ABA Seeks Immediate Action on Proposal to Limit Fed Dividends

ABA today urged bankers to contact their lawmakers immediately to oppose a fast-moving add-on to 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. ABA provided talking points to help bankers make the case to Congress.

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,” ABA and other banking groups noted in a letter yesterday. 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.”

ABA EVP James Ballentine today added that reducing or eliminating dividends on mandatory stock holdings would “reduce the incentive for state-chartered banks to join the Federal Reserve System,” adding that “there is little logic to solving a short-term funding problem by revising such a long-standing structural element of the Fed.”