The banking industry is going to court in its fight against a 2015 law that unexpectedly tapped banks to pay for highways.
The American Bankers Association on Thursday announced that it had filed suit against the federal government to reverse the cut to dividends paid by the Federal Reserve to its member banks. Congress had used the dividend cut to help pay for new highway spending in a $305 billion transportation bill, dealing bankers an unexpected loss.
The group’s president, Rob Nichols, said the law “set a troubling precedent to target specific segments of the business community to meet broad public obligations like highway infrastructure. Every industry in this country is vulnerable if this is allowed to stand.”
The suit was filed in the U.S. Court of Federal Claims by the trade group and Washington Federal, a Seattle bank that joined the Federal Reserve system in 2013 and then saw its dividend cut starting in 2016.
The Fed withheld $1.1 billion in dividends in 2016 because of the law, and that amount will grow in future years.
Member banks, which are private institutions, are required to buy stock in regional Fed banks to become part of the Federal Reserve System. They cannot trade that stock or use it as collateral, and so are given a dividend. The 2015 highway bill cut that from 6 percent annually to a floating rate, depending on rates on Treasury securities.
By breaking the agreement, the suit says, the government broke its contract with banks or engaged in an illegal taking.
Fed officials opposed the dividend cut at the time.
