WASHINGTON — President Biden asked Congress on Friday to pass legislation to give financial regulators broad new powers to recoup ill-gotten gains from executives of failed banks and impose penalties for failures.
A response to last week’s federal bailout of depositors at Silicon Valley Bank and Signature Bank will prevent executives from the failed banks from taking other jobs in the financial sector.
Mr. The measures in Biden’s plan would build on existing regulatory powers held by the Federal Deposit Insurance Corporation. Administration officials weighed Friday whether to ask Congress for more changes to financial regulation in the coming days.
“Strengthening accountability is an important deterrent to future mismanagement,” Mr. Biden said.
“When banks fail due to mismanagement and excessive risk-taking, it should be easier for regulators to recover compensation from executives, impose civil penalties and ban executives from working in the banking industry again,” he said. Legislation should be enacted to make it possible.
“The law restricts the power of management to hold administrators accountable,” he said.
One aspect of the plan would expand the FDIC’s ability to recover compensation from executives at failed banks, in response to reports that the Silicon Valley bank’s chief executive sold $3 million in the bank’s stock shortly before the federal takeover. Regulators a week ago. Regulators’ current clawback powers are limited to the largest banks; To include banks the size of Signature and Silicon Valley Bank, Mr. Biden will expand them.
Unlike Silicon Valley Bank’s top executives, a senior executive at Signature Bank and one of its board members bought a stake in the company’s stock last Friday. Signature’s president, Scott Shay, bought 5,000 shares of Signature stock, while Michael Papagallo, one of its directors, bought 1,500 shares.
The president is asking Congress to loosen the FDIC’s legal bar to prevent an executive from a failed bank from working elsewhere in the financial industry. That ability currently only applies to executives who engage in “willful or persistent disregard” for the security and integrity of their organizations. He also seeks to expand the agency’s ability to fine executives who contribute to banks’ failures.
The proposals face an uncertain future in Congress. Republicans control the House and Mr. Other pressures from Biden were resisted. A 2018 bill to roll back some banking regulations enacted after the 2008 financial crisis passed the House and Senate with bipartisan support.
Mr. Within minutes of Biden’s announcement, Democrats voiced support for the new rules. Senate Banking Committee Chairman Sherrod Brown of Ohio said in an emailed statement to reporters that “stronger rules are needed to curb risky behavior and limit inefficiency.”
In addition to executives who fail in their duties, “there needs to be a way to hold the regulators responsible for overseeing them accountable,” he said..”
In a letter to the heads of the Securities and Exchange Commission, Rep. Maxine Waters, a Democrat from California and the Fed, asked regulators to use the “maximum extent” of their existing powers to keep senior executives of the two banks. Board Directors are responsible.
He added that the Dodd-Frank Act, enacted after the 2008 financial crisis, has given agencies more powers than they used to tie executive compensation in the financial sector to successful risk management strategies.
“As I move quickly to enact legislation, it is critical that your agencies act now to investigate these bank failures and use enforcement tools that can hold executives fully accountable for any wrongdoing,” she wrote.