FDIC drops vote on asset managers’ roles in banks
There is growing concern among some policymakers over large asset managers’ expanding footprint in the banking sector.
WASHINGTON – A top U.S. bank regulator on Thursday shelved a vote to impose stricter oversight on asset managers like BlackRock and Vanguard that have big passive stakes in banks, despite officials agreeing the matter merited more attention.
The Federal Deposit Insurance Corp. postponed votes on two competing plans that would have given the agency more power to scrutinize asset managers after it was clear neither had the majority backing of the five-member board.
Officials said they planned to refine the proposals.
“If these fund complexes are using their purportedly passive investment funds to push social policy, to influence bank policy, there’s a real significant issue here,” FDIC board member Jonathan McKernan said at the agency’s public board meeting on Thursday.
At issue is growing concern among some policymakers over large asset managers’ expanding footprint in the banking sector, driven by the growth of index investing. They worry big asset managers are exerting undue influence on the management of companies in their portfolios, despite ostensibly being passive investors.
BlackRock, Vanguard and State Street together manage some $23 trillion and are often the largest investors in S&P 500 companies.
Some policymakers also worry that passive investors’ growing footprint in public companies reduces competition.
Academic studies have come to varied conclusions. But consumer activists and Republican politicians have seized on the issue as a way to scrutinize the policies of the investment firms.
Banking and asset management industry executives have resisted more scrutiny, arguing the current arrangement has proven itself.
“For more than 20 years, U.S. bank regulators have concluded that regulated funds’ passivity commitments ensure they do not exercise control over the banks in which they invest,” said a spokesperson for the Investment Company Institute, which represents investment funds.
“Any suggestion that this regulatory approach should be changed lacks substantiation and could harm fund investors.”
One of the plans by McKernan, a Republican, would direct FDIC staff to regularly assess if asset managers are complying with “passivity agreements” not to leverage their investments to steer operations or push policies. If an asset manager is exerting influence, the FDIC would subject it to stricter regulation.
However, FDIC Chairman Martin Gruenberg said he believed this step to be “premature,” and that the agency should solicit more public feedback.
A second proposal, backed by Gruenberg and offered by Consumer Financial Protection Bureau Director Rohit Chopra, who sits on the board, would remove an FDIC policy that requires the agency to defer to the Federal Reserve on passivity agreements involving bank holding companies.
The proposal includes soliciting feedback on the growing role of asset managers in banks. Chopra argued the FDIC should be more directly involved in such matters, given the agency’s responsibility for ensuring banks are safe.
That plan was also shelved after Michael Hsu, acting comptroller of the currency, said he would not vote for either approach. Instead, he argued all three major U.S. bank regulators should work together on a consistent approach to policing bank control.
“Further research, analysis and debate are clearly needed,” Hsu said.