President Joe Biden on Friday called on Congress to make it easier for regulators to punish executives at failed banks — including taking bonuses.
Biden said federal law prevented his administration from holding banks accountable.
“When banks fail because of mismanagement and excessive risk-taking, it should be easier for regulators to compensate executives, impose civil penalties, and ban executives from ever working in the banking industry,” Biden said in a statement.
Biden’s proposal follows Federal’s takeover of Silicon Valley Bank in California after it failed to honor withdrawal requests from depositors last week. Federal agencies also closed Signature Bank in New York and took dramatic steps to insure all deposits at both banks, even though many of the value exceeding $250,000 were covered by federal deposit insurance.
The move was designed to prevent depositors at other regional banks from cashing out in a panic, and the administration’s swift action drew praise from Republicans and Democrats on Capitol Hill.
Lawmakers harshly criticized Silicon Valley Bank for taking too many risks, as well as bank regulators for failing to stop them – even though Congress passed a bipartisan law in 2018 that specifically warned it would increase the risk of medium-sized banks failing. .
But some members of Congress have questioned why Silicon Valley Bank’s tech industry customers should be exempted by the government, even though the fees are covered by fees at other banks.
Biden’s announcement on Friday put the ball back in lawmakers’ court and echoed political anger over bonus payments to executives at companies bailed out by the government after the 2008 financial crisis.
“Congress must act to impose tougher penalties on senior bank executives whose mismanagement causes these institutions to fail,” Biden said.
Pointing to the report that Silicon Valley Bank executives sold $3 million worth of company shares in the days leading up to the bank’s failure, the White House said Congress should give the Federal Deposit Insurance Corp. more power to claw back executive pay.
The 2010 Dodd-Frank financial reform law gave the FDIC the ability to recover compensation for executives at failed large financial institutions and ended the new “orderly resolution” process. The White House said in a fact sheet that those powers would not apply in the Silicon Valley Bank case.
Biden also called for the FDIC to search bank executives and ban them from working at other banks.
Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, endorsed the idea of another punishment for bankers in a statement on Friday.
“Working people and small businesses have been forced to pay the price for executives’ arrogance and recklessness too many times before,” Brown said. “We need stronger rules to curb risky behavior and catch incompetence.”
This is a developing story. Please check back for updates.