Biden Urges Congress to Toughen Penalties for Executives of Failed Banks

President Joe Biden suggested that bank executives who have failed should be barred from returning to the banking industry.

The White House published a plan to make senior managers more accountable for financial institution collapses and their entry into Federal Deposit Insurance Corporation (FDIC), receivership. Additionally, the administration asked Congress to make it easier to penalize bank executives for mismanagement or taking excessive risks.

Friday’s announcement highlighted recent reports that Silicon Valley Bank CEO Gregory Becker had sold shares worth $3 million in the entity days before it failed. This was cited from a Securities and Exchange Commission filing.

One solution would be to recover compensation from bank executives who were fired by failed banks like Silicon Valley Bank (SVB), and Signature Bank. This would also include any gains from stock sales, as stated by President Biden.

The clawback power granted to the FDIC by the Dodd-Frank Act does not apply to large 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 issued a statement.

If an FDIC investigation reveals that an executive has been involved in a crime, the FDIC can prohibit them from applying for jobs at other banks. “willful or continuing disregard for the safety and soundness” they have to pay for the bank. However, the president proposes that this law be strengthened by increasing the legal standard to implement this ban when a bank goes 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 acknowledged this.

Biden is also seeking to expand the FDIC’s authority to impose sanctions on executives of bank failures.

The administration requested that it increase its ability to seek fines from bank executives who had failed to comply with the law. “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. The president stated that no one is above the law in his administration.” the White House said.

Biden reiterated that the U.S. banking system is “Today’s stability and resilience is greater” because of the measures his administration employed.

“I advised the American people and American companies that they can be confident that their deposits will always be there for them if they need them. This is still the case.” he stated.

In a joint statement on Mar. 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 (DIF) to cover all insured and uninsured depositors. The central bank established a new Bank Term Funding Program (BTFP) 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.

Appearing before the Senate Finance Committee on Thursday, Treasury Secretary Janet Yellen reiterated the president’s assurance and pledged “Our banking system is solid and Americans can be confident that their deposits will arrive when they need them.”

Are Biden’s Proposals Enough?

Some say these recommendations do not go far enough.

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

“It would receive bipartisan support.” said Arora, CEO and co-founder of Biz2Credit, in a statement to The Epoch Times. “Extended insurance will have a higher cost for banks, which was far too low for over a decade. The bank will pass the cost to their commercial customers and the taxpayer will not be liable for the result.”

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 Democrat member on the House Financial Services Committee, told The New York Times that Congress should consider increasing the limit.

“Do we increase the premiums banks will pay to insure Silicon Valley Bank’s depositors or just keep them the same?” she said.

Former congressman Barney Frank, who served as a director at Signature Bank, told The Wall Street Journal that policymakers should mull over 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.

“Bank supervisors and bank managers must remain focused on controlling risks in times of uncertainty. This will help to ensure stability and resilience of the financial system. Instead of pushing their agendas, responsible leaders must increase public confidence in the financial system.” he said in a statement.