BlackRock faces opposition to a proposal put forth by an asset manager
In a recent development, BlackRock, the world's largest asset manager, has written a 17-page letter to the Federal Deposit Insurance Corporation (FDIC) to express its concerns about the proposed rule aimed at limiting asset managers' influence over banks.
The FDIC's proposed rule would require investors to seek approval from the FDIC when they take a stake of 10% or more in a bank. This move is intended to prevent asset managers from exerting outsize influence over banks. However, Benjamin Tecmire, BlackRock's head of regulatory affairs, argues that the proposal could disrupt the flow of capital to the economy and undermine bank safety and soundness.
Tecmire notes that capital from shareholders like BlackRock plays an important role in a bank's capital structure, promoting resolvability and providing a buffer to absorb potential losses. He further contends that requiring asset managers to file a Change in Bank Control Act (CBCA) Notice for any transaction that could breach the 10% threshold would introduce untenable delays, costs, and uncertainty that would harm outcomes for end investors.
BlackRock is not alone in its opposition to the proposed rule. Vanguard, another top investor in U.S. banks, has also voiced its concerns. As of March 2023, Vanguard and BlackRock were the top investors in U.S. banks, with the firms' bank holdings valued at $126.98 billion and $110.32 billion, respectively, according to a report by S&P Global.
Vanguard has suggested additional reforms to the FDIC to further clarify and refine expectations around passivity. The company has also been contacted by the FDIC regarding the proposed rule, according to the Financial Times.
BlackRock asserts that demanding action before the end of a comment period is "arbitrary and counterproductive." The comment period for the FDIC's proposed rule has been extended from October 18 to November 18, providing all parties with more time to express their views.
The FDIC's spokesperson stated that the agency "has an interest when entities seek to directly or indirectly control FDIC-supervised institutions." However, BlackRock claims that the FDIC is applying its CBCA review requirements to select asset managers "as a fait accompli before reviewing comments on the proposal."
In response, BlackRock suggests that the FDIC should not act until after the agency has fully evaluated all public comments and coordinated with the Federal Reserve and other regulators. The asset manager also alleges that the FDIC's proposed rule would harm investors and undermine the efficacy of the current CBCA framework.
The FDIC's proposed rule would also remove an existing provision in their regulation that prevents the FDIC from taking a change in bank control notice in a situation where a controlling investment is made through a holding company. This move has raised concerns among asset managers about potential increased scrutiny and potential delays in their investment activities.
The FDIC has been contacted by asset managers including Vanguard and State Street, in addition to BlackRock, in connection with the letter from BlackRock. The agency has not yet issued a formal response to the concerns raised by these asset managers.
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