WASHINGTON — President Biden asked Congress on Friday to pass legislation to give financial regulators broad new powers to claw back ill-gotten gains from the executives of failed banks and impose fines for failures.
The proposal, a response to the federal rescue of depositors at Silicon Valley Bank and Signature Bank last week, would also seek to bar executives at failed banks from taking other jobs in the financial industry.
The measures contained in Mr. Biden’s plan would build on existing regulatory powers held by the Federal Deposit Insurance Corporation. Administration officials were still weighing on Friday whether to ask Congress for further changes to financial regulation in the days to come.
“Strengthening accountability is an important deterrent to prevent mismanagement in the future,” Mr. Biden said in a statement released by the White House.
“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,” he said, adding that Congress would have to pass legislation to make that possible.
“The law limits the administration’s authority to hold executives responsible,” he said.
One plank of the proposal would broaden the F.D.I.C.’s ability to seek the return of compensation from executives of failed banks, in response to reports that the chief executive of Silicon Valley Bank sold $3 million in shares of the bank shortly before it was taken over by federal regulators a week ago. Regulators’ current clawback powers are limited to the largest banks; Mr. Biden would expand them to cover banks the size of Signature and Silicon Valley Bank.
In a contrast with top Silicon Valley Bank officials, a senior Signature Bank executive and one of its board members bought shares in the firm’s stock last Friday while it was experiencing a run, regulatory filings show. Signature’s chairman, Scott Shay, bought 5,000 shares of Signature stock while one of its directors, Michael Pappagallo, bought 1,500 shares.
The president is also asking Congress to lower a legal bar that the F.D.I.C. must clear in order to bar an executive from a failed bank from working elsewhere in the financial industry. That ability currently applies only to executives who engage in “willful or continuing disregard for the safety and soundness” of their institutions. He is similarly seeking to broaden the agency’s ability to impose fines on executives whose actions contribute to the failure of their banks.
The proposals face an uncertain future in Congress. Republicans control the House and have opposed other pushes by Mr. Biden to strengthen federal regulations. A 2018 law to roll back some of the regulations on banking that were approved after the 2008 financial crisis passed the House and Senate with bipartisan support.
Within minutes of Mr. Biden’s announcement, Democrats were voicing support for the new rules. Senate Banking Committee Chair Sherrod Brown of Ohio, said in a statement emailed to reporters that regulators needed “stronger rules to rein in risky behavior and catch incompetence.”
He added that in addition to executives who had failed at their duties, there should be a way to hold accountable the “regulators tasked with overseeing them.”
In a letter to the chairs of the Securities and Exchange Commission, the F.D.I.C. and the Fed, Representative Maxine Waters, a Democrat from California, asked the regulators to use the “maximum extent” of their current powers to hold both banks’ senior executives and board directors accountable.
She added that the Dodd-Frank law enacted after the 2008 financial crisis had given agencies more powers than they had yet used to tie executive compensation in the financial industry to successful risk management strategies.
“While I am moving quickly to develop legislation on clawbacks and other matters arising from the collapse, it is critical that your agencies act now to investigate these bank failures and use the available enforcement tools you have to hold executives fully accountable for any wrongful activity,” she wrote.
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