U.S. GOVERNMENT PUBLISHING OFFICE

57–080 PDF WASHINGTON : 2024

S. HRG. 118–441 

HOLDING EXECUTIVES ACCOUNTABLE FOR 

RECENT BANK FAILURES 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED EIGHTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING HOW EXECUTIVES ARE ACCOUNTABLE FOR RECENT BANK 

FAILURES 

MAY 4, 2023 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: https://www.govinfo.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

SHERROD BROWN, Ohio, Chair 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

TINA SMITH, Minnesota 

KYRSTEN SINEMA, Arizona 

RAPHAEL G. WARNOCK, Georgia 

JOHN FETTERMAN, Pennsylvania 

TIM SCOTT, South Carolina 

MIKE CRAPO, Idaho 

MIKE ROUNDS, South Dakota 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

BILL HAGERTY, Tennessee 

CYNTHIA M. LUMMIS, Wyoming 

J.D. VANCE, Ohio 

KATIE BOYD BRITT, Alabama 

KEVIN CRAMER, North Dakota 

STEVE DAINES, Montana 

LAURA SWANSON, Staff Director 

LILA NIEVES-LEE, Republican Staff Director 

ELISHA TUKU, Chief Counsel 

AMBER BECK, Republican Chief Counsel 

CAMERON RICKER, Chief Clerk 

SHELVIN SIMMONS, IT Director 

PAT LALLY, Assistant Clerk 

(II)
C O N T E N T S 

THURSDAY, MAY 4, 2023 

Page 

Opening statement of Chair Brown ....................................................................... 1 

Prepared statement ................................................................................... 27 

Opening statements, comments, or prepared statements of: 

Senator Scott ..................................................................................................... 4 

Prepared statement ................................................................................... 28 

WITNESSES 

Da Lin, Assistant Professor of Law, University of Richmond School of Law ..... 6 

Prepared statement .......................................................................................... 30 

Responses to written questions of: 

Chair Brown .............................................................................................. 49 

Senator Warnock ....................................................................................... 53 

Thomas Quaadman, Executive Vice President, Center for Capital Market 

Competitiveness, U.S. Chamber of Commerce .................................................. 8 

Prepared statement .......................................................................................... 37 

Responses to written questions of: 

Senator Sinema ......................................................................................... 54 

Heidi Mandanis Schooner, Professor of Law, Columbus School of Law, The 

Catholic University of America ........................................................................... 9 

Prepared statement .......................................................................................... 40 

Responses to written questions of: 

Chair Brown .............................................................................................. 56 

Senator Sinema ......................................................................................... 59 

Senator Warnock ....................................................................................... 59 

(III)

(1) 

HOLDING EXECUTIVES ACCOUNTABLE FOR 

RECENT BANK FAILURES 

THURSDAY, MAY 4, 2023 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10 a.m., in room 538, Dirksen Senate Office Building, Hon. Sherrod Brown, Chair of the Committee, presiding. 

OPENING STATEMENT OF CHAIR SHERROD BROWN 

Chair BROWN. The Senate Committee on Banking, Housing, and 

Urban Affairs will come to order. Thank you for joining us. Thank 

you for the Members that are here, and there will be more. 

Most Americans who put their money in a bank should trust that 

it will be safe. They should not have to give it a second thought. 

That money is not just sitting in the bank vault collecting dust. 

Working Americans lend their hard-earned money to their banks, 

with the promise to get it back, with a little interest. They expect 

that their banker will not only keep their money safe, but that they 

will also take those customer deposits and put them to good use. 

And that is what many banks do. They make loans to small businesses, they issue mortgages to homebuyers, and they finance new 

apartment buildings so that our communities can continue to grow 

and prosper. This is Banking 101. It is pretty boring, as good banking should be. 

Because of the important role that banks play in our economy, 

that responsibility comes with a public safety net. American taxpayers subsidize this industry with Government guarantees, like 

deposit insurance and access to emergency loans. 

These are perks that most Americans do not get. Workers do not 

have access to special emergency loans when something goes wrong 

in their lives. Banks get special treatment because they are supposed to play a special role in our economy. 

But we have seen over and over that some bank executives do 

not hold up their end of the deal. 

Banks need to manage their risks, build capital, and be able to 

pay back their depositors when they need their money back. 

That is not what happened at two banks recently, at Silicon Valley Bank and Signature Bank. Their CEOs and executives led their 

banks off a cliff. They failed to manage the risks associated with 

their business models and investments. They lacked strong corporate governance and internal controls. They failed to respond 
2 

to—and in some cases ignored—regulators’ admonitions and concerns. 

And we ended up with a bank run. 

As their banks grew rapidly, more than doubling and tripling in 

size in just 3 years—think of that; that does not happen very 

often—their already-weak risk management could not keep up one 

of these two banks, and I know there is a third one too, but one 

of these two banks did not even have a chief risk officer. 

It is the Wall Street business model we see corporations follow 

over and over: executives put short-term profits above everything 

else. In this case, that meant taking on more and more risk. Fatter 

profit margins meant higher payouts for those at the top, and more 

risk for the small businesses with their money in the bank. 

At Silicon Valley Bank, executive bonuses were tied to the bank’s 

return on equity, so they bought securities with higher yields to 

chase higher and higher profits. When those investments started to 

lose money, instead of changing course they doubled down. 

At Signature Bank, executives had incentive compensation plans 

that were tied to return on assets to ‘‘reflect additional focus on 

profitability’’—‘‘additional focus on profitability,’’ just hear those 

words. 

Then when the writing was on the wall, SVB executives dumped 

millions of dollars’ worth of company stock. 

At First Republic, senior executives sold millions in their bank 

stock less than a week after SVB and Signature Bank failed, and 

that sparked further concerns at their own bank. For a lot of Americans, this all brought a sickening feeling of deja vu. 

Everyone remembers 2008. We all remember Wall Street wrecking our economy, setting off the worst recession since the Great Depression, that cost millions of Americans their jobs and their 

homes. Americans will never forget that, by and large, the Wall 

Street executives who caused all that pain did not face any consequences. Their profits and bonuses were not clawed back. They 

went up. 

Only in corporate boardrooms can you run your business into the 

ground, take the whole economy along with you, and still come out 

ahead. We cannot—we will not—let that happen again. 

Bank executives who take on too much risk and crash their 

banks because of their own hubris and greed should not get to ride 

off into the sunset with their ill-gotten gains. And they should not 

get to take their bad behavior to another bank, where they can continue to profit off an unsustainable business model and put more 

people’s money at risk. 

When it comes to holding bank executives accountable for their 

recklessness, the wheels of justice typically move slowly, or not at 

all. 

We know that when workers make just one mistake, if they overdraft their bank account or miss a credit card payment, they get 

dinged with fees and penalties. But when big bank executives and 

giant Wall Street firms do something much worse, like run their 

bank into the ground or crash our whole economy, they are almost 

never held accountable. 

The big banks have more money and resources to fight tooth and 

nail. They have layers of complex management and bureaucracy to 
3 

shield them, and that makes it harder and takes longer to enforce 

the law. 

Remember this. Just a few days after the SVB and Signature 

Bank failures, Carrie Tolstedt, whom we have certainly talked 

about in this Committee, the former Wells Fargo executive who led 

the bank’s years-long fake account scandal that was uncovered in 

2016, was finally banned from the industry and fined $17 million. 

Only now, a decade later, is the executive responsible for the 

massive scandal that hurt hundreds of thousands of Americans. 

Only now, a decade later, is Ms. Tolstedt held to account. 

We need to strengthen our financial watchdogs’ ability to impose 

fines, ban bad actors from the banking industry, and claw back 

compensation, so that accountability does not just apply to the teller who miscounts the cash box or the community bank director who 

makes a bad judgment on a loan. 

We must modernize our enforcement rules to match the size and 

complexity of banks with billions of dollars in assets and multiple 

business lines, banks like Silicon Valley and Wells Fargo. 

We need legislation to expand the banking agencies’ authority to 

ban a bank executive or manager from the industry for failing to 

properly oversee the bank’s operations. We need legislation to 

make it easier for agencies to bring actions against bank executives 

and managers who are asleep at the switch, so we can 

disincentivize the lax oversight that leads to bank failures. We 

need legislation to clarify and expand the FDIC’s authority to claw 

back compensation. We need legislation to increase penalties and 

make it easier to impose fines against these bad actors. And we 

need legislation to require the agencies to finally finish the DoddFrank Section 956 rule on incentive-based compensation. 

I have been talking to many of my colleagues about this, including the Ranking Member, and I know there is bipartisan interest 

on many of these issues. Two of the Members on this Committee 

have bipartisan bills. I hope we can work together to get this done. 

As we have seen over the past few months, we need a system 

that deters excessive risk-taking and imposes real, financial consequences on individuals for failing to oversee and manage those 

risks. Bank executives cannot continue to operate under the assumption that basic risk management is optional and always, always, always secondary to making profits. 

Let me say that again. Bank executives cannot operate a bank 

in a manner where risk management is optional. 

And that is exactly what happened here, and it is underscored 

by the reports the regulators and GAO put out last week. Executives failed to manage these banks. 

Later this month, in closing, I will say we will hear from the regulators about what they can do to strengthen their oversight and 

supervision and how we can make the banks and our financial system more resilient. And then we will hear directly from the failed 

bank executives, who must answer for their banks’ downfalls. 

But today our focus is on how to improve the tools we have to 

hold them accountable and prevent these failures from happening 

in the first place. 

Ultimately, bank executives are responsible for the success or 

failure of their institution. They are responsible for keeping their 
4 

depositors’ money safe. They know when they sign up for the job 

that banking is built on trust. They are responsible for holding up 

their end of the deal. 

Senator Scott. 

OPENING STATEMENT OF SENATOR TIM SCOTT 

Senator SCOTT. Thank you, Mr. Chairman. 

Today we are supposed to be talking about ‘‘Holding Executives 

Accountable After Recent Bank Failures’’. But from where I sit, all 

I see is finger pointing. I do not see anyone—from the bank executives to the regulators to the Biden administration—taking meaningful accountability for their actions that played a role in the recent bank failures. 

We should, 100 percent, discuss certain authorities regulators 

have to claw back executives’ compensation if that individual acted 

in malpractice. And we should discuss the lack of accountability at 

the executive and board of director level, as well. But we should 

not forget that the regulators should also be held accountable. 

So like I have said from the beginning, this was a failure in three 

parts, and we must discuss accountability across the board—for 

bank executives, bank regulators, and this Administration’s inflationary spending policies. And I look forward to addressing these 

issues later in hearings this month. 

As for the bank executives, these were not your average banks. 

They were like the Las Vegas betting tables of banks that rolled 

the dice on falling interest rates when everything pointed in exactly the opposite direction. And if that did not have the red alert 

sirens going, we now know that they suffered rampant mismanagement and these very same risks that brought the banks down were 

in plain sight to the supervisors. Flashing red lights, without a 

question. What a blatant disregard for economic conditions, a disregard for supervisory warnings, and a disregard for basic corporate governance and risk controls. 

To start, SVB operated without a chief risk officer for 8 months 

following the resignation of the previous officer in April of 2022. A 

very fast-growing bank—unprecedented growth—without a risk officer for 8 consecutive months. But even more concerning is when 

Silicon Valley Bank failed, it had 31 open supervisory findings, and 

that level of findings is about three times the number of other peer 

banks. 

As a Charlestonian, I want to put it a different way. We are 

known for amazing restaurants and fantastic food. If one of our 

restaurants had 31 safety or health violations, they would be shut 

down in a heartbeat. We would not get to 31. But what is more, 

if an inspector failed to take note of those 31 safety or health issues 

in the first place, they would lose all credibility and their jobs. 

Regulators must also be held accountable for their supervisory 

failures to the same extent that the failed banks’ executives and 

the directors should be. Otherwise, there is no incentive for anyone 

at fault to change. 

Just last week, we received the Federal Reserve and FDIC’s reports on the failures of SVB and Signature Bank. The Federal Reserve report acknowledged the supervisors did not fully appreciate 

the extent of the vulnerabilities as SVB grew in size and com-
5 

plexity. But rather than focusing on these failures and providing 

mechanisms to ensure sufficient steps are taken in the future, the 

Federal Reserve used the report as a scapegoat to push its progressive, regulatory agenda. 

Where is the accountability for the inaction on the Federal Reserve? I think we should all keep in mind that the last time Michael Barr testified before the Committee, he would not commit to 

firing any of the employees who failed to do their jobs. 

The FDIC’s report also found supervisory failures as well as failures in bank management. Additionally, after the failure of a second California bank, First Republic, with over $200 billion in assets over the past weekend, it is clear that the practices and the 

standards of the California State supervisors also merit congressional scrutiny. 

Turning back to the bank executives. We must find a path forward to holding bad actors accountable. We all know that market 

behavior is a driving force, and perhaps we should look to strengthening corporate responsibility through good governance mechanisms. 

For example, it has been reported that SVB’s bonuses came with 

so-called clawback provisions that would allow the lender to recoup 

the pay if there was wrongdoing. However, there was no provision 

allowing the bank to claw back the money if excessive risk-taking 

led to the losses. I certainly think this is something we can, and 

should, discuss. 

At the same time, if good governance reforms are not appropriately targeted and calibrated, an overly prescriptive approach 

has the potential to further siphon and divert talent away from the 

banking sector to nonbank sectors of the financial services industry. As we have seen here, good management is absolutely essential. Recruiting talented folks at financial institutions is of the utmost importance in making sure that these institutions run 

smoothly and soundly. 

It is questionable whether we should be encouraging supervisors 

to dedicate more time, attention, and manpower to evaluating the 

riskiness of compensation practices when they failed to resolve 

bread-and-butter banking practices at these failed banks. The 

FDIC, the SEC, and the DOJ have authorities to hold management 

at these failed banks accountable for any misconduct. 

At the end of the day, the United States banking system is one 

of the most heavily regulated industries in the world. What is the 

point of having law after regulation after rule after guidance if the 

regulators are not using the tools they already have at their disposal? It does not matter what we do in Congress if the regulators 

do not implement and enforce the laws we create as intended. 

With that, I look forward to hearing from our witnesses on accountability across the board, with existing authorities and any potential suggestions you may have. 

Chair BROWN. Thank you, Senator Scott. 

Before introducing the witnesses I just came from a meeting with 

the CEO of Norfolk Southern, and I think most of you know the 

terrible train tragedy, the derailing, in East Palestine. One of the 

comments I have made about this is we know that when that happened, when Silicon Valley Bank happened, the first thing I 
6 

thought of was East Palestine, because in the history of our country, the last 100 years, the most powerful two interest groups in 

this country are the banks and the railroads. And I know we often 

hear about all these rules and all these regulations on banks, but 

we also know this town swarms with bank lobbyists so often getting their way, and weakening those rules, and intimidating regulators, and we know all that. 

So I will introduce the witnesses. Da Lin is an Assistant Professor of Law at the University of Richmond. Her scholarship focuses on financial regulations, securities regulations, and corporate 

governance. Ms. Lin, nice to see you. Thanks for coming. 

Thomas Quaadman is Executive Vice President of the U.S. 

Chamber of Commerce Center for Capital Markets Competitiveness, Chamber Technology Engagement Center and the Global Innovation Policy Center. Mr. Quaadman, welcome. We are glad you 

here. 

Ms. Heidi Schooner is a Professor of Law at the Columbus School 

of Law, the Catholic University of America. Her scholarship focuses 

on regulation of the financial services industry. Welcome back to 

the Committee. Nice to see you again. 

