Senate panel advances bipartisan bill to claw back earnings from CEOs of failed banks
Zachary Halaschak
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The Senate Banking Committee has advanced legislation that would claw back the compensation of CEOs of banks that fail, pushing the bipartisan bill closer to passage.
The bill was approved just days after Banking Committee Chairman Sherrod Brown (D-OH) and ranking member Sen. Tim Scott (R-SC) reached an agreement on it, titled the Recovering Executive Compensation from Unaccountable Practices, or RECOUP, Act. The bill is similar to legislation that Sens. Elizabeth Warren (D-MA) and J.D. Vance (R-OH) had been collaborating on.
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The goal of the bill is to prevent bank failures by disincentivizing executives from allowing their institutions to go under, and it comes in the wake of Silicon Valley Bank’s sudden failure, which led to the collapse of other financial institutions and caused havoc in the banking system.
“We also need real oversight and deterrence, to make these kinds of bank failures less likely. CEOs and other executives need to know they cannot ignore warnings and enforcement actions from regulators, or otherwise mismanage their banks so badly they fail, and get away with it,” Brown said in a recent op-ed about the plan in the Columbus Dispatch. “That means real fines and penalties.”
The legislation would empower regulators to claw back bank executives’ pay from the two years prior to their firm’s collapse. In the event of a failure, executives might also be forced to hand over their bonuses and profits from the sale of bank stock.
Additionally, the $1 million civil penalty that regulators charge executives who “recklessly” violate the law would be increased to $3 million.
“The recent bank failures didn’t happen in a vacuum – the banks’ executives failed to manage their risk, regulators failed to exercise their supervisory responsibilities, and the Biden administration failed to stop spending, which led to rising interest rates,” Scott said.
The Brown-Scott bill came even as the Warren legislation garnered GOP support. Warren told Politico that her plan “represents the toughest proposal in Congress to ensure failed executives who blow up their banks don’t walk off with huge bonuses.”
Warren’s bill would have clawed back compensation for three years rather than two and would reach further, applying not only to executives but directors and controlling shareholders.
While both pieces of legislation have received bipartisan support and represent the strongest effort yet to craft policy following the collapse of SVB, some conservatives are urging lawmakers not to support the move. Marc Short, the chairman of Advancing American Freedom, a group founded by former Vice President Mike Pence, bashed the push in a statement.
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“The Scott-Brown bill would expand the role of government in the private sector, introducing greater corporate governance requirements and layers of bureaucracy,” Short said. “Instead of supporting legislation that serves as a vehicle for progressive policy priorities, conservatives should address and preempt the causes of bank failures, starting with the catastrophic mismanagement of the Fed.”
In the aftermath of SVB’s collapse, the Federal Reserve asserted that SVB leadership failed to manage basic interest rate and liquidity risk, although it did acknowledge that Fed supervisors failed to take forceful enough action to curb risks in the lead-up to the failure.