What is the advantage of putting your money in a Fed member bank versus
a bank that is a nonmember? How do you know which banks are Fed members?
As of mid-year 2003, there were 7,831 commercial banks in operation
throughout the United States. This includes large banks, with many branches
nationwide, as well as small community banks. Together, these institutions
held about $4.25 trillion in deposits.
Fed Members and Nonmembers: What's the Difference?
What is the distinction between commercial banks that are members of
the Federal Reserve System and those that are nonmembers? As stated
National banks chartered by the federal government are, by law, members
of the Federal Reserve System. State-chartered banks may choose to
become members of the Federal Reserve System if they meet the standards
set by the Board of Governors. Each member bank is required to subscribe
to stock in its regional Federal Reserve Bank, but holding Federal
Reserve stock is not like holding publicly traded stock. Reserve Bank
stock cannot be sold, traded, or pledged as collateral for loans. As
specified by law, member banks receive a six percent annual dividend
on their Federal Reserve Bank stock; member banks also vote for Class
A and Class B directors of the Reserve Bank.
Of the total number of commercial banks in operation as of mid-year
2003, 2,999 were members of the Federal Reserve System. As Chart
1 illustrates, although there were fewer member banks, these
institutions held a significant share of the nation's deposits.
In other words, on average, member banks tend to be the larger institutions.1
Payments Services Are Available to Both Member and Nonmember
Both member and nonmember banks may use some of the financial services
sold by the Federal Reserve. Included in these Fed-provided payments
system services are check clearing, electronic funds transfers, automated
clearing house payments, and coin and currency services.
Members and Nonmembers: A Consumer's Point of View
As is illustrated in Chart 1, if you choose to bank at a member institution,
you will likely be choosing a larger bank with many branch locations.
Alternatively, if you choose to hold an account with a nonmember bank,
you'll typically be choosing a smaller institution with fewer
How Do You Know if your Bank is a Member or a Nonmember?
If you are the curious type, the easiest way to find out if your Bank
is a Fed member or a nonmember is to contact your Bank and simply ask
about the bank's charter type. Another way is to explore your
Bank's web site to see if its charter type is mentioned. Remember,
both national banks and state member banks are considered "member" banks.
Don't Forget FDIC Insurance!
As a consumer of banking services, you may have also heard about Federal
Deposit Insurance Corporation (FDIC) deposit insurance. In the event
that a bank, savings and loan, or mutual savings bank is forced to
close, accounts are protected by FDIC insurance up to the current legal
limit of $100,000 per depositor. Both member and nonmember banks have
the option to provide FDIC insurance to their customers, and virtually
all do. You can find
out if your bank is insured and if
your deposits are insured by contacting your institution or visiting
the FDIC web site. Of course, there are certain investments that aren't
covered under deposit insurance such as mutual funds or treasury securities.
For more information about investments that aren't covered by
FDIC insurance, visit the FDIC's Uninsured
Lists for the Twelfth Federal Reserve District, Federal
Reserve Bank of San Francisco.
Peer Group Performance, Federal Reserve Bank of Kansis City.
to File a Consumer Complaint About a Bank, Federal Reserve
Funds: Understanding the Risks." VHS video format. 1997.
Federal Reserve System In Brief. Federal Reserve Bank of
San Francisco. Revised March 2004.