Joe Biden is calling on Congress to make it easier for regulators to punish failing bank executives, including recouping gains from stock sales and banning disgraced bosses from working in the industry.
The US president said he was “firmly committed to holding accountable those responsible for this mess”, in a statement released on Friday, just a week after the collapse of Silicon Valley Bank, a California-based lender.
“No one is above the law – and strengthening accountability is an important deterrent to preventing mismanagement in the future,” he added.
The White House has asked Congress to expand the powers of the Federal Deposit Insurance Corporation, a U.S. banking regulator, to claw back compensation, including gains from the sale of stock by executives of failed regional banks such as SVB and Signature Bank, a New York-based company. lender that collapsed over the weekend. Current law only allows the FDIC to recover the income of the executives of large banks. Greg Becker, former chief executive of SVB, sold $3.6 million worth of bank stock on February 27 as part of a pre-agreed trading plan, less than two weeks before SVB went bankrupt.
The administration also wants to expand the FDIC’s authority to bar failed bank bosses from taking jobs at other lenders. Currently, the FDIC is only authorized to prohibit disgraced executives from holding similar jobs if they engage in a “deliberate or continuing disregard for the safety and soundness” of their bank. But the White House said Congress should “lower the legal standard” to apply to all lenders that go into receivership.
“The president believes that if you’re responsible for one bank failing, you shouldn’t be able to just turn around and run another one,” the White House said in a memo.
The administration also said Congress should make it easier for the FDIC to impose fines on failed bank executives.
Sherrod Brown, the Democratic Senator from Ohio who chairs the powerful Senate Banking Committee, welcomed Biden’s statement, saying, “We need tougher rules to curb risky behavior and catch incompetence.”
Lawmakers are at odds over how to respond to the collapse of SVB and Signature. Progressive Democrats called for reversing a 2018 bill, signed into law by then-President Donald Trump, that watered down the 2010 Dodd-Frank reform of financial regulation. But several senior Democrats have been reluctant to sign on, while most Republicans have rejected the idea of new regulations.
At the same time, many Republicans have blamed Biden and Democrats for the latest bank failures, trying to tie the administration’s fiscal policies to rising interest rates that have been blamed for bank insolvencies.
There are signs that lawmakers on both sides may be able to strike a deal to punish failing bank executives. Richard Blumenthal, the Democratic Senator from Connecticut, has introduced legislation that would allow regulators to claw back bonuses and profits from stock sales made within 60 days of a bank failing.
Republican Senators Josh Hawley and Mike Braun have also introduced a bill that would allow the FDIC to claw back bonuses paid to bankrupt bank executives.
“It’s a great first step and all of this should have been done a long time ago,” Dennis Kelleher of consumer group Better Markets said of Biden’s statement. “Anything that punishes leaders for reckless conduct and misconduct is welcome.”
Failure to recover the money “is like taking away a bank robber’s getaway car but not the money he took,” Kelleher added.