President Joe Biden has called on Congress to allow regulators to impose tougher penalties on failed bank executives, including recovering compensation and easing bans from working in the industry.
Biden wants the Federal Deposit Insurance Corporation to be able to force back compensation paid to executives at a broader range of banks in the event of failure, and lower the threshold for the regulator to impose fines and ban executives from working at another bank.
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He called on Congress to give the FDIC those powers after the failures of Silicon Valley Bank and Signature Bank shocked the global banking industry.
“Strengthening accountability is an important deterrent to future mismanagement,” Biden said in a statement. “Congress must act to impose tougher penalties on top bank executives whose mismanagement contributed to the bankruptcy of their institutions.” Currently, the FDIC can only recover compensation from executives of the nation’s largest banks, and other executive sanctions require “recklessness” or acting with “willful or continuing disregard” for the health of their bank. Biden wants Congress to allow the regulator to impose penalties on “negligent” executives, a lower legal threshold.
Congress has already begun to address the consequences of bank failures.
On Friday, the top Democrat on the House Financial Services Committee, Rep. Maxine Waters of California, said in a letter to regulators that while she is crafting legislation to give regulators more authority, “it is critical that your agencies act now to investigate these bank failures. and use whatever enforcement tools are available to you to hold executives accountable for any wrongful activity.” The Department of Justice, the Securities and Exchange Commission, the Federal Reserve, California’s state regulator of Silicon Valley Bank, and various congressional committees have announced some sort of investigation into the bank’s failure.
In addition, a group of Senate Democrats introduced the Taxpayer Seized Institutions Executive Benefits Delivery Act on Thursday, which would recapture profits made by bank executives on stock sales and compensation bonuses earned within 60 days. after the bankruptcy of a bank, among other things. .
And Sens. Jack Reed (DR.I.) and Chuck Grassley (R-Iowa) reintroduced legislation this week to strengthen the SEC’s ability to crack down on violations of securities laws.
The White House highlighted reports that Silicon Valley Bank CEO Gregory Becker sold $3 million worth of shares in the bank in the days before it collapsed, saying Biden wants the FDIC to have the authority to search that compensation.
The closure of Silicon Valley Bank on March 10 and Signature Bank of New York two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession some 15 years ago.
Determined to restore public confidence in the banking system, the federal government took steps over the weekend to protect all bank deposits, including those in excess of the FDIC’s $250,000 individual account limit.
Sen. Sherrod Brown, D-Ohio, who chairs the Banking Committee, welcomed Biden’s call for congressional action, saying in an email that his committee “will look at all the ways we can protect families’ money.” gamblers who don’t don’t pay in Silicon Valley or on Wall Street.
“That includes holding accountable the executives who ruined this bank and the regulators charged with overseeing them, and it includes working to reform our laws to better protect workers, small businesses and taxpayers from corporate greed.” John Core, an accounting professor specializing in executive compensation and corporate governance, questioned whether increasing the authority of regulators was the right move, since “in the case of Silicon Valley, it’s still unclear who is to blame” for the collapse of the bank. .
“Many people think that it was a regulatory failure, or that it was due to rapid increases in interest rates due to inflation,” he said.
Dennis Kelleher, president of Better Markets, a nonprofit that advocates for tougher financial regulations, said the White House was right to encourage Congress to act.
“Regulators simply must have a full arsenal to severely punish unfaithful, irresponsible and reckless bank executives, officers and directors,” Kelleher said.