Professor Lin, you start, please. 

STATEMENT OF DA LIN, ASSISTANT PROFESSOR OF LAW, 

UNIVERSITY OF RICHMOND SCHOOL OF LAW 

Ms. LIN. Thank you, Senator. Chairman Brown, Ranking Member Scott, and Members of the Senate Committee on Banking, 

Housing, and Urban Affairs, thank you for the opportunity to appear before you. My name is Da Lin. I am an Associate Professor 

of Law at the University of Richmond School of Law, where I study 

and teach corporate governance, financial regulation, and securities 

regulation. I would also like to thank my supportive family who are 

here with me today, my husband, Parth, and our ever-curious toddler, Oliver. 

Federal banking regulators have broad authority to remove 

bankers from office for engaging in deceptive, unsafe, or unsound 

practices, and even to permanently prohibit them from working in 

the banking industry. Unfortunately, this authority has rarely been 

used against bank directors and senior executives, even when their 

mismanagement results in bank failure. 

I will briefly explain the current statutory landscape and then 

discuss potential reforms to strengthen bank oversight and governance. 

Under current law, Federal banking regulators may permanent 

bar any employee of a bank from working in the banking industry 

under the following circumstances: if an individual (1) participated 

in misconduct, including violations of law, breaches of fiduciary duties, and unsafe or unsound practices; (2) the misconduct harmed 

the bank or benefited the wrongdoer; and (3) the misconduct involved personal dishonestly or demonstrated willful or continuing 

disregard for the safety or soundness of the institution. 

Over the past 20 years, America’s largest banks have settled 

hundreds of major lawsuits and paid over $195 billion in fines and 

penalties. They have admitted to pervasive fraud, bribery, money 

laundering, price fixing, illegal kickbacks, discriminatory lending, 
7 

and a host of other consumer protection violations. Yet, Federal 

banking regulators have barred senior management of only one 

major U.S. bank from the industry. Instead, regulators have primarily excluded rank-and-file workers for low-level misconduct, 

such as embezzlement, that has little impact on bank safety or administration. 

In my study of enforcement actions issued by the Federal Reserve between 2015 and 2019, I found that 72 percent of individuals prohibited from banking were low-level employees who had already been terminated from their jobs. And after the 2008 financial 

crisis, banking regulators barred 21 rank-and-file workers but did 

not impose the sanction on a single senior executive. 

This disparity exists because the current law is not well designed 

to be applied to senior bank leadership, particularly at larger 

banks. There are two main obstacles. First, the culpability requirement for removal and prohibition is overly demanding, requiring, 

as I have mentioned, ‘‘personal dishonesty’’ or a ‘‘willful or continuing disregard’’ for the safety or soundness of the institution. 

Yet failed management is seldom a deliberate act, and it is even 

less likely to be provable as one. Directors and senior executives 

are typically shielded from knowledge of operational details by the 

diffuse decision-making processes that characterize most large and 

mid-sized banks. 

Second, as banks have consolidated and grown over the past 30 

years, the role of senior bank leadership has transformed. Their responsibilities consist increasingly of institutional oversight rather 

than participation in operational details. Today when senior bankers fail to adequately perform their jobs it is nearly always because 

they either neglected known issues or they were uninformed because they did not establish systems, structures, and internal controls designed to effectively detect operational risk. However, the 

statute underlying the prohibition authority has not been substantively updated since 1989. 

While the responsibilities of bank leadership are increasingly 

systemic in character, the requirements that regulators must satisfy to prohibit an individual from the industry remain focused on 

discrete activities. Congress should recognize mismanagement and 

institutional oversight failure as a distinct basis for removal and 

prohibition. 

I would like to close by observing that the authority to remove 

individuals from office and prohibit them from working in the 

banking industry is one of several tools available to Federal regulators to hold bankers accountable for unsafe or unsound practices, 

and I applaud the Committee for also considering proposals to 

broaden this toolkit. 

I want to emphasize, however, that those utter mechanisms cannot replicate or replace a potent removal and prohibition authority 

in strengthening bank governance. The same bank directors and 

executives whose mismanagement cause a bank to fail should not 

be permitted to run your bank. 

Thank you. 

Chair BROWN. Thank you, Professor Lin. 

Mr. Quaadman, welcome. 
8 

STATEMENT OF THOMAS QUAADMAN, EXECUTIVE VICE PRESIDENT, CENTER FOR CAPITAL MARKET COMPETITIVENESS, 

U.S. CHAMBER OF COMMERCE 

Mr. QUAADMAN. Thank you, Chairman Brown, Ranking Member 

Scott, and Members of the Committee for holding this hearing. 

From the information that is available it appears that the recent 

banking turmoil is the result of a failure of supervision, management, and governance. The subject of this hearing today covers 3 

banks out of 4,500 in the United States. It is also important to remember that those three banks had very unique business models. 

Silicon Valley Bank concentrated on capital-intensive tech startups 

as well as biomedical startups, First Republic Bank concentrated 

on wealth management, whereas Signature Bank had a large exposure to digital assets. Those business models are much different 

than the traditional regional banks that provide financial resources 

for Main Street businesses. 

Turning to executive compensation, we have to remember that 

there is a global marketplace for CEO and executive talent. Compensation is key for acquiring and retaining the talent needed for 

the long-term success of a business. The Chamber has been on 

record since 2005, where we have been critical of behavior that 

drives short-term-ism, specifically the use of quarterly earnings 

guidance. Furthermore, if policies do not align with market demands, businesses will suffer. 

There are multiple checks on compensation specifically in governance, in general. We have investor and board oversight, which 

comes with it for publicly traded companies, SEC clawback authorities, as well as say-on-pay votes. We have the Federal Deposit Insurance Act which allows for the recoupment of compensation, of 

which over $4 billion has been recovered. There is a 2010 Joint 

Bank Regulator Guidance on Sound Incentive Compensation Policies, which, in our view, fulfills the requirements of Section 956 of 

the Dodd-Frank Act. Additionally, we have the Orderly Liquidation 

Authority clawback authority as well. 

This failure of supervision is quite startling. We have MRAs that 

went back as far as 2020. In the Federal Reserve report from last 

Friday, we have seen how there was a lack of communication between management and the board on key issues. Those are red 

flags that should have been brought to the immediate attention of 

the regulators, and action should have been taken. Furthermore, 

while the regulators were not taking action, JPMorgan Chase 

issued an investor note in November on the interest rate risk with 

Silicon Valley Bank. 

Moreso, we have to be very careful about how new policies are 

going to be developed in this area. We sent a letter to the banking 

regulators, both in terms of this banking crisis as well as a holistic 

review on capital requirements that the Federal Reserve and other 

banking regulators be transparent with the data, share that with 

stakeholders in order to fulfill the requirements of the Administrative Procedures Act as well as the Riegel Act. 

Furthermore, we have to look at some of the legislation that is 

before the Committee today. The Warren-Hawley bill would allow 

for a 5-year clawback of salary and compensation. Who would want 

to go work for any business that has a 5-year clawback of salary? 
9 

Furthermore, that clawback authority also extends to professionals, 

such as lawyers and accountants. Which professional firm is going 

to want to engage in that kind of contract, and that is going to deprive those businesses of the talent they need to govern themselves. 

Furthermore, there is the Reed-Grassley bill, which we are sympathetic with. However, there needs to be more information on it, 

but let us also not forget that insider trading is already illegal. 

Heaping more authorities is not necessarily going to mean anything if the cop on the beat is not doing anything. 

And finally, let me just close with Credit Suisse, which is a cautionary tale. In 2013, the Swiss passed new compensation policies 

which prohibited bonuses, restricted salary, and had a binding sayon-pay vote. Credit Suisse’s stock took a hit once that passed, and 

it never recovered. Furthermore, from 2013 moving forward, Credit 

Suisse has cited those compensation policies as an obstacle to their 

being able to retain and attract talent, and actually flagging that 

as a risk to the long-term health of the bank. We need to keep that 

in mind because we also know how that ended. 

Mr. Chairman, thank you, and I am happy to take any questions 

you may have. 

Chair BROWN. Thank you, Mr. Quaadman. 

Professor Schooner, welcome. 

STATEMENT OF HEIDI MANDANIS SCHOONER, PROFESSOR OF 

LAW, COLUMBUS SCHOOL OF LAW, THE CATHOLIC UNIVERSITY OF AMERICA 

Ms. SCHOONER. Chairman Brown, Ranking Member Scott, and 

Members of the Committee, thank you for the opportunity to participate in today’s hearing on the accountability of bank executives. 

In my testimony, I offer two central observations. First, bank executives play a critical role in maintaining the strength of our financial system, and that role requires a diligence and care that 

sets them apart from managers of nonbank firms. Second, Congress 

has recognized the importance of bank executives’ responsibility by 

authorizing Federal bank regulators to hold executives accountable 

for management failures. Existing law, however, could be reformed 

to provide stronger accountability for bank executives who act negligently or for the board members who fail in their oversight responsibilities. 

As the Committee well knows, banks are special in the services 

that they provide, and they are also inherently fragile, subject to 

the kinds of runs that we have seen all too recently. Such characteristics justify extensive regulation of banks’ operations, but the 

responsibility for safety and soundness of the institution ultimately 

rests with bank management. 

While managers owe fiduciary duties to their institutions, just 

like officers and directors of any corporation, their critical responsibilities do not end there. Bank executives are responsible for 

managing inherently risky institutions that are critical to sustaining the health of the economy, and thus, the well-being of all 

citizens. They are responsible for institutions that rely on taxpayer 

backing in the form of deposit insurance and emergency liquidity. 
10 

Recent events amply illustrate the extent of this dependence. 

Bank management is a heavy responsibility indeed. In the United 

States and around the world, the importance of management to 

bank safety and soundness is recognized from cradle to grave. Law 

and regulation expressly demand competent management from the 

institution’s initial chartering to the supervision of the bank’s ongoing operations, and through to the resolution of the failed institution. Federal law also imposes liability on bank officers and directors for mismanagement. Recent proposals seek to enhance the 

banking agencies’ ability to hold executives accountable for such 

mismanagement. 

Recent reform proposals seek to impose consequences through 

clawbacks of executive compensation on bank executives of failed 

banks. The relevance of this reform became clear when the Federal 

Reserve released its report last week on the failure of Silicon Valley Bank. The report finds that Silicon Valley Bank’s incentive 

compensation arrangements encouraged excessive short-term risktaking. Banker compensation should not encourage, let alone reward, excessive risk-taking that leads to significant loss, or worse, 

a bank’s failure. 

Clawbacks, especially mandatory clawbacks, are an appropriate 

consequence for such mismanagement. Moreover, clawbacks can 

help maintain or restore the public’s confidence in our financial 

system. 

While I support the accountability of bank managers of failed 

banks, I urge that such proposals be considered in conjunction with 

reforms that would improve the accountability of managers of both 

failed and open institutions. 

Strengthening existing administrative enforcement powers applicable to officers and director of open institutions as well as closed 

institutions offers two important advantages. First, explicit consequences for negligent behavior and failure of oversight could provide powerful incentives for bank executives to exercise prudence 

in managing fragile and often complex organizations, and thus help 

prevent needless bank failures and the associated losses. Second, 

strengthening agency enforcement tools would better level the competitive playing field between large and small banks. Given the reality of too-big-to-fail, only managers of relatively smaller banks 

are impacted by the consequences triggered by a bank’s failure. 

The recent failures of Silicon Valley Bank, Signature Bank, and 

First Republic Bank highlight the importance of vigilance in maintaining the safety and soundness of our financial system. Bank executives form the frontline defense against bank failure. When 

bank executives fail in their responsibilities to protect the safety 

and soundness of their institutions, they should be held accountable to the public. Congress can enhance accountability through reforms aimed at both mismanagement at both failed and open 

banks. 

Thank you. 

Chair BROWN. Thank you, Professor Schooner. 

We will begin the questioning with Senator Tester, of Montana. 

Senator TESTER. Thank you, Mr. Chairman. I appreciate the hospitality. And I want to thank you and the Ranking Member for 
11 

holding this hearing, and I want to thank the folks who testified 

today. Thank you all for being here. 

It is clear that the management at these banks made poor decisions. They ignored risk factors that ultimately resulted in failure. 

It is also clear that the regulators were not dropping the hammer 

on these banks, and the executives, or the boards, even when the 

problems that supervisors had identified were not being addressed. 

These were problems that the executives knew about, but instead 

of addressing them, they gave themselves bonuses, which should 

make everybody in this room’s blood boil. 

Regulators and law enforcement must take steps to investigate 

actions of the former bank management. Those folks responsible 

must be held accountable, to make sure that similar mistakes are 

not made again, because if they are not addressed, they will be. 

Ms. Lin, where are the gaps in our existing Federal structure for 

holding these executives accountable? Are the laws there, or do we 

need to put more laws on the books? 

Ms. LIN. Thank you, Senator. For the prohibition and removal 

authority, as it is applied to bank executives and directors, senior 

bank leadership, there are important gaps that deter effective enforcement, effective use of this authority. 

The problems, in my opinion, are twofold. First is the culpability 

requirement, which requires regulators to show either personal dishonesty or a willful or continuing disregard for the safety or soundness of the institution. This demanding requirement broadly insulates directors and officers of large banks from liability or sanction 

because they can credibly deny knowledge of most operational details. The challenge of proving willful complicity increases as the 

distance to the wrongdoing, the wrongful activity, increases, especially when the misconduct relates to complex issues such as risk 

management. 

Senator TESTER. So do you have recommendations on what this 

Committee could do to address those gaps? 

Ms. LIN. Yes, Senator. 

Senator TESTER. OK. I would love to get them. I am going to 

move on because I have only got 5 minutes. 

Ms. Schooner, Professor Schooner I should say, do you believe 

those gaps are there, and do you have recommendations, if you believe there are gaps, that you could give this Committee, give myself, the Chairman, the Ranking Member? 

Ms. SCHOONER. Senator, I agree with Professor Lin that the 

standards for administrative enforcement are unduly high, requiring showing of reckless conduct, which especially with larger institutions is problematic. 

Senator TESTER. OK. Trust me. If you can get them to me, I 

would love to see them. 

Mr. Quaadman, are your views on sufficiency of Federal regulators’ law enforcement tools, what are your views on that, to be 

able to hold executives accountable? You talked about, in your 

opening statement, that you thought they were there. You stand by 

those? 

Mr. QUAADMAN. Yeah. We believe that the authorities were 

there. We do not believe that the regulators took effective action. 

We are actually looking forward to the hearings you are going to 
12 

have here, both with those executives as with Vice Chair Barr, and 

if there is information that comes about where maybe our views 

are going to change a little bit on that we will be happy to talk 

with you further. 

Senator TESTER. I want to clarify a little bit. I am not talking 

about the regulations that the banks are held to, because I think 

those regulations were there. The regulators had the ability to stop 

this from happening. They did not drop the hammer. They did not. 

I am talking about the regulators have the ability to hold the bank 

executives accountable. 

Mr. QUAADMAN. So with the specific point that you raised at the 

start of your question about the bonuses they were paid, we need 

the information there because insider trading is illegal, right? 

10(b)(5) is not a safe harbor. 

Senator TESTER. I got you. 

Mr. QUAADMAN. So we think that action should be taken. If it 

was inappropriate activity there, it should be handled then. 

Senator TESTER. I am sure—and I appreciate that perspective, by 

the way, Mr. Quaadman—I am sure that you probably looked at 

this situation, particularly with Silicon Valley Bank. All the signs 

were there. I mean, all the signs. Why do you think we have not 

heard anything about clawing back or holding people accountable? 

