Banks Squirm As Congress Moves To Cut The 6% Dividend Paid To Them By The Fed On December 23 of this year, the Federal Reserve will be 99 years old. And throughout that 99 years, regardless of boom, bust, recession or Great Depression, the biggest Wall Street banks have been enjoying a 6 percent, risk-free return on the capital they hold at the Fed in the form of dividends. Have you looked at your checking or money market bank statement lately from JPMorgan Chase or Citibank? How about the statement showing the interest you’re earning on your mortgage escrow account with the big banks? While the country suffers through the lingering effects of the Great Recession caused by the biggest Wall Street banks, the public typically receives less than 1 percent on their deposits at the big banks, while the government has legislated a permanent, risk-free 6 percent guarantee to the Wall Street banks for their capital on deposit at the Fed. Now that’s an entitlement program that needs to die! This corporate welfare program gets even better: if the shares of stock were acquired prior to March 28, 1942, the 6 percent risk-free dividend is tax exempt and the bank doesn’t have to pay corporate taxes on it. – From the excellent 2012 Wall Street on Parade article: Kill This Entitlement Program: The 6% Risk-Free Dividend the Fed Has Been Paying Wall Street Banks For Almost a Century 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. While I’m not convinced that this proposal will actually go through, I applaud the members of Congress who included it nonetheless. At a minimum, it will expose more people to how the banking system actually works, and get this 6% dividend in the public consciousness. After all, #banklivesmatter --------- Of course it won't go through. Banks own Congress and the Fed. Congress and the Fed do what the banks want. Any appearance otherwise is showmanship.
isn't there a risk that the federal reserve can do a reorganization and cancel the certificate and you lose the asset. it happens in russia all the time. the US is headed toward the same slippery slope where the validity of contracts is rarely upheld when it affects the most powerful.
No, i didn't know about this. I thought all profits went back to the treasury. I wonder what percentage of the profits it is that goes back to the banks via this dividend.
ooh, this looks like it is warming up to be another, "We fear what we don't understand." thread people are more scared of the fed than they are of splitting an atom, because at least they can get their small minds around an atom...but we will never understand the fed as long as we still believe in Dollars.
The dividend is fixed by law and the total amount is determined by the amount of capitol member banks are required to loan to the Federal Reserve system, i.e., they earn 6% on their capital they loaned to the reserve system in exchange for non-negotiable stock. It is that stock that pays 6% simple interest. The stock, unlike ordinary equities, does not impart ownership, and beyond the 6% earned on their capital, member banks don't share in any Fed profits. . The dividends paid by the fed on capital stock are part of their operating expense. One-hundred percent of Fed profits in excess of expenses flow back to the Treasury. The interest rate should be reduced in my opinion. Probably should float.
I am strongly in favor of an interest rate reduction. I think the rate should float according to market conditions. However we must not forget that when, in the past, market rates rose above 6%, the dividend stayed fixed at 6 percent. So to some extent it averages out. But I still think it should float according to market rates. And since it is risk free, the rate should be quite low. Probably along the lines of the Treasury long bond. We should all write our Congressmen in support of a rate reduction, and letting the rate float.. Tao, did you give the source for your quote? That's important!!! (Is it perhaps, Zero Hedge?)
Banking should be nationalized if we're to keep a fractional reserve based debt system. Bankers benefit from diluting the peoples money. People should reap the profits, not banks. Banks do basically nothing.
I don't think the government is competent enough to accurately assess the risk of any loan they might make
You mean like 2008 when nearly half of banks were bankrupt? State Bank of North Dakota is doing it; http://banknd.nd.gov/ Big problems require new thinking. Banks could be nationalized with exec compensation based on loan losses under some predetermined amount (ex base pay = 60k a year. annual loan losses under 4% of portfolio = 300K bonus etc). This keeps public banks staffed with competent people.