Senate Banking Committee Approves Bill to Recover Bank Executives’ Compensation

In a significant bipartisan move, the Senate Bank Committee has approved groundbreaking legislation to hold bank executives accountable for their actions. The bill, known as the Recovering Executive Compensation from Unaccountable Practices (RECOUP) Act, aims to rein in the banking industry and prevent future financial crises.

The RECOUP Act introduces new fines for misconduct, restricts failed executives from working in the financial sector, enhances corporate governance, and imposes regulatory requirements on federal regulators. However, the most impactful aspect of the legislation is the granting of new powers to the Federal Deposit Insurance Corporation (FDIC) to claw back compensation for executives.

The measure passed the committee with an overwhelming majority of 21-2 on June 21, paving the way for a floor vote. Senate Committee Chair Sherrod Brown (D-Ohio) emphasized the importance of holding irresponsible executives accountable and protecting the economy, stating, “Bank executives who take on too much risk and crash their banks shouldn’t get to land on their feet.”

Sen. Tim Scott (R-S.C.), the Ranking Member, called the RECOUP Act a “commonsense solution to address executive accountability” and protect taxpayers. However, not all senators were in favor of the legislation. Sen. Bill Hagerty (R-Tenn.) expressed concerns about the potential impact on smaller banks, while Sen. Thom Tillis (R-N.C.) believed the bill was too expansive.

While the Senate has been considering a similar bipartisan bill, the RECOUP Act stands out for its comprehensive approach. It also has the potential to increase congressional oversight of the Federal Reserve, a provision that may appeal to House Republicans.

Capital Requirements Debate

Amidst the ongoing debate on Capitol Hill about the safety and resilience of the U.S. banking system, one key issue being discussed is the implementation of stricter rules and regulations. One proposal gaining traction is the increase of capital requirements for medium and large companies.

Michael S. Barr, the Fed Vice Chair for Supervision, has been advocating for higher capital requirements even before recent bank failures. He argues that larger, more complex banks pose greater risks and costs to society when they fail, and higher capital requirements can make these firms more resilient.

Fed Chair Jerome Powell, appearing before the House Financial Services Committee, explained that the process of implementing higher capital mandates is lengthy and would primarily affect larger entities. He emphasized the need for justification in any proposed capital increase.