Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-08-24
FEDERAL RESERVE
1 HAS GOOD RECORD
State Banks Are Finding Out
Value of Membership in
~ System.
BY c. B. uPHAM.

The value of membership in the Fed
eral Reserve System is being illustrated
to the State banks Of the country by
events connected with recent bank
failures.
The closing OF one Toledo bank last
week was said to have been brought
about because of the fact that It's re-
serves were carried with other State
banks that had closed Had It been
member Of the Federal Reserve System
1t would have carried its reserves, as
all members are required TO do. with
the Federal Reserve Bank Of Cleveland
and very likely would have been able
to continue operation.
Cooperative Action.
Similarly, some one hundred or more
banks In northwest Ohio were reported
to have taken cooperative action TO
secure help in preventing the tying up
of their reserves with the failed tnsti-
buttons from embarrassing them. Like
wise, a number Of Nebraska banks were
forced to close because their reserves
were carried in closed Omaha banks.
Many of these smaller State Banks are,
of course, not eligible for membership
IN the Reserve System, but State banks
which are eligible can secure meas
ure Of protection and Immunity from
suspension of this type. forced by other
failures, by joining the system and
transferring their reserves to the re-
serve bank.
one reason State banks which are
eligible have not joined the system Is
that they get no interest on their re-
serve deposits with the reserve banks,
whereas they do on the balances they
Garry with city correspondents, and
which they count as reserves: TINS
- s~,|. wit
reserve bank adds TO the expenses OF
operation. and is considered by many
as not compensated for by advantages
gained from membership. The cost OF
membership has been given as the main
reason for not joining IN every survey
that has been taken.
The general advantages Of member
ship, and the consequent strengthening
of the banking structure that would
result from all banks being included,
have not been sufficiently impelling 70
bring more than approximately 1000
state banks into the system. There
has been talk from time to time OF
making it compulsory for all banks,
State as well as national. to join the
system. but II has been urged to the
contrary that many of the smaller
banks would be burden and contri-
butte nothing II banking mergers and
consultations, coupled with failures,
continue to reduce the number Of small
er institutions, or II branch bank legis-
lation produces the same result, uni
Yersal membership may become prac-
ticable.
Failure Record.
The bank failure record Of members
of the Reserve System is also better
than for non-members whereas about
SO per cent Of the banks Of the country
are members Of the system. only IS per
cent of the failures so far this year
were among members. and for the
month Of July. only ~ per cent were
among member banks.
There Is one objection, Of course and
perhaps serious one. to State bank
non-members joining the Reserve Sys-
TEN at this time and transferring their
reserves from city correspondents to
the reserve banks. Such action might
embarrass some Of the smaller city
correspondents. That would apparently
have happened in Ohio 1t Is Ques-
ton whether TO leave reserves where
they are, and perhaps be forced to
close when and If the reserve deposit
tory does, or transfer the reserves TO
the reserve bank and perhaps embarTass
the institution from which they are
withdrawn. In any event. State banks
should learn from these experiences
the value Of membership In the Re-
serve System when times become nor
NAL again.