BlackRock 'bites back at asset manager claims'
02 June 2014 New York
Image: Shutterstock
BlackRock has reportedly hit back at the Financial Stability Oversight Council (FSOC) for claiming that asset managers’ practice of providing indemnification to securities lenders creates potential for enhanced risks.
The FSOC, which is mandated to identify risks and respond to emerging threats to financial stability, warned against the practice in its 2014 report, despite acknowledging the likely benefits for asset managers from combining indemnification with securities lending.
“Unlike banks, asset managers are not required to set aside capital when they provide indemnification. Also, although asset managers have access to management fees, they do not have access to banks’ stable deposit funding base.”
“Consequently, the indemnification that asset managers provide may be a source of stress on their own balance sheets, while at the same time resulting in lower protection for the lenders relative to indemnities provided by banks.”
A BlackRock report sent to the FSOC in response denied the claims, arguing that it holds enough liquidity and its clients are required to hold sufficient capital, according to reports.
A vice chairman of the firm also reportedly argued that the report overstated the risks, because it did not take into account the fact that indemnification is only used when a borrower defaults.
The FSOC, which is mandated to identify risks and respond to emerging threats to financial stability, warned against the practice in its 2014 report, despite acknowledging the likely benefits for asset managers from combining indemnification with securities lending.
“Unlike banks, asset managers are not required to set aside capital when they provide indemnification. Also, although asset managers have access to management fees, they do not have access to banks’ stable deposit funding base.”
“Consequently, the indemnification that asset managers provide may be a source of stress on their own balance sheets, while at the same time resulting in lower protection for the lenders relative to indemnities provided by banks.”
A BlackRock report sent to the FSOC in response denied the claims, arguing that it holds enough liquidity and its clients are required to hold sufficient capital, according to reports.
A vice chairman of the firm also reportedly argued that the report overstated the risks, because it did not take into account the fact that indemnification is only used when a borrower defaults.
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