Treasury Secretary Janet Yellen speaks during a virtual roundtable with participants from local Black Chambers of Commerce on February 5, 2021 in Washington, DC.
Drew Angerer | Getty Images
Banks have improved their capital positions and should be allowed to continue buying their own shares, Treasury Secretary Janet Yellen said on Wednesday.
Regulators restricted stake rewards in 2020 for 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 the rewards to resume, albeit with some restrictions.
Yellen, who spoke Wednesday before the Senate Banking, Housing and Urban Affairs Commission, said he agreed to allow the repurchase of shares.
“I objected earlier when we were very concerned about the situation that banks would have to face on stock rewards,” Yellen said. “But financial institutions look healthier now, and I think they should have a share of the freedom that the rules offer to make shareholders profitable.”
They are expected to do so, as repurchase restrictions will be reduced during the first quarter of 2021.
After financial sector companies repurchased shares worth $ 80.7 billion last year, that number is likely to “increase significantly,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Of that total, $ 46.6 billion was earned during the pre-restriction period.
In 2020, S&P 500 companies approved repurchases of $ 519.7 billion, a decrease of 28.7% from the previous year, according to Silverblatt.
Larger banks still have restrictions, as they will not be able to return to shareholders more than they earned in profits the previous year.
The Fed’s move to resume rewards came after larger institutions demonstrated they could withstand the worst-case scenarios centered around the pandemic.
Central bank officials have largely praised Covid’s response from the industry and said companies too big to fail still have good capitalization.
Warren points to BlackRock
Pedestrians walk with umbrellas in front of BlackRock Inc.’s offices in New York, USA
Scott Eells | Bloomberg | Getty Images
However, Sen. Elizabeth Warren, D-Mass., Said she does not believe regulators go far enough in their oversight.
Specifically, he suggested that BlackRock, the institutional money management giant and major provider of ETFs, should also be designated as a “systemically important financial institution” or SIFI, that is, a company that could put in place risk the economy if it collapses.
Warren and Yellen engaged in a controversial exchange at times over the issue, with Warren repeatedly interrupting the Secretary of the Treasury as he tried to answer.
BlackRock is the world’s largest money manager, with nearly $ 9 trillion in assets. The company helped guide the Fed last year when the central bank bought corporate bonds.
Yellen said it is “not obvious to me” that the designation of a “systemically important financial institution” would be “the right tool to address” the risks posed by asset management companies like BlackRock.
He said examining the issue will be part of the work he is doing 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 goes up, it can be easy to ignore the risks that can build up in the system,” Warren countered.
“That was the mindset of the regulators that led to the 2008 crash and that’s how taxpayers ended up stuck for a $ 700 billion bailout of giant banks,” he added. “When the game gets strong, the regulators have the job of getting the punchbowl out.”
A BlackRock spokesman said the firm is already heavily regulated, but should not follow the same rules as banks.
“We support financial regulatory reform that increases transparency, protects investors and facilitates responsible growth,” the spokesman said.
“The last two U.S. administrations and numerous 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 consumer products and services. the industry, “the statement continued. “BlackRock is not a bank and, as an asset manager, we are a heavily regulated company.”