Your humble editor and publisher of Wall Street On Parade might have had a little something to do with a growing mutiny in Congress. Back on November 4, 2012and again on July 25, 2013, we blew the whistle on an obscene, secret entitlement program between the Fed and the too-big-to-fail banks: a century old program where every year, boom or bust, despite the overall level of interest rates in the markets, the Fed pays out a risk-free, guaranteed 6 percent dividend to its member banks. (All Fed member banks get the dividend but the lion’s share goes to the biggest Wall Street banks because their capital dwarfs all other banks.)
Now, after more than a hundred years, there’s a plan in Congress to shrink that payout to 1.5 percent and fix our crumbling roads with the savings. Only banks with $1 billion or more in assets would be affected.
The Federal Reserve mandates that its member banks subscribe to ‘stock’ in an amount equal to 6 percent of their capital and surplus. The banks have to post half that amount with the Fed upon becoming a member; the other half is subject to being called upon. The deposited capital translates into a corresponding share of ‘stock’ in one of the 12 regional Fed banks. (The biggest Wall Street banks, of course, prefer holding their shares in their crony New York Fed.) The ‘stock’ then pays out the 6 percent dividend to shareholders, meaning the banks.
This post was published at Wall Street On Parade By Pam Martens and Russ Marte.
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