By Victor Ochieng
Republican legislators are pushing to have the Federal Reserve pay back about $25 billion to major U.S. banks.
On Friday, two republican lawmakers, Bill Huizenga and Steve Stivers, were circulating letters to their colleagues to include the proposal in a federal spending bill that Congress will be working on next week. Strivers revealed that around 30 Republicans have appended their signatures in support of the letter. Among those supporting the proposal is House Financial Services Committee Chairman Jeb Hensarling.
The U.S. major banks have huge sums of money at the Federal Reserve due to a requirement which mandates all banks that join the Fed system to buy Federal stock equivalent to 6% of the respective bank’s total capital, out of which half is held at the Fed’s regional reserve banks.
The language that the lawmakers are supporting is to have banks hold only 0.5% at the reserve banks instead of the 3%.
Although the proposal mainly targets banks with over $10 billion in assets, smaller banks are also included and can ask for their money to be returned to them as well.
Should the measure sail through, Bank of America Corp. would receive about $4.3 billion, Citigroup Inc. would receive about $3.5 billion, Wells Fargo & Co. would receive about $2.7 billion and J.P. Morgan Chase & Co. would receive about $2.4 billion. These approximations are based on the respective banks’ most recent regulatory filings.
Before President Obama signed a bill lowering the dividend big banks receive from Fed to about 2.5%, the banks used to receive annual dividend equivalent to 6% of the capital the bank held. Obama signed the five-highway bill on December 4.
The Republicans proposal to lower the amounts held at the Federal Reserve is in response to the bill the president signed.
According to the lawmakers circulating the draft letter, lower dividend “will have wide-ranging consequences for our financial system and the small businesses and consumers it serves.”
Sherrod Brown, a Democrat who sits in the Senate Banking Committee, has already expressed his disapproval of the proposed measure.
“I understand the concerns with the backroom deal that changed the longstanding Fed dividend policy,“ Mr. Brown said in reference to the proposal. ”But I don’t think the answer should be a sequel.”
It’s expected that house Democrats will oppose the idea.