Treasury Secretary Janet Yellen speaks during a virtual roundtable with participants in the Black Chambers of Commerce on February 5, 2021 in Washington, DC.
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Banks have improved their capital positions and should be allowed to continue to buy their own shares, Treasury Secretary Janet Yellen said on Wednesday.
Regulators have restricted share buybacks in 2020 for the country’s largest institutions as a precautionary measure after Covid-19 reached pandemic status. After those banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow resumption of redemptions, albeit with some restrictions.
Yellen, speaking before the Senate Banking Committee on Housing and Urban Affairs on Wednesday, said he agreed to allow the shares to be repurchased.
“I objected earlier when we were very concerned about the situation that banks would face on share buybacks,” Yellen said. “But financial institutions are now looking healthier and I think they should have some of the freedom provided by the rules to get returns to shareholders.”
It is expected to do just that, as redemption restrictions ease in the first quarter of 2021.
After financial companies bought shares worth just $ 80.7 billion last year, that number is likely to rise “significantly,” said Howard Silverblatt, a senior analyst at S&P Dow Jones Indices. Of that total, $ 46.6 billion came in the pre-restriction period.
In 2020, S&P 500 companies approved $ 519.7 billion in redemptions, down 28.7 percent from a year earlier, according to Silverblatt.
The largest banks still have restrictions, as they will not be able to return to shareholders more than they made profits the previous year.
The Fed’s measure to allow resumption of redemptions came after the largest institutions showed that they could withstand the most unfavorable scenarios centered around the pandemic.
Central bank officials have largely praised Covid’s industry response and said firms too large to fail remain well-capitalized.
Warren is targeting BlackRock
Pedestrians walk in the shadows in front of the offices of BlackRock Inc. in New York, USA
Scott Eells | Bloomberg | Getty Images
However, Senator Elizabeth Warren, D-Mass., Said she does not believe regulators go far enough in their oversight.
Specifically, she suggested that BlackRock, the institutional money management giant and major ETF provider, should also be designated as a “systemically important financial institution” or SIFI – a firm that would it could endanger the economy if it collapsed.
Warren and Yellen engaged in a controversial exchange on this issue at times, with Warren repeatedly interrupting the Secretary of the Treasury as she tried to answer.
BlackRock is the largest money manager in the world, with assets of almost 9 trillion dollars. The firm last year helped the Fed guide when the central bank buys corporate bonds.
Yellen said “it’s not obvious to me” that designating “a systemically important financial institution” would be “the right tool to address” the risks posed by asset management firms such as BlackRock.
She said examining the issue would be part of her work with the Financial Stability Supervisory Board in the coming days.
“I think it’s important to designate institutions whose failure would pose a material risk to financial stability,” Yellen said.
“I understand that when the stock market is growing, it can be easy to ignore the risks that can build up in the system,” Warren said.
“This was the mindset of regulators that led to the collapse of 2008, and that’s how taxpayers paid for a $ 700 billion bailout of giant banks,” she added. “When the party develops strongly, it is the task of the regulators to pull the punch.”
A BlackRock spokesman said the company is already heavily regulated, but should not abide by the same rules as banks.
“We support financial regulation reform that increases transparency, protects investors and facilitates responsible growth,” the spokesman said.
“The last two US governments and many regulators around the world have been studying our industry for a decade and have come to the conclusion that asset managers should be regulated differently by banks, focusing primarily on the industry’s products and services. “, Continued the statement. “BlackRock is not a bank and, as an asset manager, we are a highly regulated company.”