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ABA calls Fed dividend cut unconstitutional

The decision to lowerdividend payouts to Reserve Bank members could be tantamount tobreach of contract and the taking of property without compensation.

In an April 28 letter to the Federal Reserve Board, the AmericanBankers Association raised the issue of Congress' decision to place conditionson the 6% dividend that is regularly paid out in exchange for funds held atregional Reserve Banks. It pointed to "the " to banks' capital andtheir willingness to stay within the Federal Reserve system, as well as "thedangerous precedent" of burdening a particular group more than taxpayersin general.

The letter also cited a SupremeCourt ruling that a change in law did not correspondingly change the government'scontractual obligations. In addition, the dividend cut could arguably count asthe taking of property without compensation, which is unconstitutional under theFifth Amendment.

The American Bankers Associationdid not, however, directly threaten legal action.