Biden urges Congress to crack down on failed bank executives
President Biden urged Congress on Friday to give the Federal Deposit Insurance Corporation (FDIC) more power to punish executives in charge of banks that fail and require assistance from the federal government.
In a request to Congress made Friday, the president said the FDIC should have more authority to take back executives’ pay, levy fines against them and bar them from future employment in the banking sector.
"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," Biden said in a statement.
Read more: What you need to know about this week’s banking crisis
"Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing."
With the House controlled by Republicans and the Senate by Democrats, any legislation on the financial sector would have to surmount numerous hurdles.
On Sunday, the FDIC, Treasury Department, and Federal Reserve announced that they would fully insure deposits at Silicon Valley Bank (SVB) and Signature Bank after account holders started pulling out their money, causing the banks to fail.
On Thursday, a consortium of eleven larger banks provided $30 billion to prop up California-based First Republic after its credit was downgraded by ratings agencies including Fitch, which cited “uninsured deposits as a percentage of total deposits” as a reason for the demotion.
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The government’s move to insure wealthy account holders at SVB and Signature above the FDIC’s $250,000 standard insurance limit raises the question of whether all accounts in the $26 trillion banking sector are now implicitly insured by the Federal Reserve and Treasury – and ultimately the U.S. taxpayer.
Biden’s request to Congress doesn’t touch on this question, though some lawmakers have started talking about it themselves.
Rep. Blaine Luetkemeyer (R-Mo.), a member of the House Financial Services Committee, told Politico Wednesday that the government should insure all bank deposits on a temporary basis.
“If you don’t do this, there’s going to be a run on your smaller banks,” he said. “Everyone’s going to take their money out and run to the JPMorgan’s and these too-big-to-fail banks, and they’re going to get bigger and everybody else is going to get smaller and weaker, and it’s going really be bad for our system."
Analysts for Goldman Sachs wrote over the weekend that they did not expect near-term actions in Congress to provide guarantees.