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.”
Federal Reserve discount window and other services are available to all financial institutions on an equivalent basis. However, there are certain other considerations to being a state member bank, including the following:
- 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 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 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 and eligibility for service as a director.
In addition, one of the Financial Institution Supervision and Credit Group’s objectives is to ensure consistency and open lines of communication. In this regard, we have implemented the concept of a “Central Point of Contact,” whereby a single senior staff member serves as the primary Federal Reserve supervision contact for a specific banking institution. We have found that this facilitates communication between the banking organization and the Federal Reserve and helps to provide for a fully coordinated supervisory process.
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 desirous of 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 9 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 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 we can determine whether a pre-membership examination is necessary. We may be able to waive the examination, depending on the date of the latest examination by the current supervisor, the rating assigned, and the institution’s 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:
- 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. In 2016, 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.
Common Questions and Answers on Regulation H
Common questions and answers related to applications provisions in Regulation H, Membership of State Banking Institutions in the Federal Reserve System.
Federal Reserve Bank of San Francisco Applications Contacts
(415) 974-2303 or
Gerald C. Tsai
Director, Applications & Fintech
(415) 974-3415 or
Contact for scheduling meetings, obtaining forms, and general information
Mailing address for applications, notifications, and other general correspondence
Financial Institution Supervision and Credit
Federal Reserve Bank of San Francisco
101 Market Street I Mail Stop 615
San Francisco, California 94105