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McHenry, Barr, Huizenga Demand Briefing, Documents from FDIC Regarding Changes to Asset Manager Passivity Agreements
Lawmakers warn changes to passivity agreements without a Board vote and prior to completion of rulemaking under the Change in Bank Control Act are unlawful

Washington, Oct 29 -

Today, The Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), Chairman of the Subcommittee on Financial Institutions and Monetary Policy, Andy Barr (KY-06), and Chairman of the Subcommittee on Oversight and Investigations, Bill Huizenga (MI-04) sent a letter to disgraced Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg demanding his agency provide a briefing and documents related to recent changes to asset manager passivity agreements and the Notice of Proposed Rulemaking (NPRM) amending the FDIC’s regulations under the Change in Bank Control Act (CBCA). 

Following an extension of the NPRM’s comment period through November 18, 2024, the FDIC is requiring two asset management firms to enter into new passivity agreements with the agency by October 31, 2024, or potentially be found in noncompliance. The lawmakers are concerned this implements the NPRM prior to finalizing the rulemaking and without a board vote. This potentially violates the law and raises questions regarding the FDIC’s internal rulemaking process.

Read the full letter to FDIC Chair Gruenberg here or below:

“On July 30, 2024, the Board of the Federal Deposit Insurance Corporation (FDIC) voted on partisan lines to approve Director Chopra’s proposal to issue a Notice of Proposed Rulemaking (NPRM) to amend the FDIC’s regulations implementing the Change in Bank Control Act (CBCA). The proposal amends FDIC regulations by eliminating a provision that currently exempts firms from providing notice to the FDIC when acquiring voting securities of a depository institution holding company if the Board of Governors of the Federal Reserve System is already reviewing a notice pursuant to the CBCA. 

“After issuing the NPRM, the FDIC extended the comment period from October 18, 2024 to November 18, 2024, to allow additional time for the public and stakeholders to provide input on the rule. Despite the extended comment period, it is our understanding the FDIC is requiring asset management firms to enter into new passivity agreements with the agency no later than October 31, 2024 or potentially be found in noncompliance. The FDIC is taking such action almost three weeks before the comment file closes. Additionally, it is unclear whether the new requirements imposed in the NPRM have been approved by the entire FDIC Board, or the extent to which there is interagency coordination.

“To be clear, interagency coordination on this issue is critical. Director Hsu did not support the first CBCA amendment proposal submitted by Director Chopra on April 25, 2024 stating ‘[the FDIC should not be] creating more process and opportunities for turf battles or fragmentations.’ In fact, when Director Chopra proposed the change for a second time on July 30, 2024, Director Hsu stated that ‘the NPRM includes a commitment by the FDIC to work with the Federal Reserve Board and the OCC to develop an interagency approach…. Should the agencies agree upon an approach, I would expect them to issue an interagency NPRM prior to finalizing.’

“The FDIC’s actions to move forward on a rule without accommodating full input from all FDIC Directors nor substantively reviewing public comments raise serious legal questions regarding the agency’s internal rulemaking processes.

“To that end, please produce any documents provided to asset management firms related to the proposed amendments to the CBCA in question, including the letters and term sheets sent to such firms on August 2, 2024 and October 4, 2024, respectively. Additionally, please provide a briefing to Committee staff to address the justification for the enforcement of passivity agreements by October 31, 2024, and any interagency and intra-FDIC dialogue on the NPRM. 

“Please provide the briefing and produce the aforementioned documents no later than 5:00 p.m. on November 8, 2024. The Committee on Financial Services has jurisdiction to oversee the activities of the Federal Deposit Insurance Corporation pursuant to Rule X of the Rules of the House of Representatives. Thank you for your attention to this important matter.”

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