The U.S. Federal Deposit Insurance Corporation (FDIC) has reached an agreement with Vanguard to implement stricter rules regarding the firm’s ability to take large stakes in U.S. financial institutions. This deal, made public on Friday, strengthens the FDIC’s ability to monitor Vanguard’s investment activities, ensuring that the firm’s passive investment strategy in FDIC-supervised banks does not lead to undue influence over the banks’ operations.
The agreement is designed to prevent the largest asset management firms, such as Vanguard and BlackRock, from affecting the decision-making processes of major U.S. banks, even when they acquire significant stakes through passive investment funds. In a statement, Jonathan McKernan, an FDIC director, highlighted academic concerns regarding the risks of concentrated ownership and the concentration of power among institutional investors.
Under the terms of the agreement, Vanguard is prohibited from engaging in activities that could influence the management or policies of FDIC-regulated banks or their subsidiaries. Vanguard confirmed that this prohibition aligns with its existing practices, as the firm is built around passive investing and has long pledged to maintain a non-interfering approach.
To ensure compliance, Vanguard will be monitored by the FDIC, particularly regarding any informal interactions it might have with the management of FDIC-regulated banks. The deal with Vanguard does not mention a similar arrangement with BlackRock, and BlackRock has not yet responded to requests for comment.
