Why State Banks Do Not Join the Federal Reserve System, the Effect on the System and the Issues Involved

The Federal Reserve Act makes it compulsory for national banks to join the Federal Reserve System, each such bank contributing, in proportion to its size, to the capital of the Federal Reserve Bank in whose district it is located. Under the law, it is permissive for State chartered banks, trust companies, etc., to join. When the Federal Reserve Act was approved December 23, 1923, some national banks relinquished their State charters rather than become member banks in the new System. It was expected by strong supporters of the System that many State banks and trust companies would join. There was no strong trend to the System, however, although, during the war years many of these banks did join in order to gain the shelter of the System during that disturbed and uncertain period. The history of the movement into the System is revealed in the following table:

It will be noted that a peak apparently has been passed and that banks are withdrawing faster than they are coming in.

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