Banks score win as House kills Fed dividend offset in highway bill

Banks got a big win Thursday, when House lawmakers overwhelmingly agreed to scrap a provision that would have pulled billions of dollars from banks to help pay for roads.

House members voted 354 to 72 to strip a provision in a six-year highway bill that would have raised $17 billion to pay for transportation projects by slashing dividend payments banks regularly receive from the Federal Reserve.

{mosads}The approved amendment, offered by Reps. Randy Neugebauer (R-Texas) and Bill Huizenga (R-Mich.), would also kill another bank-reviled offset. The second pay-for would have raised highway funds by extending a fee charged by Fannie Mae and Freddie Mac to guarantee mortgages. Major banking groups have repeatedly opposed using those “G fees,” which are meant to protect the housing giants’ books, as a way to raise revenue to cover other policy projects.

Those changes, now part of a six-year highway bill passed by the House Thursday, sets up negotiations with the Senate on its highway bill, which includes both of the bank-opposed amendments. House and Senate conferees will be meeting in the days to come to strike a compromise package before highway funding expires on Nov. 20.

To cover the cost of stripping out both of those offsets, the House amendment would liquidate a reserve fund held by the Fed, which is made up of excess earnings made by the Fed. Liquidating that fund, which lawmakers say is no longer needed, would raise $60 billion — $40 billion more than the pair of offsets it aims to replace.

Stripping out the Fed dividend provision is a major victory for banks that had been blindsided by its inclusion in the Senate highway bill. For more than a century, Fed member banks have been required to purchase stock in the Fed, which does not gain value, and cannot be sold or traded. To entice banks to participate, the Fed pays out a 6 percent dividend payment, which the Senate bill proposed slashing to 1.5 percent, calling it “overly generous.”

Major banking groups, and many key policymakers, opposed the policy change, warning it could undermine a long-held arrangement.

Fed Chairwoman Janet Yellen said the policy change would be a “significant concern” to smaller banks, and could discourage them from participating in the Fed system.

Major banking and investment groups had pushed Congress to remove the provision, calling it unfair to rely on one sector of the economy to foot the bill for another.

“The precedent behind this is horrible,” said Rob Nichols, president and CEO of the American Bankers Association, in a recent interview with The Hill. “We’re pushing rigorously back against that.”

On G fees, Congress has previously relied on increasing or extending the duration of the fees to cover other policy priorities, but the mortgage industry has pushed back against such an effort, again arguing it is an improper use of the fees to cover unrelated policies.

The House highway bill also includes a reauthorization of the Export-Import Bank, a major blow to conservatives who had intensely fought to kill the program. The bank, which guarantees loans for U.S. companies doing business in foreign countries, saw its charter expire at the end of June.

But both the Senate and House highway bills include a provision reauthorizing it. House backers of the bank got a major leg up in October, when they succeeded in pushing a rare discharge petition to force a vote on the bank over objections of GOP leaders, where it easily passed. Conservative critics of the bank were unable to strip its reauthorization from the highway bill sent over by the Senate.

Senate Majority Leader Mitch McConnell (R-Ky.) did not want to consider a stand-alone Ex-Im bill, but its place in both highway bills virtually reassures its reauthorization.