Elizabeth Warren Tells BlackRock’s Janet Yellen ‘Too Big To Fail’

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Elizabeth Warren Tells BlackRock's Janet Yellen 'Too Big To Fail'


In a hearing held by the Senate Banking Committee, Warren noted that the Federal Reserve has started to designate very large banks as “too big to fail”, giving them stronger oversight granted by Congress in law. Dodd-Frank. This bill, drafted in the wake of the 2008 financial crisis, created the Financial Stability Oversight Council, a regulator that can grant special supervision to banks deemed to be systemically important – at the time, those that held over $ 50 billion in assets.

So why isn’t it Black rock (BLK), who oversees 180 times that amount of assets, designated too big to fail?

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

Yellen said she believes it is less important to name a particular company and more important to review the actions it takes. For example, in 2016 and 2017, the FSOC investigated the potential damage caused by massive withdrawals from open-ended mutual funds, which forced asset managers to sell assets, creating inflammatory sales. This very thing happened in March 2020.

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

Warren had none of that. Isn’t the designation itself what gives the Fed oversight, she retorted? And since BlackRock isn’t nominated, it doesn’t have that extra review, 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 enables more people to enjoy financial well-being,” the company said in a statement. “We support financial regulatory 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.

Yet Yellen admitted that she believes “it is appropriate to name institutions whose failure would pose a significant risk to the financial stability of the United States.”

So Warren wanted to know why wouldn’t a $ 9 trillion institution like BlackRock pose a risk if it failed?

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

Warren, not too happy with this response, called for more immediate action.

“When the party is loud, it’s the job of regulators to pull out the punchbowl,” she said. “My opinion on this is that Congress has given you the tools to monitor risk and it is important to use them. ”

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