Better Markets filed a Comment Letter to the Federal Deposit Insurance Corporation (FDIC) in response to proposed changes for evaluating bank change in control notices.
Why It Matters.As investment fund managers like BlackRock, Vanguard, and State Street continue to grow, so does their influence and control of banks. Many mutual funds and ETFs are also owned by the same parent company, forming even larger and more powerful—and riskier—fund complexes. The Change in Bank Control Act was initially intended to curb speculative purchases of small banks and address the fraud and insider abuse stemming from these purchases.
What We Said. The FDIC has rightly identified concerns about the growth and concentration of outside control of banks, which can be addressed with the proposed changes. First, the influence that fund complexes have over management, business strategies, or policy decisions at banks could lead to excessive risk-taking to enhance profits, investor returns, or stock prices. Second, as fund complexes grow and gain larger voting shares, they have more potential to influence decisions that can affect the broader banking industry and financial stability. And third, these forces can increase the vulnerability of the FDIC’s Deposit Insurance Fund which is a vital backstop when a bank fails.
Bottom Line. To address these risks, the FDIC should participate in the decision-making process for all change in control transactions for the largest FDIC-supervised banks, specifically those above a defined asset size threshold. The FDIC should also work together with the other federal banking regulators to coordinate an interagency approach for handling these transactions.