(Reuters) – The U.S. Federal Deposit Insurance Corporation has reached a deal with Vanguard that will strengthen rules under which the investment management giant can take large stakes in major U.S. financial institutions, according to an agreement the watchdog team announced on Friday.
The agreement gives the FDIC greater ability to monitor Vanguard’s investment activities and spells out what is allowed as a passive investor in FDIC-supervised banks. It aimed to ensure that the biggest asset management firms, including Vanguard and BlackRock (NYSE: ), do not influence the business decisions of America’s biggest banks even as they acquire 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 among a few institutional investors.
McKernan said the agreement should allow banking regulators to address those issues.
Under the agreement, Vanguard is strictly prohibited from engaging in activities that affect the management or policies of FDIC-regulated institutions or their subsidiaries. Vanguard said this was in line with its current practice.
“Vanguard is built around passive investing and has long been committed to engaging constructively with policymakers to ensure that passive means passive,” a Vanguard spokesperson said.
Investors commit themselves to regulators with “passivity agreements” that they will not influence the banks in which they have stakes.
The FDIC will monitor Vanguard’s investment activities, particularly any informal interactions that Vanguard has with the management of FDIC-regulated banks.
It was not disclosed that a similar agreement had been reached with BlackRock. BlackRock was not immediately available for comment. The FDIC did not immediately respond to a request for additional comment.
