President Biden Calls for Stronger Accountability Measures for Failed Bank Executives

On Friday, President Joe Biden urged Congress to give regulators the ability to impose harsher penalties on the executives of failed banks, including the ability to claw back compensation and to make it easier to prohibit them from working in the industry again. The President wants the Federal Deposit Insurance Corporation (FDIC) to be able to force the return of compensation paid to executives at a broader range of banks should they fail, and to lower the threshold for the regulator to impose fines and bar executives from working at another bank.

Calls for stronger accountability

Biden stated that strengthening accountability is important to prevent mismanagement in the future. He said, “Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing.” Currently, the FDIC can only take back compensation from executives at the largest banks in the country, and other penalties require “recklessness” or acting with “willful or continuing disregard” for their bank’s health. Biden has requested Congress to allow the regulator to impose penalties for “negligent” executives, which is a lower legal threshold.

Aftermath of bank failures

The failures of Silicon Valley Bank and Signature Bank sent shockwaves through the global banking industry. The House Financial Services Committee’s top Democrat, Rep. Maxine Waters of California, stated that while she is creating legislation to give regulators more authority, “it is critical that your agencies act now to investigate these bank failures and use the available enforcement tools you have to hold executives fully accountable for any wrongful activity.” A group of Senate Democrats introduced the Deliver Executive Profits on Seized Institutions to Taxpayers Act, which would claw back profits made by bank executives on the sale of stocks and compensation bonuses earned within 60 days of a bank failure.

The White House highlighted reports that Silicon Valley Bank CEO Gregory Becker sold $3 million worth of shares in the bank in the days before its collapse, saying Biden wants the FDIC to have the authority to go after that compensation.

Critics weigh in

John Core, an accounting professor who specializes in executive compensation and corporate governance, questioned whether increasing the authority of regulators was the right move, stating that “in the case of Silicon Valley, it’s not yet even clear who is to blame” for the bank’s collapse. Meanwhile, Dennis Kelleher, president of Better Markets, a nonprofit that advocates for tougher financial regulations, said the White House was right to encourage Congress to act, adding that “regulators simply must have a full arsenal to severely punish faithless, irresponsible and reckless bank executives, officers and directors.”