WASHINGTON–President Biden is asking Congress for new tools that would target executives of failed banks. The proposal also seeks to bar executives at failed banks from taking other jobs in the financial industry.
According to a new report, one aspect of the plan would expand the FDIC’s ability to claw back compensation from executives of failed banks, an authority the federal bank regulator currently has only with the largest banks.
The proposal comes in response to the failure of Silicon Valley Bank and Signature Bank, in which the federal government has bailed out customers with billions of dollars in deposits that exceeded the FDIC per-account insurance limits.
“Strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden said in a statement. “When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again.”
The president said Congress would have to pass legislation to make those enforcement powers possible and added, “The law limits the administration’s authority to hold executives responsible,” he said.
The decision to seek the return of compensation from executives of failed banks comes after reports that Silicon Valley Bank’s CEO sold $3 million in shares of the bank shortly before federal regulators seized the bank.
A Different Response
In contrast, a senior Signature Bank executive and one of its board members bought shares in the firm’s stock while it was experiencing a run, regulatory filings cited by the New York Times show. Signature’s chairman, Scott Shay, bought 5,000 shares of Signature stock while one of its directors, Michael Pappagallo, bought 1,500 shares, the report added. The president’s proposal asks Congress to lower a legal bar that the FDIC must clear in order to bar an executive from a failed bank from working elsewhere in the financial industry.
According to the Times’ report, that ability currently applies only to executives who engage in “willful or continuing disregard for the safety and soundness” of their institutions. The president is similarly seeking to broaden the agency’s ability to impose fines on executives whose actions contribute to the failure of their banks, the Times added.
An Uncertain Future
According to the report, the proposals face an uncertain future in Congress as Republicans control the House and have opposed other pushes by Biden to strengthen federal regulations. A 2018 law to roll back some of the regulations on banking that were approved after the 2008 financial crisis passed the House and Senate with bipartisan support.
Democrats, meanwhile, were far more vocal in supporting the call for new rules. The chair of the Senate Banking Committee, Sherrod Brown of Ohio, said in a statement emailed to reporters that regulators needed “stronger rules to rein in risky behavior and catch incompetence,” the Times reported.
He added that in addition to executives who had failed at their duties, there should be a way to hold accountable the “regulators tasked with overseeing them,” Brown said.
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