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<\/span>KIMBERLY WHITE\/GETTY IMAGES \u00a0Jamie Dimon is CEO of JPMorgan Chase, one of the banks that stands to benefit the most from the new lobbying push.<\/h5>\n<\/div>\n<\/div>\n\nWASHINGTON \u2014 Big banks get a lot of free money from the federal government. And their lobbyists think they have a constitutional right to it.<\/p>\n
Each year, the government pays billions of dollars to banks to thank them for being part of the Federal Reserve system. These payments aren\u2019t structured to influence or encourage any particular business activity \u2014 banks just get straight cash, no matter what they do. The subsidy is economically useless. It doesn\u2019t push interest rates lower or boost pay for bank tellers or help more farmers qualify for loans. The money just goes straight to the bottom line, boosting bank profits.<\/p>\n
Late last year, Congress passed a law limiting these payouts, using the savings to help pay for a highway bill. While lawmakers originally proposed trimming the subsidy by $17 billion over five years, the legislation ultimately only cost banks $2.7 billion, thanks to a late compromise that allowed smaller banks to keep receiving full payment. Since the subsidies are scaled to the size of each bank, the lion\u2019s share of the $2.7 billion will come from a small number of big firms.<\/p>\n
The top lobbyist for the American Bankers Association wrote a letter to the Fed<\/a>last week calling the subsidy cuts \u201can unconstitutional taking of member banks\u2019 property without compensation.\u201d<\/p>\n\u201cThe government\u2019s actions … amount to a regulatory taking of member banks\u2019 property,\u201d ABA President and CEO Rob Nichols wrote.<\/p>\n
You read that correctly. A bank lobbyist argued that banks have a constitutional right to money from the government.<\/p>\n
The bank subsidy is a century-old relic from the earliest days of the Federal Reserve. When the United States established a central bank in 1914, it didn\u2019t require all banks to participate in the new regulatory regime.\u00a0<\/strong>Instead, Congress encouraged banks to take part by offering to pay a healthy dividend on stock that banks purchased in the new central banking system. This practice eventually became obsolete when Congress granted the Fed blanket power to regulate commercial bank reserves whether they had opted into the central banking system or not.<\/p>\nBut Congress never got around to ending the subsidy after it changed the regulatory standards. Now the bank lobby is insisting that this dividend payment is property that the government is forbidden from seizing without compensation. The government agreed to pay banks in 1913, and changing course to lower those payments today would be theft, the ABA maintains.<\/p>\n
The Fed can\u2019t reverse a law passed by Congress.\u00a0But the central bank\u2019s leaders have been sympathetic to the bank lobby since both groups were caught flat-footed by the highway bill last year. When asked about the dividend in July, Fed Chair Janet Yellen lamely<\/a> said that she didn\u2019t want to discourage banks from participating in the Federal Reserve system \u2014 even though the Fed has the same oversight powers over banks whether they take part or not. In February, two experts at the Richmond Federal Reserve wrote<\/a> that cutting the dividend could encourage growth in \u201cshadow banking\u201d \u2014 something that would only happen if the Fed and another agency, the FDIC, chose not to use their regulatory authority.<\/p>\nNichols referenced the Richmond Fed paper in his letter before asking for help from the central bank.<\/p>\n
\u201cABA understands that the proposed interim final rule is in pursuance of a decision made by legislation,\u201d Nichols wrote, adding that his lobbying group \u201cstands ready to assist the Board of Governors of the Federal Reserve with any appropriate measures that mitigate these concerns.\u201d<\/p>\n
The only \u201cappropriate measures\u201d available to the Fed are pressuring Congress or aiding the lobby group in a lawsuit to overturn the subsidy cuts. The Fed pressures Congress on behalf of big banks all the time, even though the law doesn\u2019t technically consider this advocacy to be lobbying. The central bank\u2019s general counsel, Scott Alvarez, has been especially adept at securing favors for banksthrough the regulatory process<\/a>\u00a0and publicly advocated<\/a> for bank deregulation before a conference of bankers in 2014.<\/p>\n
