Less buybacks means more money for lending.
Eight systemically important US banks suddenly reversed course and stopped buying back their own shares, at least through the second quarter, freeing up capital for lending.
The banks had received approval from the Federal Reserve in June to resume stock buybacks following last year’s stress tests. The eight banks (Morgan Stanley, Citi, JPMorgan Chase, BNY Mellon, Bank of America, State Street, Wells Fargo and Goldman Sachs) repurchased a total of $108 billion in shares in 2019.
They are all members of the Financial Services Forum, which said, “The decision [to halt] buybacks is consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses and the broader economy through lending and other important services.”
The eight banks increased their capital by more than 40% in the past 10 years to $914 billion. In last year’s stress tests, the Fed determined that the banks could buy back more shares and raise dividends and still have enough capital to survive a deep recession.
Ahead of the recent stock-buying halt, Senator Sherrod Brown of Ohio, the senior Democrat on the Senate Banking Committee, said, “Banks need to be investing in their communities right now, not investing in their CEOs’ stock portfolios.”