The Treasury Department said money managers could pose threats to the U.S. financial system when reaching for higher returns, herding into popular asset classes or amplifying price movements with leverage.
Managers overseeing a combined $53 trillion in assets, led by fund giants BlackRock and Vanguard Group, can contribute to asset price increases and magnify volatility during sudden shocks, a report from the Treasury Department said Monday. Gaps in data, particularly on investments managed for institutions, limited the study's ability to identify additional risk.
“A certain combination of fund- and firm-level activities within a large, complex firm, or engagement by a significant number of asset managers in riskier activities, could pose, amplify or transmit a threat to the financial system,” said the report from the Office of Financial Research.
The study was conducted by the OFR to help the Financial Stability Oversight Council analyze whether money managers should be considered systemically important and subject to Federal Reserve supervision.
“The council will review the study closely as it considers potential next steps relating to asset management activities and firms,” Treasury spokeswoman Suzanne Elio said in an e-mail.
The council is authorized under the Dodd-Frank financial regulatory law to identify companies that could pose a threat to stability. The Fed can impose on such firms tighter capital, leverage and liquidity rules and demand measures including stress-testing and wind-down plans.
The council is led by Treasury Secretary Jacob J. Lew and includes Fed Chairman Ben S. Bernanke.