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.