Economic Brief

February 2016, No. 16-02

The Cost of Fed Membership

Helen Fessenden and Gary Richardson

Since the Federal Reserve's founding, it has paid a regular dividend to banks that are members of the Federal Reserve System in exchange for those banks holding stock in Federal Reserve Banks. Recent transportation legislation reduced these dividends and used the savings to help fund the bill. While this move provided a short-term financing fix, it also raised a much bigger question of whether banks will want to remain members of the Federal Reserve System.

Additional Resources

Bernanke, Ben S., “Budgetary Sleight-of-Hand,” Brookings Institution blog post, November 9, 2015.

Calomiris, Charles W., Matthew Jaremski, Haelim Park, and Gary Richardson, “Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System,” National Bureau of Economic Research Working Paper No. 21684, October 2015.

Dilger, Robert Jay, “Federalism Issues in Surface Transportation Policy: A Historical Perspective,” Congressional Research Service, December 8, 2015.

Federal Reserve Committee on Branch, Group, and Chain Banking, “The Dual Banking System in the United States,” Federal Reserve Archive, circa 1932.

Needham, Vicki, “Yellen Concerned About Use of Fed Surplus for Highway Bill,” The Hill, December 3, 2015.

Richardson, Gary, and William Troost, “Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border, 1929 to 1933,” Journal of Political Economy, December 2009, vol. 117, no. 6, pp. 1031–1073. A working paper version is available online.

Warburg, Paul M., “The Federal Reserve System and the Banks,” Address to the New York State Bankers’ Association Convention, Atlantic City, N.J., June 9, 1916.

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