Senators introduce bill to claw back executive pay from failed banks

After the collapse of Silicon Valley Bank and Signature Bank this month, a bipartisan group of senators introduced legislation that gives regulators the power to claw back executive compensation and bonuses from failed banks.

Democrats Elizabeth Warren from Massachusetts and Catherine Cortez-Masto of Nevada and Republicans Josh Hawley of Missouri and Mike Braun of Indiana are proposing a bill dubbed the Failed Executive Clawback Act, which would mandate federal regulators return all or part of the compensation that executives had received in the five years leading up to a bank failure.

The measure would clarify the requirements on the FDIC and extend Dodd-Frank Act authorities on clawbacks to banks in FDIC receivership, Warren's office said in a news release. After the collapse of SVB and Signature Bank, the FDIC stepped in to guarantee money to the failed banks customers.

The release said that the legislation would make sure that investors in the holding company bear the losses of an insured depository institution when a bank holding company fails.

If the federal government is going to step in to cover bank deposits well beyond the $250,000 FDIC limit, bank executives need extra incentive to manage risk, Braun said in a statement to NBC News. When the FDIC comes in to bail out a bank, this bill will help to claw back bank executive compensation. The Senate Banking Committee held its first hearing on the collapse of SVB and Signature Bank, two of the largest bank failures in U.S. history.

Michael Barr, the Federal Reserve Board's vice chair for supervision, testified that the failure of the SVB is a textbook case of mismanagement, citing the bank's concentrated business model in technology and venture capital, its rapid growth from 2019 to 2022 and its failure to manage the interest rate risk of its securities.

During the hearings, Cortez-Masto raised concerns about SVB and Signature Bank executives taking bonuses in the days leading up to the banks collapse.

FDIC Chair Martin Gruenberg said that the FDIC has the authority to impose money penalties, restitution and ban individuals from the banking industry based on findings of their investigation.

In a statement to NBC News, Cortez-Masto said that it was unacceptable for executives at SVB or any other major financial institutions to pay millions of dollars in bonuses while running their banks into the ground. She said that this bipartisan legislation will make sure we are holding these individuals accountable for threatening the financial stability of businesses and families in Nevada and across the country.

Hawley said that bank executives who make risky investments with customers shouldn't be allowed to profit in the good times and avoid financial consequences when things go south. The legislation puts the executives' profits on the line, and that is exactly as it should be. The legislation is being proposed after President Joe Biden urged Congress to pass legislation that would make it easier for the government to rescind bonuses and stock sale gains collected by executives who cause bank failures in response to the collapse of two banks.

The president called for Congress to pass a new law to hold failed bank CEOs accountable and give the financial cops additional authority to clawback lavish pay and bonuses when executives explode their bank - and this bipartisan bill answers that imperative, and Warren said in a statement Wednesday.

The NBC News reported earlier this month that a group of Democrats led by Warren and Rep. Katie Porter of California unveiled legislation to restore bank regulations that were never done under President Donald Trump in 2018, trying to fix what they say was the cause of the collapse of Silicon Valley Bank.