Consumer advocacy groups and labor unions are lining up to support plans by the FDIC to step up scrutiny of stakes in U.S. banks held by money managers such as BlackRock and Vanguard Group, citing the danger of too much concentration.
The groups made their case in a letter sent to the Federal Deposit Insurance Corp. late on Oct. 29 that warned of the investment firms’ growing influence over corporate decisions, including at banks. They also called on officials to address potential threats to financial stability posed by massive asset managers.
“Regulators need to catch up to the reality that the growth and concentration of the asset management industry has fundamentally reshaped how public companies — including listed banks — make decisions,” said Natalia Renta, a senior policy counsel at the Americans for Financial Reform Education Fund. Her group signed the comment letter along with dozens of organizations, including the American Federation of Teachers and the AFL-CIO.
The coalition was responding to a request for comments from the FDIC, which has proposed more controls and oversight of the big money managers due to concerns that concentrated ownership could give them undue influence over lenders. The agency is charged with protecting trillions of dollars of domestic deposits at more than 4,500 banks.
BlackRock has pushed back on the FDIC’s plan, saying it would upend index funds that dominate many investor portfolios, make it more costly for banks to raise capital and disrupt the economy.
Earlier this year, the regulator proposed additional controls and oversight for money managers’ sizable stakes in banks due to concerns that concentrated ownership could give firms like BlackRock, Vanguard and State Street undue influence over lenders. The companies are among the biggest providers of so-called passive index funds, which seek to match returns of a specific market benchmark such as the S&P 500.
The FDIC added another layer of scrutiny in August by asking BlackRock and Vanguard for proof that they’re operating as passive shareholders in banks rather than activists. The asset managers were put on notice that any stake held in an FDIC-supervised lender that exceeds the threshold of 10% could trigger tougher responses from the regulator.
The passive label is so important because it lets investors in lenders avoid stringent rules for bank owners. FDIC board members have questioned whether asset managers can truly operate as passive investors with a stake of 10% or more. Some have raised concerns about whether the firms can be passive when they pursue ESG goals, a hot topic for Republicans.
In its letter to the FDIC last week, BlackRock said the FDIC should withdraw its proposed restrictions on money managers’ stakes in banks.
BlackRock is the world’s largest asset manager, overseeing more than $7 trillion of exchange-traded and index funds. It has pointed to its track record of voting with management 99.85% of the time on proxy items in the 39 listed lenders that control FDIC-supervised firms in which it holds substantial stakes.
Three Republican members of the House Financial Services Committee — including Chair Patrick McHenry — weighed in on Oct. 29. They sent a letter to the FDIC taking issue with how the regulator handled demands that two asset management firms provide information on their passivity agreements.
The requests were made while the agency had the related rule proposal out for comment, which “potentially violates the law and raises questions regarding the FDIC’s internal rulemaking process,” the lawmakers said in a press release.
The coalition’s comment letter backing the FDIC plan also was signed by the American Federation of State, County and Municipal Employees; Communications Workers of America; the National Education Association; and the Service Employees International Union. Members of the unions that signed the letter include pension fund trustees overseeing trillions of dollars.
