Pay Fors

Advocates of Modern Monetary Theory, or even straight Keynesians, will tell you that in today’s economy worrying about budget deficits, which are in any event declining, is howling lunacy.

Still, you have to love sticking it to the banksters.

Big Banks In a Tizzy Want to Take Their Billions and Go Home
by David Dayen, The Intercept
Dec. 11 2015, 6:20 p.m.

From 1913 until last week, banks received a 6 percent annual dividend on paid-in stock they had to purchase to become members of the Federal Reserve system. This was initially provided as an incentive for membership with the Fed, but membership is now mandatory for national banks, and all banks must abide by the standards of membership.
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The highway bill deal reduced the annual dividend to the rate of interest on 10-year Treasury notes, capped at 6 percent. (The current rate is around 2.2 percent). This change only affects banks with more than $10 billion in assets, but it saves the federal government around $1 billion a year.
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Right now, banks must purchase Fed stock equal to 6 percent of their total capital. But under the proposal, first reported by the Wall Street Journal, banks with over $10 billion in assets would be able to cut that to 3.5 percent of capital, and the Fed would have to return excess money to the member banks, estimated at $25 billion. The Fed would also be restricted from forcing banks to purchase additional stock in the future.

As it happens, that plan actually ends up saving the government money, since it won’t have to pay any dividend on the money it returns to the banks. That would save as much as $1 billion a year, according to the Financial Services Roundtable, a lobbying group that nevertheless supports the rider.
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Since banks established before 1942 don’t even pay taxes on the Fed dividend, it’s unclear why they want to give up a tax-free return equal to Treasury yields. But a revealing comment to the Journal from a bank lobbyist positions this mostly as a temper tantrum reaction to the dividend cut.

“This is not something that we were interested in pursuing or even thought about until the highway bill passed,” said Francis Creighton, executive vice president of government affairs for the Financial Services Roundtable. “If we’re not getting the dividend we signed up for… that led us to say, ‘Do we need this entire system anyway? Does it even make sense?’”

Good Question.