Blackrock, Vanguard and State Street Face Probe Over Bank Stakes

The FDIC is investigating Blackrock, Vanguard, and State Street over their large investment stakes in major US banks.

Photo of the Federal Deposit Insurance Corporation symbol
Photo by Nikhilesh De / CoinDesk via CC BY 2.0

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They’re just not the passive type. 

On Tuesday, The Wall Street Journal reported that the Federal Deposit Insurance Corporation is investigating Blackrock, Vanguard, and State Street over their large investment stakes in major US banks.

Passive Aggressive

The trio of asset managers, which collectively manage some $23 trillion, are among the top registered stakeholders in the four major US banks: JPMorgan Chase, Bank of America, Wells Fargo, and CitiBank. Blackrock and Vanguard each hold stakes in some of the banks above 10%, or enough to typically be considered a party with a controlling interest in a lender. All three firms have agreements with regulators — Blackrock and Vanguard with The Fed, and State Street with the FDIC — to remain passive investors, essentially vowing to not exert their influence outside of shareholder elections. 

But that passivity is more or less self-policed, and one FDIC board member, Jonathan McKernan, told the WSJ he will soon propose new measures to better monitor the trio of firms. Other members of the five-person board have already signaled support. Still, the asset managers have pre-emptively made moves designed to limit their own influence:

  • In 2022, facing criticism for its strong stance on ESG issues, Blackrock developed a new program that polls its retail investors on how the passive fund should vote in a company’s proxy battle — input that had previously been reserved solely for large institutional investors.
  • Around the same time, Vanguard instituted a similar program giving retail investors a voice in how an investment fund votes in corporate meetings.

“We see no reason to institute duplicative regulations on passive investments in banking organizations without far more justification and proof that these investments are in fact harming banks and their depositors,” Lindsey Keljo, a managing director of Wall Street trade group the Securities Industry and Financial Markets Association, said in a statement.

Takes Three to Tango: Concern doesn’t stop at the banks. The three firms control more than one-fifth of the votes of the companies in the S&P 500, according to Harvard University law professor John Coates, or more than any three entities have held in history. Indeed, there’s a reason they’re so often called “The Big Three.”