Elizabeth Warren Wants Consequences For Bank CEOs After SVB Collapse: CEOs Would Have To Pay Back 3 Years' Salary After Failures

Zinger Key Points
  • Twelve bipartisan senators have expressed support for the bill, which could move to a committee vote during June.
  • The bill would cover only the largest 135 banks out of over 4,700 banks covered by the FDIC.

A new bi-partisan coalition in the Senate is pushing a bill that would punish CEOs and executives of large banks that go out of business.

The bill, crafted by Sen. Elizabeth Warren (D-MA) and Sen. J.D. Vance (R-OH), would require the Federal Deposit Insurance Corporation (FDIC) to reclaim three years worth of compensation from directors, officers, controlling shareholders and other high-level individuals after a bank's failure.

Earlier this year, the fall of Silicon Valley Bank became the largest banking collapse since the 2008 financial crisis. In an effort to secure trust in the banking system, the Treasury and Federal Reserve stepped in to guarantee that even depositors without FDIC insurance (those with funds above $250,000) would have their savings guaranteed.

In a time when the U.S. government is struggling to find sources of income to make up for its historic deficit, legislators are looking for ways to save money where they can find it. Warren and Vance's proposal is looking to protect the government against future banking collapses by disincentivizing risk-taking among bank executives.

Although SVB's collapse had multiple causes, including an unexpected bank run by depositors, much of the failure can be attributed to the bank aggressively purchasing government bonds.

Under current law, the government has few tools at hand to mitigate extreme risk-taking by bank leaders, or even to penalize them for irresponsible actions. Days before the collapse, former Silicon Valley Bank CEO Gregory Becker sold $3.6 million in SVB stock

The new bill, which is a re-write from a version that began circulating in late March, is a direct response to an official message by President Joe Biden, who on March 17 called for "congressional action to strengthen accountability for senior bank executives."

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"When banks fail because of mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again," said a White House press release in response to the SVB crisis.

The bill is currently backed by 12 other senators from both parties, 11 of which are part of the Senate Banking, Housing, and Urban Affairs Committee, which would need to first approve the bill for it to move to a floor vote, reported Politico.

A spokesperson for Committee Chair Sen. Sherrod Brown (D-OH) told the outlet that "holding failed bank executives accountable is a priority," and Senator Vance said he's expecting the bill to be marked up for a vote by the committee within the next two weeks.

One of Vance's additions to the bill was to exclude smaller banks from the legislation. Under the current language, only executives from banks with assets above $10 billion would be subject to the penalties.

These include 135 commercial banks on the list of over 4,700 banks and savings institutions covered by FDIC insurance, leaving out small community banks and other small institutions.

As of March 31, 2023, JPMorgan Chase & Co JPM was the largest bank in assets under management, with over $3.2 trillion. Followe by Bank of America BAC with $2.5 trillion, Citigroup Inc C with $1.7 trillion and Wells Fargo WFC with $1.6 trillion.

At the time of its failure, Silicon Valley Bank had $209 billion in assets, meaning that its leadership would have been penalized if the proposed bill had been a law at the time of the collapse.

The banking sector enjoyed a day in the green on Thursday, with gains across the board for its largest ETFs.

  • Invesco KBW Bank ETF KBWB was up 1.76%.
  • SPDR S&P Bank ETF KBE was up 2.0%.
  • First Trust Nasdaq Bank ETF FTXO was up 1.7%

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Posted In: PoliticsETFsGeneralElizabeth WarrenJ.D. Vance
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