ABA, Groups Oppose Senate Proposal to Limit Fed Dividends

ABA and several other bank trade groups yesterday wrote to Senate leaders opposing a provision in the Highway Trust Fund reauthorization bill that would reduce the dividends paid on Federal Reserve Bank stock to Fed member banks. The provision is intended as a revenue-raising measure to offset costs in the highway bill.

The plan would reduce the dividend “for the first time since the creation of the Federal Reserve and without any analysis or study of any kind,” the groups noted. Fed member banks — which include any nationally chartered bank — are required to be Fed members and thus required to hold the illiquid stock. As a result, the groups said, “the dividend reflects the unique structure and constraints of holding Federal Reserve Bank stock.”

”This proposed policy change undermines a key agreement that has underpinned the United States banking system for 100 years,” the groups added. “Dramatically reducing the rate to pay for a completely unrelated congressional priority will weaken the financial stability of banking institutions and reduce liquidity available in the financial system.” Read the letter.