Regulators Eye Big Three: Tighter Oversight of BlackRock, Vanguard, State Street On Passive-Investing Mandate

Banking regulators are investigating whether index-fund giants BlackRock Inc BLK, Vanguard, and State Street Corporation STT adhere strictly to their passive roles in U.S. bank investments. 

These firms manage over $23 trillion, much of it in funds mirroring indexes like the S&P 500. 

BlackRock and Vanguard possess over 10% of shares in numerous banks, a threshold usually indicating a controlling interest, while State Street holds substantial stakes. Regulators are vigilant due to banks’ vital economic role.

Currently, major asset managers enjoy exemptions from stringent banking rules as long as they maintain passive roles, refraining from influencing management or boards. 

However, the Wall Street Journal noted that this leniency may change soon, driven by Federal Deposit Insurance Corp (FDIC) members. Jonathan McKernan, an FDIC board member, is advocating for enhanced monitoring and a potential pause in investments above the 10% threshold.

The bipartisan support within the FDIC board is evident as McKernan, a Republican, and Rohit Chopra, a Democrat, engage with officials from Vanguard and BlackRock to discuss their holdings. 

McKernan emphasizes the need to ensure the Big Three don’t exert undue influence over FDIC-regulated banks.

A shift towards tighter oversight of asset managers’ stakes reflects broader concerns in Washington about index-fund managers’ sway over corporate America. 

Republicans voice concerns that investment firms may exploit voting power to promote liberal agendas, while progressive Democrats worry about concentrated economic influence. 

Vanguard and BlackRock maintain passive commitments with the Federal Reserve and FDIC, self-certifying compliance. BlackRock privately contends that current arrangements suffice, opposing additional regulations. 

The Securities Industry and Financial Markets Association echoes this sentiment, advocating against redundant oversight.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo by Michael Vi on Shutterstock