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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 repurchases to resume, but with some restrictions.
Yellen, speaking to the Senate Banking, Housing and Urban Affairs Committee on Wednesday, said she agreed to allow share buybacks.
“I objected earlier when we were very concerned about the situation that banks would face with regard to share buybacks,” Yellen said. “But financial institutions seem healthier now, and I believe they should have some of the freedom offered by the rules to give returns to shareholders. ”
After companies in the financial sector bought back just $ 80.7 billion in shares 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 came in the run-up to the restriction.
In 2020, S&P 500 companies approved $ 519.7 billion in buybacks, down 28.7% from the previous year, according to Silverblatt.
The biggest banks still have restrictions because they will not be able to return to shareholders more than they made in the previous year.
The Fed’s decision to allow buybacks to resume came after larger institutions showed they can overcome worst-case pandemic-centric scenarios.
Central bank officials widely praised the industry’s Covid response and said companies too big to fail remain well capitalized.
Warren cible BlackRock
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Specifically, she suggested that BlackRock, the institutional financial 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 put the economy at risk if it collapsed.
Warren and Yellen engaged in an at times controversial exchange over the matter, with Warren repeatedly interrupting the Treasury Secretary as she sought to respond.
BlackRock is the world’s largest fund manager, with nearly $ 9 trillion in assets. The firm last year helped guide the Fed when the central bank bought corporate bonds.
Yellen said “it’s not clear to me” that the designation “systemically important financial institution” would be “the right tool to deal with” the risks posed by asset management firms like BlackRock.
She said examining the issue will be part of the work she will do with the Financial Stability Supervisory Board in the coming days.
“I think it’s important to name institutions whose failure would pose a significant 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 replied.
“It was the mindset of regulators that drove the 2008 crash and thus taxpayers found themselves at the mercy of a $ 700 billion bailout from giant banks,” she added. “When the party is going strong, it’s the job of regulators to pull out the punchbowl. ”
A spokesperson for BlackRock said the company is already heavily regulated but should not be subject to 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 US administrations and many global regulators have studied our industry for a decade and concluded that asset managers should be regulated differently from banks, with the main focus being on industry products and services.” , the statement continued. “BlackRock is not a bank, and as an asset manager we are a highly regulated company. ”