Biden urges Congress to punish executives of failed banks more severely
FILE – The Capitol is seen through a window in the Russell Senate Office Building as policymakers grapple with the fallout from the failure of the Silicon Valley bank in Washington March 15, 2023. (AP Photo/J. Scott Applewhite, file)
WASHINGTON (AP) —
President Joe Biden on Friday asked Congress to allow regulators to impose tougher penalties on executives of failed banks, including recovering compensation and facilitating their ban from working in the industry.
Biden wants the Federal Deposit Insurance Corporation to be able to force the refund of compensation paid to executives at a wider range of banks should they fail and lower the threshold for regulators to impose fines and Ban executives from working at another bank.
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He asked Congress to grant the FDIC those powers after the failures of Silicon Valley Bank and Signature Bank sent shockwaves through the global banking industry.
Strengthening accountability is an important deterrent to prevent future mismanagement,” Biden said in a statement. “Congress must act to impose tougher penalties on senior bank executives whose mismanagement has contributed to the failure of their institutions.
Currently, the FDIC can only roll back executive compensation from the nation’s largest banks, and other penalties for executives require “recklessness” or acting with “willful or persistent disregard” for the health of their bank. Biden wants Congress to allow regulators to impose penalties on “negligent” executives — a lower legal threshold.
Congress has already begun to deal with the aftermath of the 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 drafting legislation to give regulators more authority, “it is critical that your agencies now Act to investigate these bank failures and use the enforcement tools at your disposal to hold executives fully accountable for any unlawful activity.
The Justice Department, the Securities and Exchange Commission, the Federal Reserve, the California state regulator of Silicon Valley Bank and several congressional committees have announced some form of investigation into the bank’s collapse.
In addition, a group of Senate Democrats on Thursday introduced the Transfer of Executive Profits from Seized Institutions to Taxpayers (DEPOSIT Act), which would reclaim profits from bank executives from the sale of stock and compensation awards made within 60 days of were earned from a bank failure, among others.
And Sens. Jack Reed (DR.I.) and Chuck Grassley (R-Iowa) this week reinstated legislation to strengthen the SEC’s ability to take action against violations of securities laws.
The White House highlighted reports that Silicon Valley Bank CEO Gregory Becker sold $3 million worth of stock in the bank in the days leading up to its collapse and said Biden wanted the FDIC to have the authority to to claim this compensation.
The closing of Silicon Valley Bank on March 10 and New York’s Signature Bank two days later has brought back bad memories of the financial crisis that plunged the United States into the Great Recession some 15 years ago.
Over the weekend, the federal government, determined to restore public confidence in the banking system, took action to protect all bank deposits, even those that exceeded the FDIC limit of $250,000 per individual account.
Welcoming Biden’s call for congressional action, Senator Sherrod Brown, D-Ohio, chairman of the Banking Committee, said in an email that his committee will “consider all the ways we can protect working families’ money from risky bets that do.” have not done”. That doesn’t pay off in Silicon Valley or on Wall Street.
“That includes holding accountable the executives who drove this bank into the abyss and the regulators tasked with overseeing it, and it includes working to reform our laws to protect workers, small businesses and better protect taxpayers from corporate greed.”
John Core, an accounting professor specializing in board pay and corporate governance, questioned whether strengthening regulators’ authority was the right move, since “in the case of Silicon Valley, it’s not even clear who is to blame” for the bank’s collapse .
So many people think it was a regulatory failure or because interest rates went up quickly due to inflation,” he said.
Dennis Kelleher, president of Better Markets, a nonprofit that advocates for stricter financial regulations, said the White House is right to encourage Congress to act.
“Regulators simply must have a full arsenal to severely punish disloyal, irresponsible and reckless bank executives, officers and directors,” Kelleher said.
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