President Joe Biden has called on Congress to make it easier for federal regulators to punish failed bank managers who made money before the collapse.
Key things
- Biden wants Congress to strengthen the FDIC’s enforcement powers over failed bank managers
- The president is asking to expand the authority to “claw back” executive compensation and proceeds from stock sales
- It also calls for increased fines and expanded powers to ban failed managers from the banking sector
Citing reports that Silicon Valley Bank’s CEO sold more than $3 million in stock just before last week’s collapse, Biden is calling for legislation to allow Federal Deposit Insurance Corp. (FDIC) must go after bankers who make money before their firms fail, according to a White House report.
The The FDIC took over SVB on March 10 after a run on its deposits sparked by the announcement that it had lost $2 billion in a portfolio of mostly U.S. Treasuries. Subsequently, the Federal Reserve introduced an emergency loan program designed to stabilize the banking sector.
While the FDIC can currently “reclaim” compensation and stock proceeds from executives of the nation’s largest institutions under The Dodd-Frank ActBiden is asking Congress to apply the same rules to a larger set of banks, such as SVB and Signature Bank, which were also seized by the FDIC last week.
In addition to seeking compensation, Biden wants the FDIC to be able to impose additional fines on failed bank executives. The FDIC can impose fines for reckless conduct regardless of whether the bank enters receivership. But Biden said the authority should be extended to executives at each bank where federal regulators must intervene.
Likewise, Biden wants to expand the FDIC’s authority to bar failed bank executives from holding similar roles in the financial industry. Under current law, the FDIC can ban managers who acted in “willful or persistent disregard” for a bank’s health. Biden is calling for that threshold to be lowered to extend those bans to executives from banks taken over by the FDIC.
“The president believes that if you are responsible for the failure of one bank, you should not be able to just turn around and run another,” the White House said in a statement.
