Compliance
Washington Regulators Scrutinize Big Three Asset Managers Over Bank Holdings – Report
The topic raises questions about how responsive modern financial capitalism is to the views of end investors when so much capital is held in a “passive” form.
Banking regulators are scrutinizing whether index-fund big-hitters such as BlackRock, Vanguard and State Street stay “passive” in their investments in US banks, the Wall Street Journal reports today.
The three firms manage more than $23 trillion in total, with much of it in funds that passively replicate indexes such as the S&P 500.
Family Wealth Report has contacted the firms for comment; it hadn’t received a reply at the time of going to press.
The report noted that BlackRock and Vanguard each hold more than 10 per cent of the shares at many banks – a level that normally determines whether an investor is assumed to have a controlling interest in a lender. State Street also holds a number of “sizable stakes” the report said.
As long as firms remain passive investors, they don’t come under many banking regulations, such as requiring permission to buy shares above 10 per cent.
The report said the current approach, however, could change because it has come under the scrutiny of members of the Federal Deposit Insurance Corp. One board member, Jonathan McKernan, told the WSJ he has developed a plan to enhance the FDIC’s monitoring of the firms and hopes it will receive a vote from the board over the coming weeks. He is pressing for an order to pause the firms’ investments in FDIC-regulated banks above the 10 per cent threshold while the agency examines the matter.
The report said McKernan’s stance has bipartisan support among the five-member FDIC board. McKernan is a Republican.
The views of McKernan and others reflect a broader concern in Washington DC about the market clout that large asset managers such as these three firms have. In recent years, for example, BlackRock has been assailed for its championing of ESG investment ideas – although there are perceptions that it has pulled back somewhat from this. The topic raises questions about how responsive modern financial capitalism is to the views of end investors when so much capital is held in a “passive” form.
