Primacy Of Shareholders Is Actually Holding Back Economic Growth
One of the mythical mantras of Republicans is that oppressive regulation and increased capital requirement are keeping banks from lending money, stifling potential economic growth. This, of course, is total fiction and the vice chairman of the FDIC recently explained the fallacy of that position.
Thomas Hoenig testified in front of the Senate Banking Committee that a study of the 10 largest bank holding companies distribute over 100% of the current year’s earnings to investors. Those earnings could have supported $500 billion in new loans. In addition, $83 billion in stock repurchases to simply inflate banks’ stock prices could have funded another nearly $750 billion in new loans. Said Hoenig, “While distributing all of today’s income to shareholders may be received well in the short run, it can undermine their future returns and weaken the growth outlook for the larger economy.”
As I’ve written many times before, the concept of the primacy of shareholder value is actually eroding capitalism and exacerbating inequality. Banks, and Wall Street in particular, have strayed so far from their intended purpose which was the efficient distribution and use of capital. Today they barely fulfill that function at all. And now, according to Hoenig, the efforts to reward shareholders are actually impinging on economic growth.