Bipartisan deal reached to recover earnings from CEOs of failed banks.

The Senate Banking Committee to Debate Bill Punishing Executives of Failing Banks

The Senate Banking Committee has announced that it will be engaging in a crucial debate regarding a bill aimed at holding executives of big banks accountable for their failures. This bipartisan legislation, known as the Recovering Executive Compensation Obtained from Unaccountable Practices (RECOUP) Act, has a higher chance of becoming law due to its bipartisan support.

Preventing Bank Failures and Ensuring Consequences

Chairman Sherrod Brown (D-OH) and Ranking Member Tim Scott (R-SC) have reached an agreement on the RECOUP Act, emphasizing the importance of preventing bank failures by discouraging executives from allowing their institutions to collapse.

“Americans have watched executives take their money, run banks into the ground, and get away with it too many times before. It’s time for CEOs to face consequences for their actions, just like everyone else,” Brown said.

The legislation proposes empowering regulators to recover bank executives’ compensation from the two years preceding a firm’s collapse. In the event of a failure, executives may also be required to surrender their bonuses and profits from the sale of bank stock.

Furthermore, the bill seeks to increase the civil penalty imposed on executives who “recklessly” violate the law from $1 million 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,” said Scott.

Addressing Recent Bank Failures and Containing the Fallout

The announcement comes in the wake of the sudden collapse of Silicon Valley Bank, which was taken over by the Federal Deposit Insurance Corporation in March. This event caused significant turmoil in the banking system and raised concerns about a potential contagion effect leading to a chain of failures. However, the federal government’s decision to guarantee all deposits in Silicon Valley Bank and Signature Bank, including those exceeding the FDIC’s threshold, helped contain the fallout.

The Federal Reserve has attributed SVB’s collapse to the failure of its leadership in managing basic interest rate and liquidity risk. However, it also acknowledged that Fed supervisors did not take sufficient action to mitigate risks leading up to the failure.

Given the bipartisan support for this legislation, it is highly likely to receive a favorable floor vote.

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