BlackRock has expressed concerns that the strengthened passivity agreements could duplicate Federal Reserve oversight. Credit: Tada Images/Shutterstock.

The Federal Deposit Insurance Corporation (FDIC) has set a 10 January deadline for BlackRock to agree to enhanced scrutiny of its investments in FDIC-regulated banks.  

This move is part of the FDIC’s efforts to strengthen oversight of large investors in small and midsized banks, following a similar agreement with Vanguard. 

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According to Reuters, the FDIC is urging BlackRock to adopt “passivity agreements” that would allow the regulator to monitor the asset manager’s compliance with pledges not to influence business decisions in the banks it invests in.  

The FDIC refused to comment on the specifics of the Vanguard agreement or its ongoing negotiations with BlackRock.  

Concerns have been raised by politicians and regulators about the influence of large passive fund managers such as BlackRock, Vanguard, and State Street, particularly regarding their potential impact on companies critical to the economy. 

Vanguard’s recent agreement includes a commitment to remain a passive investor in a larger group of banks, including those part of a bank holding company, and allows for specific FDIC oversight.  

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However, BlackRock expressed concerns that the strengthened passivity agreements could duplicate Federal Reserve oversight, increase compliance costs, and make bank stocks less attractive investments. 

In an October public comment letter to the FDIC, BlackRock stated that it already provides legally binding commitments to the Federal Reserve Board to maintain its status as a passive investor in US banks. 

“BlackRock strongly opposes the proposal, which we believe would harm investors, disrupt the flow of capital to the economy, and undermine the efficacy of the Change in Bank Control Act of 1978 framework,” the asset manager’s letter read.  

BlackRock proposed its own version of passivity agreements to the FDIC in early December, which did not include the compliance measures agreed upon by Vanguard.  

The compliance dispute directly affects 39 US community and regional banks, where BlackRock holds more than 10% ownership in each, reported the Financial Times.