Yesterday, the general public scored a small but important victory over the Fed and the banking-industrial complex. To help fund the highway trust, which repairs highways and bridges, Congress released a compromise to the highway funding bill that whacks a long-standing subsidy to banks. This measure has high odds of passing.
Part of the funding will come from a cut the dividend the Fed pays to member banks on their non-voting preferred stock holdings. It will drop from 6% to the 10 Treasury bond yield at the time of the dividend payment, which currently is 2.3%, with a cap at 6% for banks with more than $10 billion in assets. This was a compromise from the original proposal, to cut the dividend to 1.5% for banks with over $1 billion in assets.
The banks that will see the biggest decline in income in 2016 as a result of this change will be JP Morgan and Bank of America, at roughly $200 million each. Media reports suggest that this change will produce $8 to $9 billion in revenue, but the experts to whom I’ve spoken estimate the take at $12 to $15 billion over the next ten years.
While this is not the most earthshaking change, it is nevertheless important for several reason. First, it is a sign of the decline in reputation and power of the Fed as well as of the banking lobby. This provision was included in the highway funding bill, which was where it was first proposed in its current form (the idea had initially surfaced as an idea in the Progressive Caucus’s budget proposal). It had been removed from the House version of the bill but was reinserted in the reconciliation talks.
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