“If a $ 9 trillion investment company went bankrupt, would that likely have a significant impact on our economy?” Warren asked Treasury Secretary Janet Yellen.
Yellen said he believes it is less important to designate a particular company and more important to examine the actions it takes. For example, in 2016 and 2017, the FSOC investigated the potential damage caused by massive withdrawals from open mutual funds, which forced asset managers to sell assets, generating explosive sales. That same happened in March 2020.
“With regard to asset management, instead of focusing on the designation of companies, I think it is important to focus on an activity like this and consider what are the appropriate restrictions,” said Yellen. “It is not obvious to me that designation is the appropriate tool.”
Warren was not accepting any of this. Isn’t the designation itself giving the Fed’s oversight, it countered? And since BlackRock is not assigned, he doesn’t have that additional scrutiny, she noted.
BlackRock did not immediately respond to a request for comment.
Yellen admitted that he finds it “appropriate to designate institutions whose bankruptcy would pose a material risk to the financial stability of the United States”.
So Warren wanted to know why a $ 9 trillion institution like BlackRock wouldn’t be a risk if it went bankrupt?
Yellen replied only that the FSOC has investigated BlackRock in the past and will continue to do so in the future.
Warren, not too happy with that answer, called for more immediate action.
“When the party’s going strong, it’s up to the regulators to take the punch,” she said. “My view on this is that Congress has given you the tools to monitor risk and it is important to use them.”