President Calls for Stronger Penalties for Execs of Banks That Fail
WASHINGTON — President Joe Biden is urging Congress to give the Federal Deposit Insurance Corporation more power to punish bank executives whose institutions failed due their own mismanagement or excessive risk taking.
Biden’s remarks, issued as a statement from the White House, come in the wake of the failures of Silicon Valley Bank and Signature Bank, and after the FDIC, Federal Reserve and Treasury Departments announced they insured the banks’ depositors for deposits well in excess of the standard $250,000 insurance limit.
“This week, we took decisive action to stabilize the banking system without putting taxpayer dollars at risk,” the president said. “That action was necessary to protect jobs and small businesses, and no losses will be borne by the taxpayers. Our banking system is more resilient and stable today because of the actions we took.
“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 them. That continues to be the case,” Biden continued.
The president also went on to say enough is enough, and that he’s committed to holding those responsible for what he referred to as “this mess” accountable.
Since Silicon Valley Bank and Signature Bank have gone into FDIC receivership, key executives who ran those institutions have been removed.
But the president noted that while the FDIC, the Securities and Exchange Commission and the Department of Justice have regulatory authority to investigate the circumstances leading up to these banks entering receivership and impose some sanctions, the law limits the administration’s authority to hold executives responsible.
In short, he said, “When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties and to ban executives from working in the banking industry again.”
Specifically Biden is calling on Congress to expand the FDIC’s authority to claw back compensation — including gains from stock sales — from executives at failed banks like Silicon Valley Bank and Signature Bank.
Particularly irksome to the president are media reports that the CEO of Silicon Valley Bank sold more than $3 million worth of shares just days before the bank entered FDIC receivership.
“Under current law, the FDIC has limited ability to claw back any compensation or gains from share sales that senior executives at Silicon Valley Bank or Signature Bank may have received shortly before their banks entered FDIC receivership,” the White House statement said. “That is because the FDIC only has clawback authority under the Dodd-Frank Act’s special resolution authority, which applies to the very largest financial institutions. That authority should be extended to cover a broader set of large banks — including banks the size of Silicon Valley Bank and Signature Bank.”
The president also wants to strengthen the FDIC’s authority to bar executives from holding jobs in the banking industry when their banks enter receivership.
Under existing law, the FDIC can bar executives from holding jobs at other banks if they engage in “willful or continuing disregard for the safety and soundness” of their bank.
“Congress should strengthen this tool by lowering the legal standard for imposing this prohibition when a bank is put into FDIC receivership. The president believes that if you’re responsible for the failure of one bank, you shouldn’t be able to just turn around and lead another,” the White House said.
Biden also wants to expand the FDIC’s authority to bring fines against executives of failed banks.
At present, the FDIC may seek monetary penalties from bank executives who “recklessly” engage in a pattern of “unsafe or unsound” practices, regardless of whether that bank enters receivership.
“To help the agency fully address executive misconduct, Congress should expand the FDIC’s authority to seek fines from negligent executives of failed banks when their actions contribute to the failure of their firms,” the White House said.
“No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden added.
“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” he continued, adding, “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”