Treasury Secretary Janet Yellen speaks during a virtual roundtable event with participants from the local Black Chambers of Commerce on February 5, 2021 in Washington, DC.
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Banks have improved their capital positions and are expected to continue to buy back their own shares, Treasury Secretary Janet Yellen said on Wednesday.
Regulators restricted share repurchases in 2020 to the country’s largest institutions as a precautionary measure after Covid-19 reached pandemic status. After these banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow repurchases to resume, albeit with some restrictions.
Yellen, speaking before the Senate Banking, Housing and Urban Affairs Committee on Wednesday, said he had agreed to allow the share buyback.
“I objected before, when we were very concerned about the situation that banks would face with the share buyback,” said Yellen. “But financial institutions look healthier now, and I believe they should have some of the freedom provided by the rules to give back to shareholders.”
They are expected to do just that as repurchase restrictions ease in the first quarter of 2021.
After financial companies repurchased just $ 80.7 billion in shares last year, that number is likely to “increase significantly,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Of this total, US $ 46.6 billion came in the pre-restriction period.
In 2020, S&P 500 companies approved $ 519.7 billion in repurchases, a 28.7% drop from the previous year, according to Silverblatt.
The largest banks still have restrictions, as they will not be able to return to shareholders more than they profited in the previous year.
The Fed’s move to allow repurchases to resume came after the biggest institutions showed they could face the worst scenarios surrounding the pandemic.
Central bank officials widely praised Covid’s response in the industry and said companies that are too big to fail remain well capitalized.
Warren targets BlackRock
Pedestrians walk with umbrellas in front of the BlackRock Inc offices in New York, USA
Scott Eells | Bloomberg | Getty Images
However, Sen. Elizabeth Warren, D-Mass., Said she did not think the regulators were going far enough in their oversight.
Specifically, she suggested that BlackRock, the institutional money management giant and the leading provider of ETFs, should also be designated as a “systemically important financial institution” or SIFI – that is, a company that could put the economy at risk if it went into collapse.
Warren and Yellen had a sometimes contentious discussion on the subject, with Warren repeatedly interrupting the Treasury secretary as she tried to respond.
BlackRock is the largest money manager in the world, with nearly $ 9 trillion in assets. The company helped last year to guide the Fed when the central bank was buying corporate bonds.
Yellen said that “it is not obvious to me” that the designation of “systemically important financial institution” would be “the right tool to deal” with the risks posed by asset management companies like BlackRock.
She said that examining the issue will be part of the work she will do with the Financial Stability Supervisory Board in the coming days.
“I think it is important to designate institutions whose bankruptcy would pose a material risk to financial stability,” said Yellen.
“I understand that when the stock market is up, it can be easy to ignore the risks that may be building up in the system,” countered Warren.
“That was the regulators’ mindset that led to the 2008 crash and that’s how taxpayers ended up stuck in a $ 700 billion bailout from the giant banks,” she added. “When the party is strong, it is the regulators’ job to take the punch.”
A spokesman for BlackRock said the company is already heavily regulated, but should not follow the same rules as banks.
“We support the reform of financial regulation that increases transparency, protects investors and facilitates responsible growth,” said the spokesman.
“The last two administrations in the United States and several global regulators have studied our industry for a decade and concluded that asset managers should be regulated differently from banks, with the main focus on the sector’s products and services,” the statement continues. “BlackRock is not a bank and, as an asset manager, we are a highly regulated company.”