WASHINGTON, DC -- In an effort to improve accountability at big banks and ensure managers of failed banks don’t profit from their mismanagement and negligence, the Senate Committee on Banking, Housing, and Urban Affairs today voted 21-2 to advance the bipartisan Recovering Executive Compensation from Unaccountable Practices (RECOUP) Act to the full Senate.  This legislation, supported by U.S. Senator Jack Reed (D-RI), would give federal regulators power to claw back compensation for executives of failed banks, institute penalties for misconduct, and direct banks to beef up corporate governance.  Under the RECOUP Act, bank CEOs and top executives would be subject to fines and penalties if they were found to have ignored warnings and enforcement actions from regulators.

The bill includes an amendment authored by Senator Reed that toughens compensation clawback rules.  Reed’s language ensures severance pay and ‘golden parachutes’ are included in the compensation that the Federal Deposit Insurance Corporation (FDIC) can claw back.

“Taxpayers shouldn’t have to pay for the incompetence, negligence, and misconduct of failed bank executives.  This bipartisan bill is a win for responsible management.  It provides regulators with the tools they need to prevent bank executives who mismanage these institutions into the ground from enriching themselves when their risky bets fail,” said Senator Reed, a senior member of the Banking Committee. “This bipartisan bill should make bank executives think twice before engaging in risky activities.  It would help ensure those most responsible for bank failures are the ones who help pay to clean them up.”

The RECOUP Act was considered by the Banking Committee in the wake of the failures of Silicon Valley Bank and First Republic Bank in California and Signature Bank in New York, each with assets exceeding $100 billion.  Executives at these banks received exorbitant compensation as the banks took on excessive risks.  The CEO of Silicon Valley Bank received $10 million in compensation in 2022 and sold $3.5 million of company stock in the days before the failure.  The CEO of Signature Bank received $8.7 million in compensation in 2022 and sold millions of dollars’ worth of company stock in the weeks and months before the failure.   The CEO of First Republic sold $4.5 million in two transactions this year, before the stock price sank and the bank failed.

Specifically, the RECOUP Act will:

  • Strengthen regulators’ ability to ban or remove executives who fail to appropriately oversee and manage their bank.
  • Provide the FDIC authority to claw back compensation of failed bank senior executives.
  • Increase and strengthen certain penalties against bad actors.
  • And require banks to adopt corporate governance and accountability standards that promote responsible management.

Now that the bill has been advanced out of committee it must be considered and passed by the full U.S. Senate.  Similar legislation has been offered in the U.S. House of Representatives.  However, Republican leadership in the House has not indicated its support to hold bank executives accountable.