Because I have not heard a word about that. 

Mr. QUAADMAN. I believe, to some degree, we are still in the investigatory stage with the different agencies that are there. And it 

takes a little bit of time. 

Senator TESTER. OK. I have one more question, and that deals 

with regulation moving forward. You know what? I have run out 

of time. I will put it for the record. You were kind enough to let 

me go first. I do not want to hold up the hearing. 

Senator SCOTT. Quick, knock it out. 

Senator TESTER. I can? 

Chair BROWN. Yeah, go ahead. 

Senator TESTER. You guys are both pretty—— 

Senator SCOTT. I will yield you a minute of the Chairman’s time. 

[Laughter.] 

Senator TESTER. Will you? OK. 

So one of my concerns about the outcome of this, because the Fed 

report pointed out that the regulation was there to handle it, that 

the regulators did not enforce the regulation and hold people accountable. One of my concerns is that there will be a push to get 

more regulation. I think that is going to happen. I do not think it 

will happen, but I think there will be a push for it. 

But my concern is, similar to what happened in 2008, that the 

regulators will respond in a way where they put the screws to the 

banks who are following the rules, that the board is paying attention, that the executives are doing a good job. 

Do you see it the same way, and is there anything we can do to 

stop that? That is for Mr. Quaadman. 

Mr. QUAADMAN. First off, Senator, you are a small business man. 

Senator TESTER. Yep. 

Mr. QUAADMAN. You understand how many of those banks work. 

And that is why I said, you know, that there was an esoteric model 

with the banks that we are talking about here. 
13 

I do think, with the Federal Reserve, I think there were several 

assertions made in the report without the data, which I think is 

troubling. There were certain assertions made about executive compensation, and that we need to do more. 

Let me just read through page 75 of the report for a second, one 

sentence from the report, which contradicts some of what the assertions are, which is why I think your inquiries are going to be even 

more important. ‘‘Supervisors’ interviews with the Compensation 

Committee chair, SVB, indicated that the Compensation Committee decided not to reduce incentive compensation despite the 

known weakness of the enterprise risk management program. Freeing this would lead to the increased attrition of senior executives 

due to executives’ compensation already being lower than peer 

firms.’’ 

So there is already contradictory information even in that report, 

which I think we need more information on. 

Senator TESTER. The only thing that I would just say is that this 

board of directors did not do their job. Their executives did not do 

their job. If they got paid minimum wage, they got overpaid. That 

is all. 

Chair BROWN. Thank you, Senator Tester. 

Senator Scott is recognized. 

Senator SCOTT. Jon, I could not agree with you more. There is 

no doubt that the failure that we are looking at for the bank execs 

is inexcusable, without any question. You and I will probably disagree on my next comment, but I will say that an Administration 

prints and spends trillions and trillions and trillions of dollars, that 

would be embarrassing to any drunken person with somebody 

else’s credit card, is remarkable. And having the Fed have ten increases in about a year only exposes the vulnerabilities, and a bank 

that is gambling on lower interest rates, when every indication is 

it going higher and higher and higher, yet we do not have conversation about some of the underlying causes of an unstable, chaotic economy that leads to liquidity risks. 

On a different topic, it is not secret that these banks were rife 

with mismanagement. I said it myself time and again, and now 

even the regulators and the reports are confirming this truth. But 

the use of emergency powers may be just as detrimental to the continuity of our banking system going forward. If the Government is 

always there to intervene and bail out a failing bank, this could 

promote riskier decisions in the financial sector, moving forward. 

With potential bad actors hedging their bets with the strength of 

Uncle Sam, how could they lose? And that is not a bet I want to 

see. 

Principles of risk management are based around the possibilities 

of loss, and if we eliminate the reality of failure there ends up 

being no cause for prudent management, only a masking of bad decisions waiting to implode, like they did with SVB. 

Mr. Quaadman, does the increased usage of emergency powers 

incentivize proper management? And you already started to answer 

with Jon, with Senator Tester, without any question. But your last 

comment really struck me, and I wanted you to continue to expound upon this very important question. Jon and I both run businesses, and whenever you infuse in any sector the moral hazard 
14 

that somehow you are just geniuses with no risk, because there is 

no chance of failure, you do incentivize more and more bad behavior and less focus on the underlying issue of prudent management. 

Mr. QUAADMAN. Senator Scott, there is a lot to unpack there, but 

I think you are hitting on the right points of we have had an issue 

of moral hazard. We have had an extended period of time of zero 

interest rates, where management and governance was not necessarily keeping pace with that. Additionally, regulators are not 

keeping an eye on things as well. So when we had the cash go up, 

right, with the spending that was happening, that had to go into 

bank deposits. There was not a sufficient focus on interest rate risk 

and the issues that had to happen there. 

One point I wanted to raise as well, and Senator Scott, as a 

small business person, regional banks are a very key player for 

Main Street businesses. They have been prudently acting and have 

not had the same esoteric issues here. But again, if the cop on the 

beat is not enforcing law, new authority is not going to do much. 

Senator SCOTT. Good work. Since 2008, the FDIC has filed dozens of lawsuits and entered into nearly 1,000 settlement agreements with officers, directors, and other professionals related to 

loss suffered by banks placed in FDIC receivership. Such actions 

have led to recoveries totaling more than $4 billion. The FDIC has 

stated that it generally brings personal liability cases against the 

officers and directors of failed banks when there are these instances: dishonest conduct; inappropriate transactions with bank 

insiders; failure to establish, follow, or monitor sound underwriting 

policies and procedures; and failure to respond to concerns raised 

by regulators, counsel, or other professionals. 

Is there any reason to doubt that the FDIC has existing authority to hold senior leadership and directors personally liable? 

Mr. QUAADMAN. No. We think the authorities are there, and 

clearly you cite the statistics that show that. Additionally, the Fed 

and other banking regulators have those authorities as well. But 

what is clear, even from the rudimentary information that we have 

with SVB and the other banks, is that sufficient action was not 

taken, and some of these issues, in terms of, one, where management is not communicating problems to the board of directors, that 

is a red flag that should have been jumped on immediately and 

was not. 

Senator SCOTT. Two tools that work in your toolbox that you do 

not use does not mean you need a third one. 

Mr. QUAADMAN. Correct. 

Senator SCOTT. Thank you. 

Chair BROWN. Thank you, Senator Scott. 

First question to all three of you, and please just answer yes or 

not. It is pretty straightforward. Do you agree that individual executives whose mismanagement and disregard for basic banking 

principles that led to the failure of these banks should face meaningful consequences for their action? Professor Lin? 

Ms. LIN. Yes. 

Chair BROWN. Mr. Quaadman. 

Mr. QUAADMAN. Yes, if the information shows that. 

Ms. SCHOONER. Yes. 

Chair BROWN. Thank you. 
15 

It is clear, Professor Schooner, it is clear in the case of SVB and 

Signature Bank, executives failed to properly oversee and manage 

the risks of their institutions. Their compensation was tied to profits, which incentivized them to grow their banks. The SVB was almost unprecedented in the speed at which it grew. They also rewarded themselves with bonuses in the weeks and months leading 

up to their failure, even when regulators were raising red flag after 

red flag after red flag about risks at that bank. 

Do we need to deter this type of information by individual executives ahead of time so we can avoid a potential failure that put customers of the banking system, and ultimately taxpayers, at risk? 

Ms. SCHOONER. Yes, Senator. I think that we need to focus on 

the ongoing operations of banks in a safe and sound manner, and 

we should not send the signal to bank executives that when the 

bank fails they can walk away and that is it. I think that is the 

wrong kind of incentive. So we need to encourage prudent operations and management while banks are operating. 

Chair BROWN. Thank you. 

Professor Lin, you have found that bank executives are rarely 

barred from the industry when they have engaged in mismanagement or poor supervision. Why is the existing removal power not 

suited for the executives of big banks like SVB? 

Ms. LIN. Thank you, Senator. There are two obstacles. The first 

is the culpability requirement, which currently is demanding. It requires personal dishonesty or a willful or a continuing disregard for 

the safety and soundness of the institution. And especially in larger 

banks, the challenge of proving willful complicity increases as to 

the distance of the wrongdoing. Executives today are shielded from 

liability because of the diffuse decision-making structure that exists 

in most large and mid-sized institutions. 

Second, there is a mismatch between the responsibilities of bank 

executives and directors which focus on systemic oversight, putting 

into place systems, internal controls, structures that promptly detect and efficiently deter operational risk. And the focus of the current authority to prohibit bankers from the industry, which narrowly focuses on discrete activities, and whether or not there was 

knowledge of and participation in discrete wrongdoing. 

So I would have two recommendations. The first is to adjust the 

culpability requirement, lowering it to perhaps recklessness or negligence, and the second is to identify mismanagement and oversight 

failure as a discrete basis for removal and prohibition from the industry. 

Chair BROWN. Thank you. 

Last question, Ms. Schooner. Unlike many other countries that 

only have a handful of megabanks, the U.S. banking system has 

thousands of small banks that serve local communities. How would 

strengthening our enforcement tools to hold bank executives accountable not only help prevent failures but also improve fairness 

and competition between large and small banks? 

Ms. SCHOONER. So Senator, the reality is that most administrative enforcements actions are brought against the managers of 

failed institutions, and since megabanks do not fail, that means 

that they escape that kind of accountability. So I think reforming 

the administrative enforcement power that agencies currently have 
16 

to better reach the managers of operating institutions would help 

level that playing field. 

Chair BROWN. And I think all of us were concerned about the 

GSIBs that seem to get larger and larger, even those that have not 

performed particularly well. Wells Fargo is always the one that 

jumps to mind. All of those banks got bigger with migration of deposits after SVB and Signature deposits were moving to those big 

banks, including Wells Fargo, tens and tens of billions of dollars. 

And then what happened just this week, with FDIC choosing, 

under whatever decision-making that was done, choosing 

JPMorgan Chase. 

Senator Vance, from Ohio, is recognized. 

Senator VANCE. Great. Thank you, Mr. Chair, and thanks to Senators Brown and Scott for hosting this important hearing. 

You know, I worked with some of my colleagues on some legislation related to clawbacks, and so I want to focus my line of questioning just one some very specific applications of how those potential statutes might work in practice. In particular, what we are 

worried about is, you know, you take a situation like Silicon Valley 

Bank, where executives paid themselves out very large amounts of 

money in the weeks and months leading up to the failure. 

And what is especially sick about this, of course, is the taxpayers 

end up bearing a lot of the risk of that failed decision making, and 

the executives end up running away like bandits. And that strikes 

me as an especially unfair way to run a banking system, where you 

can screw things up, pay yourself out fat bonuses, and then taxpayers end up dealing with the downside risk. 

So two particular questions that sort of come up in the conversations I have had with colleagues about this, how to narrowly tailor 

this such that you are targeting the bank executives who cause 

these problems and not, let’s say, an administrative assistant or a 

bank teller who had no decision-making authority in what ultimately led to the bank’s collapse, whether that is Silicon Valley 

Bank or somebody else. 

This first question is going to Mr. Quaadman, and the question 

here is, can you explain who gets caught up in the statutory definition of a, quote, ‘‘institution-affiliated party’’? You know, could that 

potentially capture a bank teller, an administrative assistant to an 

executive? Sort of how broad does that sweep, because that influences how we draft this thing. 

Mr. QUAADMAN. It is extremely broad. You could also be talking 

about an accounting firm or a law firm that is providing services 

to that banking institution as well. Of course, lawyers and accountants are also extremely important for management and governance 

purposes, so firms would be reluctant to engage with a business if 

that provision was there. And that, again, goes toward the talent 

issues, the management issues. So that is an issue of particular 

concern that we have. 

Senator VANCE. Great. OK. That is helpful to know, and certainly good knowledge for us to have. 

Professor Schooner, I wanted to sort of direct this question to 

you. One of the things that has sort of come up again on this question of narrowing is the question of directors and whether they 

should be liable under some of these clawback provisions. I know 
17 

from my time in the private sector that ‘‘director’’ usually means 

a member of the board of directors, but sometimes it could be a director of marketing or a director of business development. 

So particularly that word, if you were to expose directors to 

clawback liability, do you think that could be reasonably interpreted by a court or a regulator to cover mid-level managers who 

have the director title, or do you think that would understandably, 

by most, be applied only to a member of the board of directors? 

Ms. SCHOONER. Senator, I think it would only be applied to the 

member of the board of directors. I have never seen that term used 

in a statute used to apply to anybody other than the board. In 

other words, the term ‘‘director’’ is really taken from the incorporation of the entity, and the responsible managers are the board of 

directors. So I would be very surprised if it was interpreted that 

way. 

Senator VANCE. Got it. I would love to get the answer to that 

question from Mr. Quaadman and Ms. Lin. 

Mr. QUAADMAN. In reviewing some of the legislation announcements around before the Warren-Hawley bill, I think some of it 

could be—I agree in terms of the ‘‘director’’ issue, but I think some 

of the definitions could include line employees as well, which I do 

not believe is the intent. I think it is more trying to be directed 

around senior executives and others, where traditionally these compensation issues are more aligned. 

We have other concerns with the legislation, but we do think it 

could be over broad. 

Senator VANCE. What is it that you think it could apply to line 

employees? 

Mr. QUAADMAN. I think it is how it is defined. Because if you 

look at other compensation statutes there are specific levels that 

are defined as to where entities—as to who it applies to. 

Senator VANCE. Got ok. Ms. Da Lin. 

Ms. LIN. I agree with Professor Schooner, Senator, that ‘‘directors’’ are typically used to refer to the board of directors, and, in 

fact, in several provisions, for example, in 1818(e)(5), the term ‘‘directors’’ and ‘‘officers’’ are specifically defined in a way that also 

enumerates activities, such as substantial participation. 

So the focus of the statute and the aim of the statute has been 

always to use the term ‘‘directors’’ to mean boards of directors. 

Senator VANCE. Got it. OK. Thank you all. I appreciate it, and 

I yield. 

Chair BROWN. Thank you, Senator Vance. 

Senator Reed, of Rhode Island, is recognized. 

Senator REED. Thank you, Mr. Chairman. Thank you, panel, for 

being here today. 

With Senator Grassley I have introduced S. 1181. It is the Bank 

Management Accountability Act. And our legislation would authorize the FDIC to claw back 2 years of compensation from directors 

and senior executives of failed, systematically important banks, 

and ban them from the financial industry. Frankly, I think the 

American public is appalled that they are looking at CEOs of Silicon Valley Bank getting $10 million, walking out with even more 

in terms of stock, and nothing can be done. 
18 

Professor Schooner, how would depositors, regulators, the banking industry, and the American people all benefit if Congress were 

to strengthen FDIC’s outdated and weak authorities for ensuring 

accountability in systematically important banks? 

Ms. SCHOONER. So Senator, I think you made an important point 

about the public’s confidence in our financial system. I think that 

without clawback authority, particularly in the circumstances we 

are just living through, I think really that confidence in the financial system might be reasonably shaken. I think that reforms that 

would allow for that kind of accountability would not only impact 

the aftermath of a bank failure, but I also think it would impact 

the ongoing operations of a bank. Because bank directors and officers are quite aware, highly aware of their responsibilities, and I 

think that they would adjust their behavior accordingly. 

Senator REED. And Professor Lin, do you have any comments? 

