Biden Wants to Expand a Federal Agency’s Power to Go After Failed Bank Execs

President Biden on Friday called on Congress to increase the enforcement authorities of the Federal Deposit Insurance Corporation, saying the federal regulators should be more empowered to punish those involved in cases such as the recent Silicon Valley Bank collapse. 

Silicon Valley and Signature banks are both under FDIC receivership and the public corporation has removed their leadership teams, but Biden said the government needs to expand its capacity to hold bad actors accountable. The proposals include steps to allow FDIC to force executives at failed banks to forfeit previous compensation, levy civil penalties and ban those responsible from working in the industry. 

Biden said his recommendations would play a key role in deterring future irresponsible behavior in the future. 

“The law limits the administration’s authority to hold executives responsible,” the president said. “Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing.” 

As part of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, FDIC has authority to claw back money that executives earned by selling shares in the company just before their banks failed only in cases involving the largest banks. Biden, who accused Silicon Valley and Signature Bank executives of engaging in mismanagement and excessive risk taking, said that authority should apply to large regional banks such as those involved in the recent crisis. Silicon Valley Bank CEO Greg Becker sold more than $3 million of shares in his bank just before he disclosed the losses that precipitated its failure. 

FDIC currently can seek monetary penalties from bank officials who conducted certain reckless practices, but Biden said the law does not go far enough to punish individuals whose negligence contributed to their firm’s failure. The president also said Congress should lower the threshold for when FDIC can bar executives from working at other banks. The current standard of proving executives engaged in “willful or continuing disregard for the safety and soundness” of their bank is too high, Biden said, and it should be easier to put anyone leading a firm placed into FDIC receivership to earn such a penalty. 

“The president believes that if you’re responsible for the failure of one bank, you shouldn’t be able to just turn around and lead another,” the White House said. 

Last week, FDIC, in conjunction with the Federal Reserve and Treasury Department, announced all depositors at Silicon Valley Bank would be made whole. That applied even to deposits of more than the typically FDIC-insured limit of $250,000. Biden vowed the funding for that effort would come from an FDIC account supported by fees assessed to big banks and not impact taxpayers. Some critics have slammed federal regulators for failing to note the threats posed by the Silicon Valley and Signature banks prior to their collapses, though many lawmakers have highlighted that some regulatory powers enacted under Dodd-Frank were rolled back for regional banks under a 2018 measure signed into law by President Trump. 

Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., are spearheading an effort to unwind that change. Biden has also called for such legislation to restore the government’s regulatory reach. 

“We can't let Congress off the hook, and they need to take action,” White House Press Secretary Karine Jean-Pierre said on Thursday. “It's going to take both the Congress and regulators to strengthen those rules, and so that's what we're calling on to do.”