Regulatory Showdown Looms as BlackRock Faces FDIC Ultimatum
A high-stakes battle is brewing between BlackRock, the world’s largest asset manager, and the Federal Deposit Insurance Corporation (FDIC) over the firm’s significant holdings in US banks. With the clock ticking, BlackRock must decide by January 10 whether to sign a “passivity agreement” that would impose greater checks on its investments in FDIC-supervised lenders.
A New Era of Oversight
The agreement, similar to one recently reached with Vanguard Group, would require BlackRock to adhere to stricter compliance requirements when its holdings exceed 10% of a bank’s outstanding stock. This move marks a significant shift in the regulatory landscape, as authorities seek to ensure that massive asset managers like BlackRock do not exert undue control over the banks they invest in.
A History of Resistance
BlackRock has long resisted the FDIC’s push for greater oversight, arguing that its investment stewardship activities do not constitute control. However, the firm’s proposal to the FDIC in December, which did not include the same level of oversight as the Vanguard agreement, was met with silence until the FDIC announced its settlement with Vanguard.
Rising Scrutiny in Washington
The standoff between BlackRock and the FDIC is the latest example of growing scrutiny of the asset manager in Washington. For years, BlackRock has faced criticism from Republicans over its alleged “woke” investing practices, while Democrats have raised concerns about the potential risks its massive holdings pose to the financial system.
The Stakes Are High
At the heart of the dispute is the question of whether BlackRock’s significant stakes in US banks give it too much influence over their operations. The FDIC wants assurances that the firm will remain a “passive” owner, without exerting control over a bank’s board. BlackRock, on the other hand, argues that additional oversight is unnecessary and would ultimately harm investors and the economy.
A Clash of Views
BlackRock’s head of regulatory affairs, Benjamin Tecmire, has argued that the increased oversight would duplicate existing regulations and make it harder for investors to access banks. However, FDIC board member Rohit Chopra has countered that the lack of oversight is “highly inappropriate” and that certain sectors of the economy, such as banking, are critical infrastructure that require careful monitoring.
The Clock Is Ticking
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. The outcome of this showdown will have significant implications for the financial industry and the broader economy.
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