Ms. LIN. I fully agree with Professor Schooner that when banks 

are held accountable to the public, through regulators, enhanced 

regulators authority, those authorities seek to incentivize bank directors to operate not in shareholders’ interests but also in the 

public’s interest as well. We encourage them not to just focus on 

making the most profit and wealth maximization, but also taking 

steps to assure safety and soundness. 

And so by strengthening enforcement authorities that regulators 

can use against bank officers and directors, senior bank management, we strengthen their incentives to put the public’s interest in 

mind. 

Senator REED. I think both of you, particularly, one, it would enhance the confidence of the American public in the accountability 

and dedication to their interests by bank executives, and second, it 

would be a constant reminder to behave appropriately by the directors, and in both cases would enhance the overall stability of the 

financial system. Is that fair? 

Ms. SCHOONER. Yes, Senator, I agree. I think it would have both 

of those effects. 

Senator REED. Thank you very much. 

The other aspect is that, and I think has probably been touched 

upon, our whole society, the world society is now supercharged by 

virtual connectivity. Are there any quick sort of thoughts you have 

about how the regulators deal with that? This is not Jimmy Stewart standing in the lobby, telling five people, ‘‘Don’t worry. Don’t 

worry.’’ It is instantaneously thousands of people saying, ‘‘Get out. 

Get out. Get out of the bank now.’’ 

Ms. SCHOONER. Senator, I do think that complexity both at the 

bank operations level and in regulation is a problem. In the wake 

of the financial crisis of 2008–2009, there was a lot of talk about 

creating regulatory rules that were simpler, that could be applied 

more broadly, and I think we have sort of gone in the opposite direction. Regulation has become more and more complicated, and I 

think that makes it difficult for supervisors to apply those standards. 

And so I think that we could improve the system by dealing with 

the complexity of the institutions as well as regulation. 

Senator REED. Thank you very much. Thank you all. Mr. Chairman, thank you. 
19 

Chair BROWN. Thank you, Senator Reed. 

Senator Britt, of Alabama, is recognized. 

Senator BRITT. Thank you, Mr. Chairman. I appreciate all of you 

being here. Professor Lin, I have to say, as someone who went back 

to law school with essentially a newborn and an 11-month-old, it 

particularly warms my heart to see Oliver here with you today. 

Ms. LIN. Thank you, Senator. 

Senator BRITT. I want to start by saying I am proud being from 

a State where financial institutions are really strong. While Alabamians every day continue to face the daily impacts of inflation 

and economic uncertainty that I believe have been caused by the 

Biden administration’s failed policies, I am proud of the work our 

regional banks, community banks, and our credit unions have continued to play to instill confidence in Alabama and to support our 

communities. 

Regarding the recent failures of Silicon Valley Bank, Signature 

Bank, and more recently, First Republic, I continue to be concerned 

with regulators’ blatant failure to utilize their current authorities 

ahead of these events, and I believe that recent reports from the 

Federal Reserve, FDIC, and GAO even further spotlight these failures. I look forward to having the regulators back to testify later 

this month and provide more definitive answers to this Committee 

following their fact-finding exercises. 

On today’s topic, I certainly agree with my colleagues that bad 

actors at any institution must be held accountable. In this particular case, it is clear that there were significant mismanagement 

and risk controls at both Silicon Valley Bank and Signature that 

just went awry. And I believe any individual that knowingly contributed to or unjustly profited from the bank’s failure and ultimate 

downfall should absolutely be held responsible. 

I want to discuss potential legislation, but before we do that, I 

think it is very important not to be duplicative. So very quickly, if 

we can just go across, and I will start with you, Professor Schooner, 

you mentioned existing law. If we can very tightly talk about what 

law is on the books currently that could be used to hold these bad 

actors accountable. 

Ms. SCHOONER. The bank regulators have administrative enforcement authority to bring actions in multiple different ways. The 

standards of culpability are high though, and so that is where I 

think that there could be some reform in those laws. 

Senator BRITT. Thank you. Mr. Quaadman. 

Mr. QUAADMAN. Senator Britt, you know, if you take a look at 

the existing authorities that banking regulators have, the Department of Justice has, the SEC has, we do believe that those authorities can hold those people accountable, and we think that it is important. That is why I raised the Credit Suisse issue of, if we put 

things out of balance it is actually going to make our banking system weaker, and we do not want to go down that road. 

Senator BRITT. OK. Let’s actually drill down on that. How do you 

feel like there could be something that would be narrowly tailored 

that would not do that? Because the problem is you want to make 

sure that you are holding bad actors accountable, but not being 

overly broad, and clawbacks deter talent from entering this industry. You all have said, obviously, the banking industry is so critical 
20 

to making sure that this country continues to thrive in the way it 

does, and so we need the best and brightest going into the banking 

sector. 

So can you drill down on a narrowly tailored solution to that? 

Mr. QUAADMAN. One of the reasons why I think that the upcoming hearings are so important is that we have the bank saying to 

the regulators, Silicon Valley Bank saying to the banking regulator, ‘‘Our comp packages are below where our peers are.’’ But 

then there are all these governance issues that then the supervisors are flagging but they are not doing anything on. 

So I think it is more looking at what broke down within the regulatory structure that needs to be done, because that is why I said, 

with Mr. Scott’s questioning, of if the cop on the beat is not enforcing the laws, new laws are not going to do anything. 

Senator BRITT. Correct. Correct. And Professor Lin? 

Ms. LIN. Thank you, Senator. I also agree that the current structure has enforcement tools at a regulator’s disposal, but their 

hands are tied. 

Senator BRITT. What would you use? If I made you right now, try 

to hold these men and women accountable, who unjustly enriched 

themselves, what would you use? 

Ms. LIN. There are three main tools. One is the removal and prohibition authority, which bars the bankers from the industry. The 

second could be civil money penalty order, which has been used 

against executives. And third would be a personal cease-and-desist 

order, which could halt certain activities and ask bankers to refrain 

from certain activities, identifiable activities, in the future. 

Senator BRITT. OK. And those are all on the books right now. 

That is what you would use. 

Ms. LIN. But their culpability standards make it difficult for regulators to use, especially against senior leadership at large banks. 

Senator BRITT. OK. I am out of time, but I certainly believe we 

need to hold these people accountable, but make sure that that is 

narrowly tailored to address the issue at hand. Thank you. 

Chair BROWN. Thank you, Senator Britt. 

Senator Fetterman, of Pennsylvania, is recognized. 

Senator FETTERMAN. Thank you, Mr. Chairman. 

I would just like to keep everything simple here. This is question 

for really all three of you. Really, what do you think is the reason 

of the collapses? Was it incompetency, was it greed, or was it virtuous risk? 

Ms. SCHOONER. I think mismanagement was the primary cause. 

Senator FETTERMAN. And incompetency? 

Ms. SCHOONER. Yes. 

Mr. QUAADMAN. I think there was mismanagement, but there 

were also supervisory failures that did not allow for appropriate 

governance to take place. 

Senator FETTERMAN. Really? You do not believe that there was 

just incompetence? 

Mr. QUAADMAN. No. I think that there were issues in terms of, 

with Silicon Valley Bank, where they did not have a chief risk officer for a long period of time. They had a long transition with their 

chief financial officer, which created management issues. But then 

where the supervisors were actually flagging some of these issues, 
21 

they never took any follow-up action, which could have prevented 

the collapse from happening. 

Ms. LIN. Senator, I believe that it was mismanagement, specifically, that the leadership pursued rapid, unrestrained growth without appreciating or adequately controlling the increasing risks that 

the banks faced. 

Senator FETTERMAN. Mismanagement. Was that really clouded 

by greed, or just incompetence? You know, were they just incompetent? I think these were high achieving, you know, executives 

and successful banks. Do you think it was not greed, or do you 

think, theoretically, they were like, ‘‘We can really crash really 

good, because they are going to come clean up our mess here,’’ kind 

of a thing. Because that, to me—what do you think? Because I do 

not think an average human being in our nation, you know, would 

not just say, ‘‘Hey, you know what? I am going to run up too much 

debt and I am going to come by bankruptcy, but I am going to get 

paid it off,’’ kind of a thing. 

So do you think anything that is not part of this idea that we 

are going to clean up my mess? 

Ms. SCHOONER. Senator, I believe that mismanagement is the 

problem, but you are talking about the motives for mismanagement, and I think that what the Fed report suggests is that the 

motives were short-term gains that were tied to compensation. In 

fact, I think it was one of the most startling findings in the Federal 

Reserve’s report. 

Mr. QUAADMAN. Senator, first off, we look forward to the upcoming hearing that you are going to have with the CEOs of these 

banks, to get more information to better understand that. But 

again, there was a failure of board oversight. There was a failure 

of management making appropriate decisions. There was a failure 

of the supervisors to actually oversee this. And interestingly 

enough, we have investors such as JPMorgan Chase issue an investor note with Silicon Valley Bank in November, yet there was no 

action taken by the supervisors. 

So I think there is a lot of blame to go around here. 

Ms. LIN. Senator, I think that the incentives are twofold, at 

least, with the mismanagement. First, there is the problem of compensation, which drives incentives toward short-term gains. Second, as the reports reveal, there is the problem of growing banks, 

that the management perhaps, which could be characterized as incompetence, did not grow with the size of the banks, and that led 

to incompetence in the performance of their duties. 

Senator FETTERMAN. Personally, I just find a hard time believing 

that they do not believe that these banks realize that someone is 

going to come in to save me. And I think they figure that the kind 

of risk, they know that because they are not going to be held accountable, and they are going to be made whole. And I just find 

that your average American would find that outrageous. 

Anyway, thank you. 

Chair BROWN. Thank you, Senator Fetterman. 

Senator Warner is recognized from his office. Senator Warner, of 

Virginia. 

Senator WARNER. Thank you, Mr. Chairman, and I appreciate 

you holding this hearing. I agree with a lot of my colleagues’ com-
22 

ments that I think this was a disaster that could have been avoided, on Silicon Valley Bank in particular. The number of notices 

that the regulators had the bank management had that things 

were going awry and the fact that nobody acted on those is extraordinarily problematic. 

I also appreciate the fact that you have got Professor Da Lin 

from University of Richmond, another great law school, another 

great Virginia person on this panel, and I have listened in on some 

of her comments. 

As you know, Mr. Chairman, I, along with a lot of other Members, have cosponsored all of the legislation out there on the ability 

to claw back provisions from management who are irresponsible, 

who make these kinds of mistakes. I do know, and I appreciate the 

fact that we need to move on some of this legislation, and I look 

forward to a markup taking place soon. And given we are seeing 

what may be follow-on Silicon Valley Bank and First Signature, the 

dislocation that is taking place in the regional bank markets today. 

You know, we are seeing what appears to be close to a meltdown, 

and a lot of this not due to maybe necessarily bad management 

practices, but the potential for contagion that is taking place. But 

making sure we have got rules in place for clawbacks, making sure 

that the regulators move forward on the executive compensation 

issues is something that I know other colleagues have mentioned 

as well. 

I guess my one question for the whole panel will be about the 

role of boards of directors, and answering Senator Fetterman’s 

questions about board responsibilities. I think too often bank 

boards have been viewed as a nice perk to have, but with that 

ought to be a greater level of responsibility. I know, Professor 

Schooner, that you have talked about this, but could the whole 

panel give us some guidance on what policy recommendations we 

should put in place to make sure that all board responsibilities, but 

bank board responsibilities, in particular, are taken in a more serious vein, both incentive-wise and potentially penalty-wise, if bank 

boards, in the case of Silicon Valley Bank, do not take their actions 

responsibly? So I would ask the whole panel to address that. 

Ms. SCHOONER. Thank you for that question, Senator, and as a 

Virginia native I am happy to take this particular question from 

you. The boards of directors, the functioning of the board of directors is different from the executive suite in that boards are responsible for overseeing operations and making sure that risk management procedures are in place. That can lead to unsafe and unsound 

banking practices, but our current administrative enforcement laws 

could be amended to make clearer that that oversight function is 

the standard by which directors are held. 

Senator WARNER. Would the absence, in the case of Silicon Valley Bank, of not having a chief risk officer for 8 months when the 

bank was experiencing this kind of growth, would that have not 

been a board responsibility to hold management accountable? 

Ms. SCHOONER. Absolutely. 

Mr. QUAADMAN. Senator, I was just going to say, as with any 

public company, the board is an extremely important part of the 

oversight function and governance of the company. As you just 

cited, the lack of a chief risk officer was a board issue. The lengthy 
23 

transition of the CFO was a board issue. What is also concerning 

coming out of the Federal Reserve report, which I think we need 

more information on, is also how management was not reporting to 

the board information that they should have had, where the board 

should have taken action on as well. 

So we are looking forward to more of the information coming out 

of your hearings to better understand where those failures where 

and what action, if any, should be taken. 

Senator WARNER. Thank you. 

Ms. LIN. Senator, the enforcement actions that are currently at 

regulators’ disposal do not take into account oversight responsibilities, clearly, as a basis for authority action. So for example, in 

Wells Fargo, Wells Fargo had implemented, according to a report, 

better tools and systems to detect employees who did not meet 

their sales goals than it did to catch employees who engaged in 

sales practices misconduct. This is a problem of board oversight. 

They did not implement the proper structures, systems, and internal controls. 

Yet for prohibition action, the regulators are asked to train their 

eyes solely on the wrongful activity, who knew and who engaged 

in that sales misconduct themselves, rather than what structures 

were in place, what board failures there were. 

Senator WARNER. Thank you, Mr. Chairman. Thank you, panelists. 

Senator CHAFEE. Thank you, Senator Warner. 

Senator Tillis, of North Carolina, is recognized. 

Senator TILLIS. Thank you, Mr. Chair. Thank you all for being 

here. 

I have been watching the hearing when I have had the opportunity to in my office, and Senator Fetterman asked a question of 

all three of you, and it had to do with what the root cause was of 

the bank failure. Ms. Da Lin—did I pronounce that right? 

Ms. LIN. Yes, Senator. 

Senator TILLIS. ——you said it was management. I agree. Mr. 

Quaadman, you said it was management and supervision. I agree. 

Ms. Schooner, you said management. 

Why did the two of you not mention any skepticism around the 

level of supervision and that being a potential root cause? The chief 

risk officer is an obvious one, I agree. That was a mess of management. I think the CEO not understanding his liquidity threats and 

internal liquidity stress testing results that he had to have some 

indication of before he dumped stock. And this is also something, 

who was a Class A director on the board of directors, who lost his 

job the day the failure was identified. 

Why would not the fact that three matters requiring attention 

and three matters requiring immediate attention—what we do not 

know yet and we hope to find out in the report is whether or not 

any of those MRAs become MRIs—why did not management act on 

that and why did not the supervisory function press the accelerator 

on getting a response and resolution to that? 

It just seems to me, on its face, and I could get into more details, 

but it just seems to me, on its face, anybody that is looking at this, 

to not stipulate that it was both a breakdown in executive management, and every single dime that we can claw back from anybody 
24 

in the C suite, we should, and I do believe that there are devices 

to do that now, that we should act on. But why would that not be 

a part of your observation of some of the factors that likely led to 

it? 

Not to mention the overall portfolio. If you take a look at Silicon 

Valley Bank, we have other banks that are now getting caught up 

by depositors thinking, well, maybe they were like Silicon Valley 

Bank. There are only a handful of banks that have the kind of risk 

portfolio that Silicon Valley Bank had. 

So Ms. Da Lin, why would you not have mentioned a supervision 

lapse as one of the potential root causes? I have the same question 

for you, Ms. Schooner. 

