Elizabeth Warren calls Janet Yellen “too big to fail” BlackRock

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At a hearing by the Senate Banking Committee, Warren said the Federal Reserve had begun designating very large banks as “too big to fail,” giving them stronger oversight of Congress in the Dodd-Frank Act. This bill, drafted following the 2008 financial crisis, created the Financial Stability Supervisory Board, a regulatory body that can give special control to systemically important banks – at the time, those with assets over 50 billions of dollars.
So why not Black stone (BLK), which oversees 180 times the amount of assets designated too large to fail?

“If a $ 9 trillion investment company failed, would it likely have a significant impact on our economy?” Warren asked Treasury Secretary Janet Yellen.

Yellen said he believes it is less important to name a particular company and more important to look at the actions they take. For example, in 2016 and 2017, the FSOC investigated the potential damage caused by massive withdrawals from mutual funds, which forced asset managers to sell assets, creating fire sales. This is exactly what happened in March 2020.

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“When it comes to asset management, rather than focusing on designating companies, I think it’s important to focus on such an activity and consider what the appropriate constraints are,” Yellen said. “It is not obvious to me that the designation is the right tool.”

Warren had none of this. Isn’t the name itself what the Fed’s watchdog offers, it rejected? And since BlackRock is not designated, it does not have this additional control, she noted.

“BlackRock is not a bank”

BlackRock, in response, noted that the money it manages does not belong to the company – and two-thirds of its assets under management are for retirement savings.

The company said, however, that it supports regulatory reform.

“Well-functioning capital markets are essential to building a resilient economy that allows more people to experience financial well-being,” the company said in a statement. “We support regulatory financial reform that increases transparency, protects investors and facilitates responsible growth.”

BlackRock noted that regulators around the world have investigated the asset management industry, concluding that they should be regulated differently from banks.

“BlackRock is not a bank and, as an asset manager, we are a highly regulated company,” he said.

However, Yellen acknowledged that he believes that “it is appropriate to designate institutions whose failure would pose a material risk to US financial stability.”

Then Warren wanted to know why a $ 9 trillion institution, such as BlackRock, wouldn’t be at risk if it failed?

Yellen only replied that FSOC has investigated BlackRock in the past and will continue to do so in the future.

Warren, no one too pleased with this answer, called for more immediate action.

“When the party develops strongly, it is the task of the regulators to pull the punch,” she said. “My view on this is that Congress has provided you with the tools to monitor risk, and it is important that you use them.”

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