I. General Information

While perhaps best known for its role in U.S. monetary policy, the Federal Reserve also has broad responsibilities for bank supervision. In addition to supervising bank holding companies and foreign banking organizations, the Fed provides supervision at the federal level for state chartered banks that elect Federal Reserve membership. These banks are referred to as “state member banks.”

Federal Reserve discount window and other services are available to all financial institutions on an equivalent basis. However, there are certain other unique considerations to being a state member bank, including:

• The reduction of federal supervisors from two to one when the bank is owned by a bank holding company; the Federal Reserve takes a holistic view of the consolidated organization, understanding the business plan and interrelationships among the parent company, bank, and nonbank subsidiaries.
• The ability to engage in activities to the same extent as national banks, unless restricted by applicable state laws and regulations.
• The absence of any fees charged in connection with Federal Reserve examinations and application filings; and
• The eligibility to vote for directors of the Federal Reserve Bank and eligibility for service as a director.

In addition, one of our objectives is to ensure consistency and open lines of communication. In this regard, this Reserve Bank has implemented the concept of a "Central Point of Contact” whereby a single senior staff member serves as the primary Federal Reserve contact for a specific banking institution. We have found that this facilitates communication between the banking organization and the Federal Reserve System, and helps to provide for a fully coordinated supervisory process.

II. Application for Membership

An application for membership may be filed by any of the following: a newly organizing state bank (de novo); an existing state nonmember bank; an existing national bank that seeks to convert to a state charter and continue as a member bank; or a thrift or other depository institution converting to a state bank charter and desirous of membership.

When it reviews an application for membership, the Federal Reserve considers the following factors:

• The financial history and condition of the applying bank and the general character of its management and board of directors.
• The adequacy of the bank's capital structure taking into account the character and condition of its assets, its existing and prospective deposit liabilities and other corporate responsibilities and its future earnings prospects.
• The convenience and needs of the community to be served by the bank; and
• Whether its corporate powers are consistent with the purposes of the Federal Reserve Act, that is, whether the institution is primarily engaged in the business of banking.

De Novo Banks

Factors relevant specifically to de novo bank applicants include:

• A de novo bank must provide projections demonstrating that the initial capitalization is adequate to maintain a leverage ratio of at least 9 percent throughout the first three years of operations.
• Preliminary charter approval from the state chartering authority should be obtained before filing a formal application with the Reserve Bank. The Reserve Bank will, however, participate with the chartering authority and FDIC in pre-filing meetings and the field investigation, and will review materials in advance of formal filing.
• Expedited procedures are available to a de novo bank if it is controlled by a multi-bank holding company that meets the expedited criteria under Section 225.14(c) of Regulation Y.
• Membership applications processed on an expedited basis will be acted on within 15 calendar days following receipt of a complete application. Other applications will be acted on within 30 calendar days.

Existing Banks

Existing financial institutions applying for Federal Reserve membership as a state chartered bank should note the following:

• Before submitting a membership application, we encourage existing financial institutions to contact Reserve Bank staff so that we may determine whether a pre-membership examination of the applying institution is necessary. The examination may be waived depending on the recency of the latest examination by the current supervisor, the rating assigned, and the size of the institution.
• Expedited procedures are available to a converting bank that meets the “eligible bank” criteria of Section 208.2(e) of Regulation H. The bank must be:
  
  1. Well capitalized;
  2. Have a composite CAMELS rating of “1” or “2”;
  3. Have a CRA rating of “Outstanding” or “Satisfactory”;
  4. Have a compliance rating of “1” or “2”; and
  5. Have no major unresolved supervisory issues outstanding.
     
• Applications qualifying for expedited processing are acted on by the 15th calendar day following receipt of a complete application. Other applications will be acted on within 30 calendar days.

As part of the application process, each state member bank must subscribe to capital stock in the Federal Reserve Bank in an amount equal to six percent of its combined capital and surplus (but excluding retained earnings); three percent must be paid in and the remaining three percent is on call. The paid in portion currently earns an annual dividend of six percent.

Please note that Reserve Bank staff is available to provide guidance and assistance prior to submission of an application, and the Reserve Bank would be pleased to arrange meetings with bank officers, directors, organizers, or advisers, to discuss Federal Reserve membership.

If you have any questions regarding the membership process or would like to arrange a meeting, please contact:

Kenneth Binning, Director, Applications & Enforcement, at (415) 974-3007 or toll-free at (800) 227-4133, ext. 3007; or
Patrick Weiss, Senior Manager, Applications & Enforcement, at (415) 974-3013 or toll-free at (800) 227-4133, ext. 3013.