Ms. LIN. Thank you, Senator. I do think that we found out two 

important causes of the recent bank failures from the reports that 

were released last week. First, senior leadership was incentivized 

to pursue short-term growth—— 

Senator TILLIS. But talking more about the supervisory question. 

Ms. LIN. Yes. Also we learned that regulators missed obvious 

problems and they were slow to address the problems they did recognize. And management—— 

Senator TILLIS. OK. So I do not want to interrupt you, but I do 

not want to be the last person—oh well, Senator Warren is here 

so I will not be the last person. So it was not that you do not think 

that there are clearly some questions to be answered there. In response To Senator Fetterman’s question, you just did not go down 

that path in your response. You said it was a failure of management. But you also understand there are questions that have to be 

asked on the supervisory function? 

Ms. LIN. Yes, Senator. 

Senator TILLIS. That is good. I am sorry to interrupt you. I hate 

the 5-minute limit, but it is there for a reason. Ms. Schooner? 

Ms. SCHOONER. I answered Senator Fetterman’s question because I interpreted it as asking me what the primary cause of the 

failure was, and I see it as a management failure. I agree with you 

that regulatory forbearance is a persistent problem in our system, 

but I also think that it is very important to keep in mind a finding 

about Silicon Valley Bank which I found alarming, that the management was relying on bank regulators to help them manage their 

interest rate risk, and that is—— 

Senator TILLIS. I think there is one more layer to the supervisory 

discussion where I know I disagree with some of my colleagues who 

did not support Senate bill 2155. But we did not stipulate that regulatory—there are escalation options, because we said that they 

may be able to take a given bank, based on its activities and the 

risks that a supervisor perceives, and subject them to a regulatory 

regimen that we do not think is necessary for other banks with 

very different portfolios. So I also want to know why the supervisor 

chose not to do that, particularly if that supervisor had six outstanding MRAs or MRIs. That, to me, leads me to believe that we 

may find out, if we have an objective assessment, if there was 

equal weight in that. 

CEOs were incompetent. You need to claw back as much of their 

compensation as possible. Maybe the supervisory function of the 

Fed in San Francisco could have equal weight in why that failed. 
25 

Thank you, Mr. Chairman. 

Chair BROWN. Thank you, Senator Tillis. 

Senator Warren, from Massachusetts, is recognized. 

Senator WARREN. Thank you, Mr. Chairman. 

So in its postmortem of the Silicon Valley Bank collapse, the Fed 

found that legislation passed out of this Committee in 2018, led to 

weakened rules for big banks that were major contributors to Silicon Valley Bank’s failure. The lessons, I think, are clear. Regulators need to strengthen bank oversight, and Congress must reinstate stronger rules. 

And here is a place to start. SVB, Signature Bank, and First Republic all lobbied Congress to weaken the guardrails, preventing 

them from making risky bets with depositors’ money. And then 

surprise, surprise—these executives took risks to boost their shortterm profits, gave themselves huge salaries and bonuses and stock 

options, and when they crashed their banks, they walked away 

with fortunes. 

That is why Senator Cortez Masto, Senator Hawley, Senator 

Braun, and I introduced a bipartisan bill to ensure that when executives crash their banks and threaten the banking system, those 

executives are forced to give up their fancy compensation packages. 

Professor Lin, you are an expert on corporate governance and financial regulation. If our Failed Bank Executives Clawback Act, 

which applies to failed banks, no matter how they are dealt with 

by the FDIC, had been the law of the land when SVB failed, would 

it have applied to SVB executives? 

Ms. LIN. Yes, I believe so, Senator. 

Senator WARREN. Uh-huh. And would it have applied to Signature executives? 

Ms. LIN. I believe so, Senator. 

Senator WARREN. And would it have applied to First Republic executives? 

Ms. LIN. I believe so. 

Senator WARREN. All right. SVB, Signature, and First Republic 

were resolved by the FDIC through different processes, using different statutory authorities. To make clawbacks effective we have 

to give regulators broad authority to claw back executive pay whenever banks collapse, regardless of the specific process that the 

FDIC uses to pick up the pieces. 

Now, unsurprisingly, bank executives hate clawbacks. They want 

to keep on taking risks with zero consequences. 

Professor Lin, if our banking regulators had the choice whether 

or not to claw back executive compensation after a bank failure 

would you expect Wall Street to exert significant pressure on them 

not to use that authority? 

Ms. LIN. Yes, I think that is a real possibility. 

Senator WARREN. You know, it is clear that giving regulators 

power to do something is not always enough. Congress needs to 

force regulators to use it, which is what Senators Cortez Masto, 

Hawley, Braun’s and my bill does. 

Now in its review of the Silicon Valley Bank collapse, the Government Accountability Office found that, quote, ‘‘In the 5 years 

prior to 2023, regulators identified concerns with Silicon Valley 

Bank and Signature Bank, but both banks were slow to mitigate 
26 

the problems the regulators identified, and risks built up over 

time.’’ 

Professor Schooner, if regulators had had the authority they 

needed to claw back compensation from Silicon Valley Bank executives, would it be reasonable, in your view, for them to consider the 

executives’ actions and pay since 2018, when the regulators first 

began warning Silicon Valley Bank about its risky practices? 

Ms. SCHOONER. Senator, I think that would be very reasonable. 

Incentive arrangements often rely on short-term metrics, that it 

takes long-term to determine whether those involve excessive risks. 

So I think giving regulators the opportunity to capture that kind 

of excessive risk-taking is reasonable. 

Senator WARREN. OK. That is very helpful. Thank you. 

You know, Congress needs to put in place tough rules that make 

sure that executives pay up when their actions lead directly to a 

bank failure, and in order for us to do that, the regulation needs 

to do three things: force regulators to claw back compensation from 

the executives who are responsible for the failure; second, apply in 

all cases of bank failure, no matter how the particular form comes 

out; and third, allow up to 5 years of compensation to be clawed 

back. 

My bill with Senators Cortez Masto, Hawley, and Braun achieves 

all three of those, and I hope that this Committee will take action 

on it soon. 

Thank you, Mr. Chairman. 

Chair BROWN. Thank you, Senator Warren. 

Senator Cortez Masto, I understand, is joining us from her office, 

from Nevada. 

[Pause.] 

Chair BROWN. She is not. 

[Pause.] 

Chair BROWN. I will just make a closing statement because they 

are not here. Bottom line is bank executives responsible for these 

failures, they need to be accountable. I agree with Ranking Member Scott that if this bank were a restaurant with 31 safety violations it should be shut down, but it would not be shut down if the 

chief health inspector is telling the inspectors to go easy on the restaurant, because keeping people safe is just as important. That is 

what former Vice Chair Quarles said after he weakened the rules 

at the Fed, what he said. That is why we need to strengthen regulatory guardrails. 

Thanks to our witnesses today for their testimony. Senators who 

wish to submit questions for the record, these questions are due 1 

week from today, Thursday, May 11th. To the witnesses, please 

submit your responses to the questions for the record 45 days from 

the day you receive them. 

The hearing is adjourned. 

[Whereupon, at 11:31 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 
27 

PREPARED STATEMENT OF CHAIR SHERROD BROWN 

Most Americans who put their money in a bank should trust that it will be safe. 

They shouldn’t have to give it a second thought. 

That money isn’t just sitting in the bank vault collecting dust. Working Americans 

lend their hard-earned money to their banks, with the promise to get it back, with 

a little interest. They expect that their banker will not only keep their money safe, 

but that they’ll also take those customer deposits and put them to good use. 

And that’s what many banks do. 

They make loans to small businesses, issue mortgages to homebuyers, and finance 

new apartment buildings so that our communities can continue to grow and prosper. 

This is Banking 101. It’s pretty boring—as good banking should be. 

Because of the important role that banks play in our economy, that responsibility 

comes with a public safety net—American taxpayers subsidize this industry with 

Government guarantees, like deposit insurance and access to emergency loans. 

These are perks that most Americans don’t get. Workers don’t have access to special emergency loans when something goes wrong in their life. 

Banks get special treatment, because they’re supposed to play a special role in 

our economy. 

But we’ve seen over and over that some bank executives don’t hold up their end 

of the deal. 

Banks need to manage their risks, build capital, and be able to pay back their 

depositors when they need their money back. 

That’s not what happened at Silicon Valley Bank and Signature Bank. 

Their CEOs and executives led their banks off a cliff. 

They failed to manage the risks associated with their business model and investments. They lacked strong corporate governance and internal controls. They failed 

to respond to—and in some cases ignored—regulators’ concerns. 

And we ended up with a bank run. 

As their banks grew rapidly—more than doubling and tripling in size in just 3 

years—their already-weak risk management couldn’t keep up. 

It’s the Wall Street business model we see corporations follow over and over: executives put short-term profits above everything else. 

In this case, that meant taking on more and more risk. Fatter profit margins 

meant higher payouts for those at the top—and more risk for the small businesses 

with their money in the bank. 

At Silicon Valley Bank, executive bonuses were tied to the bank’s return on equity, so they bought securities with higher yields to chase higher and higher profits. 

When those investments started to lose money, instead of changing course they doubled down. 

At Signature Bank, executives had incentive compensation plans that were tied 

to return on assets to ‘‘reflect additional focus on profitability.’’ 

‘‘Additional focus on profitability.’’ 

Then when the writing was on the wall, SVB executives dumped millions of dollars’ worth of company stock. 

At First Republic, senior executives sold millions in their bank stock less than a 

week after SVB and Signature Bank failed and sparked further concerns at their 

own bank. 

For a lot of Americans, this all brought a sickening feeling of deja vu. 

Everyone remembers 2008. We all remember Wall Street wrecking our economy, 

setting off the worst recession since the Depression that cost millions of Americans 

their jobs and their homes. 

And Americans will never forget that, by and large, the Wall Street executives 

who caused all that pain didn’t face any consequences. 

Their profits and bonuses weren’t clawed back—they went up. 

Only in corporate boardrooms can you run your business into the ground, take 

the whole economy along with you, and come out ahead. 

We cannot—we will not—let that happen again. 

Bank executives who take on too much risk and crash their banks because of their 

own hubris and greed shouldn’t get to ride off into the sunset with their ill-gotten 

gains. 

And they shouldn’t get to take their bad behavior to another bank, where they 

can continue to profit off an unsustainable business model and put more people’s 

money at risk. 

When it comes to holding big bank executives accountable for their recklessness, 

the wheels of justice move slowly—or often not at all. 

We know that when workers make just one mistake—if they overdraft their bank 

account or miss a credit card payment, they get dinged with fees and penalties. 
28 

But when big bank executives and giant Wall Street firms do something far 

worse, like run their bank into the ground or crash our whole economy, they’re almost never held accountable. 

The big banks have more money and resources to fight tooth and nail. They have 

layers of complex management and bureaucracy to shield them. And that makes it 

harder and takes longer to enforce the law. 

Just a few days after the SVB and Signature Bank failures, Carrie Tolstedt, the 

former Wells Fargo executive who led the bank’s years-long fake account scandal 

that was uncovered in 2016, was finally banned from the industry and fined $17 

million. 

Only now—nearly a decade later—is the executive responsible for the massive 

scandal that hurt hundreds of thousands of Americans being held to account. 

We need to strengthen our financial watchdogs’ ability to impose fines, ban bad 

actors from the banking industry, and claw back compensation, so that accountability doesn’t just apply to the teller who miscounts the cash box or the community 

bank director who makes a bad judgment on a loan. 

We must modernize our enforcement rules to match the size and complexity of 

banks with billions of dollars in assets and multiple business lines—banks like Silicon Valley and Wells Fargo. 

We need legislation to: 

• Expand the banking agencies’ authority to ban a bank executive or manager 

from the industry for failing to properly oversee the bank’s operations. 

• Make it easier for agencies to bring actions against bank executives and managers who are asleep at the switch, so we can disincentivize the lax oversight 

that leads to bank failures. 

• Clarify and expand the FDIC’s authority to claw back compensation. 

• Increase penalties and make it easier to impose fines against bad actors. 

• Require the agencies to finally finish the Dodd-Frank section 956 rule on incentive-based compensation. 

I have been talking to many of my colleagues about this, including the Ranking 

Member, and I know there is bipartisan interest on many of these issues. Two of 

the Members on this Committee have bipartisan bills. I hope we can work together 

to get this done. 

As we’ve seen over the past few months, we need a system that deters excessive 

risk taking and imposes real, financial consequences on individuals for failing to 

oversee and manage those risks. Bank executives cannot continue to operate under 

the assumption that basic risk management is optional and secondary to making 

profits. 

Let me say that again: Bank executives cannot operate a bank in a manner where 

risk management is optional. 

And that’s exactly what happened here, and is underscored by the reports the regulators and GAO put out last week. Executives failed to manage these banks. 

Later this month, we will hear from the regulators about what they can do to 

strengthen their oversight and supervision and how we can make the banks and our 

financial system more resilient. And we will hear directly from the failed bank executives, who must answer for their banks’ downfalls. 

But today, our focus is on how to improve the tools we have to hold bank executives accountable and prevent these failures from happening in the first place. 

Ultimately, bank executives are responsible for the success or failure of their institution. They are responsible for keeping their depositors’ money safe. They know 

when they sign up for the job that banking is built on trust. They are responsible 

for holding up their end of the deal. 

PREPARED STATEMENT OF SENATOR TIM SCOTT 

Today we’re supposed to be talking about ‘‘Holding Executives Accountable After 

Recent Bank Failures’’. But from where I sit, all I see is finger pointing. I don’t see 

anyone—from the bank executives, to the regulators, to the Biden administration— 

taking meaningful accountability for their actions that played a role in the recent 

bank failures. 

We should, 100 percent, discuss certain authorities regulators have to claw back 

executives’ compensation if that individual acted in malpractice. And we should discuss the lack of accountability at the executive and board of director level, as well. 

But we should not forget that the regulators should also be held accountable. 
29 

So, like I have said from the beginning, this was a failure in three parts, and we 

must discuss accountability across the board—for bank executives, bank regulators, 

and this Administration’s inflationary spending policies. And I look forward to addressing these issues later in hearings this month. 

As for the bank executives, these were not your average banks. They were like 

the Las Vegas betting tables of banks that rolled the dice on falling interest rates 

when everything pointed in exactly the opposite direction. And if that didn’t have 

the red alert sirens going, we now know that they suffered rampant mismanagement and these very same risks that brought the banks down were in plain sight 

[of] the supervisors. Flashing red lights, without a question. What a blatant disregard for economic conditions, a disregard for supervisory warnings, and a disregard for basic corporate governance and risk controls. 

To start, SVB operated without a chief risk officer for 8 months following the resignation of the previous officer in April of 2022. A very fast-growing bank—unprecedented growth—without a risk officer for 8 consecutive months. But even more concerning is when Silicon Valley Bank failed, it had 31 open supervisory findings, and 

that level of findings is about three times the number [at] other peer banks. 

As a Charlestonian, I want to put it a different way. We are known for amazing 

restaurants and fantastic food. If one of our restaurants had 31 safety or health violations, they would be shut down in a heartbeat! We wouldn’t get to 31. But what’s 

more, if an inspector failed to take note of those 31 safety or health issues in the 

first place, they would lose all credibility and their [job]! 

Regulators must also be held accountable for their supervisory failures to the 

same extent that the failed banks’ executives and directors should be—otherwise, 

there is no incentive for anyone at fault to change. 

Just last week, we received the Federal Reserve and FDIC’s reports on the failures of SVB and Signature Bank. The Federal Reserve report acknowledged the supervisors did not fully appreciate the extent of the vulnerabilities as SVB grew in 

size and complexity. But rather than focusing on these failures and providing mechanisms to ensure sufficient steps are taken in the future, the Federal Reserve used 

the report as a scapegoat to push its progressive, regulatory agenda. 

