(Reuters) – The U.S. Federal Deposit Insurance Corporation (FDIC) has established a new agreement with Vanguard, aimed at tightening the guidelines for how the investment management giant can hold significant stakes in major U.S. financial institutions. This information was disclosed in a document released by the regulatory body on Friday.
The core of this agreement is to enhance the FDIC’s capability to oversee Vanguard’s investment endeavors while precisely outlining what actions are permitted for them as a passive investor in banks falling under FDIC supervision. The overarching goal is to ensure that the largest asset managers, like Vanguard and BlackRock, do not wield influence over the strategic decisions of the nation’s largest banks, even when they acquire substantial shares through indexed or passive investment vehicles.
Jonathan McKernan, a director at the FDIC, highlighted in a press release that academic observers have voiced concerns about the competitive risks posed by concentrated ownership and the aggregation of power within a few institutional investors. According to McKernan, this agreement is a strategic step toward addressing those apprehensions.
Under the terms of the deal, Vanguard is strictly forbidden from taking part in any activities that might affect the management or policies of FDIC-regulated entities or their subsidiaries. Vanguard has stated that this aligns perfectly with their existing operational practices.
A representative from Vanguard noted, “Vanguard is fundamentally rooted in passive investing and has consistently been dedicated to collaborating constructively with policymakers to ensure that passive investments remain precisely that—passive.”
Through “passivity agreements,” investors assure regulators that they will refrain from influencing the banks in which they hold shares. The FDIC plans to keep a watchful eye on Vanguard’s investment actions, paying particular attention to any informal engagements Vanguard may have with the management teams of FDIC-regulated banks.
There was no mention of a similar arrangement being established with BlackRock. Requests for comment from BlackRock have not yet been answered, and further comments from the FDIC have not been forthcoming.
(Reported by Prakhar Srivastava in Bengaluru and Suzanne McGee; Edited by Shinjini Ganguli and Megan Davies)
