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Why Join the Fed?

Published online by Cambridge University Press:  14 June 2022

Charles W. Calomiris  and
Matthew Jaremski
Charles W. Calomiris
Affiliation:
Henry Kaufman Professor of Financial Institutions, Division of Finance, Columbia Business School, Columbia University, 3022 Broadway, 801 Uris Hall, New York, NY 10027. E-mail: cc374@columbia.edu
Matthew Jaremski*
Affiliation:
Professor, Department of Economics and Finance, Utah State University, 3565 Old Main Hill, Logan, UT 84322. E-mail: matthew.jaremski@usu.edu
*
E-mail: matthew.jaremski@usu.edu
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Abstract

We study the decisions of state-chartered banks to join the Fed in its first decade. Ours is the first study to combine state regulatory environment characteristics and individual bank characteristics to explain Fed membership choice. Regulatory environments that reduced the benefit of discount window access or increased the regulatory cost of joining the Fed led to fewer banks joining. Individual bank characteristics that affected the magnitude of benefits from accessing the discount window (either passing on liquidity risk reduction to respondents or reducing the member bank’s own seasonal liquidity risk) were even more important in determining which banks joined.

I believe that, through the Federal Reserve Banks, … the better shall we be equipped to cope with the problems ahead of us, of helping ourselves and of helping the world; I believe it to be the duty of every bank in the country to contribute its share in equipping our nation for this task; … I firmly believe that the future will belong to those banks—national or state—that are members of the Federal Reserve System.

—Paul Warburg, Speech at the New York State Bankers’ Association Convention, 9 June 1916

Type
Article
Information
The Journal of Economic History , Volume 82 , Issue 3 , September 2022 , pp. 765 - 800
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Economic History Association

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Footnotes

The opinions expressed are those of the authors and should not be attributed to the Office of the Comptroller of the Currency or the U.S. Government.

References

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