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Biden Urges Congress to Toughen Penalties for Executives of Failed Banks

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Biden Urges Congress to Toughen Penalties for Executives of Failed Banks
President Joe Biden speaks in Irvine, Calif., on Oct. 14, 2022. (John Fredricks/The Epoch Times)
Andrew Moran
3/17/2023
Updated:
3/20/2023
0:00

President Joe Biden has called on Congress to give his administration the authority to bar top executives of failed banks from working in the banking sector again.

The White House on March 17 released a plan to hold senior management more accountable when their financial institutions collapse and enter Federal Deposit Insurance Corp. (FDIC) receivership. In addition, the administration urged Congress to make it easier for federal regulators to punish bank executives when they engage in mismanagement and take excessive risks.
The announcement highlighted recent reports that Silicon Valley Bank CEO Gregory Becker sold about $3 million worth of shares in the entity just days before its failure, citing a Securities and Exchange Commission filing.

One measure would be to claw back compensation from executives at failed banks, such as Silicon Valley Bank (SVB) and Signature Bank. According to President Biden, this would include gains from stock sales.

The FDIC possesses clawback power under the Dodd–Frank Act, but it only covers larger banks.

“That authority should be extended to cover a broader set of large banks, including banks the size of Silicon Valley Bank and Signature Bank,” the White House stated.

The FDIC can currently restrict executives from taking jobs at other banks if they are found to have participated in “willful or continuing disregard for the safety and soundness” of their bank. Biden suggested enhancing that law by trimming the legal standard for implementing such a ban when a bank is put into FDIC receivership.

“The president believes that if you’re responsible for the failure of one bank, you shouldn’t be able to just turn around and lead another,” the White House stated.

The Federal Deposit Insurance Corp logo at its headquarters in Washington, on Feb. 23, 2011. (Jason Reed/Reuters)
The Federal Deposit Insurance Corp logo at its headquarters in Washington, on Feb. 23, 2011. (Jason Reed/Reuters)

Finally, Biden wants to expand the FDIC’s authority to impose fines against executives of failed banks.

The administration demanded to bolster its power to obtain fines from executives of failed banks if their actions “contribute to the failure of their firms.”

“The president is eager to work with Congress to strengthen accountability in these three areas—and others that members of Congress identify. As the president has said, in his administration, no one is above the law,” the White House said.

Biden reiterated that the U.S. banking system is “more resilient and stable today” because of the measures his administration employed.

“I told the American people and American businesses that they should feel confident that their deposits will be there if and when they need them. That continues to be the case,” he stated.

In a joint statement on March 12, the Treasury Department, the FDIC, and the Federal Reserve unveiled an emergency plan to designate SVB and Signature Bank as “systemic risks.” The plan included the FDIC using its Deposit Insurance Fund to cover all insured and uninsured depositors. The central bank established a new Bank Term Funding Program that extends loans of up to one year to banks, savings associations, and credit unions. The Treasury also presented a $25 billion backstop in the event of possible losses.
Treasury Secretary Janet Yellen, who reiterated the president’s assurance at a Senate Finance Committee hearing on March 16, pledged “that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them.”

Are Biden’s Proposals Enough?

Some say these recommendations don’t go far enough.

Rohit Arora, an expert on small-business finance, for example, suggested that the federal government should enact legislation that would allow the FDIC to insure commercial deposits of up to $10 million, covering approximately 90 percent of U.S. businesses.

“It would get bipartisan support,” Arora, CEO and cofounder of Biz2Credit, told The Epoch Times in a statement. ”The banks will be able to charge a higher fee for this extended insurance, which has been far too low for well over a decade. Banks will pass along the costs to their commercial customers, and thus taxpayers will not have to foot the bill for this action.”

Others have also asserted that the FDIC’s $250,000 limit could be raised in the fallout of the SVB and Signature failures.

Rep. Maxine Waters (D-Calif.), who is the ranking Democratic member of the House Financial Services Committee, told The New York Times that Congress should consider increasing the limit.

“When you have something like Silicon Valley Bank with over 90 percent of its depositors uninsured, do we increase the amount of premiums that banks will pay in order to have a bigger insurance fund or do we just remain the way that we are and take it on a one-by-one basis for consideration?” she said.

Barney Frank, the former congressman who co-authored legislation that bears his name to tighten banking regulations after the financial crisis and who served as a director at Signature Bank, told The Wall Street Journal that policymakers should consider raising the deposit insurance limit for business customers.

But Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, championed a private-sector approach to this crisis.

“At a time of uncertainty, bank managers and supervisors must be laser focused on controlling risk to bolster the stability and resiliency of our financial system,” he said in a statement. “Responsible leaders should reinforce the public’s confidence in our financial system, rather than pushing their preferred agenda.”