Where is the accountability for the inaction [of] the Federal Reserve? I think we 

should all keep in mind that the last time Michael Barr testified before the Committee, he would not commit to firing any of the employees who failed to do their 

jobs. The FDIC’s report also found supervisory failures as well as failures in bank 

management. Additionally, after the failure of a second California bank, First Republic, with over $200 billion in assets over the past weekend, it is clear that the 

practices and the standards of the California State supervisors also merit congressional scrutiny. 

Turning back to the bank executives. We must find a path forward to holding bad 

actors accountable. We all know that market behavior is a driving force, and perhaps we should look to strengthening corporate responsibility through good governance mechanisms. 

For example, it has been reported that SVB’s bonuses came with so-called 

clawback provisions that would [have allowed] the lender to recoup the pay if there 

was wrongdoing. However, there was no provision allowing the bank to claw back 

the money if excessive risk-taking led to the losses. I certainly think this is something we can, and should, discuss. 

At the same time, if good governance reforms are not appropriately targeted and 

calibrated, an overly prescriptive approach has the potential to further siphon and 

divert talent away from the banking sector to nonbank sectors of the financial services industry. As we have seen here, good management is absolutely essential. Recruiting talented folks at financial institutions is of the utmost importance in making sure that these institutions run smoothly and soundly. 

It is questionable whether we should be encouraging supervisors to dedicate more 

time, attention, and manpower to evaluating the riskiness of compensation practices 

when they failed to resolve bread-and-butter banking practices at these failed 

banks. The FDIC, the SEC, and the DOJ have authorities to hold management at 

these failed banks accountable for any misconduct. 

At the end of the day, the United States banking system is one of the most heavily regulated industries in the world. What is the point of having law after regulation after rule after guidance if the regulators aren’t using the tools they already 

have at their disposal? It doesn’t matter what we do in Congress if the regulators 

don’t implement and enforce the laws we create as intended. 

With that, I look forward to hearing from our witnesses on accountability across 

the board, with existing authorities and any potential suggestions you may have. 
30 

PREPARED STATEMENT OF DA LIN 

ASSISTANT PROFESSOR OF LAW, UNIVERSITY OF RICHMOND SCHOOL OF LAW

MAY 4, 2023 
31 
32 
33 
34 
35 
36 
37 

1 ‘‘Silicon Valley Bank Had No Chief Risk Officer for 8 Months While the VC Market Was 

Spiraling’’. Fortune. March 10, 2023. Available at: https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/. 2Silicon Valley Bank Risk Committee Charter. Available at: https://www.svb.com/ 

globalassets/library/uploadedfiles/content/corporate-governance/board-risk-committee-charter— 

april-2022-final.pdf. 3Silicon Valley Bank 2022 Proxy Statement, p. 29. Available at: https://www.svb.com/ 

globalassets/library/uploadedfiles/content/corporate/2022-proxy-statement.pdf. 4 Id. 

5 Congressional Research Service. ‘‘Silicon Valley Bank’s Failure and Potential Director/Officer 

Liability’’. April 7, 2023. Available at: https://crsreports.congress.gov/product/pdf/LSB/ 

LSB10946. 

PREPARED STATEMENT OF THOMAS QUAADMAN 

EXECUTIVE VICE PRESIDENT, CENTER FOR CAPITAL MARKET COMPETITIVENESS, U.S. 

CHAMBER OF COMMERCE

MAY 4, 2023 

Chairman Brown, Ranking Member Scott: my name is Tom Quaadman, Executive 

Vice President of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. Thank you for the opportunity to testify today regarding recent bank 

failures, executive compensation, and the importance of a well-functioning system 

of corporate governance. 

The failure of Silicon Valley Bank has prompted many legitimate questions about 

the nature of bank management, regulation, supervision, and the compensation incentives of bank executives. The work of policymakers and the regulatory system 

to investigate the causes of SVB’s failure and subsequent entities is crucial, and the 

business community is one of the beneficiaries of these investigations. To create 

well-functioning and attractive capital markets in the United States, the entire economic ecosystem needs to have well-defined and clear regulation that can be wellunderstood, implemented, and adhered to. While the circumstance of bank failure 

is a difficult way to learn lessons about what regulations are working and which 

are not, the work of this Committee, the House Financial Services Committee, and 

the prudential regulators to identify how such failures happen helps to improve the 

marketplace for all participants. 

There are, however, important aspects of the SVB failure that must not be overlooked and cannot be understated; Chief among these is the blatant mismanagement of the bank and an unexplained disregard for clear regulation. For instance, 

despite a clear requirement that financial institutions maintain a Chief Risk Officer 

(CRO), SVB was effectively without one for 8 months. 1 According to SVB’s risk committee charter, the CRO is responsible for reporting ‘‘regularly’’ on the company’s 

‘‘top risks, significant risk issues and overall management.’’ 2 Moreover, according to 

the company’s 2022 proxy statement, the Chief Risk Officer ‘‘reviews and shares her 

input on [compensation] risk assessments, and reports and discusses with the committee her risk assessment of our compensation programs (including plan design 

and execution), and any recommendations.’’ 3 In 2022, the company concluded that 

‘‘Based on these assessments and discussions, we do not believe that our compensation program promotes excessive risk taking or creates risks that are reasonably 

likely to have a material adverse effect on the company.’’ 4 As the Congressional Research Service identifies, SVB had, over the last year-and-a-half leading up to the 

failure, received six supervisory warnings from the Federal Reserve System (Fed) 

and offered some of the most generous compensation packages among publicly traded banks. 5 It is clear that the absence of a CRO—and management’s failure to appoint a new one—had an impact both on the company’s overall risk assessment and 

the compensation plans deployed at the company. 

As Members of Congress and other stakeholders have rightly pointed out, mismanagement at the bank and delinquencies related to supervisory action are not 

necessarily due to a lack of regulation. Human error is elemental to SVB’s failure. 

Consequently, one of the questions left outstanding relates to appropriate management safeguards, repercussions, and examining compensation incentives to be sure 

they sufficiently align the interests of the entity as a whole and broader market 

with individual interest. 

In response to this question, some Members of Congress and regulators have 

called for rulemaking under section 956 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (Dodd-Frank), despite guidance issued in 2011. 

Section 956 seeks to limit compensation packages that encourage excessive risk-taking. Incentive-based compensation arrangements are critical tools in the management of financial institutions. Compensation plans are uniquely designed by boards 
38 

6 Comments from Tom Quaadman responding to the Office of the Comptroller of the Currency, 

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Securities and Exchange Commission’s ‘‘Reproposed Rule on Incentive-Based Compensation Arrangements’’. July 

21, 2016. P. 5. Available at: https://www.sec.gov/comments/s7-07-16/s70716-25.pdf. See also: 

Comments from Tom Quaadman responding to SEC ‘‘Proposed Rules on Incentive-Based Compensation Arrangements’’, Release No. 34-64140. July 13, 2011. Available at: https:// 

www.sec.gov/comments/s7-12-11/s71211-742.pdf. See also: Comments from Tom Quaadman responding to Fed, FDIC, OCC, and SEC ‘‘Incentive Based Compensation Arrangements’’. February 25, 2014. Available at: https://www.sec.gov/comments/s7-12-11/s71211-752.pdf. 7See: S. 1045, Failed Bank Executives Clawback Act; S. 1181, Bank Management Accountability Act. 8Wayne Guay, Wharton School of the University of Pennsylvania. ‘‘Can Bonus Clawback 

Rules Fix Finance Industry Incentives?’’ May 4, 2016. ‘‘ . . . the new plan targets not only senior executives at financial institutions, but also lower-level employees who handle large sums 

of money, a provision that could potentially include tens of thousands of industry professionals 

. . . This is sparking concerns that financial workers could abandon banks and take their talents to less-regulated institutions.’’ Available at: https://knowledge.wharton.upenn.edu/article/ 

can-bonus-clawback-rules-fix-finance-industry-incentives/. 

of directors and management and are tailored for the employees of a particular institution. While financial institutions should avoid excessive risk that damages the 

long-term viability of the firm and potentially the financial system as a whole, it 

is essential that any regulator charged with writing compensation rules comprehensively study all the relevant issues and data and analyze the likely effects of its regulations on the highly competitive market for talent. To date, the agencies responsible for section 956 have taken a much too prescriptive approach that deviates from 

congressional intent when they have proposed rules in 2011 and 2016. 6

To be clear, compensation should not create perverse incentives, including awarding bonuses to executives when internal company crisis is imminent, and clawbacks 

can be a tool to help disincentivize unsavory corporate behavior. However, if the 

costs of a section 956 rule outweigh its benefits, professionals may flee covered businesses in favor of other financial firms, other industries, or seek opportunities in 

jurisdictions whose regulators more appropriately balance the putative governmental interest in regulating compensation plans with management’s ability—and, 

under prevailing corporation law, its statutory duty—to make business judgments 

for the benefit of the firm’s owners. 

This result could actually have the effect of undermining regulators’ goals in promulgating these rules by discouraging the most talented individuals—those most capable of preventing or managing the types of losses the regulator is trying to proscribe—from working in the financial services sector. It might also chill the kind of 

healthy risk-taking—lending, financing, and investing—that spurs economic growth 

and job creation in our capitalist system, resulting in corporate stagnation. If section 

956 implementation becomes the clarion call from SVB’s failure, then the regulators 

required to promulgate those rules need to start on those rules afresh and not reprise the proposal from 2011 or reproposal from 2016. Too much has changed, both 

from a Government policy perspective and an internal corporate hygienics perspective, for regulators to simply pick up where the rulemaking was last left off 7 years 

ago. At the very minimum, regulators must perform a rigorous cost benefit analysis, 

allow the stakeholder community ample time to comment, and evaluate whether the 

prescriptive approach previously proposed is in harmony with congressional intent 

in the original statute. 

There is a global competition for talent on the chief executive and senior executive 

level. This competition for talent should also be viewed through the lens of the context of a business. For instance, a business that needs to execute a turn-around may 

have to pay a premium for the talent. Such a premium may not fit nicely within 

the box of a pay versus performance disclosure; however, it is within the interest 

of a corporation and necessary to fulfilling the fiduciary duty of the board. Increased 

Government intervention in compensation issues, such as the raise in the IRS deduction for compensation in the early 1990s, set the stage for income enhancements 

outside of salary and increased compensation packages, skewing that market. 

In a related vein, recent legislative proposals to claw back executive compensation 

from executives at failed banks 7 should adequately weigh the costs and benefits of 

such policies, particularly from the perspective of attracting and retaining human 

capital in covered industries. While aspects of these policies may be appropriate and 

well-intentioned, they should not unduly punish executives, directors, and other employees who may not have had influence over recent crises or mismanagement. Unnecessarily disincentivizing top talent from participating in the financial sector may 

well result in additional mismanagement or, worse, additional failures. 8
39 

9 Comments of Tom Quaadman to the SEC, ‘‘Reopening of Comment Period on Pay Versus 

Performance; Proposed Rule, Securities and Exchange Commission’’. March 4, 2022. P. 4. Available at: http://www.centerforcapitalmarkets.com/wp-content/uploads/2022/03/220304-Comments-PayvPerformanceReopening-SEC.pdf?#. 

Beyond a parochial focus on financial institutions, the corporate governance landscape in the U.S. has changed rapidly and dramatically in the last decade, including 

topics like director elections and executive compensation. Setting aside the DoddFrank Act, the SEC has been pushing rulemaking and other initiatives in the corporate governance space that do not have a direct congressional mandate, adding 

compliance burdens without analyzing the aggregate impact of those changes. It is 

not an overstatement to say that corporate governance, and by extension the executive compensation space, has gotten significantly more complex in the last 2 years 

alone. Companies must be able to understand their responsibilities and how to execute them, and compounding changes to corporate governance policies create a challenge for companies to observe sound corporate governance practices. 

Companies need to be able to focus on financial factors in their corporate governance and compensation decisions. When company management is made to focus on 

mandated factors other than performance, it can serve as a distraction. Of concern, 

the SEC’s recent pay vs. performance rule sought to incorporate factors beyond company financial performance into compensation considerations. 9 That mandate exceeded congressional intent of the Dodd-Frank Act and may have an impact on companies’ ability to focus on long-term performance and growth. 

Corporate governance—and, by extension, executive compensation—does not exist 

in isolation; it is directly tied to American competitiveness and the attractiveness 

of the American capital markets. Overburdening companies with compliance mandates diminishes the public company model and thereby reduces the incentives for 

U.S. companies to go, and stay, public. There is need for regulation in the marketplace, but regulations must appropriately balance the costs and benefits, be wellconsidered, and must be practical. 

Accordingly, it should be recognized that with the recent banking issues the relevant agencies and the Department of Justice have many tools at their disposal to 

punish wrongdoing. A rush to judgment and implementing new policies around compensation will have ramifications well beyond the banking sector and may ultimately impact all public companies. It is important for Congress, the Administration, and the relevant agencies to consider the evidence at hand and not to swing 

wildly in such a manner as to create an atmosphere that will prevent businesses 

from going and staying public. Such an outcome will harm American competitiveness and main street investors. 

Thank you for the opportunity to participate in this conversation and I look forward to your questions. 
40 

PREPARED STATEMENT OF HEIDI MANDANIS SCHOONER 

PROFESSOR OF LAW, COLUMBUS SCHOOL OF LAW, THE CATHOLIC UNIVERSITY OF

AMERICA

MAY 4, 2023 
41 
42 
43 
44 
45 
46 
47 
48 
49 

1 Request for Information and Comment on Rules, Regulations, Guidance, and Statements of 

Policy Regarding Bank Merger Transactions, 87 FR 18740, 18740-41 (Mar. 31, 2022). 2See, e.g., Dep’t of the Treas., Off. of the Comptroller of the Currency, In re David Julian, 

No. OCC AA-EC-2019-71, Recommended Decision, at *21 (December 5, 2022) (David Julian, 

Wells Fargo’s former Chief Auditor, testified that given the size and the scope of Wells Fargo 

& Company and the amount of activity that Wells Fargo Audit Services was performing and 

just the size of Wells Fargo Audit Services, as I mentioned at one point 1,200 professionals, it 

would have been impossible for me, as Chief Auditor, to be involved in the day-to-day supervision of an audit engagement, so he ‘‘felt it was appropriate and necessary to delegate responsibilities within the organization for those activities’’) (internal quotation marks omitted). 

RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN 

FROM DA LIN 

Q.1. In your written testimony, you indicated that the authority to 

remove and prohibit bank directors and senior management from 

office for unsafe or unsound practices is inadequate. You suggested 

that regulatory enforcement actions have come to focus on rankand-file employees, compared to a prior focus on bank presidents, 

chief executive officers, and board members in the 1990s. If the removal and prohibition authority under §8(e) of the Federal Deposit 

Insurance Act has not changed since 1989, why has this shift in 

enforcement occurred? 

A.1. I believe the declining number of removal and prohibition actions against bank leadership relative to rank-and-file bank employees is primarily the result of 12 U.S.C. §1818(e)’s demanding 

culpability requirement coupled with consolidation of the banking 

industry. Between 1990 and 2020, the number of insured depository institutions with assets greater than $100 billion grew from 1 

to 33, and the number of insured depository institutions with assets between $10 billion and $100 billion doubled from 59 to 118. 1

As banks grew and became more decentralized, the challenge of 

proving that a bank director or senior executive actually knew of 

a problem and was willfully complicit correspondingly increased. 

