, on the other hand, are told just about what they must and must not do. State banks fear that while they may join the system under one set of regulations, they may in a few years find themselves compelled to operate under an en tirely different set of regulations imposed by a new Board.
15. Collection system.—The collection system is, and for some time will probably continue to be, the chief point of contention. Reserve banks collect checks at par for their members, charging only the actual cost of the operation. Member banks will not be permitted to charge anything like the old exchange rates. This will mean a considerable loss to some banks, especially those which are located in rural dis tricts and in small towns; hence some of the state banks hesitate to enter under this scheme.
On the other hand, the collection plan as proposed in the beginning promised to be a most important force for pulling the state banks into the system. The reserve banks would receive checks for clear ing only from member banks, but they would receive checks drawn not only upon member banks, whether in their own districts or not, but also upon such non-member banks as might agree to pay their checks at par. Under this arrangement, checks were cleared against over eight thousand non-member banks during November, 1916. These banks remitted at par for checks presented against them thru the re serve banks because, they did not want their depositors to feel that checks on them were not as good as checks drawn upon member banks. They had to remit cash in payment for the checks, however. They could not offset with checks on other banks and they could not avail themselves of the cheap and direct collection facilities of the Federal Reserve clearing plan. In this way they lost the income from exchange charges without gaining any of the economies enjoyed by the member banks.