Topline
The latest attempt to hold executives accountable for bank failures was approved by members of the Senate Banking Committee Wednesday as it passed a bill that would let regulators take back compensation for executives of failed banks and institute penalties for misconduct.
Police officers leave Silicon Valley Banks headquarters in Santa Clara, California on March 10, … [+]
Key Facts
The Recovering Executive Compensation from Unaccountable Practices Act, or RECOUP Act, would allow the FDIC to to take back all or part of the compensation received by bank executives during the two years before a collapse and would strengthen regulators’ ability to ban or remove executives who fail to appropriately oversee and manage their bank.
Bank CEOs or other executives would be subject to fines and penalties if they were found to have ignored warnings and enforcement actions from regulators, and banks would have to adopt corporate governance and accountability standards “that promote responsible management,” Sen. Sherrod Brown (D-Ohio) wrote in an op-ed Wednesday.
Bonuses and equity-based pay, but not salaries, of key executives, board chairs and inside directors would fall under the RECOUP Act’s purview.
Small banks with assets under $10 billion would be exempt.
Brown and Republican presidential candidate and Senator Tim Scott (R-S.C.) introduced the act; 12 committee Democrats and nine Republicans voted to pass the bill, which was voted down only by two committee members — Thom Tillis (R-N.C.) and Bill Hagerty (R-Tenn.).
The act is a less extreme version of a similar bill introduced by Sen. Elizabeth Warren (D-Mass) in March that has not been voted on, and Warren on Wednesday called the RECOUP Act a “reasonable compromise,” Politico reported.
What To Watch For
The bill will now need to be voted on by the full Senate and then moved to the House, where its future is less certain. House Financial Services Chair Patrick McHenry (R-N.C.) has not dismissed the plan and told Politico his panel will review it.
Key Background
Three U.S. banks have collapsed since March—California-based First Republic Bank and Silicon Valley Bank and New York’s Signature Bank. There have been 10 bank failures in the last five years, but there have been more than 500 since 2000, according to Business Insider. Silicon Valley Bank, the go-to for tech entrepreneurs and venture capital-backed healthcare and technology companies, collapsed March 10 after a bank run spurred by rising federal interest rates that decreased the value of long-term Treasury bonds. A Federal Reserve report said not only did Silicon Valley Bank’s immediate regulators know about serious problems with compliance and internal controls, but the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau did too. Signature Bank was closed two days later after the collapse of cryptocurrency exchange FTX led to the withdrawal of billions of dollars. First Republic’s bank closure came less than two months later, after a failed rescue effort by 11 of the largest U.S. banks. In the time since, several bills have been introduced targeting the regulatory and management failures that led the banks’ closures.
Big Number
$20 billion. That’s how much Silicon Valley Bank’s failure is estimated to cost the FDIC’s Deposit Insurance Fund.
Further Reading
To Know Why Silicon Valley Bank Failed, Congress Should Ask Former CEO Greg Becker (Forbes)
Some Silicon Valley Bank Customers Still Owe Loan Payments Despite Losing Their Deposits, Report Says (Forbes)
Failed Banks In The U.S. — An Analysis By Year, Size And More (Forbes Advisor)
Source: https://www.forbes.com/sites/maryroeloffs/2023/06/21/senate-bill-to-take-bonuses-back-from-failed-bank-executives-clears-first-hurdle/