A committee staff member, speaking to sister publication Global Custodian on background, said the investigation was prompted by articles in the New York Times and the Wall Street Journal that claimed investment banks reap the benefits of securities lending while lenders (in this case pension funds) take on all the risk. The investigation apparently was not prompted by any specific requests or complaints by constituents.
The staff member, who asked to remain anonymous, said the committee also has raised concerns about how, in some cases, 401(k) plans temporarily froze participants’ assets in the wake of the financial crisis – rendering them unable to withdraw from their plans – apparently as a result of counterparty risk (primarily due to exposure to Lehman) in the securities lending process, according to the report.
The staff member also told Global Custodian that in recent weeks the committee has sent questionnaires to major plan sponsors and investment banks around the country to gauge the scope of securities lending specifically in the 401(k) market. The questionnaires asked plan sponsors whether or not they participate in securities lending; investment options their lent securities are engaged in; revenues and losses they incurred due to securities lending; and transparency on the part of investment banks around their securities lending practices. As of today, the committee has not yet received any responses from its inquiries, according to the report.
Apart from saying a committee hearing about securities lending could be in the pipeline, the staffer would not say what the ultimate goal of the investigation is, according to the report.
For more information on the controversy, see Lessons Learned, Plowing New Fields. Also Northern Trust SecLending Suit Plaintiffs Survive First Challenge, Court Certifies Class in J.P. Morgan Securities Lending Suit, State Street Announces Sec Lending Adjustments.
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