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

Senators Jack Reed and Chuck Grassley have introduced the Bank Management Accountability Act, a bipartisan bill aimed at enhancing accountability at big banks and preventing executives from profiting from their mismanagement. The legislation comes in the wake of the failures of Silicon Valley Bank in California and Signature Bank in New York, which were declared a "systemic risk" to the economy. Executives at these banks received exorbitant compensation as the banks took on excessive risks, with the CEO of Silicon Valley Bank receiving $10 million in compensation in 2022 and selling $3.5 million of company stock in the days before the failure.

Key Takeaways:

• The Bank Management Accountability Act (S. 1181) aims to make it easier for banking regulators to claw back compensation from negligent bank directors and senior executives at failed systemically important banks.
• The legislation would expand existing rules for clawing back compensation from the special "orderly liquidation authority" to banks such as Silicon Valley Bank and Signature Bank.
• The bill would lower the standard for barring directors and senior executives at failed systemically important banks from the financial industry.
• The legislation would require recouped funds to come from the personal liability of directors and officers, rather than from director's and officer's liability insurance coverage.
• The bill would provide additional accountability for bank managers whose poor decisions lead to the failures of systemically important banks that need to be bailed out.
• The Reed-Grassley bill would update the FDIC's outdated compensation clawback authority and weak financial industry ban authority.

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.
• The Federal Reserve has extended over $143 billion in credit to their successor banks.
• The CEO of Silicon Valley Bank received $10 million in compensation in 2022 and sold $3.5 million of company stock in the days before the failure.
• The CEO of Signature Bank received $8.7 million in compensation in 2022 and sold millions of dollars' worth of company stock in the weeks and months before the failure.

Sources:

• Senator Jack Reed, S. 1181: Bank Management Accountability Act
• Congressional Record, "Senators Introduce Bank Management Accountability Act to Claw Back Compensation of Negligent Bank Directors and Executives"
• Federal Deposit Insurance Corporation, "Silicon Valley Bank and Signature Bank Failure Costs"
• Federal Reserve, "Emergency Lending under Section 13(3) of the Federal Reserve Act"