01 May 2016

Not Enough Bullets

It appears that the banks are asserting that they have a constitutional right to dividends from the Federal Reserve:
A trade group for the nation’s largest banks has asserted a constitutional right to risk-free profit from the Federal Reserve.

Rob Nichols, the chief lobbyist for the American Bankers Association, argued in a comment letter Thursday that a recent federal law reducing the dividend on the stock that banks purchase as part of membership in the Federal Reserve system, violates the Fifth Amendment clause banning the uncompensated seizure of property.

Congress reduced the dividend as part of a deal to pay for transportation projects. Dividends for the stock, which cannot be bought or sold, had been set at 6 percent since the Federal Reserve’s inception in 1913. Banks cannot ever lose money on the stock; they’re even paid out if their regional Fed bank disbands. So the dividend represented a risk-free profit, earning back its investment in full every 17 years.


Given those facts, [American Bankers Association chief lobbyist Rob] Nichols’s argument amounts to saying that the 6 percent dividend rate itself is constitutionally protected, because it’s been around for a long time. Nichols effectively asserts that the risk-free dividend is bank property.

I cannot see how a government subsidy can be considered property, particularly not a dividend which, as anyone who knows anything about investments, knows is subject to change without warning.


Stephen Montsaroff said...

Interesting precedent for the bankers case resides in labor law, holiday bonuses, and (appropriately) turkeys.

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