Regulatory Showdown Looms as BlackRock Faces FDIC Ultimatum
The clock is ticking for BlackRock, the world’s largest asset manager, as it faces a January 10 deadline to sign a “passivity agreement” with the Federal Deposit Insurance Corporation (FDIC). The agreement, similar to one recently reached with Vanguard Group, aims to impose greater checks on BlackRock’s holdings of FDIC-supervised lenders.
A Long-Standing Dispute
BlackRock has been resisting the FDIC’s push for greater oversight, arguing that its investment stewardship activities do not exert undue control over companies. However, the FDIC remains unconvinced, and the dispute has been ongoing since 2024. The giant Wall Street firm had proposed an alternative arrangement, but the FDIC did not respond until announcing its settlement with Vanguard.
Rising Scrutiny in Washington
The standoff between BlackRock and the FDIC is the latest example of increasing scrutiny of the asset manager in Washington. For years, BlackRock has faced criticism from both Republicans and Democrats, who have raised concerns about its massive holdings in US corporations and potential risks to the financial system.
The “Passivity” Agreement
The agreement the FDIC wants BlackRock to sign is designed to ensure that the asset manager remains a “passive” owner of an FDIC-supervised bank and does not exert control over the bank’s board. Currently, BlackRock only has such an agreement with the Federal Reserve, but the FDIC wants its own agreement, which is permitted under law.
A Matter of National Importance
FDIC board member Rohit Chopra has described the lack of oversight of passive asset manager stakes as “highly inappropriate” and a shirking of “the responsibility Congress entrusted to us.” Chopra emphasized that certain sectors of the economy, such as banking, are critical infrastructure that require careful regulation.
BlackRock’s Pushback
BlackRock has argued that additional oversight is unfounded and would ultimately harm investors, crimp banks’ access to equity, and slow capital flow across the US economy. The asset manager has pointed out that it has only voted against management recommendations in two instances out of 1,304, and that most of its engagements with banks were initiated by the banks themselves.
Consequences of Non-Compliance
If BlackRock fails to agree to the passivity agreement by January 10, the FDIC may take further action, including extending the deadline, sending a formal inquiry, or even issuing a subpoena for more information on selective communications between its stewardship team and bank executives. The outcome of this dispute remains uncertain, and its resolution may depend on the incoming administration’s stance on the issue.
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