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The Federal Deposit Insurance Corporation and BlackRock are headed for a showdown in January over the US watchdog's efforts to strengthen its oversight of investors who own large stakes in small and medium-sized banks.
the Federal Deposit Insurance Corporation (FDIC). The $11.5 trillion investment giant has until Jan. 10 to accept proposed new compliance measures when it owns more than 10 percent of outstanding shares in banks supervised by the Federal Deposit Insurance Corporation (FDIC), people familiar with the situation said.
Some politicians and regulators have become increasingly concerned about the growing power Black RockAnd Vanguard and State Street as a result of the massive flood of money flowing into “passive” funds that buy every company in the index.
These critics worry that the size of their holdings could allow managers of large passive funds to influence companies that are vital to the economy, by, for example, pushing them to address climate change.
Vanguard I reached an agreement last week It promised to certify to the FDIC that it would remain a passive investor in a much larger group of banks than in the past. The new group includes lenders that are part of a larger bank holding company. Vanguard also agreed for the first time to specific oversight by the FDIC to ensure it adheres to its “negative covenants.”
But BlackRock and investment industry groups He complained Strengthening the FDIC's negative covenant requirements would duplicate supervision by the US Federal Reserve, raise compliance costs and make bank equity investments less attractive.
“BlackRock strongly opposes this proposal, which would harm investors, disrupt the flow of capital into the economy, and undermine the effectiveness” of the current regulatory framework, the group wrote in a comment letter in October.
BlackRock proposed its own version of negative covenants to the FDIC in early December that did not include the compliance measures that Vanguard has now agreed to. The agency contacted BlackRock on Friday after the Vanguard deal was announced and set a Jan. 10 deadline to sign something similar, the people familiar with the situation said.
FDIC Director Jonathan McKernan, who has been publicly pushing for new negative covenants, has repeatedly said that strong compliance measures are necessary.
Thirty-nine US community and regional banks are directly affected by the compliance war, because BlackRock owns more than 10 percent of each.
The FDIC has postponed the deadline for negative covenants several times after it was first set for October 31. The watchdog is expected to get a new president and several new board members after Donald Trump takes office as US president on January 20.
BlackRock and the FDIC declined to comment. State Street was not affected by the battle because it is a bank and therefore already subject to more stringent oversight.
