Sen. Brown demands failed bank executives forfeit their paychecks
WASHINGTON, D. C. — Executives from failed financial institutions such as Silicon Valley and Signature banks should be forced to repay large portions of their big paychecks and be barred from future high-ranking bank jobs, Senate Banking Housing and Urban Affairs Committee Chairman Sherrod Brown said Thursday.
“Only in corporate boardrooms can you run your business into the ground, take the whole economy along with you, and come out ahead,” the Cleveland Democrat declared at a hearing on how to hold executives accountable for recent bank failures. “We cannot — we will not —let that happen again.”
Financial institutions have come under renewed scrutiny in Washington in the weeks since Silicon Valley and Signature failed, initially leaving depositors fearful about the security of their funds and investors, including Ohio pension funds, holding multi-millions dollar losses. The federal government stepped in with aid, but it set off a wave of new questions from Congress.
University of Richmond law school professor Da Lin told Brown’s committee that current laws aren’t designed to hold top executives responsible for failing to competently oversee banks, because they require “personal dishonesty” or a “willful or continuing disregard” for the safety or soundness of the institution.
“Yet failed oversight is seldom a demonstrably deliberate act, and senior bank leadership, in particular, are often immunized by the diffuse decision-making processes that characterize most large and midsize banks,” Lin told the committee.
Catholic University of America law professor Heidi Mandanis Schooner agreed that existing laws could be reformed to provide more accountability for negligent bank executives or board members who fail in their responsibilities.
“Strengthening existing accountability standards, in matters involving both failed institutions and open ones, will encourage prudent management of bank operations which, in turn, will contribute to the safety and soundness of the financial system,” Schooner testified.
But U.S. Chamber of Commerce executive vice president Tom Quaadman warned that passing laws that allow compensation claw backs for bank executives might make talented executives flee for businesses that wouldn’t be covered by such rules.
“This result could actually have the effect of undermining regulators’ goals in promulgating these rules by discouraging the most talented individuals — those most capable of preventing or managing the types of losses the regulator is trying to proscribe — from working in the financial services sector,” said Quaadman. “It might also chill the kind of healthy risk-taking — lending, financing, and investing – that spurs economic growth and job creation in our capitalist system, resulting in corporate stagnation.”
GOP committee member JD Vance of Cincinnati agrees that Congress needs to make sure that bank executives “can’t pay themselves fat bonuses for running a bank into a ground,” but wants to make sure that any legislation targets those with managerial control and not subordinate employees.
“It strikes me as especially unfair way to run a banking system where you can screw things up, pay yourself out fat bonuses and then taxpayers end up dealing with the downside risks,” Vance said at the hearing.
Brown said regulators at the Federal Reserve have been too easy on the banks. He said he plans to have top executives from the failed banks testify before his committee before it marks up a bill.
“We need to send a message to bankers, they operate this way, they lose their compensation,” Brown said after the hearing.