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Banking industry

Senators Introduce Bank Management Accountability Act to Claw Back Compensation of Negligent Bank Directors and Executives

Strategic Insights

— 2 min read

As the failures of Silicon Valley Bank in California and Signature Bank in New York continue to leave a lasting impact, U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) have introduced the Bank Management Accountability Act (S. 1181) to improve accountability at big banks and ensure that managers of failed banks don't profit from their mismanagement and negligence. The bipartisan bill aims to make it easier for banking regulators to claw back compensation from negligent bank directors and senior executives at failed systemically important banks and to ban those directors and executives from future participation in the financial industry.

Key Takeaways:

  • The Bank Management Accountability Act would expand existing rules for clawing back compensation from failed systemically important banks, such as Silicon Valley Bank and Signature Bank.
  • The bill would specify that recouped funds may not be paid out of director's and officer's liability insurance coverage to ensure true personal liability.
  • The legislation would lower the standard for barring directors and senior executives at failed systemically important banks from the financial industry.
  • The Reed-Grassley bill aims to provide powerful disincentives against excessive risk-taking and protect depositors from directors and senior executives who have already driven a bank into failure.
  • The bill would make it easier for banking regulators to recover funds for the benefit of taxpayers.
  • The CEOs of Silicon Valley Bank and Signature Bank received $10 million and $8.7 million in compensation, respectively, in 2022.
  • The CEOs sold $3.5 million and millions of dollars' worth of company stock, respectively, in the days and weeks before the failure.

Statistics:

  • The failures of Silicon Valley Bank and Signature Bank are expected to cost the Federal Deposit Insurance Corporation's (FDIC's) deposit insurance fund over $20 billion.
  • Over $143 billion in credit has been extended to the successor banks by the Federal Reserve.
  • The failures of Silicon Valley Bank and Signature Bank have raised concerns about the risks associated with excessive compensation and the need for improved accountability at big banks.

Sources:

  • Reed, J., & Grassley, C. (2023). Bank Management Accountability Act (S. 1181). United States Senate.
  • "Regulators need stronger tools to prevent bank directors and senior executives who mismanage these institutions into the ground from enriching themselves when their risky bets destabilize the financial sector and saddle the American people with the costs," said Senator Reed, a senior member of the Banking Committee.
  • "Bank executives shouldn't be able to skate unscathed from a bank failure of their own doing, and they certainly shouldn't be able to profit from their poor management when taxpayers and depositors are left shouldering the burden of losses," Senator Grassley said.

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