BlackRock, FDIC seek to end regulatory row over bank stakes

BLACKROCK and the Federal Deposit Insurance Corporation (FDIC) are trying to resolve a months-long dispute over the asset manager’s stakes in US banks, according to sources familiar with the matter.

Negotiations began before a Feb 10 deadline for BlackRock to sign a so-called passivity agreement to comply with new oversight of its stakes.

The passive label is so important because it lets investors in lenders avoid stringent rules for bank owners. The FDIC wants disclosures on any potential effort by large asset managers to sway banks where they have sizeable stakes.

Representatives of the FDIC and BlackRock declined to comment.

BlackRock’s deadline already had been extended twice, pushing the disagreement into the Trump administration. The board has since lost two directors who had pushed repeatedly for stronger scrutiny.

There’s no new deadline for the firm to comply with the FDIC’s demands, but a deal might be reached in the coming weeks, said some of the sources, who asked not to be identified discussing private talks.

The FDIC has requested more detail about asset managers’ investments in banks, including proof that they are operating as passive shareholders rather than activists. They also have sought to scrutinise stakes in FDIC-supervised banks that exceed 10 per cent.

At issue is the FDIC’s approach to bringing the firm under new scrutiny. BlackRock has said the plan would upend index funds that dominate many investor portfolios and make it more costly for banks to raise capital. It also has said the regulator should coordinate any new oversight with the Federal Reserve, which has a passivity agreement with the firm.

Jonathan McKernan, a Republican, and Rohit Chopra, a Democrat who had led the Consumer Financial Protection Bureau, have exited the FDIC’s board.

Though on opposite sides of the political aisle, both supported increased oversight of large asset managers, saying their size and concentrated ownership could give firms undue influence over the management and strategy of US banks. BLOOMBERG