IBD Editorial: Gutting of Fed Dividend Sets a Dangerous Precedent

Using Federal Reserve Bank dividends to pay for projects in the recently passed highway bill could set a precedent for Congress to use Fed accounts to bankroll other spending initiatives in the future, according to an Investor’s Business Daily editorial today. The bill — which slashed the dividend rate paid on Fed bank stock for banks with more than $10 billion in assets — also allowed the Treasury Department to draw $19 billion of the Federal Reserve’s equity capital to fund highway construction.

Doing so “undermines a key agreement that has underpinned the U.S. banking system for a century,” the editorial said, quoting ABA President and CEO Rob Nichols, who decried Congress’ decision to use the Fed dividend to finance roads and bridges. “Banks shouldn’t be used like an E-ZPass to pay for highways,” Nichols said. Of even greater concern is “that these non-transparent fund transfers become an excuse for the Fed to vastly expand its interventions into the private economy as a for-profit investment bank,” the editorial pointed out.



About Author

Monica C. Meinert

Monica C. Meinert is deputy editor of the ABA Banking Journal and editorial director at the American Bankers Association, where she oversees ABA Daily Newsbytes.