Vanguard Reaches Agreement with US Bank Regulators on Bank Share Management

(Reuters) – The US Federal Reserve Insurance Corporation has reached an agreement with Vanguard that would strengthen laws allowing investment management companies to acquire a majority stake in major US financial institutions, according to an agreement released by the Federal Reserve. Watchdog Friday.

The agreement gives the FDIC greater opportunity to monitor Vanguard’s investment activities and demonstrate what is permitted as a passive investor in an FDIC-controlled bank. Its goal is to ensure that the largest asset management companies, including Vanguard and BlackRock, do not influence the Bank of America’s largest business decisions, even when they acquire large shares through indexed investment funds or Passive though.

In a statement announcing the deal with Vanguard, Jonathan McKernan, director of the FDIC, said critics of the study raised concerns about the competitive risks of centralized ownership and consolidation of power in a small number of institutional investors.

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

According to the agreement, Vanguard is strictly prohibited from engaging in activities that affect the management or policies of FDIC-affiliated institutions or their subsidiaries. Vanguard said this was in line with its current practice.

“Vanguard was created around passive investment and is committed to working creatively with policymakers to ensure that it means passive,” a Vanguard spokesman said.

Through “passive agreements”, investors commit to regulators that they will not influence the banks in which they hold shares.

The FDIC will monitor Vanguard’s investment activities, particularly any informal interactions that Vanguard has with the FDIC-controlled banks.

No indication of a similar deal being reached with BlackRock. BlackRock could not immediately be reached for comment. The FDIC did not immediately respond to a request for comment.

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