Vanguard Enters Passivity Agreement with FDIC

Vanguard has entered into a passivity agreement with the Federal Deposit Insurance Corporation (FDIC), a move aimed at addressing concerns raised earlier this year regarding the monitoring of large index fund complexes. The agreement is seen as a positive step toward improving transparency and ensuring that Vanguard's activities in FDIC-supervised banks remain passive.

In a statement, the FDIC acknowledged the urgency of addressing the growing concerns surrounding index funds, particularly in light of the rapid growth of these investment complexes. Critics have raised alarms about the potential for these funds to exert undue influence, pointing to instances where index fund complexes may have pushed environmental, social, and governance (ESG) agendas at public companies. Additionally, there are concerns regarding the risks to competition due to concentrated ownership in these fund complexes, as well as broader worries about the concentration of power among institutional investors.

Under the new agreement, the FDIC will closely monitor Vanguard's investment stewardship activities, including any informal engagements Vanguard might have with the management of FDIC-supervised banks. The agreement also calls for periodic reviews of Vanguard's compliance program, particularly how it manages its risk functions and internal audits.

"I trust and expect that the FDIC will use its information rights under the agreement to review Vanguard's relevant internal audit reports and similar documentation," said the FDIC in its statement.