Introduction to Finance

Figure 4.1
.
Member Banks
The Federal Reserve Act provided that all national banks were to become members of the 
Fed. In addition, state-chartered banks were permitted to join the system if they could show 
central bank 
federal government 
agency that facilitates the operation 
of the fi nancial system and 
regulates the money supply

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4.3 Structure of the Federal Reserve System
81
evidence of a satisfactory fi nancial condition. The Federal Reserve Act also required that all 
member banks purchase capital stock of the Reserve Bank of their district up to a maximum 
of 6 percent of their paid-in capital and surplus. In practice, however, member banks have had 
to pay only 3 percent; the remainder is subject to call at the discretion of the Fed. Member 
banks are limited to a maximum of 6 percent dividends on the stock of the Reserve Bank that 
they hold. The Reserve Banks, therefore, are private institutions owned by the many member 
banks of the Fed.
State-chartered banks are permitted to withdraw from membership with the Fed six 
months after written notice has been submitted to the Reserve Bank of their district. In such 
cases, the stock originally purchased by the withdrawing member is canceled and a refund is 
made for all money paid in.
Exercises
General
Supervision
Compose
BOARD OF GOVERNORS
(7 Appointed Members)
Consumer Advisory 
Council
Federal Advisory
Council
Thrift Institutions 
Advisory Council
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approves discount rates as part 
of monetary policy
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companies
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consumer finance
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Banks
FEDERAL RESERVE BANKS
(12 Districts)
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depository institutions and lend 
to them at the discount window
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transfer funds for depository 
institutions
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and cash balances
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COMMITTEE
(Board of Governors and
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is the primary instrument of
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policy
Advise
ADVISORY
COMMITTEE
MEMBER
BANKS
Own