After the passage of the Federal Reserve Act the state banks and trust companies did not seek admission to the federal reserve system as quickly as was expected. Many banks objected outright to the system and other factors also caused delay. For one reason, the system was new and difficult to understand, and it took time to educate the state bankers to the desirability of joining. For another reason, many banks preferred to wait until the workability of the system had been proved. Laws had to be passed in some states enabling their banks to join, and in others the bank laws were liberalized and made equal to the national law, so as to keep the state banks from joining the national system. The long-standing jealousy which existed between the state and national banks also kept them aloof, and the permission granted to national banks to do trustee business, to make loans on real estate, and to act as insurance agents further intensified the competition and animosity between these two groups of institutions.

2 See Federal Reserve Bulletin, Aug. 1917. P. 592.

The larger state institutions joined first. Up to February 1, 1921, 1,501 state banks and trust companies, with aggregate resources of $10,345,000,000, had become members of the federal reserve. The war was a strong factor in securing state bank members. The President, the Council of National Defense, the Federal Reserve Board, and certain state bank superintendents urged the eligible state institutions to join the system and thereby unify and strengthen it for the heavy burdens of war financing. Legislation to compel them to join was advocated by some parties. The main influence operating to extend the membership is the recognition of the benefits derived from the system and the removal of the most serious objections to it.

The growth in the number of member banks in the federal reserve system is shown in the following table: