A trade group for the nation’s largest banks has asserted a constitutional right to risk-free profit from the Federal Reserve.
Rob Nichols, the chief lobbyist for the American Bankers Association, argued in a comment letter Thursday that a recent federal law reducing the dividend on the stock that banks purchase as part of membership in the Federal Reserve system violates the Fifth Amendment clause banning the uncompensated seizure of property.
Congress reduced the dividend as part of a deal to pay for transportation projects. Dividends for the stock, which cannot be bought or sold, had been set at 6 percent since the Federal Reserve’s inception in 1913. Banks cannot ever lose money on the stock; they’re even paid out if their regional Fed bank disbands. So the dividend represented a risk-free profit, earning back its investment in full every 17 years.
The dividend cut, from 6 percent to the current interest rate on the 10-year Treasury note, is estimated to reduce the banks’ payments by roughly $7 billion over 10 years. The change only applies to banks with more than $10 billion in assets.
“The Takings Clause of the Fifth Amendment provides that ‘private property’ shall not ‘be taken for public use, without just compensation,’” Nichols wrote in his comment letter to the Fed, which is preparing to implement the dividend cut. Nichols added, “The dividend rate remained unchanged for over 100 years, and it has long been considered fundamental to the Federal Reserve’s ability to attract member banks.”
Contrary to Nichols’s statement, nationally chartered banks are required by law to become members of the Federal Reserve system. And while state banks can opt in or out, they must nevertheless abide by the standards of membership. Moreover, Fed membership offers many perks, from the ability to process payments to access to cheap borrowing, through the Fed’s discount window. So the dividend is just a vestigial sweetener that never went away, pumping billions of dollars in public money to the banks for no discernible reason.
Given those facts, Nichols’s argument amounts to saying that the 6 percent dividend rate itself is constitutionally protected, because it’s been around for a long time. Nichols effectively asserts that the risk-free dividend is bank property.
The letter appears to be a prelude to a legal battle over the dividend cut. The claims about constitutionality are precisely what the banks would argue before the Supreme Court. And by filing a formal comment letter protesting the law, the ABA can argue that it exhausted its administrative options before filing suit.
Friday is the last day for public comments on the Fed’s dividend change. Outside of the ABA’s letter, only one other comment has been filed.
Related:
Top photo: Rob Nichols, right, chief lobbyist for the American Bankers Association, arrives with the CEO of Wells Fargo to a 2013 meeting of the Financial Services Forum with President Barack Obama.
Sort of like the U.S. Department of Justice’s “Civil Asset Forfeiture” plan? That’s where the DOJ and state/local police have declared people have rights but money doesn’t – so they literally steal money from innocent Americans without a judge, jury or guilty verdict.
Is that the same 5th Amendment they are claiming here?
It isn’t just the DOJ. It’s a long convoluted tale. Worth reading though.
https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States
It is absolutely essential that they are given this right and the Government should additionally consider immediately setting up some casinos funded by the tax payer. The banks could then be offered special VIP memberships allowing them to make unlimited risk free bets on every table,with a money back guarantee if there bets should lose. The odds have been stacked against these poor and impoverished, long suffering financial institutions for so long now that it is only fair that they be given risk free super powers, and another bumper bail out. People need to understand that having to pay those huge directors salaries, bonuses, dividends and lobbying has dwindled their resources and capital – the trough is running dry. Not funding them would risk imminent collapse of their global empires, and we would all face imminent death and destruction. Capitalism, Globalisation and Imperialism would come crashing down in an instant resulting in such inequality never witnessed before, and jobs might even start to be lost abroad. The government must immediately pass an emergency executive order, or sneak these risk free subsidies through, hidden in some other legislation,before it’s too late, and our World collapses.
Jeez Louise all I want as a peasant is to be able to borrow from the Fed with zero interest rates.
Just watched “Inside Job” again…tough for a peasant to wrap one’s head around.
When I watched the Senate hearings during the bail out and our Reps looked puzzled by terms like “credit default swaps” ….”CDO’s” and other financial hanky panky jargon I thought to my self “fuck if they don’t get it of course taxpayers are in big trouble” Hank Paulson sounded like Darth Vader of the banking universe with a gun pointed at our Reps demanding that they open up the vaults of the Treasury or the banksters would take the whole place down.
With Hillary as President they (the 1%) know they are safe and sound to do
The only reason why this is even an issue is because of heavy-handed government intervention into banking.
But it’s not like the big banks object to this arrangement.
The more politically connected they are, the more they benefit from tax dollars and central bank liquidity.
Unfortunately, there will be no shortage of people who blame lack of government involvement or privatization for this problem even though the USD is a centrally planned government monopoly.
