(Reuters) -The U.S. Federal Deposit Insurance Corporation has reached an agreement with Vanguard that will tighten the rules under which the investment management giant can take large stakes in large U.S. financial institutions, according to an agreement published by the watchdog on Friday.
The agreement gives the FDIC more ability to monitor Vanguard’s investment activities and details what is allowed as a passive investor in FDIC-supervised banks. Its goal was to ensure that the largest asset management firms, including Vanguard and BlackRock, do not influence the trading decisions of the largest US banks, even as they take large stakes through index or passive mutual funds.
In a press release announcing the deal with Vanguard, Jonathan McKernan, director of the FDIC, said academic critics have raised concerns about the competitive risks of concentrated ownership and the concentration of power in a handful of institutional investors.
McKernan said the agreement should allow banking regulators to address those concerns.
Under the agreement, Vanguard is strictly prohibited from engaging in activities that influence the management or policies of institutions regulated by the FDIC or their affiliates. Vanguard said this is in line with its current practices.
“Vanguard is built on passive investing and has long been committed to working constructively with policymakers to ensure that passive means passive,” a Vanguard spokesperson said.
Through “passivity agreements”, investors agree to regulators not to exert influence over the banks in which they have a stake.
The FDIC will monitor Vanguard’s investment activities, especially any informal interactions Vanguard has with the management of FDIC-regulated banks.
It was not disclosed that a similar deal 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)