FDIC Voices Concern over Bank Holdings of Large, Passive Fund Managers

After the regional bank failures in early 2024, the Federal Deposit Insurance Corporation (FDIC) voiced concerns regarding large asset managers holding large positions in certain banking entities through passive ETFs and mutual funds. As part of their inquiry, FDIC regulators requested information from the three largest asset managers Vanguard, BlackRock, and State Street Global Advisers on their passive ownership of bank shares totaling over 10% of shares. In addition, in July, the FDIC voted to advance a rule proposal that would amend parts of the Change in Bank Control Act to require advance notice to the FDIC for “certain acquisitions of voting securities of FDIC-supervised institutions, at a level sufficient to trigger a presumption of control under the regulations, whether such investments are made directly in the institution or indirectly through a holding company.”

Then in late December, Vanguard entered into an agreement with the FDIC that enhances the agency’s oversight into its holdings. The “passivity agreement” will prevent Vanguard from exercising or attempting to influence the decisions of a bank like proposing new directors and filing shareholder proposals. According to a statement from FDIC Director Jonathan McKernan, “the FDIC will need to keep a close eye on any informal engagements Vanguard might have with management of FDIC-supervised banks.” 

After the announcement of the passivity agreement with Vanguard, the FDIC also raised concerns with BlackRock’s holdings. The FDIC provided BlackRock with a two-week deadline (January 10), which BlackRock requested be extended until March 31. BlackRock argued Vanguard’s negotiations with the FDIC played out over the course of a few months, and that two weeks was an insufficient time period. In mid-January, the FDIC granted BlackRock an extension, until February 10, to sign an agreement outlining the parameters on how to regulate BlackRock’s passive holdings in certain large banking institutions.

On January 19, FDIC Chair Martin Gruenberg will depart the agency, and it is unclear whether the FDIC under the Trump Administration will pursue the same passivity agreements or opt for a different course.

Click here to read an FDIC statement from Director Jonathan McKernan highlighting the passivity agreement with Vanguard.

Click here to read an FDIC press release covering the Notice of Proposed Rulemaking amending the Change in Bank Control Act.