U$ Senate moves closer to a ‘claw back’ of executive pay after bank failures

Ben Werschkul
·Washington Correspondent
Wed, June 21, 2023 


A bipartisan effort to ‘claw back’ compensation from bank executives who oversee a failure advanced in the Senate Wednesday, one of the most significant legislative moves to rein in the industry since the collapse of Silicon Valley Bank.

The bill advanced out of the Senate Committee on Banking, Housing, and Urban Affairs in a vote of 21 to 2. It came after late-night negotiations with a host of senators haggling up until the last minute on how much power to give regulators when confronting future banking failures.

We "threaded the needle pretty well," said Senate Banking Committee Chair Sherrod Brown (D-OH) of the final package. He says, if enacted, the bill would give officials new power to step in if another situation arises where "executives failed at the basics of bank management."

The bill grants the Federal Deposit Insurance Corporation (FDIC) new powers to force the return of executive compensation in return for a government takeover to protect the depositors at troubled banks. The bill puts the previous two years of compensation among senior bank executives on the table with a focus on perks like bonuses and stock option profits.

The bill would also allow new fines as well as the banning of executives from the banking industry if misconduct is proven.

Senate Banking Committee Chairman Sen. Sherrod Brown (D-OH) and Ranking Member Sen. Tim Scott (R-SC) confer during a recent hearing. (Michael A. McCoy/ Getty Images)

Sen. Tim Scott (R-SC), the committee's ranking member, was closely involved in the negotiations and signaled that the "tailored" nature of the final bill would likely mean continued broad bipartisan support in the weeks ahead. He called it a "commonsense solution" that would not leave taxpayers paying for mismanagement in the banking sector.

The bill was also passed with a last-minute package of amendments that, among other things, introduced new requirements on banking regulators who oversee the industry.

Sen. Kyrsten Sinema (I-AZ) co-authored one of the adopted amendments. She said the additional requirements on regulators would “hold the Federal Reserve accountable for the cultural and operations changes that are needed.”

Two GOP senators voted no Wednesday, with Sen. Thom Tillis (R-NC) saying there is still "a lot of work to be done" on the issue. He said he was opposed because he worries the current measure remains overly expansive and would stifle innovation by not discriminating between innovative ideas at banks and management malpractice.

Nevertheless, the bill now goes to the full Senate where its broad bipartisan support in committee could mean it will likely to be considered soon by all 100 lawmakers.
Two main approaches to the issue

Wednesday’s debate hinged around two different proposals.

The hearing was called to consider a bill called the Recovering Executive Compensation from Unaccountable Practices (RECOUP) Act, which was authored by Sens. Brown and Scott and formed the basis for the final bill.

But also up for debate was a more far-reaching proposal from figures like from Sens. J.D. Vance (R-OH) and Elizabeth Warren (D-MA). That bill has many similar provisions but would go further in some areas.

Their bill would bring a wider range of senior officials at banks under scrutiny - from executives to directors to controlling shareholders - and also put the three years of compensation on the table.

Sen. Elizabeth Warren (D-MA) during a Senate Banking, Housing, and Urban Affairs hearing in May. (AP Photo/Jacquelyn Martin)

Sen. Warren said Wednesday her position remains that the bill needs to go further to cover "every bad actor" but she nevertheless she called Wednesday’s product a reasonable compromise and voted yes.

Ben Werschkul is Washington correspondent for Yahoo Finance.