A clash between BlackRock (BLK) and the FDIC over the money manager’s holdings of US banks will now play out in the waning days of President Joe Biden’s administration.
The FDIC has asked BlackRock to sign by Jan. 10 a so-called “passivity agreement” that would codify greater checks on the money manager’s holdings of FDIC-supervised lenders, according to people familiar with the matter, pushing back a deadline that previously was Dec. 31 of this year.
The agreement FDIC has asked BlackRock to sign is similar to one announced last week with another giant money manager, Vanguard Group, that imposes new compliance requirements when the manager amasses more than 10% of all outstanding stock in a FDIC-supervised bank.
BlackRock has spent much of 2024 resisting the FDIC’s push for greater oversight, denying that the asset manager exerts undue control over companies through its investment stewardship activities.
As recently as December, the giant Wall Street firm proposed an arrangement with the FDIC that didn’t include the same level of oversight agreed to by Vanguard. The FDIC did not respond to BlackRock’s proposal until announcing its Vanguard settlement, according to one of the people familiar with the matter.
The tug of war between BlackRock and FDIC is the latest example of rising DC scrutiny of BlackRock, which oversees $11 trillion in assets.
The financial giant has for years been a target of GOP attacks about “woke” investing, with Republicans raising concerns about whether BlackRock’s massive holdings in US corporations force companies to adopt environmental, social and governance (ESG) standards.
And Democrats have for years also been leery about whether the heft of BlackRock could pose risks to the financial system.
The BlackRock logo is seen outside of its New York City headquarters. (Photo by Michael M. Santiago/Getty Images) ·Michael M. Santiago via Getty Images
The “passivity” agreement FDIC wants BlackRock to sign is designed to assure bank regulators that the giant money manager will remain a “passive” owner of a FDIC-supervised bank and won’t exert control over a bank’s board.
Currently, BlackRock only has such an agreement with the Federal Reserve. Now the FDIC wants its own agreement with the money manager, which is also permitted under law.
In July, FDIC board member Rohit Chopra described the FDIC’s lack of oversight of passive asset manager stakes as “highly inappropriate” and a shirking of “the responsibility Congress entrusted to us.”
“Certain sectors of our economy are critical infrastructure for our country,” added Chopra, who is also the director of the Consumer Financial Protection Bureau. “We don’t let just anyone own a nuclear power plant or operate a bridge.”
BlackRock has been public about its view point that such additional oversight is unfounded and ultimately detrimental.
The Federal Deposit Insurance Corp (FDIC) logo is seen at the FDIC headquarters in Washington. REUTERS/Jason Reed/File Photo ·Reuters / Reuters
Its head of regulatory affairs Benjamin Tecmire told the FDIC the increased oversight would duplicate what the Fed already does, according to an October letter to the agency.
Tecmire said such duplication would make it more difficult for BlackRock fund investors to invest in banks, thereby harming investors, crimping banks’ access to equity and slowing capital flow across the US economy.
The FDIC inquired about BlackRock’s stake in 39 bank holding companies where it held a more than 10% position. Since taking those positions, BlackRock said it voted on just 2 of a total 1,304 occasions against what management recommended.
BlackRock also engaged with 12 of those lenders 19 times in the past three years “and most of these engagements were initiated by the banking institutions themselves, not BlackRock,” Tecimire told the FDIC.
If BlackRock by Jan. 10 doesn’t agree to the same level of scrutiny approved by Vanguard, the FDIC can take other options, according to another person familiar with the situation.
The logo for Vanguard is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York City. REUTERS/Brendan McDermid/File Photo ·Reuters / Reuters
Those options range from further extending the deadline to sending BlackRock a formal inquiry or even a subpoena for more information on selective communications between its stewardship team and the executives of US banks.
It is not known how the Trump administration may decide to handle the BlackRock situation if it is not resolved by inauguration day on Jan. 20.
One Republican member of the FDIC board appointed by Biden, Jonathan McKernan, called the agreement signed last week with Vanguard “a good step in the right direction,” saying in a statement it addressed concerns he had raised about FDIC monitoring of “the purported passivity of the largest index fund complexes.”
“Those concerns have some urgency given the rapid growth of these index fund complexes and the growing body of academic work and other evidence raising doubt about whether these index fund complexes are truly passive.”
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
