Here’s Why Banks Resist Major Refi Initiatives

You can’t pick up a newspaper without seeing news on banks. Banks own huge amounts of mortgage-backed securities (MBS), and any large refi program that would allow people with underwater homes to refinance through Fannie and Freddie would negatively impact banks’ investment performance.

The “refinanceable” loans are in MBS carried at high premiums, like 106 or 108, and if they pay off the banks get hit with a 6 or 8 point loss. Damned if we do and damned if we don’t. And the Wall Street Journal reports that:

the Federal Reserve is taking a cautious stance with U.S. banks that have approached it in recent weeks for permission to buy back more of their shares.

But it depends on an individual bank’s capital situation, and some banks are being told it is too early to use capital that way. Regulators want banks to meet already higher capital standards plus the additional cushion being considered by the Basel Committee on Banking Supervision even after a buyback.
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Further reading:
WSJ: Fed Wary of Bank Stock Buybacks