The Federal Deposit Insurance Corp. has given asset manager BlackRock a one month extension to enter into an agreement regarding the controlling power of its stakes in FDIC-regulated banks.
The announcement comes just weeks after the agency asked BlackRock to submit to a passivity covenant — similar to one the agency
According to unnamed sources cited in a Bloomberg report, failure to comply with the fresh deadline could result in a formal investigation in which the FDIC could subpoena the firm to compel disclosures. BlackRock did not immediately respond to American Banker's request for comment.
The move is just the latest in a monthslong power struggle — largely behind closed doors — between the FDIC and the world's largest asset managers over nonbank investment in banks overseen by the agency. In 2024, the FDIC board reviewed and debated a number of proposals to give the agency more oversight over asset manager stakes in publicly traded banks, an issue which has received bipartisan interest.
The nation's three largest investment firms — Vanguard, BlackRock and State Street, a custody bank that has investments in other banks — have seen substantial growth in their portfolios as a result of the popularity of index funds pegged to publicly traded companies. As a result, the three firms were estimated to cast roughly a quarter of the total votes at the annual meetings of S&P 500 companies at the end of 2017 according to
Under law, companies that obtain 10% or more of a stake in a bank can be considered to have a controlling interest in the bank, and thus be subjected to heightened regulatory constraints, particularly concerning extensions of credit from the bank to the nonbank owner and related affiliates.
Many firms have historically avoided those restrictions under "passivity agreements," in which companies commit to remain passive investors in the bank. In some cases, the FDIC has accepted such agreements struck by the Federal Reserve Board and investors, but the agency appears to want more direct oversight going forward.
In July, the Democratic-led FDIC board
Under the agreements FDIC reached with Vanguard in December, the asset manager will have to file a passivity agreement to the FDIC whenever it acquires a stake of 10% or more in an FDIC-supervised bank. Those agreements also bar the asset management giant from trying to influence banks' behavior.
A day before the Jan. 10 deadline, the asset manager asked the FDIC to give it until March 31 to reach an agreement with the agency. FDIC's extension of the deadline appears to be a compromise, but with the heightened threat of consequences if BlackRock misses the deadline again.
BlackRock has said despite its stake in many firms it does not control banks, in a public
"BlackRock purchases shares in banks on our clients' behalf, in order to provide them with economic exposure to bank stocks … [and] does not make these investments in order to exercise control over banks' management or operations," the firm wrote. "As a minority shareholder, BlackRock does not direct the day-to-day management or policies of these banks."
Republican FDIC board director Jonathan McKernan has been a repeated advocate for FDIC oversight of such asset managers, saying he is concerned that the asset managers's growing stakes in banks may result in the asset managers exercising control over publicly traded banking organizations in violation of the law.
"We at the FDIC, as well as the other banking regulators, should revisit the regulatory comfort that we have provided some of the Big Three as to how much they can own, and what activities they may engage in, without being found to 'control' a banking organization,"
