Yellen Supports Buybacks Warren Wants BlackRock To Be Considered Too Big To Fail

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

Drew Angerer | fake images

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

Regulators 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 buybacks to resume, albeit with some restrictions.

Yellen, speaking before the Senate Banking, Housing and Urban Affairs Committee on Wednesday, said he agreed to allow the share buyback.

“I was opposed before when we were very concerned about the situation that banks would face regarding share buybacks,” Yellen said. “But financial institutions look healthier now, and I think they should have some of the freedom that the rules provide to generate profits for shareholders.”

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

After companies in the financial sector bought back $ 80.7 billion of shares last year, that number will likely “increase significantly,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Of that total, $ 46.6 billion was raised in the run-up to the restriction.

In 2020, S&P 500 companies approved $ 519.7 billion in buybacks, a 28.7% decrease from the prior year, according to Silverblatt.

The largest banks still have restrictions, as they will not be able to return to shareholders more than they made in profit the previous year.

The Fed’s decision to allow buybacks to resume came after the largest institutions showed they could deal with worst-case scenarios centered on the pandemic.

Central bank officials have highly praised Covid’s response from the industry, saying that companies that are too big to fail are still well capitalized.

Warren Targets BlackRock

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

Scott Eells | Bloomberg | fake images

However, Sen. Elizabeth Warren, a Massachusetts Democrat, said she doesn’t think regulators will go far enough in their oversight.

Specifically, he suggested that BlackRock, the institutional money management giant and 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 collapsed.

Warren and Yellen engaged in a sometimes contentious exchange on the subject, and Warren repeatedly interrupted the Secretary of the Treasury as she tried to respond.

BlackRock is the largest money manager in the world, with nearly $ 9 trillion in assets. Last year, the firm helped guide the Fed when the central bank was buying corporate bonds.

Yellen said it’s “not obvious to me” that the “systemically important financial institution” designation would be “the right tool to address” the risks posed by asset management firms like BlackRock.

He said that examining the issue will be part of the work he does with the Financial Stability Supervisory Board in the coming days.

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

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

“That was the mindset of regulators that led to the 2008 crash and this is how taxpayers ended up hooked on a $ 700 billion bailout from the giant banks,” he added. “When the party is going strong, it’s the regulators’ job to take the hit off it.”

A spokesperson for BlackRock said the company is already heavily regulated, but shouldn’t be bound by the same rules as banks.

“We support financial regulatory reform that increases transparency, protects investors and facilitates responsible growth,” the spokesperson said.

“The last two administrations in the United States and numerous global regulators have studied our industry for a decade and concluded that asset managers should be regulated differently than banks, with the primary focus on industry products and services.” the statement continued. “BlackRock is not a bank and, as an asset manager, we are a heavily regulated company.”


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