President Biden has urged Congress to increase the Federal Deposit Insurance Corporation’s ability to hold accountable executives whose mismanagement contributed to the failure of small and midsized banks like Silicon Valley Bank, which collapsed in mid-March.
Specifically, the President called on Congress to:
- expand FDIC authority to claw back compensation and gains from stock sales from executives at failed banks. Current law permits the FDIC to claw back compensation in cases involving the largest financial institutions only;
- allow the FDIC to prohibit executives whose banks are put into FDIC receivership from holding jobs in the banking industry even if the conduct engaged in by those bank executives didn’t amount to “willful or continuing disregard for the safety and soundness” of their institutions, as the law currently requires; and
- expand the FDIC’s authority to impose fines against the executives of banks that have entered receivership even when those executives didn’t “recklessly” engage in a pattern of “unsafe or unsound” practices, the standard required by current law.
These measures, which the President proposed in a March 17 statement, are reminiscent of the restrictions on executive compensation imposed by the American Recovery and Reinvestment Act of 2009 (ARRA) in response to criticism that the Treasury’s Troubled Asset Relief Program (TARP) did not go far enough to curb excessive compensation being paid to executives at institutions receiving taxpayer assistance.
The ARRA required TARP recipients’ CFOs and CEOs to certify that their institutions would, among other things:
- Claw back incentive compensation paid to senior executive officers (SEOs) or the next 20 most highly compensated employees based on criteria later found to be materially inaccurate; and
- Limit incentive compensation to discourage SEOs from taking unnecessary and excessive risks that threaten their institutions’ values.
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