The standoff between BlackRock and the FDIC continues until 2025

Clash between BlackRock (Black) and Federal Deposit Insurance Corporation (FDIC) The issue of money managers’ holdings of US banks will now play out in the final days of President Joe Biden’s administration.

The FDIC has asked BlackRock to sign by Jan. 10 a “negative agreement” that would codify greater controls on the money manager’s holdings for FDIC-supervised lenders, according to people familiar with the matter. Delaying the previously set deadline of December 31. From this year.

The agreement that the FDIC asked BlackRock to sign is similar to one announced last week with another giant money manager, Vanguard Group, which imposes new compliance requirements when a manager raises more than… 10% of all outstanding shares in a bank supervised by the Federal Deposit Insurance Corporation (FDIC).

BlackRock has spent much of 2024 resisting the FDIC’s push for more oversight, denying that the asset manager exercises undue control over companies through investment management activities.

Last December, the Wall Street giant proposed an arrangement with the FDIC that did not include the same level of oversight that Vanguard had agreed to. The FDIC did not respond to BlackRock’s proposal until the announcement of its Vanguard settlement, according to a person familiar with the matter.

The tug of war between BlackRock and the FDIC is the latest example of growing scrutiny in Washington, D.C., of BlackRock, which oversees $11 trillion in assets.

For many years, the financial giant has been the target of GOP attacks over “woke” investing. Republicans have raised concerns about whether BlackRock’s massive holdings in US companies are forcing companies to adopt environmental, social and governance standards.

Democrats for years have also been wary of whether BlackRock’s heft could pose risks to the financial system.

The “negative” agreement the FDIC wants BlackRock to sign is designed to reassure bank regulators that the giant money manager will remain a “passive” owner of a bank under FDIC supervision and will not exercise control over the 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 allowed under the law.

In July, FDIC Board Member Rohit Chopra called the FDIC’s lack of oversight of passive asset managers’ stakes “grossly inappropriate” and an evasion of “the responsibility that Congress has entrusted to us.” .

“Certain sectors of our economy represent critical infrastructure for our country,” added Chopra, who also serves as director of the Consumer Financial Protection Bureau. “We don’t allow anyone to own a nuclear power plant or operate a bridge.”

The story continues

BlackRock has been public about its view that such additional oversight is unfounded and ultimately harmful.

Increased oversight would duplicate what the Fed is already doing, according to an October letter to the agency.

Such duplication would make it difficult for BlackRock fund investors to invest in banks, thus harming investors, restricting banks’ access to stocks, and slowing the flow of capital through the U.S. economy, Tickmer said.

The FDIC inquired about BlackRock’s stake in 39 bank holding companies where it owns more than 10%. Since taking those positions, BlackRock said it has voted on just two of a total of 1,304 occasions against what management recommended.

BlackRock has also dealt with 12 of these lenders 19 times in the past three years, “and most of these engagements were initiated by the banking institutions themselves, not BlackRock,” Tessemeyer told the FDIC.

If BlackRock does not agree by Jan. 10 to the same level of scrutiny as Vanguard, the FDIC could make other options, according to another person familiar with the situation.

These options range from extending the deadline to sending a formal investigation to BlackRock, or even a subpoena seeking more information about selective communications between its supervisory team and US bank executives.

It is not known how the Trump administration may decide to handle the BlackRock situation if it is not resolved by Inauguration Day on January 20.

One of the Republican members of the FDIC board appointed by Biden, Jonathan McKiernan, called the agreement signed last week with Vanguard “a good step in the right direction,” saying in a statement that it addressed concerns he raised about FDIC oversight. “For the alleged negativity.” One of the largest index fund aggregators.

“These concerns have some urgency given the rapid growth of these index fund pools and the growing body of academic work and other evidence that raises doubts about whether these index fund pools are truly passive.”

David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.

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