BlackRock is pushing back at an effort by the Federal Deposit Insurance Corp. to limit asset managers’ influence over banks with a 17-page letter penned Thursday.
The $11.5 trillion asset manager alleges the proposed rule, which would require investors to gain approval from the FDIC when they take a stake of 10% or more in a bank, would “disrupt the flow of capital to the economy and undermine bank safety and soundness.”
The proposal, put forth in July after a similar proposal was tabled in April, is meant to prevent asset managers from exerting outsize influence over banks.
BlackRock said that shortly after the FDIC released its proposal, the regulator told select asset managers that it would imminently modify its Change in Bank Control Act review requirements for those firms. BlackRock alleges the FDIC is applying them to these firms “as a fait accompli before reviewing comments on the proposal.”
“The agency’s justification for targeting particular asset managers is not clear,” BlackRock’s head of regulatory affairs Benjamin Tecmire wrote.
Tecmire noted capital from shareholders like BlackRock makes up an important pillar in a bank’s capital structure, promoting resolvability and providing a buffer to absorb potential losses.
“Measures that restrict investments in bank stocks can thus disrupt the flow of capital to the real economy and undermine bank safety and soundness. The FDIC’s proposal to restrict its supervised institutions’ access to capital is difficult to square with its mission to maintain stability and public confidence in the nation’s financial system,” he wrote.
The FDIC also contacted Vanguard, according to the Financial Times. A Vanguard spokesperson told the FT that the firm has “engaged with policymakers, and suggested additional reforms that further clarify and refine expectations around passivity. We continue to work constructively with policymakers, including the FDIC.”
S&P Global reported last year that 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, as of March 2023.
In its Thursday letter, BlackRock claims the FDIC’s proposal would harm investors and undermine the efficacy of the current CBCA framework, including by creating market uncertainty and discouraging investments in bank securities.
“Requiring asset managers to file a 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. Such a requirement would materially delay funds’ ability to execute their investment strategies, likely harming fund performance and shareholder returns,” Tecmire wrote.
The proposed rule originally provided for a 60-day comment period to close Oct. 18, but the comment period was extended through November 18.
In a statement to Bloomberg, BlackRock said that demanding action before the end of a comment period is “arbitrary and counterproductive.”
“At a minimum, the FDIC should not act until after the agency has fully evaluated all public comments” and coordinated with the Federal Reserve and other regulators,” BlackRock said.
An FDIC spokesperson told Banking Dive that the agency “has an interest when entities seek to directly or indirectly control FDIC-supervised institutions.”
“This proposed rule would remove an existing provision in our 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,” the spokesperson said.
