Elizabeth Warren grills Janet Yellen about ‘too-big-to-fail’ BlackRock

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During a hearing held by the Senate Banking Committee, Warren noted that the Federal Reserve was beginning to refer to very large banks as “too-big-to-fail,” giving them stronger scrutiny by Congress in the Dodd- Frank Law. That bill, drafted in the wake of the 2008 financial crisis, created the Financial Stability Oversight Council, a regulator who can specifically oversee banks that are considered systemically important – those with more than $ 50 billion in assets at the time.
So why isn’t it Black rock BLK, which oversees 180 times as many assets as it is too big to fail?

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

Yellen said she feels it is less important to designate a particular company and more important to scrutinize the actions they take. For example, in 2016 and 2017, the FSOC examined the potential damage caused by massive withdrawals from open-end mutual funds, which forced asset managers to sell assets, leading to fire sales. The same happened in March 2020.

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“With regard to asset management, rather than focusing on identifying companies, I think it is important to focus on such an activity and consider the applicable restrictions,” said Yellen. “It is not clear to me that designation is the right tool.”

Warren had none of that. Isn’t the designation itself what gives the Fed overview, she shot back? And since BlackRock isn’t designated, it doesn’t have that additional check, she noted.

BlackRock did not immediately respond to a request for comment.

Yellen admitted that she believes that “it is appropriate to identify institutions whose failure would pose a material risk to US financial stability.”

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

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

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

“If the party gets strong, it’s up to the regulators to take away the punch bowl,” she said. “My view on this is that Congress has given you the tools to monitor risk and it’s important to use them.”

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