Yellen vs Warren
US Treasury Secretary Janet Yellen said on Wednesday that banks had strengthened their capital positions and now look healthy enough to continue buying back their own shares. Yellen’s comments reflect the growing belief in the coronavirus recovery by top economists.
After Covid-19 was declared a pandemic, regulators banned share repurchases for the country’s largest institutions as a precautionary measure. However, in December, the Federal Reserve announced that it would allow stock buybacks to continue after banks passed a pandemic-related stress test.
Yellen said she agreed with continuing stock buybacks when testifying before the Senate Banking, Housing, and Urban Affairs Committee on Wednesday. She said, “I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks…But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”
However, US Senator Elizabeth Warren disagreed with Yellen, stating institutions need more regulations, not less. Warren said, “I understand that when the stock market is going up, it can be easy to ignore risks that can be building up in the system… When the party is going strong, it’s the job of regulators to take away the punchbowl.”
Warren used investment management company BlackRock as an example, stating the firm could harm the economy if it collapsed and that it should be designated as a “systemically important financial institution.”
Yellen responded, questioning if designating BlackRock as a “systemically important financial institution” would be the correct tool to address the risks posed by firms like BlackRock.
According to a spokesperson from BlackRock, the firm is highly regulated and should not be exposed to the same regulations as banks.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.