Access to the Discount Window for All Commercial Banks: Is It Important for Monetary Policy?

ROPONENTS of legislation to induce or require more banks to be members of the Federal Reserve System often argue that the existence of nonmember commercial banks creates problems for the conduct of monetary policy. Two of the most frequently mentioned of these problems are: First, the ratio of net demand deposits to bank reserves may become more variable as nonmember banks have a larger share of demand deposit liabilities.1 Second, as banks withdraw from membership, the average ratio of net demand deposits to reserves rises. With a lower average reserve base, fluctuations in reserves due to such factors as changes in float and currency holdings of the public make net demand deposits more variable.2 These potential problems have been subjected to extensive theoretical analysis.