WASHINGTON — The American Bankers Association and Washington Federal, headquartered in Seattle, have filed a lawsuit
against the United States for actions that violate contracts with Federal Reserve member banks by reducing dividends paid to these institutions. This unprecedented cut in dividend payments was the result of the Fixing America’s Surface Transportation Act (“FAST Act”) passed in late 2015.
“The change to the statutory dividend rate upended Federal Reserve System policy that has been in place for more than 100 years,” said Rob Nichols, ABA president and CEO. “The FAST Act set a troubling precedent to target specific segments of the business community to meet broad public obligations like highway infrastructure. Every industry in this country is vulnerable if this is allowed to stand.”
The litigation, filed today in the U.S. Court of Federal Claims in Washington, D.C., will seek to reimburse banks for these improper reductions of the dividend payment. The complaint asserts breach of contract and taking of private property without just compensation in violation of the Fifth Amendment to the U.S. Constitution.
Since 1913, the Federal Reserve has paid a 6 percent annual dividend to banks that purchase stock in the regional Federal Reserve Banks - - a rate that was codified in the Federal Reserve Act of 1913 and is memorialized in contracts between the Federal Reserve Banks and their member bank stockholders. At the end of 2015, Congress passed the FAST Act to appropriate funds for highways and other transportation programs throughout the nation. Congress tagged a segment of the banking industry to pay for these national programs. In 2016, as directed by the FAST Act, banks with more than $10 billion in assets were paid dividends at a rate of approximately 2 percent instead of 6 percent.
“While legal action against the government is always a last resort, it’s one that we must turn to when alternatives are unavailable and matters of principle are at stake,” Nichols said. “This action undercuts the work banks do every day to help drive economic growth and meet the needs of America’s businesses and communities. It is particularly damaging for affected community banks, which have had a much more difficult time replacing the lost income.”
For more information about the litigation, click here
The American Bankers Association is the voice of the nation’s $16 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $12 trillion in deposits and extend more than $8 trillion in loans. Learn more at aba.com.
# # #