WASHINGTON \u2014 Big banks get a lot of free money from the federal government. And their lobbyists think they have a constitutional right to it.<\/p>\n
Each year, the government pays billions of dollars to banks to thank them for being part of the Federal Reserve system. These payments aren\u2019t structured to influence or encourage any particular business activity \u2014 banks just get straight cash, no matter what they do. The subsidy is economically useless. It doesn\u2019t push interest rates lower or boost pay for bank tellers or help more farmers qualify for loans. The money just goes straight to the bottom line, boosting bank profits.<\/p>\n
Late last year, Congress passed a law limiting these payouts, using the savings to help pay for a highway bill. While lawmakers originally proposed trimming the subsidy by $17 billion over five years, the legislation ultimately only cost banks $2.7 billion, thanks to a late compromise that allowed smaller banks to keep receiving full payment. Since the subsidies are scaled to the size of each bank, the lion\u2019s share of the $2.7 billion will come from a small number of big firms.<\/p>\n
The top lobbyist for the American Bankers Association wrote a letter to the Fed<\/a>last week calling the subsidy cuts \u201can unconstitutional taking of member banks\u2019 property without compensation.\u201d<\/p>\n \u201cThe government\u2019s actions … amount to a regulatory taking of member banks\u2019 property,\u201d ABA President and CEO Rob Nichols wrote.<\/p>\n You read that correctly. A bank lobbyist argued that banks have a constitutional right to money from the government.<\/p>\n The bank subsidy is a century-old relic from the earliest days of the Federal Reserve. When the United States established a central bank in 1914, it didn\u2019t require all banks to participate in the new regulatory regime.\u00a0<\/strong>Instead, Congress encouraged banks to take part by offering to pay a healthy dividend on stock that banks purchased in the new central banking system. This practice eventually became obsolete when Congress granted the Fed blanket power to regulate commercial bank reserves whether they had opted into the central banking system or not.<\/p>\n But Congress never got around to ending the subsidy after it changed the regulatory standards. Now the bank lobby is insisting that this dividend payment is property that the government is forbidden from seizing without compensation. The government agreed to pay banks in 1913, and changing course to lower those payments today would be theft, the ABA maintains.<\/p>\n The Fed can\u2019t reverse a law passed by Congress.\u00a0But the central bank\u2019s leaders have been sympathetic to the bank lobby since both groups were caught flat-footed by the highway bill last year. When asked about the dividend in July, Fed Chair Janet Yellen lamely<\/a> said that she didn\u2019t want to discourage banks from participating in the Federal Reserve system \u2014 even though the Fed has the same oversight powers over banks whether they take part or not. In February, two experts at the Richmond Federal Reserve wrote<\/a> that cutting the dividend could encourage growth in \u201cshadow banking\u201d \u2014 something that would only happen if the Fed and another agency, the FDIC, chose not to use their regulatory authority.<\/p>\n Nichols referenced the Richmond Fed paper in his letter before asking for help from the central bank.<\/p>\n \u201cABA understands that the proposed interim final rule is in pursuance of a decision made by legislation,\u201d Nichols wrote, adding that his lobbying group \u201cstands ready to assist the Board of Governors of the Federal Reserve with any appropriate measures that mitigate these concerns.\u201d<\/p>\n The only \u201cappropriate measures\u201d available to the Fed are pressuring Congress or aiding the lobby group in a lawsuit to overturn the subsidy cuts. The Fed pressures Congress on behalf of big banks all the time, even though the law doesn\u2019t technically consider this advocacy to be lobbying. The central bank\u2019s general counsel, Scott Alvarez, has been especially adept at securing favors for banksthrough the regulatory process<\/a>\u00a0and publicly advocated<\/a> for bank deregulation before a conference of bankers in 2014.<\/p>\n