Biden asks Congress for new tools to target failing bank executives

President Biden asked Congress on Friday to pass legislation that would give financial regulators sweeping new powers to recover ill-gotten gains from failed bank executives and impose fines for failures.

The proposal, in response to last week’s federal bailouts of depositors at Silicon Valley Bank and Signature Bank, would also seek to bar executives at the failing banks from taking other jobs in the financial industry.

The actions in Mr. Biden’s plan would build on existing regulatory powers held by the Federal Deposit Insurance Corporation. Administration officials were still weighing on Friday whether to ask Congress to make more changes to financial regulation in the coming days.

“Strengthening accountability is an important deterrent to prevent future mismanagement,” Mr. Biden said in a statement released by the White House.

“When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to recover damages from executives, impose civil penalties, and prevent executives from working in the banking industry again,” he said, adding that Congress would do so. You should pass legislation to make that possible.

“The law limits the management’s authority to hold executives accountable,” he said.

One proposal board would expand the FDIC’s ability to seek compensation from executives of failing banks, in response to reports that the CEO of a Silicon Valley bank sold $3 million in shares of the bank shortly before it was taken over by feds. organizers a week ago. Regulators’ current redemption powers are limited to the big banks; Mr. Biden will expand it to banks the size of Signature and Silicon Valley Bank.

In contrast to the Silicon Valley bank’s top brass, a senior Signature Bank executive and a member of its board of directors bought shares in the company’s stock last Friday while it was experiencing a round of operations, regulatory filings show. Signature’s chairman, Scott Shay, purchased 5,000 shares of Signature stock while one of its directors, Michael Pappagallo, bought 1,500 shares.

The president is also asking Congress to lower a legal impediment that the FDIC must clear in order to prevent an executive from a failing bank from working elsewhere in the financial industry. This ability currently only applies to executives who engage in “willful or persistent disregard for the safety and integrity” of their organization. Likewise, he seeks to expand the agency’s ability to fine executives whose actions contribute to the failure of their banks.

The proposals face an uncertain future in Congress. Republicans control the House of Representatives and have opposed other attempts by Biden to boost federal regulations. A 2018 law to roll back some banking-related regulations that were approved after the 2008 financial crisis passed the House and Senate with bipartisan support.

Within minutes of Mr. Biden’s announcement, Democrats were expressing support for the new rules. Senate Banking Committee Chairman Sherrod Brown of Ohio said in an emailed statement to reporters that regulators need “stronger rules to rein in risky behavior and incompetence revelations.”

He added that in addition to executives who fail to perform their duties, there must be a way to hold “regulators charged with overseeing them” accountable.. “

In a letter to the chairmen of the Securities and Exchange Commission, the FDIC and the Federal Reserve, Rep. Maxine Waters, a California D-Calif., asked regulators to use the “maximum extent” of their existing powers to hold both banks’ top executives and board members accountable. .

She added that the Dodd-Frank Act, enacted after the 2008 financial crisis, gave agencies more power than they had used until now to tie compensation for financial industry executives to successful risk-management strategies.

“As I move quickly to develop legislation regarding wrongdoing and other matters arising from the collapse, it is critical that your agency act now to investigate these bank failures and use the enforcement tools at your disposal to hold executives fully responsible for any wrongful activity,” she wrote.