November 23, 2016 / 4:06 PM / 2 years ago

Federal Reserve finalizes lower dividend for member banks

A woman walks past the Federal Reserve headquarters in Washington September 16, 2015. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - The U.S. Federal Reserve finalized a reduction of its dividend payments on Wednesday, carrying out a measure Congress passed last year to help pay for the country’s roads and bridges.

The transportation bill approved in December lowered the rate for dividends the Federal Reserve pays its member banks. The bill also tapped the central bank’s surplus fund to help pay for road repairs without having to raise the gasoline tax.

Banks that belong to the Federal Reserve system must buy stock in their regional Feds that they cannot trade but which pays dividends.

Now the Fed must pay institutions with $10 billion or more in assets either the traditional rate of 6 percent or the prevailing 10-year Treasury auction rate, whichever is less. The current yield on the 10-year note is 2.355 percent.

The Fed left dividends alone for other member banks and also adjusted the treatment of accrued dividends.

The rule takes effect on Jan. 1. The Fed had already issued an interim rule in February, putting the new system in motion for dividends that Reserve banks typically pay out to member institutions in June and December each year.

Reporting by Lisa Lambert; Editing by Lisa Von Ahn

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