ABA, Groups Continue Urgent Message on Fed Dividends

With a provision that would reduce the dividends paid on Federal Reserve Bank stock to Fed member banks still included in the Senate’s Highway Trust Fund reauthorization bill, ABA and four other trade groups representing the entire banking industry yesterday urged House leaders to reject the revenue-raising provision.

The proposal would be unsound policy, rewriting the Federal Reserve’s charter without any prior study or analysis simply as a temporary measure to pay for an estimated $17 billion in highway spending. “That is $17 billion that would no longer be available to the economy for loans and other investments,” the groups said. “There would be a significant impact on economic growth beyond its $17 billion value.”

The groups also noted that Fed member banks are required to hold the stock, which has unique features that make it “dead capital” and underline the importance of the dividend. “Paying for [the highway bill]in this fashion lacks fairness, is not the result of a thoughtful process, and would reduce economic growth,” they said.