Yellen Supports Buybacks Warren wants BlackRock to be seen as too big 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 still be able to buy back their own shares, Treasury Secretary Janet Yellen said Wednesday.

As a precautionary measure, regulators 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 hired said it would allow buybacks to resume, albeit with some restrictions.

Yellen spoke to the Senate Banking Committee on Housing and Urban Affairs Wednesday, agreeing to allow the share buybacks.

“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 accounted for 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 not being able to return to shareholders more than they made in profits the previous year.

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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 response to Covid, saying that companies that are too big to fail remain well capitalized.

Warren aims at BlackRock

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

In particular, she suggested naming BlackRock, the institutional money management giant and leading ETF provider, as too “Systemically important financial institution“or SIFI – that is, a company that could jeopardize the economy if it collapses.

Warren and Yellen had controversial exchanges on the subject at times, with Warren repeatedly interrupting the Treasury Secretary 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 issue will be part of her work 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 regulatory 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 is 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 from 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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