The Federal Reserve today made an annual inflation adjustment to the asset threshold in Regulation I that determines the dividend rate that certain member banks earn on Federal Reserve Bank stock, as required by the 2015 transportation spending bill. The threshold for 2017 is now set at $10.122 billion in assets.
The controversial bill chopped the dividend paid to banks with more than $10 billion in assets from an annual rate of 6 percent to the latest high yield on 10-year Treasurys. Dividends for banks with assets of less than $10 billion were not affected.
ABA and Seattle-based Washington Federal are currently challenging the dividend cut in the Court of Federal Claims, seeking relief for the government’s actions to violate contracts with Federal Reserve member banks. The complaint asserts breach of contract and taking of private property without just compensation in violation of the Fifth Amendment to the U.S. Constitution, and seeks reimbursement for these improper reductions of the dividend payment. In 2016, banks lost $1.14 billion to this taking, and the amount is expected to balloon to $17 billion over 10 years.