The Strategist

US watchdogs turn attention to BlackRock and Vanguard’s large stakes in banks

04/03/2024 - 06:28

According to The Wall Street Journal, the Federal Deposit Insurance Corporation (FDIC) and other US banking authorities are curious as to whether investment funds BlackRock, Vanguard, and State Street Corp. are investing in US bank stocks in a passive manner.

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Alpha Photo
All told, the three firms oversee over $23 trillion in assets, the majority of which are invested in funds that essentially replicate indexes like the S&P 500. In the meantime, BlackRock and Vanguard own more than 10% of shares in numerous banks, which is the standard cutoff point for determining whether an investor has a controlling interest and authority over a business in which it has invested. State Street is also a major shareholder in several banks.

According to the report, the watchdogs are interested in regulating who owns and runs banks because of their unique role in the economy.

As long as they stay passive investors, regulators already effectively exclude the largest investment funds from a number of burdensome banking regulations (such as the requirement for approval when acquiring shares in a firm if a position in it exceeds the 10% mark).

As a result of pressure from FDIC members, the existing strategy may soon alter. A plan to improve the FDIC's oversight of businesses is being prepared, according to Jonathan McKernan, one of the corporation's board members, and he hopes to have it put to a vote in the upcoming weeks.