In advance of oral arguments scheduled for July 27, the American Bankers Association and Washington Federal yesterday filed a reply brief supporting their motion for summary judgment in their legal challenge to the United States’ improper reduction in dividends paid to Federal Reserve member banks. ABA and Washington Federal are seeking over $1.1 billion in damages resulting from the cut to the long-established dividend contract in the 2015 highway spending bill, which reduced the annual dividend for Fed member banks with more than $10 billion in assets by two-thirds.
In May, ABA and Washington Federal filed for summary judgment. Yesterday’s brief rebuts the government’s inaccurate response that the annual dividend payments are simply government benefits that Congress may unilaterally adjust however it wants. The reply brief explains why the plain language of the Federal Reserve Act provides for stock subscription agreements with member banks and uses other contracting language.
Additionally, ABA and Washington Federal noted, the plain language of the contract documents executed by Washington Federal demonstrate the parties’ intent to contract. Moreover, they said, the government’s argument ignores that the six percent annual dividend is not an isolated, unearned benefit but rather part of a longstanding, mutual exchange of benefits and burdens between member bank stockholders and their regional Federal Reserve Banks.
In February, ABA and Washington Federal sued in the Court of Federal Claims, seeking to reimburse banks for improper reductions of the dividend payment. The complaint asserted breach of contract and taking of private property without just compensation in violation of the Fifth Amendment to the Constitution. In 2016, banks lost $1.1 billion to the taking, an amount estimated to balloon to $17 billion over 10 years. For more information, contact ABA’s Tom Pinder.