Treasury Secretary Janet Yellen speaks during a virtual roundtable meeting with participants from local Black Chambers of Commerce on Feb. 5, 2021 in Washington, DC.
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Banks have improved their capital position and should be able to continue to buy back their own shares, Treasury Secretary Janet Yellen said Wednesday.
Regulators restricted stock buybacks in 2020 to the country’s largest institutions as a precautionary measure after Covid-19 reached pandemic status. After those banks passed a pandemic stress test in December, the Federal Reserve said the buyback could resume, albeit with some restrictions.
Yellen said before the Senate Committee on Banking, Housing and Urban Affairs on Wednesday that she agreed to allow the share buyback.
“I have opposed me before when we were deeply concerned about the situation the banks would face when buying back shares,” said Yellen. “But financial institutions look healthier now, and I think they should have some of the freedom that the rules provide to make a profit for shareholders.”
They are expected to do just that as buyback restrictions ease in the first quarter of 2021.
After only $ 80.7 billion worth of stock repurchases last year in the financial sector, that number is likely to “grow significantly,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Of that total, $ 46.6 billion came within the pre-restriction period.
In 2020, S&P 500 companies approved $ 519.7 billion in buybacks, down 28.7% from the previous year, Silverblatt said.
The largest banks still have restrictions because they cannot repay more to shareholders than they made in profits in the previous year.
The Fed’s move to resume buybacks came after the largest institutions demonstrated they could weather the worst-case scenarios surrounding the pandemic.
Central bank officials have largely praised the industry’s Covid response, saying the companies too big to fail remain well capitalized.
Warren focuses on BlackRock
Pedestrians walk with umbrellas in front of BlackRock Inc offices in New York, USA.
Scott Eells | Bloomberg | Getty Images
However, Senator Elizabeth Warren, D-Mass., Said she doesn’t think regulators are going far enough in their oversight.
Specifically, she suggested that BlackRock, the institutional money management giant and leading ETF provider, would also be designated as a “systemically important financial institution” or SIFI – that is, a company that could endanger the economy if it were to collapse.
Warren and Yellen had a sometimes controversial exchange of views on the matter, with Warren repeatedly interrupting the Treasury Secretary while trying to respond.
BlackRock is the largest money manager in the world, with nearly $ 9 trillion in assets. The company helped guide the Fed last year when the central bank bought up corporate bonds.
Yellen said that “it is not clear to me” that the term “systemically important financial institution” would be “the right tool to address the risks posed by asset management companies such as BlackRock”.
She did say that investigating the matter will be part of the work she’s doing with the Financial Stability Oversight Council over the next few days.
“I think it is important to identify institutions whose failure would pose a material risk to financial stability,” said Yellen.
“I understand that when the stock market is on the rise, it can be easy to ignore risks that can build up in the system,” argued Warren.
“That was the mindset of the regulators that led to the crash of 2008 and so fell into the trap of taxpayers for a $ 700 billion bailout of the giant banks,” she added. “If the party gets strong, it is the duty of the regulators to remove the punch bowl.”
A BlackRock spokesperson said the company is already heavily regulated, but should not be subject to the same rules as banks.
“We support regulatory reform that increases transparency, protects investors and enables responsible growth,” said the spokesman.
“The past two US administrations and numerous global regulators have studied our industry for a decade and concluded that asset managers should be regulated differently than banks, with the primary focus on the industry’s products and services,” the said. statement. “BlackRock is not a bank and as an asset manager we are a highly regulated company.”