A bipartisan group of senators introduced legislation this month to give regulators the authority to withhold executive compensation and bonuses from failed banks after the collapses of Silicon Valley Bank and Signature Bank.
Democrats Elizabeth Warren of Massachusetts and Catherine Cortez-Masto of Nevada, and Republicans Josh Hawley of Missouri and Mike Braun of Indiana are proposing a bill called the “Unsuccessful Executive Clawback Act,” which would mandate that federal regulators all or partially From will come back to a bank. The amount of compensation received by its officials due to the failure of the bank in five years.
Warren’s office said in a news release that the measure would clarify requirements on the FDIC and expand Dodd-Frank Act authority on clawbacks to enforce banks in receivership. After the collapse of SVB and Signature Bank, the FDIC stepped in to guarantee the money to customers of the failed banks.
The law will also ensure that when an insured depository institution affiliated with a bank holding company fails, the holding company’s investors bear the loss of that institution, the release said.
CBS News first reported the proposed legislation on Wednesday.
“If the federal government is going to step in to cover bank deposits beyond the $250,000 FDIC limit, bank executives need additional incentives to manage risk,” Brown said in a statement to NBC News. The bill seeks to repeal bank executive compensation. This is necessary when the FDIC comes to bail out a bank.
The proposed legislation was released a day after the Senate Banking Committee’s first hearing on the collapses of SVB and Signature Bank, the two largest bank failures in US history.
Michael Barr, vice chairman of the Federal Reserve Board for Supervision, testified that “SVB’s failure is a textbook case of mismanagement,” citing the bank’s “focused business model” in technology and venture capital. rapid growth and its failure to “effectively manage the interest rate risk” of its securities.
During the hearing, Cortez-Masto raised concerns about SVB and Signature Bank executives taking bonuses during the days of the banks’ collapse.
FDIC Chairman Martin Gruenberg stated that the FDIC has substantial authority to “impose monetary penalties, restitution and sanctions on individuals” from the banking industry based on the findings of their investigation.
In a statement to NBC News, Cortez-Masto said it is “unacceptable” for executives at SVB or any other major financial institutions to “pay themselves millions in bonuses while running their banks into the ground.”
“This bipartisan legislation will ensure that we are holding these individuals accountable for threatening the financial stability of businesses and families in Nevada and across the country,” she said.
Hawley echoed this point: “Bank executives who make risky investments with customers’ money should not be allowed to profit in good times, and avoid financial consequences when things turn bad,” They said. “This law puts the officers’ own profits on the line, and that’s exactly the way it should be.”
The proposed legislation also comes after President Joe Biden urged Congress to pass legislation that would make it easier for the government to void bonuses and stock sale gains collected by executives whose actions led to the recent collapse of two banks. In response banks cause failures.
Warren said, “The president asked Congress to pass a new law to hold failed bank CEOs accountable and to give executives additional powers to withhold lavish salaries and bonuses when their banks blow up — and that’s bipartisan.” The bill responds to that imperative,” Warren said in a statement on Wednesday.
NBC News first reported earlier this month that a group of Democrats led by Warren and Rep. Katie Porter unveiled legislation in 2018 to restore bank regulations undone under then-President Donald Trump, It is said that there was a reason for this. The collapse of Silicon Valley Bank.