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Wednesday, December 2, 2015

Final Highway Bill Includes Modified Fed Dividend Cut

A group of senators and representatives issued a reconciled version of a long-term highway funding bill that includes a modified but still substantial cut to the dividends paid on the Federal Reserve Bank stock that national banks and other Fed member banks are required to hold. 

The provision — strongly opposed by ABA  was included in the Senate’s version of the bill, but the House voted to strip the provision out last month. A version of the Senate provision prevailed during the reconciliation process despite strong objections from a united banking industry and from House Financial Services Committee leaders.

The final legislation, which will now be voted on by both the House and Senate, will apply the cut only to banks with more than $10 billion in assets. Effective Jan. 1, the dividend paid to those banks will drop from 6% to the latest high yield on 10-year Treasurys (currently around 2.15%, higher than the originally proposed 1.5%), but no higher than 6%. The $10 billion threshold would be indexed to inflation. ABA’s Rob Nichols said:

<blockquote>Rewriting a significant portion of the Federal Reserve’s charter and siphoning off a bank dividend payment to pay for highway infrastructure sets a bad precedent that should give other industries serious cause for concern. Banks shouldn’t be used like an E-ZPass to pay for highways. Dramatically reducing the dividend rate — without hearings, consultation with committees of jurisdiction, study or analysis of any kind whatsoever — is extremely bad public policy.<blockquote>

The reconciled legislation also retains a measure from the House version that draws on amounts exceeding $10 billion in the Fed’s capital surplus account.

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