WASHINGTON — President Biden on Friday called on Congress to pass legislation to give financial regulators sweeping new powers to reclaim ill-gotten gains from executives of failed banks and impose fines for defaults.
The proposal, in response to last week’s government bailouts of depositors at Silicon Valley Bank and Signature Bank, would also seek to prevent executives at failed banks from taking other jobs in the financial industry.
The measures included in Mr. Biden’s plan would build on existing regulatory powers of the Federal Deposit Insurance Corporation. Administration officials debated Friday whether to ask Congress to make further changes to financial regulation in the coming days.
“Increasing accountability is an important deterrent to prevent future mismanagement,” Biden said in a statement released by the White House.
“When banks fail because of mismanagement and excessive risk-taking, it should be easier for regulators to claw back executive compensation, impose civil penalties, and again ban executives from working in the banking industry,” he said, adding that Congress will agree would have to legislate to make that possible.
“The law limits the administration’s powers to hold executives accountable,” he said.
One element of the proposal would expand the FDIC’s ability to demand repayment of compensation from executives of failed banks in response to reports that Silicon Valley Bank’s chief executive officer sold $3 million worth of stock in the bank shortly before federal regulators took it over week earlier. Regulators’ current clawback powers are limited to the largest banks; Mr. Biden would expand them to cover banks the size of Signature and Silicon Valley Bank.
In contrast to senior officials at Silicon Valley Bank, an executive at Signature Bank and one of its board members bought shares in the company last Friday while it was experiencing a run that revealed regulatory filings. Signature chairman Scott Shay bought 5,000 shares of Signature, while one of its directors, Michael Pappagallo, bought 1,500 shares.
The President is also asking Congress to lower a legal barrier the FDIC must overcome to prevent an executive at a failed bank from working elsewhere in the financial industry. This ability currently only applies to leaders who “willfully or persistently disregard the safety and soundness” of their institutions. Similarly, he is trying to expand the agency’s ability to fine executives whose actions contribute to their banks’ failures.
The proposals face an uncertain future in Congress. Republicans control the House of Representatives and have opposed other pushes by Mr. Biden to strengthen federal regulations. A 2018 law designed to reverse some of the banking regulations passed after the 2008 financial crisis passed with bipartisan support from the House and Senate.
Montana Republican Sen. Steve Daines criticized Mr. Biden’s focus on regulation and indicated he would not support a move to impose new rules on the banking sector.
“What we don’t need are stricter regulations for well-run and solid Montana banks that haven’t failed,” Mr Daines said in a statement Friday night.
Democrats have been far more vocal in support of calls for new rules. Senate Banking Committee chair Sherrod Brown of Ohio said in a statement emailed to reporters that regulators “need tougher rules to curb risky behavior and expose incompetence.”
He added that in addition to executives who have failed in their duties, there should be a way to hold accountable the “regulators tasked with overseeing them.”.”
In a letter to the chairmen of the Securities and Exchange Commission, the FDIC and the Fed, Rep. Maxine Waters, a California Democrat, urged regulators to use the “maximum extent” of their current powers to detain executives at both banks responsible.
She added that the Dodd-Frank Act, enacted after the 2008 financial crisis, gave authorities more powers than they had previously used to tie financial industry executive compensation to successful risk management strategies.
“While I work quickly to develop legislation on clawbacks and other matters arising from the collapse, it is vital that your authorities act now to investigate these bank failures and use the available enforcement tools at your disposal.” be available to hold managers fully accountable for any improper activity. ” She wrote.