Chopra: Regulators Must Do More to Ensure Investment Managers Aren’t ‘Improperly Influencing’ Banks

Recent steps taken by the Federal Deposit Insurance Corporation (FDIC) will help ensure that fund managers are not “improperly influencing” decisions made by FDIC-supervised banks, Rohit Chopra, member of the FDIC board of directors and director of the Consumer Financial Protection Bureau (CFPB) said in a Monday (Dec. 30) statement.

Chopra said in the statement that very large investment managers like BlackRock and Vanguard own stakes both in commercial enterprises and in banks and that these firms often characterize their involvement with these companies as “passive.”

“However, we know that chief executive officers and board members of large companies carefully watch the policy pronouncements of these mega-owners,” Chopra said. “If these firms are not truly ‘passive,’ they may be in violation of longstanding statutes, including those relating to banking.”

Chopra’s statement came after the Friday (Dec. 27) release of an amended advisory opinion by the FDIC, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board of Governors, saying that large “passive” asset managers may not have a representative on the board of directors of a bank in which they have a significant ownership stake.

In addition, the FDIC said Friday that it entered into an investor passivity agreement with Vanguard in which the agency has advanced tools to ensure that the company remains passive in terms of its ownership stake in FDIC-insured banks.

Reached by PYMNTS, Vanguard said in an emailed statement that the agreement is part of its ongoing commitment to passive investing.

“Vanguard is built around passive investing and has long been committed to working constructively with policymakers to ensure that passive means passive,” the statement said. “This agreement with the FDIC is another example and recognition of that ongoing commitment.”

BlackRock did not immediately reply to PYMNTS’ request for comment.

In his Monday statement, Chopra said the steps taken by the FDIC are “small, but significant” and advance the goal of ensuring that fund managers are not “improperly influencing” FDIC-supervised banks.

“Agencies across government charged with safeguarding critical sectors of the economy from conflicts of interest and anticompetitive conduct will need to take further steps with respect to these large investment managers,” Chopra said.