Asset manager BlackRock published a white paper this week pushing back against state and federal regulators claims that middlemen asset managers were acting like banks, and therefore represent systemic risks that must be regulated. The seven-page white paper was reviewed by Reuters, and argues that regulators may not fully understand how securities lending works.
A spokesperson for the New York Federal Reserve declined to comment on the story.
Excerpt from BlackRock white paper
“Unfortunately, these concerns have formed the foundation of recent policy discussions,” BlackRock wrote in its recent rebuttal of the regulators. “We believe it is imperative for policy makers to have all the facts.”
Asset managers want to avoid “systemic” designation
The Financial Stability Oversight Council, a group of U.S. regulators chaired by Treasury Secretary Jack Lew, has the authority to designate large non-banks as “systemic”. Being “systemic” means greater regulatory oversight as situation with large insurers such as the American International Group and Metlife.
The asset management industry is concerned it might be next in line and has fought the systemic designation tooth and nail.
Regulators including the FSOC and the Federal Reserve have raised concerns about pensions, mutual funds and other institutional investors lending their securities to banks and hedge funds in exchange for collateral. BlackRock and other asset managers serve as the lending agent for their clients.
Asset managers claim they have a different business models. They say that, unlike banks, they are only acting as third party agents managing the money of others.
Giant asset managers such as BlackRock, Fidelity and Vanguard have been under close regulatory scrutiny since the financial crisis, and regulators are still focused on taking steps to avoid future meltdowns.
The multinational Financial Stability Board, the regulatory body for the Group of 20, is also developing a list of large funds that it believes it believes should be more closely supervised..
UPDATE: ValueWalk obtained a copy of the letter, readers can find it below.