Biden Asks Congress for New Tools to Deal with Failed Bank Executives

WASHINGTON. On Friday, President Biden asked Congress to pass legislation giving financial regulators sweeping new powers to seize ill-gotten gains from bankrupt bankers and impose penalties for failures.

The proposal, in response to last week’s federal bailout of depositors at Silicon Valley Bank and Signature Bank, would also seek to bar bankrupt bank executives from other positions in the financial industry.

The measures contained in Mr. Biden’s plan will build on the existing regulatory powers of the Federal Deposit Insurance Corporation. Administration officials were still weighing on Friday whether to ask Congress for further changes to financial regulation in the coming days.

“Increasing accountability is an important deterrent to future mismanagement,” Mr. Biden said in a statement released by the White House.

“When banks fail due to mismanagement and excessive risk, it should be easier for regulators to seek compensation from executives, impose civil sanctions and again ban executives from the banking industry,” he said, adding that Congress should pass legislation to make this possible.

“The law limits the administration’s powers to hold executives accountable,” he said.

One clause of the proposal would expand the FDIC’s ability to recover bankrupt bank executives in response to reports that a Silicon Valley Bank chief executive sold $3 million in bank stock shortly before federal regulators took him away. a week ago. Regulators’ current powers to recover funds are limited to the largest banks; Mr. Biden will expand them to include banks the size of Signature and Silicon Valley Bank.

Unlike top Silicon Valley Bank officials, a senior Signature Bank chief executive and one of his board members bought the firm’s shares last Friday when it was in turmoil, regulatory reports show. Signature Chairman Scott Shea bought 5,000 shares of Signature and one of its directors, Michael Pappagallo, bought 1,500 shares.

The President is also asking Congress to lower the legal barrier that the FDIC must remove to bar the bankrupt’s bank manager from working anywhere else in the financial industry. This option currently only applies to executives who “deliberately or persistently neglect the safety and soundness” of their institutions. It also seeks to expand the agency’s ability to impose fines on executives whose actions contribute to the failure of their banks.

The proposals face an uncertain future in Congress. Republicans control the House of Representatives and oppose Mr. Biden’s other attempts to tighten federal rules. A 2018 law to repeal certain banking regulations that were approved in the wake of the 2008 financial crisis was passed by the House and Senate with bipartisan support.

Montana Republican Sen. Steve Danes chided Mr. Biden for focusing on regulation and indicated that he would not support any move to introduce new rules in the banking sector.

“What we don’t need is more onerous rules for well-managed and sound Montana banks that haven’t failed,” Mr. Danes said in a statement Friday night.

Democrats have been much more vocal in their support for the call for new rules. Senate Banking Committee Chairman Sherrod Brown of Ohio said in a statement emailed to reporters that regulators need “stricter rules to curb risky behavior and expose incompetence.”

He added that in addition to leaders who failed in their duties, there should be a way to hold “the regulators who are tasked with watching them” accountable.“.

In a letter to the chairs of the Securities and Exchange Commission, the FDIC and the Fed, Representative Maxine Waters, a Democrat of California, asked regulators to use the “maximum extent” of their current powers to detain senior executives and executives from both banks. are accountable to the directors of the board of directors.

She added that the Dodd-Frank Act, enacted in the wake of the 2008 financial crisis, gave agencies more power than they have so far used to tie financial industry executive compensation to successful risk management strategies.

“While I am moving quickly to develop legislation on foreclosures and other collapse-related matters, it is imperative that your agencies act now to investigate these bank failures and use the available enforcement tools you have available to engage executives. to full responsibility for any illegal activity. she wrote.