This is particularly the case if the illegal or unsafe conduct occurred on the operational side; executives at the top of today’s 

banking conglomerates delegate day-to-day operational responsibilities to lower-level subordinates, and this dispersion of duties nearly always insulates executives from knowledge of detailed activities. 2 As I emphasized both in my written and oral testimony, over 

the past 30 years, oversight has become the linchpin of senior 

bankers’ responsibilities yet failed oversight is seldom a demonstrably deliberate act. 

Q.2. Under 12 U.S.C. §1818(e), the removal and prohibition authority requires culpability of either ‘‘personal dishonesty’’ or a ‘‘willful 

or continuing disregard’’ for the safety and soundness of a bank. 

Why do the activities of senior bank executives and directors, 

particularly of regional and large banks, shield them from meeting 

culpability under the current standard? 

A.2. Please see my response to Question 1. 

Q.3. If the existing culpability standard is too high to reach the activities of senior bank executives and directors, what culpability 

standard should Congress impose for these removal and prohibition 

authorities? 

A.3. As I discuss in my response to Question 1, §1818(e)’s removal 

and prohibition authority is rarely used—at least, formally— 
50 

3See Lindsey Hall and Jahan Zaib Mehmood, ‘‘Ten Years Later, World’s Biggest Banks Keep 

Getting Bigger’’, S&P Global (Nov. 27, 2017), https://www.spglobal.com/en/research-insights/ 

articles/ten-years-later-worlds-biggest-banks-keep-getting-bigger. 4See David J. Lynch, ‘‘Big Banks May Get Bigger as Crisis Swamps ‘Too Big to Fail’ Worries’’, 

Wash. Post (Mar. 19, 2023), https://www.washingtonpost.com/us-policy/2023/03/18/big-bankssilicon-valley-bank/; See Edward Harrison, ‘‘The Fed Is Helping Too-Big-to-Fail Banks Become 

Bigger’’, Bloomberg (May 2, 2023), https://www.bloomberg.com/news/newsletters/2023-05-02/ 

the-fed-is-helping-too-big-to-fail-banks-become-bigger. 5See Fed. Deposit Ins. Corp., Fdic’s Supervision of Signature Bank 9 (2023). 

against senior bankers of large and midsize banks because of the 

steep challenge of attributing knowledge of operational-level problems to these individuals. A negligence standard would better 

achieve accountability as it does not require knowledge of or intentional complicity in wrongdoing. Banking regulators should be able 

to sanction bank directors and senior executives under §1818(e) for 

conduct that could reasonably be expected to result in (or to fail to 

prevent) excessively risky or illegal activities, including foot-dragging in response to regulators’ supervisory concerns or establishing 

weak internal controls. 

Q.4. Should Congress consider imposing a different culpability 

standard on the senior bank executives and directors of community 

banks? If so, what? 

A.4. I am not convinced that most qualified individuals would avoid 

serving as senior executives and directors of community banks if 

§1818(e) sanctions could be imposed for negligent conduct. Moreover, even if that were the case, I believe modifying the default 

terms of removal or prohibition for community bankers would be a 

better lever than modifying the culpability standard because terms 

are more flexible and can be more easily tailored to specific circumstances. As I noted in my written testimony, Congress could 

create a tiered structure within §1818(e)’s framework that varies 

the default terms of any removal or prohibition order depending on 

the individual’s role within the institution, his culpability, and the 

harm to the affected institution. 

Q.5. The largest U.S. banks have continued to grow in size over the 

last decade. 3 The collapse of Silicon Valley Bank, Signature Bank, 

and First Republic Bank, in addition to increased big bank consolidation, have exacerbated this trend. 4 How has the growth in the 

size of the largest U.S. banks contributed to regulators’ inability to 

hold senior bank executives and directors accountable? Please list 

the types of ‘‘diffuse administrative processes,’’ as referenced in 

your testimony, that characterize the work of senior bank executives and directors at the largest U.S. banks. 

A.5. In my response to Question 1, I describe how the growth of 

banks has impacted regulators’ ability to hold members of bank 

leadership accountable under §1818(e). The degree of decentralization varies across large banks and different banks adopt different 

hierarchical structures, but operational decision-making is nearly 

always diffused through various levels and lines of business. For 

example, in its report on why Signature Bank of New York failed, 

the Federal Deposit Insurance Corporation (FDIC) observed that 

‘‘[t]he bank’s organizational structure lacked clear decision-making 

processes, transparency as to who made decisions, and documentation as to approval and escalation protocols.’’ 5 Wells Fargo’s ‘‘de-
51 

6See In re David Julian, supra note 2, at *247. 

7 Bd. of Governors of the Fed. Rsrv. Sys., Review of the Federal Reserve’s Supervision and 

Regulation of Silicon Valley Bank 1 (2023). 8See Bd. of Governors of the Fed. Rsrv. Sys., Sr 21-3/Ca 21-1, Supervisory Guidance on Board 

of Directors’ Effectiveness, (2021). 9See supra note 2. 

centralized corporate structure’’ likewise enabled those in charge of 

its Community Banking unit to conceal known risks related to its 

sales goals pressure from the bank’s top executives and directors. 6

Q.6. In your testimony, you recommend that Congress incorporate 

management and institutional oversight failures as distinct bases 

under the removal and prohibition authority. 

How would you define management and institutional oversight 

failures, respectively? 

A.6. Banking regulators define oversight as a distinct function from 

management. The Federal Reserve Board of Governors (Fed), for 

example, expects ‘‘boards of directors of supervised firms [to] provide effective oversight, and that management is responsible for 

daily and operational decisions.’’ 7 Regulators have, moreover, provided guidance on the substance of bank directors’ oversight role, 

such as setting an appropriate risk appetite, supervising senior officers, and ensuring that a robust system of internal controls 

exist. 8 Senior bank executives manage the day-to-day operations of 

the bank consistent with the directions given by the board. But 

within most large and midsize banks, top executives’ responsibilities are primarily oversight obligations that resemble those of directors, including supervising lower-level subordinates and maintaining effective internal controls. 9 Failure to adequately perform 

these functions constitutes oversight failure or mismanagement. 

Q.7. How would you incorporate management and institutional 

oversight failures into the statutory framework of 12 U.S.C. 

§1818(e)? 

A.7. Oversight failure or poor management by senior bankers 

should be explicitly added as a distinct basis for removal or prohibition under §1818(e)(1)(A). 

Q.8. How would these distinct bases fill the types of regulatory enforcement gaps against senior bank executives and directors that 

you have identified in your testimony? 

A.8. Refining the bases of §1818(e) to explicitly include oversight 

failure and poor management complements the change to §1818(e)’s 

culpability requirement that I identified in my response to Question 2. This reform would broaden the focus of §1818(e) beyond who 

committed and knew about discrete wrongful acts. Importantly, it 

would clarify that §1818(e) is a mechanism for holding individuals 

accountable for maintaining flawed systemic apparatuses, such as 

inadequate internal controls or unsafe compensation practices, that 

in turn encouraged (or failed to prevent) subordinates from committing misconduct. 

Q.9. The Federal banking regulators’ cease-and-desist authorities 

apply to institution-affiliated parties, including independent contractors such as attorneys and accountants, who knowingly or recklessly participate in the violation of a law or regulation, breach of 
52 

10 12 U.S.C. §1813(u) 11Five of the 190 §1818(e) orders that I reviewed only describe the individual as an ‘‘institution-affiliated party,’’ which could encompass employees, directors, and shareholders, as well as 

external independent contractors. 12The description of the misconduct was not described in the removal and prohibition order 

against Mr. Lawrence. I have adopted the description from a related judicial opinion, Magee v. 

Greenspan, 808 F. Supp. 847 (D.D.C. 1991). 

fiduciary duty, or unsafe or unsound practice that is ‘‘likely to 

cause more than a minimal financial loss to, or significant adverse 

effect on’’ an insured depository institution. 10

To what extent have the Federal banking regulators issued 

cease-and-desist orders under 12 U.S.C. §1818 against the independent contractors of insured depository institutions? 

A.9. Based on my research, which primarily focuses on §1818(e) removal and prohibition actions, I am not aware of any cease-and-desist order against an individual who was not a current or former 

employee, director, or shareholder of an insured depository institution. I have also reviewed all 65 cease-and-desist orders initiated 

by the Fed since 2000 against an individual institution-affiliated 

party, and I did not find any order against an individual who was 

not a current or former employee, director, or shareholder of the institution. 

Q.10. To what extent have the Federal banking regulators initiated 

enforcement actions under 12 U.S.C. §1818 against the independent contractors of insured depository institutions? 

A.10. From my research on §1818(e) removal and prohibition actions initiated by the Fed between 1989 and 2019 against institution-affiliated parties of domestic depository institutions, I am 

aware of only four actions (out of a total of 190 in the data sample) 11 that were brought against individuals who were not current 

or former employees, directors, or shareholders of the institution. 

Among the four sanctioned individuals, three were appraisers who 

jointly participated in ‘‘alleged violations of laws and regulations 

and unsafe and unsound practices in the preparation of appraisals’’ 

in connection with the same group of banks; and one was described 

as an ‘‘independent consultant’’ who extracted excessive payments 

from the bank through his friend and business partner, who was 

the bank’s chief executive officer, chairman of the board, and controlling shareholder. 12

I have listed the relevant enforcement actions in my answer to 

the Question below. 

My research did not find any removal or prohibition actions since 

1997 that was initiated by the Fed against a bank affiliate who 

was not a current or former employee, director, or shareholder. 

Q.11. Please provide a list of the cease-and-desist orders or enforcement actions you have relied upon to reach a conclusion to the 

questions above. 

A.11. 1. Bd. of Governors of the Fed. Reserve Sys., In re Gaylon 

M. Lawrence, Sr., Order of Removal and Prohibition Issued Upon 

Consent Pursuant to the Federal Deposit Insurance Act, as Amended, Nov. 16, 1992. 

2. Bd. of Governors of the Fed. Reserve Sys., In re John ‘‘Bud’’ 

Harlow, Jr., Order of Prohibition From Further Participation And 

For Other Affirmative Relief, June 28, 1995 (issued jointly with the 
53 

1https://www.warnock.senate.gov/newsroom/press-releases/senator-reverend-warnockpushes-federal-banking-regulators-to-hold-silicon-valley-bank-executives-acco/ 2 12 U.S. Code §1818 3See, e.g., Dep’t of the Treas., Off. of the Comptroller of the Currency, In re David Julian, 

No. OCC AA-EC-2019-71, Recommended Decision, at *21 (December 5, 2022) (David Julian, 

Wells Fargo’s former Chief Auditor, testified that ‘‘given the size and the scope of Wells Fargo 

& Company and the amount of activity that Wells Fargo Audit Services was performing and 

just the size of Wells Fargo Audit Services, as I mentioned at one point 1,200 professionals, it 

would have been impossible for me, as Chief Auditor,’’ to be involved in the day-to-day supervision of an audit engagement, so he ‘‘felt it was appropriate and necessary to delegate responsibilities within the organization for those activities’’) (internal quotation marks omitted). 

Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency). 

3. Bd. of Governors of the Fed. Reserve Sys., In re Joseph G. 

Donner, Jr., Order of Prohibition From Further Participation And 

For Other Affirmative Relief, May 22, 1996 (issued jointly with the 

Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency) 

4. Bd. of Governors of the Fed. Reserve Sys., In re Albert L. 

Margolin, Order of Prohibition From Further Participation And For 

Other Affirmative Relief, August 6, 1996 (issued jointly with the 

Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency). 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK 

FROM DA LIN 

Q.1. The collapse of Silicon Valley Bank and Signature Bank exposed flaws in the legal framework for holding banking executives 

accountable. That is why I strongly urged Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg to revisit rulemaking for the compensation clawback provisions authorized by 

Dodd-Frank when he appeared before the Committee in March. 1

Additionally, Congress and financial regulators must explore all 

available options, including utilizing Section 1818(e) 2 as an enforcement tool to hold bank directors and senior management accountable for their oversight failures. Risky behavior taken by bank 

executives must not be tolerated. 

How should Congress revise the requirements for culpability 

under §1818(e) to better hold bank directors and senior management accountable? 

A.1. 12 U.S.C. §1818(e)’s removal and prohibition authority is rarely used—at least, formally—against senior bankers of large and 

midsize banks because of the steep challenge of proving that bank 

directors or top executives actually knew of a problem and was 

willfully complicit. This is particularly the case if the illegal or unsafe conduct occurred on the operational side; executives at the top 

of today’s banking conglomerates delegate day-to-day operational 

responsibilities to lower-level subordinates, and this dispersion of 

duties nearly always insulates executives from knowledge of detailed activities. 3 A negligence standard would better achieve accountability as it does not require knowledge of or intentional complicity in wrongdoing. Banking regulators should be able to sanction bank directors and senior executives under §1818(e) for conduct that could reasonably be expected to result in (or to fail to prevent) excessively risky or illegal activities, including foot-dragging 
54 

4Offs. of Inspector Gen., Fed. Deposit Ins. Corp., Bd. of Governors of the Fed. Rsrv. Sys. & 

Consumer Fin. Prot. Bureau, Dep’t of the Treasury, ‘‘Enforcement Actions and Professional Liability Claims Against Institution-Affiliated Parties and Individuals Associated With Failed Institutions 23 (2014)’’. 

in response to regulators’ supervisory concerns or establishing 

weak internal controls. 

Q.2. What are the benefits and drawbacks of a permanent industrywide prohibition from working in the banking industry as a consequence of a §1818(e) order? 

A.2. The main advantage of setting permanent prohibition from 

working in the banking industry as the default consequence of a 

§1818(e) sanction is that it prevents a banker who was removed or 

fired from one bank for participating in unsafe or illegal activities 

from finding subsequent work at other banks and posing serious 

risk to those institutions. The primary drawback is that the severity of the consequence appears to deter banking regulators from invoking this authority, resulting in enforcement that is infrequent 

and inconsistent. As I observed in my written testimony, regulators 

have critiqued §1818(e) as a draconian remedy that ‘‘tak[es] away’’ 

the ‘‘[l]ivelihood[s]’’ of bankers whose careers span years or even 

decades. 4

Q.3. How should Congress encourage Federal banking regulators to 

employ §1818(e) without being dissuaded by the severity of its consequences? 

A.3. I believe Congress could mitigate banking regulators’ reluctance toward §1818(e) sanctions by creating a tiered structure that 

varies the severity of any prohibition order depending on the individual’s role within the institution, his culpability, and the harm 

to the affected institution. Options for intermediate penalties include shortening the duration of the prohibition, restricting the size 

of the banks at which the individual may work, restricting the 

types of positions the individual may hold, and restricting the activities in which the individual may engage. Congress could also 

mandate removal or prohibition under §1818(e) in certain situations, such as cases when the individual’s conduct caused the 

bank’s failure. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA 

FROM THOMAS QUAADMAN 

Q.1. As you probably know, I support clawing back executive compensation and bonuses when their mismanagement causes a bank 

to fail. Yet—as you know well, designing a good policy here is easier said than done. 

In stating your position on Section 956 of Dodd-Frank, your testimony alludes to a cost-benefit analysis that some executives may 

conduct when choosing whether or not to lead a bank. Let’s assume 

a world in which there was a law that required executive compensation and bonuses to be clawed back in the event of bank failure. What would the cost-benefit analysis look like when making 

a decision on whether or not to take the job? 

