WASHINGTON — President Joe Biden on Friday called on 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, in a response to the recent collapse of two banks.
Biden is also asking Congress to make it tougher for banking executives to land other jobs in the industry after the failure of institutions they lead. In another move meant to deter risky actions that jeopardize a bank’s health, the president wants Congress to expand the FDIC’s ability to fine executives.
Taken together, the proposals that Biden put forward address misconduct coming from wayward bank executives. Left out were more systemic changes aimed at fortifying the banking system as a whole. The president’s policy advisers are still devising a plan to strengthen banking regulations and are expected to announce it in the coming weeks, a White House official said Friday.
“The law limits the administration’s authority to hold executives responsible,” Biden said in a prepared statement released one week after the government took over the failed Silicon Valley Bank. “When banks fail due to 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.”
“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” the president added.
Biden’s announcement follows a pledge he made Monday laying out the steps the government would take to make sure that those who deposited money at Silicon Valley Bank and Signature Bank would be made whole. He said that he wanted accountability for executives who put the banks at risk, rattling the nation’s financial system and causing bank stocks to fall.
“No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden said.
The immediate question arising from Biden’s proposal is whether he can persuade Congress to take the actions he said are needed to prevent future bank failures and preserve the nation’s financial system.
Biden’s party lost control of the House in the 2022 midterm elections and hold only a slim majority in the Senate.
Even getting Democrats to fall in line may prove difficult. The banking lobby is a powerful force on Capitol Hill. In 2018, some moderate Senate Democrats joined forces with Republicans in rolling back certain regulations on midsize banks that has been put in place after the 2008 financial collapse.
Rep. Ro Khanna, a California Democrat whose district includes Signature Valley Bank, suggested that Democrats might try to enlist moderate Republicans like Sen. Mitt Romney of Utah as they try to lock down the votes needed to ensure more accountability among bank executives.
“I don’t know if someone like Sen. Romney on the other side would be open to this kind of systemic reform,” Khanna said. But it’s worth exploring.”
