Back in March, there were a few days where it seemed like we might be tipping into troubling economic times after a mini-banking crisis. First, there was the collapse and liquidation of Silvergate Bank, followed by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank.
For finance nerds, books will definitely written about the period but in short, these failures were caused by a combination of: cryptocurrency exposure in a time of massive uncertainty from the fallout of FTX, interest rate changes imploding the banks’ investment strategies and, at least in a couple cases, good old-fashioned bank runs – perhaps caused by the tight-knit and social media heavy Silicon Valley community.
In the case of Silicon Valley Bank (SVB), it also emerged that its CEO Gregory Becker received a $10 million bonus amidst the collapse. This rankled.
Now, U.S. Sen. Raphael Warnock (D-GA) – joined by the bipartisan group of Senators Elizabeth Warren (D-MA), Josh Hawley (R-MO), Catherine Cortez Masto (D-NV), Mike Braun (R-IN), J.D. Vance (R-OH), Bob Menendez (D-NJ), Mark Warner (D-VA), Chris Van Hollen (D-MD), Tina Smith (D-MN), Katie Britt (R-AL), Kevin Cramer (R-ND), and John Fetterman (D-PA) – is sponsoring legislation aimed at getting some of that money back in the future for depositors.
The Failed Bank Executives Clawback Act would require regulators to claw back up to three years of compensation received by executives, shareholders, and other stakeholders in the event of a failure or resolution.
“When bankers make risky bets that threaten our entire economy, they should not get to cash in. They should be held accountable,” said Sen. Warnock.
Currently, the Federal Deposit Insurance Corporation (FDIC) has limited ability in getting any of this executive compensation back. This legislation would “require” the FDIC to claw back from that compensation from executives from banks with $10 billion or more in assets. This would apply to directors, officers, controlling shareholders, and other high-level persons involved in decision-making who caused more than a minimal financial loss to, or had a significant adverse effect on, the bank. Presumably, the word “caused” there will earn a lot of lawyers their own significant compensation should this pass.
Warnock is chair of the Banking Subcommittee on Financial Institutions and Consumer Protection and worked last year to curb “predatory” bank fees, resulting in the Consumer Financial Protection Bureau (CFPB) announcing they would take steps to protect consumers from junk fees, such as surprise overdraft fees.
Going after bank executives is not exactly a traditional Republican position but several of the newer Republicans in Washington are taking a stance against this type of compensation. “The executives responsible for running their banks into the ground are sitting on millions of dollars in compensation and bonuses. Meanwhile, the American people are bearing the financial burden for their excessive risk taking and gross mismanagement,” said Senator Vance. “This legislation would right that wrong and ensure that failed bank executives are held accountable for the collapse of their institutions – not the American taxpayer.”
