Biden Wants To Ban Failed Bank Executives From The Industry, Among Other Proposed Penalties

Topline

The Biden Administration is pressing Congress to broaden regulators’ authority to penalize executives of failed banks, marking the White House’s latest push to tighten restrictions in the wake of the collapse of three U.S. banks over the past 10 days.

President Joe Biden in the Oval Office on March 17, 2023. (Photo by Anna Moneymaker/Getty Images)

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Key Facts

Biden wants Congress to give the Federal Deposit Insurance Corporation the power to bar executives of failed banks from working in the industry if they engage in “willful or continuing disregard for the safety and soundness” of their banks, he said in a statement released Friday.

The White House also wants to empower the FDIC to “claw back compensation, including gains from stock sales,” from executives of failed banks, citing reports that Greg Becker, the CEO of the now-defunct Silicon Valley Bank, sold more than $3 million worth of shares days before the agency shuttered the bank and took control of its assets.

Under current clawback rules established by the 2010 Dodd-Frank Act, the FDIC only has authority to recoup compensation from executives at “the very largest financial institutions.”

Biden is also seeking to allow the FDIC to fine “negligent executives of failed banks,” noting that current laws only allow the FDIC to seek monetary penalties when bank executives “recklessly” engage in a pattern of “unsafe or unsound” practices.

While it’s unclear how Congress will respond to the administration’s new requests, lawmakers on both sides of the aisle have expressed hesitation to implement any new regulations before a thorough investigation of what caused the banks to fail and how the crises may have been prevented.

Crucial Quote

“I’m firmly committed to accountability for those responsible for this mess,” Biden said in a statement on Friday. “No one is above the law – and strengthening accountability is an important deterrent to prevent mismanagement in the future.”

Key Background

Silicon Valley Bank, Signature Bank and Silvergate Capital went under over the course of five days beginning last Wednesday, contributing to a plummeting stock market, including $226 billion in market cap losses among the 10 largest U.S. bank stocks, as of Friday afternoon. The FDIC fired the executives of Silicon Valley Bank and Signature Bank in the wake of their closures and promised to return all clients’ deposits, even if they exceed the $250,000 limit for FDIC insurance. The money will come from a special FDIC fund, rather than taxpayer money, the federal government has said.

Tangent

The White House has sought to stem the chaos in the banking industry by injecting a sense of stability following the banks’ failures. “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 said Friday. The comments paralleled those made by Treasury Secretary Janet Yellen on Thursday during a testimony before the Senate Finance Committee, where she championed the federal government’s “decisive and forceful actions to strengthen public confidence in our banking system.”

What To Watch For

The Biden Administration has attributed the crisis, in part, to Trump-era banking deregulations that freed small- and medium-sized banks from performing regular stress tests and adhering to stricter capital and liquidity standards. Sen. Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) introduced legislation in their respective bodies this week that seeks to reimplement the standards, however it faces long odds of passing the GOP-controlled House, where Republicans are widely opposed to new regulations.