For the past two years, Vanguard has been running a regulatory gauntlet. The fund giant cleared one challenge on Friday by signing an “investor passivity agreement” with the FDIC.
The short story is that as Vanguard has grown, it has come under increasing pressure from regulators (and politicians).
In 2022, a coalition of attorneys general petitioned the Federal Energy Regulatory Committee (FERC) not to renew Vanguard’s authorization to purchase utility stocks. In short order, Vanguard backed out of the Net Zero Asset Managers (NZAM) alliance and ultimately got a three-year extension from FERC to continue buying U.S. utility stocks.
Early in 2024, the FDIC started reconsidering how it monitors and regulates firms like Vanguard and BlackRock.
Several states (led by Texas) sued Vanguard a month ago, alleging the fund giant had pressured coal companies to cut production.
The question at the heart of these matters is how Vanguard is using its “power” as a $10 trillion asset manager that owns a large share of just about every public company in the country. Regulators had given Vanguard a free pass as a “passive” investor, but this was increasingly being questioned.
The risk for Vanguard is that regulators (or now the courts) limit their ability to buy certain stocks. This would damage Vanguard’s core business—running low-cost index mutual funds and ETFs. In July, Vanguard added this risk to each fund’s prospectus.
Well, Vanguard has settled that question with the FDIC.