The whole monetary system; like religion is a giant faith based fraud. Just the idea of private corporations (that would include the Fed, Bank of England etc.) creating the money supply is abhorrent to humanity. It has become so bad that “derivatives” have taken precedence in bankruptcy over workers pensions, workers wages, bondholders, preferred stock holders etc. Student debt in the USA cannot be discharged in bankruptcy in the way the scummiest small corporation can. Fractional reserve banking allows banksters to loan you money they don’t have and charge interest on it. Romney, the hedge fund parasite dissed working Americans who didn’t earn enough to pay Federal tax but did pay 17% FICA while he claimed to pay 13%. More corporations than people in Delaware and Trillions hidden in the “offshore” system legally (the rich get the laws written the way they like and they sometimes literally write the laws) and illegally. Until honest productive work and work providing a useful service (like mowing grass) is treated better than money flipping, often destructive this world will continue to be run by the parasites with us suckers picking up the bill.
true that.
America is being robbed.
Being that the profits of many corporations are tax dodging schemes, then they could and should be charged with money laundering.
There were these neighborhood kids that had a large park to play in with a number of fields to play on and streams to swim in. There were even fruit trees and abundant berries growing in the wild. It was the place where all the kids spent their leisure time in the summer.
One day a small group of older boys gathered all the younger children and told them everybody had to play this brand new game they had invented. The rules were confusing, but the older boys convinced the other children that they would eventually figure it out, and the fun part of the game actually was learning to figure out how to deal with all kinds of nifty changing rules.
By the end of the summer the younger kids had not done so well at the games, and due to their losing the games they wound up having to pick all the berries and fruit for the older kids. The older kids did so well at the game, of which they made up the changing rules, ,that they also gained control of all the fields and streams. One of the new set of rules made it so the losers would have to fork over their allowances to gain access to the fields and streams.
Finally there was not much left of the summer. All the berries and fruit were gone, and the younger kids did not have any money left to pay to play in the fields or swim in the streams. They made an attempt to change the rules of the game but the big kids would just not let it happen.
You’ll love this!
Frédéric Back – Illusion (1975) https://www.youtube.com/watch?v=dxkketlwkgo
And I did. Thanks
Given the amount of money involved, it is only rational for the banks to do this. However, the main issue I have with their argument is that the government is not actually seizing property, but is rather reducing the amount they are going to pay them. If the government had tried to retroactively take back money from previous years to the lower rate, then they would have a valid argument, in my opinion. I’m not a lawyer, only a citizen.
Also, screw civil forfeiture.
I would argue that that “just” compensation is provided through the general welfare increase to both private and corporate aspects of society through an increase in quality of means of transportation in the nation they operate in and profit from.
That’s a rather novel interpretation of the Takings Clause, when its in fact a reduction in an entitlement at most. So, can we apply that theory to reductions in Social Security or welfare benefits?
Excellent point!
Also, repeat after me – “corporations are not people”. They are government created entities. If they insist otherwise, we should strip away their limits on liability, which are a massive public subsidy.
“Rob Nichols, the chief lobbyist for the American Bankers Association, argued in a comment letter Thursday that a recent federal law reducing the dividend on the stock that banks purchase as part of membership in the Federal Reserve system, violates the Fifth Amendment clause banning the uncompensated seizure of property”.
I think Mr Nichols has misunderstood the Constitution. That Fifth Amendment clause BANS the uncompensated seizure of property – which is what he is asking for.
https://www.youtube.com/watch?v=IjSTQwamo8M
This is foreplay of the TPP– profits must be maintained at whatever rate–6% now, the cost and enforcement because they have been around a long time! Now that is definitely NOT the FreeMarket but OverRegulation!! Comeon now, which is it– gotta decide on ONE?
There really is no such thing as “free market”. Corporate and shareholder liability is capped by enforcement of the government, patents and copyrights are enforced by the government, property ownership is enforced by the government. These are all invisible but massive subsidies to corporations – meaning they are the horrid “market manipulation” everyone screams about. They are just invisible to us because we are used to these norms.
Even Hayek would agree that monopolies are bad, he would just claim in a perfect Libertarian world the invisible hand would fix them. Well, with copyrights and patents the invisible hand would fix it – by allowing anyone to use (steal?) anyone else’s intellectual creation. That is, were it not for a government enforced monopoly.
I’m not arguing that these norms are wrong (or right for that matter), but to pretend that markets are in any way “free” is a joke. Similarly when they talk about taxes as being something taken “at threat of gunpoint”, they forget if a company is run badly and you are one of the losers when they go bankrupt, part of why you can’t forcibly take back what is owed to you is “at threat of gunpoint” of the government. Why the kid who has no food has to starve while others have plenty is also “at threat of gunpoint” of the government. Civil society, for better or worse, all works because of government intervention, which ultimately renders the idea of totally “free” moot. In the end, it’s just convention which determines what we consider “free” or not.
Of course, again, we can’t see this because we’re steeped in the middle of it. Like an abused child, they often don’t know there is another possible reality.
I voted against the great satan reagan.
But I am still waiting for ReaganVooDooTrickleDownGoldenShowerPizzOnYou economics 101 to start working.
the TPP participants demand guaranteed profits and propose to use their privately owned courts to do so at the expense of everyone else and freedom of speech.
The TPP is thusly a proxy for the banks to rule the world because the corporations will always require a guaranteed cash flow for guaranteed profits.