(Reuters) – The U.S. Federal Deposit Insurance Corporation has reached an agreement with Vanguard that will strengthen the rules under which the investment management giant can take large risks at major U.S. financial institutions, according to an agreement announced by the body. guard on Friday.
The agreement gives the FDIC more ability to monitor Vanguard's investment activities and specifies what is allowed as a passive investor in FDIC-supervised banks. Its aim was to ensure that the biggest asset management firms, including Vanguard and BlackRock, do not influence the business decisions of the biggest US banks even as they acquire large stakes through index or passive investment funds.
In a press release announcing the deal with Vanguard, Jonathan McKernan, director of the FDIC, said academic critics had raised concerns about the competitive risks of concentrated ownership and the concentration of power in a handful of institutional investors.
McKernan said the deal should allow banking regulators to address those concerns.
According to the deal, Vanguard is strictly prohibited from participating in activities that influence the management or policies of institutions regulated by the FDIC, or their subsidiaries. Vanguard said this was in line with its current practice.
“Vanguard is founded on passive investing and has long been committed to working constructively with policymakers to ensure that passive means passive,” said a Vanguard spokesperson.
Through “passivity agreements”, investors commit to regulators that they will not influence the banks in which they have an interest.
The FDIC will monitor Vanguard's investment activities, particularly any informal interactions Vanguard has with the management of FDIC-regulated banks.
It was not disclosed that a similar agreement had 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)