Vanguard made a deal with the FDIC over its huge holdings in American banks

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Vanguard has bowed to regulatory pressure and agreed to freeze its investments in some US lenders, a decision that could have far-reaching implications for money managers and banks.

The deal, announced by the US Federal Deposit Insurance Corporation on Friday, will allow Vanguard funds to remain large shareholders in the nation’s largest banks and increase the number of regulators. Power of control Over $10tn fund manager.

VanguardBlackRock and State Street investors have created large stakes in US banks as a result of investing in “passive” funds that buy shares in large numbers. Some regulators and politicians worry that the size of these holdings could allow managers of large passive funds to influence companies that are important to the economy.

FDIC board member Jonathan McKernan said in an effort to further curb the influence of fund managers over banks, “Today’s passport settlement by Vanguard allows the FDIC to address the concerns I raised with Vanguard on January 1st.” And about loopholes in the FDIC’s long-standing regulatory oversight of the largest index fund complexes.

Under the deal announced Friday, when Vanguard owns more than 10 percent of the FDIC-regulated bank’s shares, the group of funds will enter into what is known as a Pacific deal with the bank. That means Vanguard needs to make sure it doesn’t want to influence the bank’s behavior, for example by pushing it to lend to sustainable energy companies rather than oil producers.

The deal comes just days before the December 31st deadline, when the Guardian told Vanguard and Blackrock They face a legal battle over whether to sign the agreements or be required to do so. Blackrock and industry groups have He opposed the new restrictions Without the need for compliance costs and stating that bank stocks make less desirable investments.

The companies are also asking if it is. FDIC It has the power to control the way they invest.

Vanguard’s agreement with the FDIC does not cover investments in the nation’s largest banks, such as JPMorgan Chase or Bank of America, which are regulated by the Federal Reserve. But Vanguard covers a number of mid-sized and regional lenders in which it holds more than 10 percent of its shares.

Index funds are already sought after as passive investors, especially by banks. But in the past, regulators have allowed investment fund managers to convince themselves that they will be passive.

The new transit agreements will place substantial restrictions on Vanguard, as well as impose a new monitoring system to enforce the agreements regulated by the FDIC. The agreements specifically prohibit Vanguard from influencing banks by appointing directors.

Vanguard can still vote on shareholder resolutions at the bank’s annual shareholders’ meeting.

He said: “Vanguard is built on real investment and remains committed to working constructively with policymakers to ensure that passive means passive. This agreement with the FDIC is another example and recognition of that continued commitment.

The FDIC has set an Oct. 31 deadline for Vanguard and BlackRock to sign pass-through agreements before pushing the initial deadline twice. The watchdog is considering new legislation that would require pass-through agreements for investments in a wide variety of banks.

The FDIC and BlackRock did not say whether the fund manager expects to reach a similar agreement with the regulator before the deadline. BlackRock did not immediately respond to a request for comment after the Vanguard deal was announced.

As a bank, State Street is more heavily monitored so the traffic rules don’t apply.