Senate Democrats Push for Stronger Bank Capital Requirements and Pay Clawbacks for Executives

Senators Urge Tougher Capital Requirements for Banks

Senate Democrats, including Elizabeth Warren, Richard Blumenthal, and Tammy Duckworth, are pressuring federal banking regulators to strengthen bank capital requirements to prevent a repeat of the 2008 financial crisis. The senators wrote a letter to regulators urging them to fully implement Basel III, a set of international regulatory standards for banks that would increase the amount and quality of capital held by U.S. banking organizations.

In their letter, the senators blamed lobbyists and some Republicans for efforts to ease capital requirements established after the financial crisis. They also warned against industry spin that blames regulatory agencies instead of lax banking regulations for bank collapses.

Senators Introduce Legislation to Claw Back Pay from Failed Bank Executives

Senators Elizabeth Warren and Josh Hawley introduced legislation called the “Failed Bank Executives Clawback Act,” which would require federal regulators to claw back compensation from executives of failed banks. Warren stated that Americans are tired of bankers paying themselves well and walking away scot-free.

The clawback would apply to compensation received during the five-year period before their bank fails. Currently, there is limited ability for the Federal Deposit Insurance Corporation (FDIC) to recoup executives’ compensation following a bank failure, and this legislation would extend clawback authorities.

President Joe Biden has also called on Congress to enact legislation to crackdown on executives to prevent something like the Silicon Valley Bank collapse from happening again. Lawmakers have been critical of federal regulators’ oversight of banks leading up to collapses and have pushed for greater regulatory oversight.

Proposed Legislation Aims to Claw Back Executive Compensation from Failed Banks

Senators from both parties introduced legislation called the “Failed Bank Executives Clawback Act,” which would grant regulators the power to claw back executive compensation and bonuses from failed banks. Federal regulators would be required to return all or part of the compensation received in the five years leading up to a bank’s failure.

The FDIC would be required to clarify its requirements and extend Dodd-Frank Act authorities on clawbacks to apply to banks in FDIC receivership. The legislation would also ensure that investors in a holding company bear the losses of an insured depository institution affiliated with a failed bank holding company.

The proposed legislation comes a day after the Senate Banking Committee held its first hearing into the collapses of Silicon Valley Bank and Signature Bank. During the hearing, concerns were raised about executives taking bonuses leading up to their collapses.

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

Regulators Testify About Mismanagement Leading to Banks’ Collapses

Michael Barr, the Federal Reserve Board’s vice chair for supervision, testified during the Senate Banking Committee hearing that Silicon Valley Bank’s failure was due to mismanagement and failure to manage the interest rate risk of its securities. Concerns were also raised about executives taking bonuses leading up to their collapses.

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 whose actions cause bank failures. A group of Democrats previously unveiled legislation to restore bank regulations that were undone under then-President Donald Trump in 2018 in response to Silicon Valley Bank’s collapse.

In conclusion, lawmakers on both sides of the aisle are pushing for stronger capital requirements for banks and greater accountability for failed bank executives. The latest proposed legislation aims at clawing back executive compensation from failed banks and extends Dodd-Frank Act authorities on clawbacks to better protect consumers from another financial crisis.

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