WASHINGTON (WSET) — A group of bipartisan senators from the Senate Banking, Housing and Urban Affairs Committee introduced a piece of legislation Thursday that aims to add another layer of accountability to the heads of failed banks.
The Failed Bank Executives Clawback Act hopes to address the issue of bank executives profiting from the failure of their institutions by requiring federal regulators to recoup up to three years of compensation received by top executives, board members, controlling shareholders, and other key decision-makers in the event of a bank’s collapse or resolution.
The legislation comes after it became apparent that following the recent collapse of Silicon Valley Bank (SVB), CEO Greg Becker sold approximately $3.6 million in SVB stock, potentially benefiting from the imminent downfall of the very bank he oversaw. Additionally, other SVB employees received bonuses just hours before the government intervened to close the bank.
Executives of failed banks shouldn’t profit from their mismanagement,” said Sen. Mark Warner, D-Va., a member of the Senate Banking Committee. “This bipartisan legislation would allow regulators to hold managers financially accountable for running a bank into the ground.
Currently, the Federal Deposit Insurance Corporation’s (FDIC) authority is limited when it comes to reclaiming executive compensation in the aftermath of a bank failure. The Failed Bank Executives Clawback Act aims to empower federal bank regulators with the necessary tools to hold executives of failed banks accountable for the costs imposed on the broader banking system and the economy.
Key provisions of the Failed Bank Executives Clawback Act include:
- The FDIC will be mandated to claw back a portion or the entirety of the compensation received by executives over the three years preceding the bank’s failure or FDIC resolution.
- The clawback provisions will apply to directors, officers, controlling shareholders, and other high-level individuals involved in decision-making at banks with assets exceeding $10 billion, provided that their actions resulted in substantial financial losses or had significant adverse effects on the bank.
- The funds recovered through clawbacks will be directed into the FDIC’s Deposit Insurance Fund, furthering its resources to protect depositors and mitigate the impact of future bank failures.
- The bill expands the clawback authorities established by Section 204(a)(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act to cover any bank placed under FDIC receivership, not solely those resolved under the FDIC’s Orderly Liquidation Authority.
This initiative builds upon senators’ previous efforts back in March with the DEPOSIT Act and the Bank Management Accountability Act, both of which share the common goal of ensuring that bank executives are not allowed to profit from the fallout of failed banks.
Read the full text of the bill here.