Yellen Helps Buybacks Warren needs BlackRock to be seen as too massive to fail

Treasury Secretary Janet Yellen speaks to attendees from the local Black Chambers of Commerce during a virtual roundtable event on February 5, 2021 in Washington, DC.

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Banks have improved their capital positions and should continue to be able to buy back their own shares, Treasury Secretary Janet Yellen said on Wednesday.

As a precautionary measure, the supervisory authorities restricted the repurchase of shares for the largest institutions in the country in 2020 after Covid-19 had reached pandemic status. After those banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow buybacks to resume, albeit with some restrictions.

Yellen spoke to the Senate Banking Committee on Housing and Urban Affairs Wednesday and agreed to allow the share buyback.

“I used to be against it when we were very concerned about the situation banks would face if they buy back shares,” said Yellen. “But financial institutions look healthier now, and I believe they should have some of the freedom that the rules on return to shareholders offer.”

They are expected to do just that as buyback restrictions wear off in the first quarter of 2021.

After financial sector companies bought back just $ 80.7 billion worth of stocks last year, that number is likely to “increase significantly,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Of that, $ 46.6 billion was in the pre-restriction period.

In 2020, S&P 500 companies approved buybacks totaling $ 519.7 billion, down 28.7% year over year, according to Silverblatt.

The largest banks still have restrictions on being unable to return to shareholders more than they made in profits the previous year.

The Fed’s move to resume buybacks came after the largest institutions showed they could survive worst-case scenarios related to the pandemic.

Central bank officials have largely praised the industry’s Covid response, saying that companies too big to fail remain well capitalized.

Warren aims at BlackRock

Pedestrians walk with umbrellas outside the offices of BlackRock Inc in New York, USA

Scott Eells | Bloomberg | Getty Images

Senator Elizabeth Warren, D-Mass., However, said she doesn’t think regulators go far enough in their oversight.

In particular, she suggested that BlackRock, the institutional money management giant and leading ETF provider, should also be referred to as a “systemically important financial institution” or SIFI – that is, a company that could jeopardize the economy if it collapsed.

Warren and Yellen held controversial exchanges on the subject at times, with Warren interrupting the Treasury Secretary repeatedly when she tried to respond.

BlackRock is the world’s largest money manager with nearly $ 9 trillion in assets. The company helped run the Fed last year when the central bank bought corporate bonds.

Yellen said “I don’t understand” that the term “systemically important financial institution” is the “right tool for managing” the risks posed by asset managers like BlackRock.

She said examining the problem will be part of the work she is working with the Financial Stability Oversight Council in the coming days.

“I think it is important to identify institutions whose failure would pose a significant risk to financial stability,” said Yellen.

“I understand that it can be easy to ignore risks that can build up in the system when the stock market rises,” countered Warren.

“That was the regulator’s mindset that led to the 2008 crash, and that way taxpayers are hooked on a $ 700 billion bank bailout,” she added. “When the party gets strong, it’s up to the regulators to take the punch away.”

A BlackRock spokesman said the company was already heavily regulated but shouldn’t be subject to the same rules as banks.

“We support a reform of financial supervision that increases transparency, protects investors and enables responsible growth,” said the spokesman.

“The last two US governments and numerous global regulators have studied our industry for a decade and concluded that asset managers should be regulated differently than banks, with an emphasis on the products and services of the industry,” said the Explanation further. “BlackRock is not a bank and, as an asset manager, we are a highly regulated company.”

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