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posted on 20 February 2016

The Cost Of Fed Membership

from the Richmond Fed

-- this post authored by Helen Fessenden and Gary Richardson

Outside the banking industry, many Americans were unaware that the Fed has paid dividends to member banks for more than a century. The issue garnered attention last year when Congress reduced the dividend for banks with $10 billion or more in assets from 6 percent to the 10-year Treasury rate - currently less than 2 percent.

Congress reduced the payments to help fund transportation needs, also taking money from the Fed's surplus account to fund the legislation. Senior Fed officials criticized both actions for setting a poor precedent on fiscal policy and intruding on Fed independence.

Since the Fed's founding in 1913, the dividend has been a key part of a bundle of costs and benefits that come with Fed membership. The dividend continues to be an important incentive for banks to join and stay in the System to reduce the risk of what is now known as "shadow banking."

[click on image below to continue reading]

Source: https://www.richmondfed.org/-/ media/richmondfedorg/publications/ research/ economic_brief/ 2016/pdf/ eb_16-02.pdf

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