Non-Member Banks

Non-member banks are banks that are not members of the U.S. Federal Reserve System. As with member banks, non-member banks are subject to reserve requirements, which they have to maintain by placing a percentage of their deposits at a Federal Reserve Bank. Although non-member banks are not required to purchase stock in their district Federal Reserve banks, they still have access to Fed services such as its discount window on the same terms as member banks.

Non-member banks can only be state-chartered, since all nationally chartered banks necessarily have to be members of the Federal Reserve System. One reason that state-chartered banks may decide to refrain from membership is that regulation can be less onerous, some believe, under the Federal Deposit Insurance Corporation (FDIC), which oversees non-member banks, than the Federal Reserve Banks (member banks report to regional Federal Reserve banks). Non-member banks, like members, receive services from the Federal Reserve System including check clearing, electronic funds movements, and automated clearing house payments.

Becoming a member is only a matter of application, fulfilling requirements and going through a waiting period. Some non-member banks deliberate on this decision carefully and engage in the process in measured steps if they believe that being a member is net beneficial than remaining a non-member. In extreme cases, as we saw in 2008, non-member banks will flee into the arms of the Federal Reserve System for protection. Such was the case of proud Goldman Sachs, which was brought to its knees during the climax of the financial crisis in 2008. The investment bank humbly sought and received member status in order to access the Fed's discount window and begin taking government-guaranteed deposits from the public. In a press release heralding its new status, the bank spun it this way: "We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources."