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Biden asks Congress for new tools to attack bankrupt bank executives

WASHINGTON — President Biden asked Congress Friday to pass legislation giving financial regulators sweeping new powers to recover ill-gotten gains from executives of failed banks and impose fines for bankruptcies.

The proposal, a response to the federal bailout of depositors at Silicon Valley Bank and Signature Bank last week, would also seek to bar executives of failing banks from taking other jobs in the financial industry.

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

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

“When banks fail due to mismanagement and excessive risk-taking, it should be easier for regulators to recover executive compensation, impose civil penalties, and bar executives from ever working in the banking industry again,” he said, and added that Congress has to pass laws for that to be possible.

“The law limits the authority of management to hold executives accountable,” he said.

One part of the proposal would expand the FDIC’s ability to seek return of compensation from bankrupt bank executives, in response to reports that Silicon Valley Bank’s chief executive sold $3 million worth of shares in the little bank. before it was absorbed by the federal government. regulators a week ago. Regulators’ current recovery powers are limited to the largest banks; Biden would expand them to cover banks the size of Signature and Silicon Valley Bank.

In contrast to top Silicon Valley Bank officials, a senior Signature Bank executive and one of its board members bought shares in the company last Friday as it experienced a run, regulatory filings show. Signature Chairman Scott Shay bought 5,000 Signature shares while one of its directors, Michael Pappagallo, bought 1,500 shares.

The president is also asking Congress to lower a statutory limit that the FDIC must exceed to prevent a failed bank executive from working elsewhere in the financial industry. Currently, that ability only applies to executives who engage in “deliberate or continuing disregard for the safety and soundness” of their institutions. Similarly, it 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 and have opposed other initiatives by Biden to strengthen federal regulations. A 2018 law to roll back some of the banking regulations that were passed after the 2008 financial crisis passed the House and Senate with bipartisan support.

Minutes after Biden’s announcement, Democrats voiced their support for the new rules. Senate Banking Committee Chairman Sherrod Brown of Ohio said in an emailed statement to reporters that regulators needed “tougher rules to control risky behavior and detect incompetence.”

He added that in addition to executives who failed in their duties, there should be a way to hold “regulators charged with overseeing them” accountable..”

In a letter to the heads of the Securities and Exchange Commission, the FDIC and the Fed, Rep. Maxine Waters, D-Calif., called on regulators to use the “full extent” of their current powers to retain top executives. of both banks and heads of the board of directors.

He added that the Dodd-Frank law enacted after the 2008 financial crisis had given the agencies more powers than they had hitherto used to link executive compensation in the financial industry to successful risk management strategies.

“While I am moving quickly to develop legislation on recoveries and other issues arising from the collapse, it is critical that your agencies act now to investigate these bank failures and use the enforcement tools available to them to hold executives accountable for any wrongdoing. . ” she wrote.

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