6

[ncrease from 7%
to 10% Proposed

Reserves of
State Banks

Review of Reserve
Requirements

Reserve
Authorities

Recommendation
hea

Extension of
Membership

Attractiveness
of Membership

Distribution of
Earnings of
Reserve Banks

COMMITTEE REPORT

a country institution is not obliged to maintain as high a reserve for
bank deposits as a reserve city bank. In view of the recommendations
above, which would have the effect of lowering country bank reserve
requirements, it would be only equitable to require country banks
to keep a ten percent reserve, instead of the present seven percent,
against net deposits due to other banks.
A factor which has engendered other inequalities is the difference
 in the reserve requirements of the various state laws, a number
of which do not coincide with the federal statutes. State requirements
 generally should be correlated with the reserve provisions of
the Federal Reserve Act.
As indicated, the changes advocated above are put forward to
remove discrepancies and to make the system somewhat more attractive
 to member banks. Their adoption would not confuse the
situation pending a review of the whole subject of reserve schedules.
Such a review has been proposed from time to time by federal reserve
 authorities and we support the suggestion, provided the review
is undertaken in the first instance within the system itself. We believe
 that recommendations should be made by administrative officials
 of the system because of the complicated nature of the subject
and the many ramifications of the effects of changes.
The Committee recommends that based on the recommendations
of administrative officials of the reserve system there should be a
legislative revision of those provisions of the Federal Reserve Act
relating to member bank reserves.

Approximately one-third of the banks of the country belong to
the federal reserve system. This membership includes all the national
 banks, some seventy-five hundred in number, as compulsory
members, and some twelve hundred state banks as voluntary members.


It is sometimes urged that steps should be taken to bring into
the membership a larger number of state banks. From the standpoints
 either of increasing the resources of the reserve banks or of
providing greater effectiveness in the distribution of credit to all
localities, no additional membership is now urgently required.
If, however, measures can be taken, which, without lowering
membership standards, will make membership more attractive to
present and prospective members, they should be given consideration.
 One such, we believe, is the distribution of reserve bank earnings
 in greater part to member banks.
At present each reserve bank, after payment of a six percent
dividend to member banks of its district, passes the balance of its
Continued on page 38)