Senate Bill Would Claw Back Compensation from Execs at Banks That Fail

WASHINGTON — A bipartisan group of U.S. senators has introduced legislation that would allow regulators to claw back compensation from executives at banks that fail, an effort supporters say would strengthen accountability in the financial system.

The proposal would expand the authority of the Federal Deposit Insurance Corp. to recover bonuses and other compensation from senior bank executives if regulators determine their actions contributed to the collapse of a financial institution, according to reporting by Reuters and The Washington Post.

Under the plan, regulators could seek repayment of compensation such as bonuses and profits from stock sales made by top executives in the years leading up to a bank’s failure, the reports said.

Supporters of the legislation say the measure is intended to prevent bank executives from retaining large payouts while the financial system, deposit insurance fund or taxpayers absorb the costs of a bank collapse.

“When big banks fail, weak regulators too often let the failed bank’s wealthy executives slip away while taxpayers foot the bill,” said Sen. Elizabeth Warren (D-MA) in a statement.

Big 2023 Failures Cited

The proposal follows scrutiny over executive compensation tied to the failures of Silicon Valley Bank, Signature Bank and First Republic in 2023, events that renewed debate in Washington over whether bank leaders face sufficient consequences when institutions collapse, according to The Washington Post.

Reporting cited by the Post noted that Silicon Valley Bank’s former chief executive received tens of millions of dollars in compensation in the years leading up to the lender’s failure and sold millions of dollars in stock shortly before the bank collapsed.

Discouraging Risk Taking

Advocates of stronger clawback rules argue the policy could discourage excessive risk-taking and improve confidence in the banking system by ensuring executives face financial consequences if their decisions contribute to a bank’s downfall, Reuters reported.

Efforts to broaden regulators’ authority to reclaim executive pay have been debated in Washington in the past but have struggled to advance through Congress, according to The Washington Post.