Banks Squirm As Congress Moves To Cut The 6% Dividend Paid To Them By The Fed

[Suzanimal]

...

Did you know that the Federal Reserve pays an annual 6% dividend to its shareholders, i.e., the member banks of the cartel? Must be nice, considering savers who had nothing to do with cratering the world economy, and failed to receive a taxpayer funded bailout, can barely earn 0.5% on their money. It’s also quite bizarre. How many other “public institutions” have private shareholders to whom they pay 6% risk free dividends?

None, which once again highlights the point that the Federal Reserve is NOT a public institution working on behalf of the citizenry, but is rather a banking cartel designed to enriched and protect its member banks (as we saw on clear display in 2008).

It appears that some members of Congress are now targeting the estimated $17 billion per year paid out by the Fed to its member banks via the highway-funding bill. The Hill reports that:

The banking industry is scrambling to kill a provision in the Senate highway-funding bill that would reap billions of dollars in revenue by cutting a century-old system that has reaped annual awards for banks.

Industry lobbyists say they were blindsided by the inclusion of the provision, which would help policymakers cover the bill’s cost by cutting the regular dividend the Federal Reserve pays to its member banks.

One lobbyist went so far as to reread the Federal Reserve Act of 1913 after getting wind of the proposal to determine what was at stake.

In a Congress where lawmakers are always hunting for politically palatable ways to raise revenue or cut costs to cover the expenses of additional legislation, the Fed provision was a novel, and rich, one. The proposal is estimated to raise $17 billion over the next decade, and is by far the richest “pay for” included in the bill.

Lobbyists said they were not aware of any previous time when lawmakers had attached the language to a piece of legislation, which would scrap a perk banks have come to expect for over a century.

When banks join the Federal Reserve system, they are required to buy stock in the central bank equal to 6 percent of their assets. However, that stock does not gain value and cannot be traded or sold, so to entice banks to participate, the Fed pays out a 6 percent dividend payment.

The Senate proposal says it would slash that “overly generous” payout to 1.5 percent for all banks with more than $1 billion in assets. While the summary language outlining the proposal said that change would only impact “large banks,” industry advocates argued that banks most would identify as small community shops could easily have assets in excess of that amount.

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http://www.zerohedge.com/news/2015-0...-paid-them-fed

[Ronin Truth]

What IS 6% of a BAZILLION?

"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton

[Suzanimal]

What IS 6% of a BAZILLION?

A gajillion?

[Zippyjuan]

How it works (as noted in the article):

When banks join the Federal Reserve system, they are required to buy stock in the central bank equal to 6 percent of their assets. However, that stock does not gain value and cannot be traded or sold, so to entice banks to participate, the Fed pays out a 6 percent dividend payment.

The banks pay the Fed ten percent of their net assets as a "fee" to join the Federal Reserve banking system. Say their bank is worth $10 billion- they give the Fed ten percent of that or $1 billion. Then they get membership "shares" (which are not like stock shares) based on that amount. Those shares cannot be traded or sold and carry no voting or other traditional shareholder rights. In exchange, the Fed pays them back a "dividend" on that amount at the rate of six percent. In this case, the bank would get six percent of $1 billion or $60 million.

[Ronin Truth]

A gajillion?

Close enough.

[Zippyjuan]

The proposal is estimated to raise $17 billion over the next decade

So a savings on average of $1.7 billion a year which would not mean much to large banks. JP Morgan for example has assets worth over $2 trillion.

I counted 526 banks which could have their dividend reduced http://www.federalreserve.gov/Releas...nt/default.htm
At $1.7 billion a year, that comes to an average of $3.2 million per bank with assets of at least $1 billion. (less than two tenths of one percent return on total assets).

The banks won't be hurting if the amount is reduced. And the tax payers don't save that much either (though anything helps). The Fed turns over excess profits above their expenses to the US Treasury at the end of the year. Last year, that was about $100 billion. http://www.forbes.com/sites/samantha...-u-s-treasury/

[devil21]

How it works (as noted in the article):



The banks pay the Fed ten percent of their net assets as a "fee" to join the Federal Reserve banking system. Say their bank is worth $10 billion- they give the Fed ten percent of that or $1 billion. Then they get membership "shares" (which are not like stock shares) based on that amount. Those shares cannot be traded or sold and carry no voting or other traditional shareholder rights. In exchange, the Fed pays them back a "dividend" on that amount at the rate of six percent. In this case, the bank would get six percent of $1 billion or $60 million.

Is that $60 million per year, per stockholder? Pretty sweet deal since the founding stockholders (Morgan, Warburg, etc), were repaid their initial investment in the first 17 years. A couple years later the US Govt declared bankruptcy, gold seized by the bankers and we've been living under their fake money slavery system ever since.

[Bossobass]

With the FED Funds rate now being determined by the interest paid on Excess Reserves, when the FED "raises rates", that will automatically mean that interest paid on excess reserves will go proportionally higher and, as a direct consequence, the amount "returned to the Treasury" will be less and, likely, will "in some cases fall to zero".

At the current .25%, the FED will pay $6.5 billion this year… IF they do not increase rates. That sounds like a nice dividend to me, not to explore what else the excess reserves being parked on the FED balance sheet means to taxpayers. A 25 basis point increase would double that dividend and reduce the amount "returned to the Treasury" accordingly.

BTW, Zipola, if the "banks won't be hurting" if the 6% dividend to the TBTF member banks is reduced to 1.5%, then they'll have no qualms in seeing it reduced, right?

[Zippyjuan]

Banks should have no troubles finding places they can invest that money and get a higher than 0.25% rate of return. A car loan for example nets three percent. (Fed Funds rate is not the rate the Fed pays on excess reserves but the rate they charge banks to borrow money from them- prior to the crisis, excess reserves paid zero interest).

I can't argue against having the "dividend" payout reduced.

[dannno]

I can't argue against having the "dividend" payout reduced.