FDIC enlists BlackRock to clean up banking castoffs

The recent failures of several large regional banks have prompted federal regulators to turn to asset manager BlackRock to help dispose of more than $100 billion in securities without causing further turmoil in financial markets.

The Federal Deposit Insurance Corporation (FDIC) has taken three large regional banks into receivership since March after they failed due to liquidity problems. When a bank fails and enters FDIC, the agency takes on responsibility for handling its affairs and begins finding a buyer for some or all of the failed firm’s assets and liabilities.

In early April, the FDIC announced that it retained the services of BlackRock Financial Markets Advisory (FMA) to help sell the $114 billion in assets it kept in receivership after the failures of Silicon Valley Bank and Signature Bank in March and their subsequent sale to other financial institutions.

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The BlackRock FMA unit has gained a reputation as a sort of financial crisis fixer. It helped manage the fallout from the collapse of Bear Stearns and took on American International Group’s toxic mortgage portfolio amid the 2008 financial crisis when it also advised the New York Federal Reserve. 

The Fed came calling again amid the COVID-19 pandemic when BlackRock helped run a program in which the Fed would buy corporate debt from struggling companies rocked by lockdowns to relieve financial stress. This spring’s banking crisis has once again led BlackRock’s FMA into a pivotal position that will likely deepen the firm’s prestige and access to institutions around the world.

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In the case of Silicon Valley Bank and Signature Bank, BlackRock’s FMA will market portfolios with face values of $87 billion and $27 billion, respectively. The FDIC indicated that those portfolios primarily consist of agency mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities. 

Those assets were left over in the FDIC’s receivership when most of the assets that made up Silicon Valley Bank and Signature Bank prior to their failures were acquired by First Citizens Bank and New York Community Bank, respectively.

BlackRock and the FDIC declined to offer an additional comment for this story.

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While the FDIC also took First Republic Bank into receivership ahead of its sale to JPMorgan Chase on Monday, that transaction encompassed all of First Republic’s assets and deposits. As a result, the FDIC isn’t expected to need to pursue a similar marketing process for First Republic’s leftover assets and liabilities.

Lawmakers in Congress have at times taken a critical view of BlackRock’s role as a go-to financial crisis manager for the federal government, and with the Senate Banking Committee set to hold a hearing Thursday at 10 a.m. Eastern, it’s possible that the latest chapter in the firm's relationship with regulators could be scrutinized.

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However, much of the focus is expected to be on the mismanagement of the banks, as First Republic Bank, Silicon Valley Bank and Signature Bank now make up the second, third and fourth-largest bank failures in U.S. history – trailing only Washington Mutual in 2008.