Big banks will lose a portion of a multi-billion-dollar government handout they’ve enjoyed for over 100 years, thanks to a compromise highway bill released Tuesday. One estimate pegged the loss to the banks at $8 billion to $9 billion over a 10-year time frame.
The bill, as it emerged from a House-Senate conference committee, pays for roads, bridges and mass transit projects in part by reducing what is currently a 6 percent annual dividend on stock that the big banks buy to become members of the Federal Reserve system.
Fed membership offers many perks, from access to processing payments to cheap borrowing. But the dividend could be the sweetest gift, because banks cannot ever lose money on the stock; they’re even paid out if their regional Fed bank disbands.
Despite the total lack of risk, member banks have received the 6 percent dividend payout every year since 1913.
So for example, JPMorgan Chase, which has held stock since then, has made back their investment six times over without risking any loss. And if the bank stock was in place before 1942, that dividend payment is tax-free.
Originally – that is, 100 years ago — the Fed offered the dividend to entice banks into the new Federal Reserve system. But nationally chartered banks are today required by law to become members, and all banks must abide by the standards of membership. So the dividend is just a vestigial sweetener that never went away, pumping billions of dollars in public money to the banks for no discernible reason.
After a report I did in March 2014 about this brazen handout to Wall Street, the Congressional Progressive Caucus included a cut to the dividend in their annual budget proposal. That budget didn’t pass, but when Senate leaders searched for ways to fund highway spending, Barbara Boxer – the ranking Democrat on the Senate Environment and Public Works Committee, which handles the highway bill – drew upon the Progressive Caucus measure.
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