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The Federal Deposit Insurance Corporation and BlackRock advanced in January as a result of US regulators’ efforts to increase oversight of investors who take large stakes in small and medium-sized banks.
The FDIC gave the $11.5tn investment bank until January 10 to accept new compliance measures each time it owns more than 10 percent of the outstanding shares in FDIC-supervised banks, people who familiar with this situation they said.
Politicians and other officials are very concerned about the growing power of BlackRockVanguard and State Street because of the flood of money that goes into “passive” funds that buy every company in the index.
These critics are concerned that the size of their assets could allow managers of large funds to influence companies that are important to the economy, for example, to force them to deal with climate change.
Vanguard reached an agreement last week where it promised to prove to the FDIC that it would remain a passive investor for a much larger group of banks than in the past. The new category includes lenders who are part of a large banking company. Vanguard also for the first time agreed to the special supervision of the FDIC to ensure that it complies with its “non-performance agreements”.
But BlackRock and investment industry groups they complained that strengthening the requirements of the agreement of FDIC passivity will make double hypocrisy by the US Federal Reserve, increase the cost of compliance and make unpopular bank investments.
“BlackRock strongly opposes this proposal, which would harm investors, disrupt the flow of capital into the economy, and weaken the effectiveness” of the existing regulatory framework, the group wrote in an October opinion letter.
BlackRock presented its version of the passivity agreements to the FDIC in early December that did not include the compliance measures that Vanguard has now agreed to. The watchdog contacted BlackRock on Friday after making the Vanguard deal public and set a Jan. 10 deadline for it to sign off on the same, people familiar with the situation said.
FDIC Director Jonathan McKernan, who has been publicly pushing for new negligence agreements, has repeatedly said that stronger compliance measures are necessary.
Thirty-nine public banks in the US and territories are directly affected by the compliance battle because BlackRock owns more than 10 percent of each.
The FDIC has pushed back the deadline for passivity agreements several times after initially setting it for October 31. The watchdog is expected to get a new chair and many new board members after’ for Donald Trump to take office as US president on January 20.
BlackRock and the FDIC declined to comment. State Street has not been affected by the war because it is a bank and therefore already tightly controlled.
