Federal Reserve: Dividends Paid to Commercial Banks (CRS Report for Congress)
| Release Date |
Revised Nov. 20, 2015 |
| Report Number |
IN10322 |
| Report Type |
Insight |
| Authors |
Labonte, Marc;Murphy, M. Maureen |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
This 'Insight' provides background on dividends paid to banks by the Federal Reserve (Fed), which would be reduced in the Senate-passed highway trust fund bill (H.R. 22) as a budgetary offset. All nationally chartered commercial banks are required to, and state-chartered commercial banks have the option to, become member banks of the Federal Reserve System. In 2014, 1,065 national banks and 858 state banks were members. To finance the creation of the Fed, the Federal Reserve Act of 1913 required member banks to purchase stock issued by the Fed paying a dividend of 6%, which has not been changed since. Member banks are required to purchase ('pay in') stock equal to 3% of their capital, and the Fed has the option to call in an additional 3%. The Fed records paid-in stock as capital on its balance sheet. At the end of 2014, member banks had paid-in stock of $28.6 billion, for which they received $1.7 billion of dividends. Over the past 100 years, the Fed has cumulatively paid out $20.5 billion in dividends, which are subject to federal tax unless issued before March 1942. The Fed is a self-financing agency that annually yields a profit (positive net income) that is used to pay dividends, add to its surplus, and make remittances to Treasury, which reduce the federal budget deficit. In 2014, the Fed had profits of $101.3 billion, of which $96.9 billion were remitted to Treasury. Presumably, a reduction in dividends would increase remittances. H.R. 22 would reduce the dividend to 1.5% for banks with more than $1 billion in assets. The Congressional Budget Office estimates that this provision would raise revenues by $17 billion over 10 years. Based on Fed data, 157 national banks and 121 state member banks have more than $1 billion in assets.
