[Congressional Record Volume 169, Number 64 (Tuesday, April 18, 2023)] [Senate] [Pages S1212-S1213] From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
Date: 2023-04-18
Chamber: SENATE
Mr. REED: today I am introducing the Bank Management Accountability Act along with Senator Grassley. This bipartisan bill will make it easier for banking regulators to claw back compensation from directors and senior executives at failed systemically important banks and to ban those directors and executives from future participation in the financial industry. We have recently experienced the failures of Silicon Valley Bank and Signature Bank, two systemically important banks each with assets exceeding $100 billion. Executives at these banks received exorbitant compensation as the banks took on excessive risks. The CEO of Silicon Valley Bank received $10 million in compensation in 2022 and sold $3.5 million of company stock in the days before the failure. The CEO of Signature Bank received $8.7 million in compensation in 2022 and sold millions of dollars' worth of company stock in the weeks and months before the failure. The government declared the failures of Silicon Valley Bank and Signature Bank a ``systemic risk'' to the economy and stepped in with extraordinary backstops and emergency assistance, including protecting uninsured depositors. While these actions prevented contagion from spreading throughoutthe financial system, these two failures are expected to cost the Federal Deposit Insurance Corporation's, FDIC's deposit insurance fund over $20 billion and have required the Federal Reserve to extend over $143 billion in credit to their successor banks. The FDIC needs stronger tools to prevent directors and senior executives from enriching themselves when their risky bets destabilize the financial sector and saddle the American people with the costs. The bipartisan bill we are introducing aims to update the FDIC's outdated compensation clawback authority and weak financial industry ban authority. This bill will make directors and senior executives think twice before engaging in risky activities by allowing the FDIC to claw back the prior 2 years of their compensation if their bank fails. And to ensure that directors and senior executives cannot return to another bank and place depositors' funds at risk again, the bill would make it much easier for the FDIC to prohibit them from participating in the affairs of any financial company for at least two years. Under existing law, high standards of liability significantly interfere with regulators' ability to seek restitution from directors and officers of failed banks and bar them from the industry. After the 2008 financial crisis, Congress established much more powerful clawback authority. But this tool is only available when the largest banks are unwound using a special process called ``orderly liquidation authority'' that the regulators have never used--even for the failures of Silicon Valley Bank and Signature Bank. That is why directors and senior executives at large banks rarely are subject to compensation clawbacks and financial industry bans, even if they are negligent in running their bank and the government ultimately needs to step in with extraordinary backstops and emergency assistance. Our bill would apply the easier rules for clawing back compensation from Dodd-Frank's special ``orderly liquidation authority'' to a much broader set of banks, including Silicon Valley Bank and Signature Bank. It would also specify that recouped funds may not be paid out of directors' and officers' liability insurance coverage to make sure that they have true personal liability and skin in the game. Finally, it would lower the standard for barring directors and senior executives at failed systemically important banks from the financial industry. These updates would greatly enhance the banking regulators' ability to recover funds for the benefit of the taxpayers, to protect depositors from directors and senior executives who have already driven a bank into failure, and to provide powerful disincentives against excessive risk taking. All of our constituents deserve strong bank regulators with the necessary tools to go after executives and directors at banks whose failures threaten the economy. The Bank Management Accountability Act will enhance our regulators' authorities to demand meaningful accountability from Wall Street and Silicon Valley, which in turn will increase confidence in our financial system. I urge our colleagues to support this important bipartisan legislation.