Biden calls on Congress to tighten laws to claw back executive pay, levy penalties in bank failures
Chairperson Joe Biden called on Congress to give regulators more power to withhold wages and punish executives at struggling banks “whose mismanagement has contributed to institutions their failure.”
“No one is above the law — and increased accountability is an important deterrent to future mismanagement,” Biden said in a statement Friday, days after Federal bank regulators stepped in to secure deposits at two banks that defaulted over the weekend. “When banks fail due to mismanagement and excessive risk-taking, it becomes easier for regulators to recover compensation from executives, impose civil penalties and ban banks.” executives work in the banking industry again.”
Biden noted his authority to hold executives accountable is bound by law and ask Congress to step in.
“Congress must act to impose tougher penalties on senior bank executives whose mismanagement contributed to their organization’s failure,” Biden said.
The president is asking Congress to expand the Federal Deposit Insurance Corporation’s ability to recover claims, including from stock sales, from executives at failed banks. The White House said SVB’s CEO sold more than $3 million in shares just days before the FDIC took over. Under current Dodd-Frank laws, the FDIC is only able to recover these funds at the nation’s largest financial institutions, not large and mid-sized banks like those that went bust over the weekend. .
Biden also called on Congress to expand the FDIC’s authority to ban accepting bank executives from working in the banking sector and to impose fines on bank executives. broken. All three of the White House proposals seek to punish banking executives for risky behavior that led to bank failures.
The nation’s top banking regulators on Sunday announced that the FDIC and the Federal Reserve will Full deposit insurance, including those in excess of the $250,000 limit covered by traditional FDIC insurance, at both failed banks: Silicon Valley Bank and Signature Bank. The agencies noted that Wall Street and major financial institutions – not taxpayers – pay the bill through a special fee are rated against federally insured lenders.
The majority of SVB’s clients are small technology companies, venture capital firms and entrepreneurs who already use the bank to manage cash on a daily basis to run their businesses. Those customers had $175 billion in deposits with tens of millions in personal accounts. That left SVB with one of the highest rates of uninsured deposits in the country when it collapsed, with 94% of its deposits exceeding the FDIC’s $250,000 insurance limit, according to the report. S&P Global Market Intelligence Data from 2022.
SVB’s failure was the biggest collapse of a financial institution nationwide since Washington Mutual’s bankruptcy in 2008. Signature Bank in New York, was closed on Sunday for similar concerns that its failure could drag other institutions down with it, has been a popular source of funding for crypto companies.
The Federal Reserve also eased borrowing guidelines for banks seeking short-term funding through the so-called discount window. It also set up a separate unlimited facility to offer one-year loans on looser-than-usual terms to support troubled banks facing an increase in cash withdrawals. Both programs are being paid for through industry fees, not by taxpayers.
The president stressed actions taken over the weekend were necessary to prevent further economic fallout but without using taxpayer money.
“Our banking system is more resilient and stable today because of the actions we’ve taken,” Biden said. “On Monday morning, I told the American people and American businesses that they should feel confident that their deposits will be there if and when they need it. It keeps happening.”
Treasury Secretary Janet Yellen took questions from members of the Senate Banking Committee on Thursday about moves taken so far to stem the damage. She said not all depositors will be covered under the FDIC’s insurance limit of $250,000 per account as it did for customers of the two failed banks.
Members of Congress are currently weighing a number of legislative proposals to prevent the next Silicon Valley Bank-style failure.
One of them is an increase in the $250,000 FDIC insurance limit, which some senior employees Democratic legislators called after the collapse of SVB. After the 2008 financial crisis, Congress increased the FDIC limit from $100,000 to $250,000 and approved a plan under which large banks contribute more to insurance funds than lenders do. less.
Like the White House, Congress has limited power on what it can do to punish individual executives of bankrupt banks, because the courts are where the law imposes penalties on those who fail. convicted of wrongdoing.
A bill has been introduced in the Senate, in response to the collapse of SVB, seeking to recover two forms of compensation from top executives at bankrupt banks: Bonuses and profits from the sale of shares.
On Tuesday, Senator Richard Blumenthal, D-Conn. introduced a bill, S. 800, that would amend IRS rules to impose higher taxes on bonuses and profits from selling stock options to executives at banks was taken over by the FDIC.
By Friday morning, the bill had picked up an influential co-sponsor: Senator Kyrsten Sinema, I-Ariz. As a rotating vote in the Democratic caucus, Sinema’s support is seen as crucial in passing any bill in the Senate if Republicans oppose it.
