A highway spending bill nearing congressional passage would take funds from both large banks and the Federal Reserve, handing a significant loss to industry and the central bank.
In a version of the highway spending bill unveiled Tuesday, five years of spending on transportation projects would be offset in part by drawing down a surplus capital account at the Fed. Funds would also be raised by cutting $6.9 billion in dividend payments made by the Fed to large banks.
The cut to dividend payments had been taken out of a version of the legislation passed by the House of Representatives after banks objected. But it was added back in a scaled-back form in the conference committee. Now, banks with above $10 billion in assets will see the 6 percent dividend they are paid as members of the Fed system cut to the same rate as the interest rate on a 10 year Treasury security. That rate was 2.1 percent Tuesday, above the 1.5 percent previously contemplated as the dividend under the Senate version of the highway bill.
“The big banks aren’t happy about that provision, but most of the banks around the country, most are protected,” Senate Republican conference chair John Thune of South Dakota. told reporters Thursday.
Under the conference version of the bill, the drawdown of the Fed’s capital account would be pared back and modified to allow the Fed to retain up to $10 billion in surplus capital. Thune noted that “there was concern from the Fed” about zeroing out the $30 billion account.
The American Bankers Association immediately objected to Congress’ move.
“Banks shouldn’t be used like an E-ZPass to pay for highways,” said Rob Nichols, the group’s president, in a statement Tuesday afternoon. “Dramatically reducing the dividend rate — without hearings, consultation with committees of jurisdiction, study or analysis of any kind whatsoever — is extremely bad public policy.”
Sherrod Brown, the top Democrat on the Senate Banking Committee, called the inclusion of the two spending offsets a “terrible precedent.”
“We fund highways now by taking money from banks and taking money from the Fed?” Brown asked, speaking to reporters in the Capitol. “It just doesn’t make any sense.”
Fed officials had warned Congress about earlier versions of the offsets, arguing that Fed policy should not be driven by fiscal considerations.
