In addition to supervising bank holding companies, savings and loan holding companies, and foreign banking organizations, the Federal Reserve provides supervision at the federal level for state-chartered banks that elect Federal Reserve membership. These banks are referred to as “state member banks.”
Benefits of Membership
While membership in the Federal Reserve System is not required to access core services, such as lending via the discount window, becoming a state member bank provides specific benefits and eligibility, 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 any nonbank subsidiaries.
- The absence of any fees charged in connection with Federal Reserve application filings and for examinations of institutions with less than $50 billion in total consolidated assets.
- The eligibility to vote for directors of the Federal Reserve Bank.
In addition, one of the objectives of Supervision is to ensure consistency and open lines of communication. In this regard, all supervised institutions have a central point of contact, whereby a specified examiner serves as the primary Federal Reserve supervision contact for a banking institution. This facilitates communication between the banking organization and the Federal Reserve and helps to provide for a fully coordinated supervisory process.
State Member Bank Application Process
A state-chartered bank proposing to become a member of the Federal Reserve System or a national bank converting to a state charter and desiring to remain a member of the Federal Reserve System must file an application for Federal Reserve approval.
An application for membership may be filed by 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 seeking membership.
The Federal Reserve considers the following factors, among others, when reviewing an application for membership:
- 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.
- Whether its corporate powers are consistent with the purposes of the Federal Reserve Act (i.e., whether the institution is primarily engaged in the business of banking).
De Novo Banks
Additional considerations relevant to de novo state member bank applications include the following:
- A de novo bank must provide projections demonstrating that the initial capitalization is adequate to maintain a leverage capital ratio of at least nine percent throughout the first three years of operations.
- A de novo bank may file for membership in the Federal Reserve simultaneously with the filing of the charter application and the Federal Deposit Insurance application with the state chartering authority and the FDIC. To the extent possible, the Reserve Bank will coordinate the processing of the application with the other agencies, including joint scheduling of and participation in pre-filing meetings and the field investigation and coordination of informational requests.
- 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 consider the following:
- An existing financial institution considering Federal Reserve membership should contact Reserve Bank applications staff before submitting a membership application so staff can determine whether a pre-membership examination is necessary. A pre-membership examination may be waived depending on several factors, including when the institution was last examined by its current supervisor, its assigned rating, and its size.
- Expedited procedures are available to a converting bank that meets the “eligible bank” criteria of section 208.2(e) of Regulation H. To meet those criteria, the bank must be:
- Well-capitalized
- Have a composite CAMELS rating of “1” or “2”
- Have a CRA rating of “Outstanding” or “Satisfactory”
- Have a compliance rating of “1” or “2”
- Have no major unresolved supervisory issues outstanding
- Applications qualifying for expedited processing are acted on within 15 calendar days 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 annual dividend rate on the paid in portion will depend on the total consolidated assets of the member bank. Institutions with less than $10 billion in total assets will receive a six percent annual dividend rate on the paid in portion. For larger institutions, the annual dividend rate will vary. In addition, the total consolidated asset threshold to be eligible for a six percent dividend rate will be adjusted annually. See Regulation I, Issue and Cancellation of Federal Reserve Bank Capital Stock, for additional information.
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.
Frequently Asked Questions about Regulation H
FAQs about Regulation H – Membership of State Banking Institutions in the Federal Reserve System.
Federal Reserve Bank of San Francisco Applications Contacts
Keith Dudley
Vice President
(415) 974-2386 or
(800) 227-4133
Julie Stengle
Senior Manager
(415) 974-2789 or
(800) 227-4133
Mailing address for applications, notifications, and other general correspondence
Keith Dudley
Vice President
Applications
Federal Reserve Bank of San Francisco
101 Market Street I 9th Floor
San Francisco, California 94105