Vanguard reaches deal with US bank regulator over control of bank stakes

7:48 pm Friday, December 27th, 2024

(Reuters) -The U.S. Federal Deposit Insurance Corporation has reached a deal with Vanguard that will strengthen the rules under which the investment management giant can take big stakes in large U.S. financial institutions, according to an agreement published by the watchdog on Friday.

The agreement gives the FDIC more ability to monitor Vanguard’s investment activities and spells out what is allowed as a passive investor in FDIC-supervised banks. Its goal was to ensure the largest asset management firms, including Vanguard and BlackRock, do not influence the business decisions of the biggest U.S. banks even when they acquire large stakes via indexed, or passive, investment funds.

In a press release announcing the agreement with Vanguard, Jonathan McKernan, a director of the FDIC, said academic critics have raised concerns about competitive risks of concentrated ownership and the concentration of power in a handful of institutional investors.

McKernan said the agreement should allow banking regulators to address those concerns.

According to the deal, Vanguard is strictly prohibited from engaging in activities that influence the management or policies of institutions regulated by the FDIC, or their subsidiaries. Vanguard said this is in accordance with its current practices.

“Vanguard is built around passive investing and has long been committed to working constructively with policymakers to ensure that passive means passive,” a Vanguard spokesperson said.

Through “passivity agreements,” investors commit to regulators that they will not exert influence on the banks in which they have a stake.

FDIC will monitor Vanguard’s investment activities, especially any informal interactions Vanguard has with the management of FDIC-regulated banks.

There was no disclosure of a similar agreement having been reached with BlackRock. BlackRock could not immediately be reached for comment. The FDIC did not immediately respond to a request for further comment.

(Reporting by Prakhar Srivastava in Bengaluru and Suzanne McGee; Editing by Shinjini Ganguli and Megan Davies)