A.1. The market for talent in the financial services industry is 

global. Laws and regulations play a key role in determining which 
55 

1 New York Times, ‘‘Swiss Voters Tighten Country’s Limits on Executive Pay’’. Mar. 3, 2013. 

Available at: https://www.nytimes.com/2013/03/04/business/global/swiss-voters-tighten-countrys-limits-on-executive-pay.html. 2 Credit Suisse, ‘‘Annual Report, 2013’’. P. 41. ‘‘We must recruit and retain highly skilled employees. Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition for qualified employees is intense. We have devoted considerable resources 

to recruiting, training and compensating employees. Our continued ability to compete effectively 

in our businesses depends on our ability to attract new employees and to retain and motivate 

our existing employees. The continued public focus on compensation practices in the financial 

services industry, and related regulatory changes, may have an adverse impact on our ability 

to attract and retain highly skilled employees. In particular, new limits on the amount and form 

of executive compensation imposed by recent regulatory initiatives, including the Ordinance 

Against Excessive Compensation in Switzerland and the implementation of CRD IV in the U.K., 

could potentially have an adverse impact on our ability to retain certain of our most highly 

skilled employees and hire new qualified employees in certain businesses.’’ Available at: https:// 

www.credit-suisse.com/about-us/en/reports-research/annual-reports.html. 3 Credit Suisse, ‘‘Annual Report, 2021.’’ P. 52. ‘‘We must recruit and retain highly skilled employees Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition for qualified employees is intense and the hiring market in the financial services and other industries has been and is expected to continue to be extremely competitive . . . 

The continued public focus on compensation practices in the financial services industry, and related regulatory changes, may have an adverse impact on our ability to attract and retain highly 

skilled employees. In particular, limits on the amount and form of executive compensation imposed by regulatory initiatives, including the Swiss Compensation Ordinance, or any successor 

legislation thereof in Switzerland and the Capital Requirements Directive IV (as amended by 

CRD V) in the EU and the U.K., could potentially have an adverse impact on our ability to retain certain of our most highly skilled employees and hire new qualified employees in certain 

businesses . . . Decreases in compensation, as well as matters impacting our financial results 

or reputation, can negatively impact our ability to retain employees and recruit new talent.’’ 

Available at: https://www.credit-suisse.com/about-us/en/reports-research/annual-reports.html. 4 Credit Suisse, ‘‘Annual Report, 2022’’. P. 56. ‘‘The failure to attract and/or retain highly 

qualified employees could also have a negative impact on our ability to comply with our legal 

and compliance obligations . If we are unable to attract and/or retain highly qualified employees 

across our businesses, this may have a material adverse effect on our ability to implement our 

strategic initiatives and on our results of operations and financial condition.’’ Available at: 

https://www.credit-suisse.com/about-us/en/reports-research/annual-reports.html. 

markets are most attractive for top talent in the industry, including executive compensation rules. The success of businesses relies 

heavily on the skills and dedication of talented individuals, and 

competition for top-tier employees is fierce. 

As early as 2012, Credit Suisse expressed concerns about the impact of regulatory changes on their ability to keep and attract highly skilled employees. In 2013, the company declared that a Swiss 

law limiting executive compensation 1 could pose a risk to the company’s business structure, stating that ‘‘new limits on executive 

compensation could potentially affect our ability to retain and hire 

highly qualified employees.’’ 2 In 2021, the company’s annual report 

warned that compensation reductions and other factors that affect 

their finances or reputation could hurt their ability to keep and recruit employees. 3 In 2022, Credit Suisse’s annual report—which 

was released just 7 days before the sale of the company—reemphasized this position, noting that the inability to attract and retain 

talent could significantly impact their ability to pursue strategic 

goals and achieve financial success. 4

The success of U.S. capital markets depends on strong talent, 

and talent is clearly concerned about restrictions to compensation. 

Clawback policies that have a long lookback provision could draw 

away talent from U.S. markets to locations do not observe the same 

approach. 

Q.2. My assumption is that you would take a finance practitioner’s 

view on the question above. You would take your total compensation and discount it against the odds of your compensation being 
56 

1Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 

Stat. 1376, §210 (2010) (codified at 12 U.S.C. §5390(s)). 

clawed back within the appropriate look back window. Is that 

wrong? Am I missing something here? 

A.2. While there was some warning about the risks at Silicon Valley Bank (SVB), those warnings largely went unheeded and the 

bank’s failure occurred rapidly due to changed market conditions. 

Policies that take a broad approach to the scope of responsible parties do not consider that not all management or board members 

may have been culpable for the mismanagement of risk that ultimately led to failure. The bank did not address formal concerns 

raised by its supervisors, information that would not be available 

to an outside party considering employment at the bank. 

A simple calculation of total compensation against the risk of an 

institution’s failure elides the reality that competition for talent is 

global. An overly punitive lookback provision could deter top talent 

from coming to the U.S. altogether, as failures do not necessarily 

occur with advanced warning or a complete outsider’s perspective 

of the bank’s governance structure and hygiene. 

Q.3. What deterrent power would a clawback bill have if clawbacks 

were allowed to be completely covered by D&O insurance? Specifically, would it be a material financial factor for executives to consider? 

A.3. It is likely that the deterrent effect of Director & Operator insurance coverage of the corpus of clawed back compensation would 

apply to companies, not to company executives themselves. D&O 

coverage of potential executive compensation clawbacks would likely drive the price of D&O insurance higher, incentivizing companies that observe ‘‘good’’ or ‘‘vigilant’’ oversight practices would 

have lower premiums for coverage than those whose practices are 

less robust. This would place the onus on the company to address 

oversight of executives to manage the risk that the insurance policy 

would need to cover a clawback (thus driving coverage costs higher) 

rather than deterring individual bad actors. 

As was recently discussed at a House Financial Services Committee hearing on capital formation, D&O coverage is expensive 

and can have a deterrent effect on initial public offerings, as it 

drives the costs of being a public company higher. Before proceeding on any policy implicating D&O coverage for clawbacks, policymakers should consider the costs and benefits of expanding coverage to include the corpus of executive compensation clawbacks 

against the aggregate impact to the attractiveness of U.S. public 

markets. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN 

FROM HEIDI MANDANIS SCHOONER 

Q.1. Under Section 210 of the Dodd-Frank Act, the FDIC may claw 

back compensation from senior bank executives or directors who 

are ‘‘substantially responsible for the failed condition’’ of an insured 

depository institution that has entered FDIC receivership. 1 In your 
57 

2FDIC Professional Liability Annual Report for 2021, at 4. 

3 12 U.S.C. §1813(u) 

written testimony, you indicated that mandatory clawbacks can restore and maintain the public’s confidence in our financial system. 

Should Congress extend the clawback authority to senior executives and directors of insured depository institutions that have not 

entered receivership? 

A.1. Yes. Congress should extend the clawback authority to senior 

executives and directors of insured depository institutions who substantially contribute to an institution’s unsafe or unsound operations regardless of whether the institution has entered receivership. Such clawback authority could provide powerful incentives for 

bank executives to act with prudence in the ongoing management 

of insured depository institutions. 

Q.2. How does the reality of too-big-to-fail banks in the United 

States affect the Federal banking regulators’ ability to hold senior 

bank executives and directors accountable? 

A.2. When a bank is placed into receivership, the FDIC, acting as 

receiver, may bring professional liability claims against the bank’s 

officers and directors. From 2007 to 2021, the FDIC, as receiver, 

filed claims against 178 individual officers or directors of failed 

banks. 2 Officers and directors of banks that are too-big-to-fail, are 

never subject to such proceedings. This context places special importance on Federal regulators’ administrative enforcement powers 

(i.e., cease and desist, civil money penalty, and removal powers), 

which may be brought against officers and directors regardless of 

whether the bank has been placed into receivership. Thus, the use 

of administrative enforcement powers is a critical to bank regulators’ ability to hold bank officers and directors accountable. 

Q.3. The Federal banking regulators’ cease-and-desist authorities 

apply to institutional-affiliated parties (IAPs), including independent contractors such as attorneys and accountants, who knowingly or recklessly participate in the violation of a law or regulation, breach of fiduciary duty, or unsafe or unsound practice that 

is ‘‘likely to cause more than a minimal financial loss to, or significant adverse effect on,’’ an insured depository institution. 3

To what extent have the Federal banking regulators issued 

cease-and-desist orders against the independent contractors of insured depository institutions? 

A.3. I have not conducted research on this issue. Based on my related research in this area, I believe that Federal banking regulators have not issued cease and desist actions against independent 

contractors with any frequency. For an example of a cease and desist action brought by the FDIC against a law firm, see Lindquist 

& Vennum v. FDIC, 103 F.3d 1409, cert. denied 522 U.S. 821 

(1997). The statutory standard for bringing an enforcement action 

against an independent contractor is very high. Independent contractors fall within the definition of ‘‘institution affiliated party’’ 

only if they ‘‘knowingly or recklessly participate in (A) any violation 

of any law or regulation; (B) any breach of fiduciary duty; or (C) 

any unsafe or unsound practice.’’ 
58 

4See Heidi Mandanis Schooner, ‘‘Big Bank Boards: The Case for Heightened Administrative 

Enforcement’’, 68 Ala. L. Rev. 1011, 1020 (2017), https://www.law.ua.edu/lawreview/files/ 

2011/07/The-Big-Bank-Boards-Enforcement.pdf; see also 12 U.S.C. §1818(i)(2). 

Q.4. To what extent have the Federal banking regulators initiated 

enforcement actions against independent contractors of insured depository institutions? 

A.4. As indicated above, I have not conducted research on Federal 

bank regulators use of administrative enforcement powers against 

independent contractors, but based on my general knowledge in the 

area, I suspect that such cases are not frequently initiated. 

Q.5. Based upon recent events, should Congress adjust the definition of IAP under 12 U.S.C. 1813(u)? If so, how? 

A.5. The current IAP definition identifies the individuals who are 

subject to administrative enforcement actions (i.e., cease and desist, civil money penalties, removal and prohibition). If Congress 

were to create new administrative enforcement authority, e.g., new 

clawback authority, Congress might identify a subset of IAPs who 

would be subject to such new authority. For example, Congress 

may prefer to limit any new clawback authority to a bank’s senior 

executives as opposed to any IAP. 

Q.6. In your scholarship, you have examined the three civil money 

penalty tiers that Federal banking regulators may impose against 

IAPs. 4 The highest tier requires that an IAP ‘‘knowingly’’ commit 

a violation, engage in an unsafe or unsound practice, or breach a 

fiduciary duty that ‘‘knowingly’’ or ‘‘recklessly’’ causes a substantial 

loss to the insured depository institution. Are these culpability 

standards ineffective? If so, what level of culpability should Congress require of IAPs prior to removing or prohibiting them from 

conducting the affairs of an insured depository institution? 

A.6. Certainly, IAPs should be held accountable for their knowing 

and reckless conduct that causes loss to a bank. Federal bank regulators should utilize their full, existing authority to hold IAPs accountable for such behavior. In addition, I believe that the removal 

authority should be extended to include removal for negligent conduct. Individuals who act without ordinary care are not well-suited 

to the management of an insured depository institution. 

Q.7. Under 12 U.S.C. §1818(e), the removal and prohibition authority requires culpability of either ‘‘personal dishonesty’’ or a ‘‘willful 

or continuing disregard’’ for the safety and soundness of a bank. If 

the activities of bank directors and executives shield them from 

meeting the culpability standard under 12 U.S.C. §1818(e), to what 

level of culpability should Congress lower the removal and prohibition authority? 

A.7. The removal and prohibition authority should be triggered by 

negligent behavior. Explicit consequences for negligent behavior (in 

addition to gross negligent and reckless behavior) could provide 

powerful incentives for bank executives to act with prudence in 

managing insured depository institutions. 
59 

1 12 U.S.C. §1818(b)(1) 1https://www.banking.senate.gov/newsroom/majority/brown-colleagues-call-for-review-ofbank-regulatorssupervisory-practices 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA 

FROM HEIDI MANDANIS SCHOONER 

Q.1. With respect to clawbacks, can you elaborate a bit more on 

current law’s legal standard of ‘‘recklessness’’ in cease-and-desist 

authority, relative to ‘‘negligent’’ or ‘‘grossly negligent’’? Specifically, can you provide a relevant example or two of something that 

is negligent or grossly negligent but may not meet the current legal 

threshold? 

A.1. The existing cease and desist authority does not explicitly include clawbacks as a remedy although it is possible that the power 

to claw back IAP compensation is available under current law as 

a form of restitution. Bank regulatory agencies have the authority 

to issue a cease and desist order against an IAP who is engaging, 

has engaged, or is about to engage in an unsafe or unsound banking practice, or has violated a law, rule, regulation, or condition imposed in writing by the agency. 1 The cease and desist power includes the authority to require respondents to make restitution or 

provide reimbursement, indemnification, or guarantee against loss 

if the respondent was unjustly enriched or acted in reckless disregard of the law. Congress did not define ‘‘reckless’’ for purposes 

of this authority. Generally, negligence is the lack of ordinary care 

under the relevant circumstances. Gross negligence and recklessness typically involve a greater departure from ordinary care. The 

term recklessness may also require a finding of deliberate conduct 

or deliberate failure to act. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK 

FROM HEIDI MANDANIS SCHOONER 

Q.1. While your testimony underscores that prudential financial 

regulators have various enforcement mechanisms at their disposal, 

including the power to remove irresponsible managers, these authorities may be underutilized. That is why I joined my colleagues 

in sending a letter to the Government Accountability Office (GAO) 

urging them to conduct a follow-up report from 2019 to assess the 

communications of supervisory concerns from the Federal Depository Institutions Corporation (FDCI), the Federal Reserve, and the 

Office of the Comptroller of the Currency (OCC). 1 Additionally, the 

report will review the supervisory findings from the Federal Reserve and FDIC and the responses received from the management 

of both Silicon Valley Bank and Signature Bank. We hope the report will show that regulators not only find problems but also take 

the necessary steps to stop them. I’m eager to see what the report 

finds and make sure regulators have everything they need to prevent bank failures. 

Are there specific examples of enforcement actions where regulators removed a manager from their depository institution? Please 

provide details on the grounds for such action. 

A.1. A 2014 study by the Offices of Inspector General of the Federal banking agencies (OIG Report) analyzed the 275 administra-
60 

2OIG-CA-14-012 

3 Heidi Mandanis Schooner, ‘‘Big Bank Boards: The Case for Heightened Administrative Enforcement’’, 68 Ala. L. Rev. 1011 (2017). 4 Id. at 24–25. 

tive enforcement actions brought against IAPs of failed banks from 

September 2008 to September 2013. 2 The most commonly used administrative sanction was removal/prohibition (128), then civil 

money penalties (120), administrative restitution (8), and, finally, 

cease and desist orders (19). 

Q.2. Have regulatory authorities failed to bring certain cases to 

light? If so, could you cite any specific examples of such cases? 

A.2. I lack the necessary facts to identify a specific failure by bank 

regulators. In my prior research, I questioned whether bank regulators failed to take action regarding the JP Morgan London Whale 

debacle. 3

Q.3. Do regulators underuse their enforcement authorities? If so, 

what factors do you believe contribute to this underutilization? 

A.3. The OIG Report referenced above identified several factors 

that might explain an underutilization of existing enforcement authority in actions against IAPs: the agencies’ reluctance to bring 

cases with limited chance of success to avoid negative precedent; 

actions barred by the statute of limitations; limited staff resources; 

and limited resources of the respondent to pay civil money penalties or restitution. 4