Section 208.3 of Regulation H
The Federal Reserve encourages institutions that are considering membership in the Federal Reserve System to contact their local Reserve Bank early in their deliberations. By doing so, an institution can make a more informed decision on the benefits of membership and understand possible issues to be considered, as well as learn about the timeframe for processing a membership request. Benefits of membership include:
- A consistent and holistic regulatory relationship, as the Federal Reserve supervises both holding companies and state member banks;
- A reduced number of federal regulators from two to one for institutions with holding companies;
- Experienced examination staff;
- 12 Reserve Banks with numerous branches around the country that have familiarity and experience with the banking markets in their Districts;
- Conveyed association with the general reputation and public trust the Federal Reserve enjoys as our nation's central bank;
- No fees for Federal Reserve applications;
- No fees for Federal Reserve examinations of financial institutions under $100 billion; and
- Federal Reserve Bank stock that pays a 6 percent dividend.
Questions and Answers
Q. What institutions are eligible for membership?
A. Any of the following institutions may file an application for membership:
- a newly-organizing state-chartered bank (de novo);
- an existing state-chartered nonmember bank;
- an existing national bank that seeks to convert to a state charter and continue as a member bank;
- a savings association or other depository institution converting to a state bank charter that also desires to become a member bank; or
- other entity types should consult with the [appropriate] Reserve Bank regarding eligibility.
Q. Are there special considerations for a de novo and/or newly organizing state-chartered institution?
A. A de novo institution includes a newly organizing institution or one that has been in operation for five years or less. As noted in the application form, de novo institutions should provide the following information:
- A copy of the Interagency Charter and Federal Deposit Insurance Application (ICFDIA), if applicable, that is provided to other federal or state banking supervisors in connection with the proposal;
- The relevant Interagency Biographical and Financial Report forms and agency specific fingerprint cards should be submitted with the initial filing; and
- As noted in SR letter 20-16 (Supervision of De Novo State Member Bank), the Federal Reserve typically requires, as a condition of membership, that a de novo bank maintain a tier 1 leverage ratio of at least 8 percent for the first three years of operation.
Note that membership does not convey deposit insurance; a separate application to the FDIC for deposit insurance is required.
Q. What factors are considered in applications for membership?
A. For membership proposals, the Federal Reserve considers the factors in Section 208.3(b) of Regulation H, including but not limited to:
- Financial condition, including capital adequacy and future earnings prospects
- General character of management
- Convenience and needs of the community
- Consistency of existing corporate powers with the Federal Reserve Act
Additionally, potential membership institutions under formal enforcement action or that have a significant, unresolved supervisory matter require a non-objection from its current supervisory agency or agencies.
Q. Is there an application fee?
A. There is no application fee.
Q. Does my application require public notice?
Q. Is a safety and soundness or consumer compliance examination required for a conversion by an existing institution?
A. Not always. The need for an examination depends on each institution's individual circumstances. Therefore, we advise the prospective members to contact the appropriate Reserve Bank well in advance of filing to allow for a determination on whether an examination is necessary.
Q. Is there an examination fee?
A. There is no examination fee.
Q. Are there any conditions of membership?
A. Members are required to purchase Federal Reserve Capital Stock in accordance with Regulation I (12 CFR 209) and are expected to follow the general safety and soundness guidelines found in Section 208.3 of Regulation H (12 CFR 208).
Q. How much Federal Reserve Stock must be purchased?
A. Each state member bank must subscribe to capital stock in the Federal Reserve Bank of its district in an amount equal to six percent of its combined capital and surplus (but excluding retained earnings). However, only 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. A mutual savings bank is required to place a deposit at the Reserve Bank equivalent to the capital requirement.
Q. Does a national bank converting to a state charter need to reapply for Federal Reserve membership?
A. Yes. Federal Reserve membership does not transfer automatically. Stock in the Federal Reserve will also have to be reissued in the name of the new bank.
Q. What forms are required for a membership application?
Q. Is there a post-approval waiting period?
A. No, membership proposals may be consummated immediately after approval, but no later than three months without an extension. However, the institution must first arrange the purchase of relevant Reserve Bank stock as it becomes a member on the date the stock is issued.
Q. Which individuals must submit an Interagency Biographical and Financial Report (IBFR)?
A. In general, IBFRs will be required for new principal shareholders, directors, and senior executive officers for converting institutions and all principal shareholders, directors and senior executive officers for de novo institutions.