Regulator eyes scrutiny of asset manager stakes in US banks
NEW YORK: A top US banking regulator is considering a plan to ensure asset management giants BlackRock, Vanguard and State Street stick to their passive roles when it comes to investments in US banks, a senior regulatory official says.

Jonathan McKernan, a board member of the Federal Deposit Insurance Corp (FDIC), is championing an order that would direct FDIC staff to regularly examine large asset managers who own a stake of more than 10% in FDIC-regulated banks to ensure they are not improperly influencing their operations.

McKernan told Reuters he plans to bring such an order up at the FDIC’s April board meeting. A spokesperson for FDIC chairman Martin Gruenberg referred questions on the matter to McKernan and declined to comment further.

The effort to more closely police asset managers with sizeable bank investments was first reported by the Wall Street Journal.

McKernan and Rohit Chopra, another FDIC board member who is also director of the Consumer Financial Protection Bureau, have jointly held meetings with BlackRock and Vanguard to discuss their holdings, according to a regulatory official familiar with the matter.

Currently, asset managers operate under so-called “passivity commitments,” vowing to refrain from certain influential activities in banks where they hold large investments in exchange for less onerous regulatory oversight than would typically accompany a party with a large bank stake.

In a January speech, McKernan argued regulators should do more to ensure firms are upholding those commitments, as they primarily rely on firms to self-certify.

The financial industry opposes the effort to add more regulatory oversight.

“We see no reason to institute duplicative regulations on passive investments in banking organisations without far more justification and proof that these investments are in fact harming banks and their depositors,” said Lindsey Keljo, a managing director with the Securities Industry and Financial Markets Association.

Asset managers have often been criticised for exerting undue influence on the management of their portfolio companies.

Lawmakers have also accused such firms of prioritising political motives over financial objectives. BlackRock, for example, came under fire from Republicans over its use of environmental, social and governance factors in investing. — Reuters
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A top US banking regulator is considering a plan to ensure asset management giants BlackRock, Vanguard and State Street stick to their passive roles when it comes to investments in US banks, a senior regulatory official says.