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The Federal Deposit Insurance Corp. and BlackRock are headed for a showdown in January over the U.S. watchdog’s efforts to increase oversight of investors who hold large stakes in small and medium-sized banks.
D FDIC It gave the $11.5 trillion investment giant until Jan. 10 to adopt new compliance measures proposed when it owns more than 10 percent of outstanding shares in FDIC-supervised banks, people familiar with the situation said.
Some have become increasingly concerned about the growing power of politicians and regulators BlackrockA huge flood of money from Vanguard and State Street flowed into “passive” funds that bought every company in an index.
These critics worry that the scale of their holdings could allow large passive fund managers to influence companies vital to the economy, for example, by pushing them to address climate change.
Vanguard An agreement was reached last week Where it has pledged to certify to the FDIC that it will remain a passive investor for much larger banks than it has in the past. The new group includes lenders that are part of a large bank holding company. Vanguard also agreed to specific supervision by the FDIC for the first time to ensure it complied with its “passivity covenant.”
But BlackRock and investment industry groups complained That strengthening the FDIC passivity agreement requirements would duplicate oversight by the US Federal Reserve, increase compliance costs and make bank stocks a less desirable investment.
“BlackRock strongly opposes the proposal, which would harm investors, disrupt the flow of capital into the economy and reduce the effectiveness of the existing regulatory framework,” the group wrote in an October comment letter.
BlackRock proposed its own version of the passivity agreement 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 Vanguard’s deal went public and set a Jan. 10 deadline to sign something similar, people familiar with the situation said.
FDIC Director Jonathan McKernan, who has been publicly pushing for new passivity agreements, has repeatedly said strong compliance measures are essential.
Thirty-nine US community and regional banks are directly affected by the compliance fight because BlackRock owns more than 10 percent of each.
The FDIC has pushed back the passivity agreement deadline several times after setting it for Oct. 31. The watchdog is expected to get a new chair and several new board members after Donald Trump takes office as US president on January 20.
BlackRock and the FDIC declined to comment. State Street was unaffected by the war because it was a bank and therefore already more tightly regulated.
