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Subject: Payment of dividends of Federal Reserve Banks out of surplus Date: April 11, 1922 You have requested my opinion upon the question of whether a Federal reserve bank, which has accumulated a surplus fund out of earnings of past years, has authority to use a part of this fund to pay to its stockholding member banks the dividend for a subsequent year during which the current earnings of the federal reserve banks are insufficient to pay such dividend.After the aforesaid dividend claims have been fully met, the net earnings shall be paid to the United States as a franchise tax except that the whole of such net earnings, including those for the year ending December thirty-first, nineteen hundred and eighteen, shall be paid into a surplus fund until it shall amount to one hundred per centum or the subscribed capital stock of such bank, and that thereafter ten per centum of such net earnings shall be paid into the surplus. Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, as the par value of the stock, shall be paid to and become the property of the United States and shall be similarly applied." This section provides that the earnings of the Federal reserve banks shall be used for the following purposes in the order named: (1) For the payment of or provision for expenses.Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues.Our estimates are based on past market performance, and past performance is not a guarantee of future performance.The short answer is that preferred stock is riskier than bonds.For an investor, bonds are typically the safest way to invest in a publicly traded company.
While preferred stock shares a name with common stock, don’t get them confused: They’re a world apart when it comes to risks and rewards.
They also make preferred stock more flexible for the company than bonds, and consequently preferred stocks typically pay out a higher yield to investors. Learn how to buy stock A company usually issues preferred stock for many of the same reasons that it issues a bond, and investors like preferred stocks for similar reasons.
For a company, preferred stock and bonds are convenient ways to raise money without issuing more costly common stock.
They are not intended to provide investment advice.
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