The big banks must surely be sick of hearing The Lecture by now.
You know the one. It begins with some critic castigating bankers about their reckless business practices that nearly crashed the nation’s financial system. It indicts them for triggering the worst recession and biggest job losses in recent memory. And it finishes with a reminder of how taxpayers ran to the rescue with billions in bailout money for institutions deemed too big to fail.
Variations on that theme are surely cropping up again on Capitol Hill, as bank lobbyists mount what’s being described as a frenzied push to stop Congress from making what could amount to a multi-billion-dollar withdrawal from the big banks’ balance sheets in order to repair the nation’s crumbling highways.
Senators, who know they must fix our roads but fear raising gas taxes, have instead cupped their hands beneath the stream of dollars gushing from what The New Republic magazine once called the Federal Reserve’s “Most Brazen and Least Known Handout to Private Banks.”
To become members in the Federal Reserve system, big banks spend a certain percentage of their total capital and surplus to purchase shares in the 12 regional Fed banks. The shares can’t be traded, and banks can’t lose money on them. The banks receive a dividend of 6 percent each year.
That’s been enough, generally, for banks to recoup their investment in 17 years. After that point, the annual dividend often amounts to tax-free, risk-free financial gravy for the banks, courtesy of the agency that regulates them.
Senators want to drop that dividend from 6 percent to 1.5 percent for banks with more than $1 billion in assets, which would produce $17 billion over 10 years. That’s hardly enough to meet all of America’s transportation needs, but with the current stopgap funding bill due to run out Oct. 29, Senate Majority Leader Mitch McConnell has reportedly told bank executives he’s taking their money.
Bank lobbyists, who fear this will only whet Congress’ appetite for even more bank money, are hoping the House blocks this move, which would cost Bank of America an estimated $314 million annually and Wells Fargo about $196 million.
Federal Reserve Chair Janet Yellen has expressed concern about possible “unintended consequences” of such a move. Some in Congress have suggested a Government Accountability Office study, which could take a year or more to complete.
We should study the issue, but not for a year. Barring any triggering of significant job losses or consumer price hikes, Congress should seize this opportunity. Make it part of a broader financing package tucked into the kind of comprehensive long-term highway funding bill the nation sorely needs.