Chairman Sherrod Brown, D-Ohio, left, and rating member Sen. Tim Scott, R-S.C., arrive for the Senate Banking, Housing and Urban Affairs Committee hearing discussing recent bank failures, April 27, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
WASHINGTON — The Senate Banking Committee on Wednesday voted to send to the total Senate a bill that goals to carry banking executives accountable after the collapse of several big banks.
The Recovering Executive Compensation from Unaccountable Practices Act, often called the RECOUP Act, would give regulators power to claw back compensation for executives of failed banks, institute penalties for misconduct and direct banks to beef up corporate governance, in response to the committee.
Members voted 21-2 to pass the measure out of committee. Sens. Thom Tillis, R-N.C., and Bill Hagerty, R-Tenn., voted no.
Sens. Sherrod Brown, D-Ohio, chairman of the committee, and rating member Tim Scott, R-S.C., announced an agreement on the laws last week. Brown is up for reelection next 12 months, and Scott is running for the 2024 Republican presidential nomination.
What’s within the RECOUP Act
The bill goals to:
- Allow regulators to remove senior banking executives who show misconduct in oversight, including failures to use risk controls and breaches of fiduciary duty. It will also give regulators the discretion to ban these executives from the industry.
- Require banks to adopt enforcement of responsible management bylaws, including allowances for the bank’s board or the Federal Deposit Insurance Corporation to claw back compensation an executive received within the two years before a bank’s failure.
- Boost regulatory control over penalties for executives who break the law and increase the utmost civil penalty for the worst violations.
- Define a “senior executive” as those that are amongst a bank’s senior leadership and certain directors.
Scott said the bill is a “commonsense solution to deal with executive accountability.”
Brown said, “It is time for CEOs to face consequences for his or her actions, similar to everyone else.”
But Tillis said the bill is “too expansive” and might stifle innovation for senior executives.
“You are going to provide reasons for people to pursue a position aside from the C-suite that will have good ideas that just fail. That is not malpractice. That is only a management decision that did not bear out,” Tillis said in the course of the markup.
Hagerty said the bill “can have the perverse effect of creating the largest banks even greater” on the expense of smaller banks.
“Second, it lets the federal government regulators and bureaucrats — whose supervisory failures led to SVB’s collapse — off scot-free. Actually, it empowers government agencies much more,” he said in a press release released Wednesday.
The RECOUP Act is one in every of several bills introduced in recent months targeting regulatory and management lapses that led to failures like those of Silicon Valley Bank and Signature Bank earlier this 12 months.
Sen. Elizabeth Warren, D-Mass., a member of the Senate Banking Committee, spearheaded a bipartisan clawback bill with Democratic Sen. Catherine Cortez Masto, of Nevada, and Republican Sens. Josh Hawley, of Missouri, and Mike Braun, of Indiana.
Released in March, the bill calls for clawbacks of all or a part of the compensation received by bank executives in the course of the five years preceding a bank failure, compared with two years of clawbacks under the RECOUP Act.
