CFPB Director Decries Asset Management Oligopolies

CFPB Director Rohit Chopra proposed reforms to tighten oversight of asset managers' influence on banks, and urged the FDIC to take a more active role in overseeing changes in control for supervised banks.

In a speech at Harvard Law School, Director Chopra argued that the dominance of a few large firms, managing trillions of dollars in assets, has created a "natural oligopoly." He said that this concentration—driven by modern portfolio theory and the shift from defined benefit pensions to defined contribution funds—provides these firms with significant influence over the companies they invest in. Director Chopra warned that large asset managers, while claiming to be passive owners, exert significant control over companies through their stewardship teams, which (i) engage with corporate management behind closed doors, (ii) publish reports on governance priorities and (iii) vote on proxy statements. This control, Director Chopra argued, distorts market dynamics and allows these firms to impose their preferences on companies. He argued that this development should raise concerns for US banking regulators, particularly regarding competition and financial stability.

Director Chopra also criticized the increasing concentration of ownership in the banking sector, underscoring how critical banks are to the economy as they provide essential financial services. He warned that allowing large asset managers to potentially control banks could undermine competition, increase risk and create conflicts of interest. He highlighted the inadequacy of current "passivity" agreements that allow asset managers to hold large stakes in banks without exerting formal control. Director Chopra recommended reconsideration of these agreements and developing policies to limit asset managers' influence, so as to curb their discretionary participation in proxy voting and to ensure compliance with change-in-control regulations. He also urged regulators to ensure that banks remain separate from other commercial enterprises to prevent distortions in how financing is allocated.