BlackRock Inc. and Vanguard Group Inc. are facing increased scrutiny from the Federal Deposit Insurance Corp. (FDIC) regarding their investments in banks. The FDIC is concerned about the potential influence these large asset managers may have on banks where they hold significant stakes. In a recent letter to BlackRock and Vanguard, FDIC staff requested details about their investments in banks and asked for proof that they are operating as passive shareholders rather than activists.
The passive label is crucial for investors in banks as it allows them to avoid stringent rules for bank owners. The FDIC is considering rule changes that would give it more oversight over asset managers, a responsibility traditionally held by the Federal Reserve. The regulator is concerned that the influence of firms like BlackRock and Vanguard could lead to risky behavior or a concentration of ownership that gives investors too much control over the banking industry.
FDIC board members have raised questions about whether asset managers can truly be passive investors with a stake of 10 percent or more in a bank. Some have expressed concerns about whether managers can remain passive when they pursue Environmental, Social, and Governance (ESG) goals, which have become a hot topic in Washington and beyond.
BlackRock and Vanguard collectively manage around $20 trillion in client assets and are among the top shareholders in banks and most publicly traded companies in the S&P 500. The FDIC’s letters to these firms indicate that any stake exceeding 10 percent in an FDIC-supervised bank could trigger tougher responses from the regulator.
Both BlackRock and Vanguard have responded to the FDIC’s inquiries. BlackRock stated that its focus is on the long-term financial interests of its clients, while Vanguard has suggested ways to clarify and refine expectations around passivity. The FDIC’s letter requires the asset managers to decide whether they will seek permission to control a bank if their stake surpasses 10 percent or agree to remain passive investors.
The FDIC’s letter also demands more detailed disclosure of positions in banks above 5 percent, as well as information on investment stewardship policies and engagements with FDIC-supervised banks. The agency’s efforts to gain more influence over asset managers’ investments in banks have sparked debate among officials, with competing plans proposed by different board members.
Overall, the FDIC’s scrutiny of BlackRock and Vanguard’s investments in banks highlights the growing concern over the influence of large asset managers in the financial sector. The regulator’s efforts to ensure that these firms operate as passive investors and do not unduly sway the banking industry are aimed at maintaining stability and preventing potential risks. The outcome of this ongoing scrutiny will likely have significant implications for the relationship between asset managers and banks in the future.
