CRS Reviews Legislative Options to Hold SVB Bank Executives Accountable | Fried Frank

The Congressional Research Service (“CRS”) identified legislative policy options in light of news that executives of Silicon Valley Bank (“SVB”) reaped “significant financial rewards” before the bank’s failure.In a “Legal Sidebar,” CRS explained that, under the Federal Deposit Insurance Act (“FDIA”), executives of insured depository institutions are subject to restrictions on compensation that is “excessive” or could result in “material financial loss to the institution.”

CRS said that SVB (i) offered “some of the most generous” compensation packages paid by publicly traded banks before its failure and (ii) paid out bonuses to employees just before it was taken over. CRS added that the DOJ and the SEC are reportedly investigating stock sales by SVB executives, including that SVB’s CEO sold $3.6 million of the bank’s stock “days before” SVB publicly disclosed large losses.

In response to these concerns, CRS said that Congress might consider:

expanding bank regulators’ authority to impose penalties on negligent executives whose conduct contributes to a bank’s failure;

expanding the FDIC’s authority to obtain damages from failed banks’ officers and directors and establish a “uniform federal standard of simple negligence” for the FDIC to use in assessing damage actions;

extending clawback authorities under Title II of the Dodd-Frank Act;

implementing (i) S.825 (“Protecting Consumers from Bailouts Act”) which would allow the FDIC to claw back compensation from institution-affiliated parties from the five years preceding a bank’s failures or (ii) S. 800 (“Deliver Executive Profits On Seized Institutions to Taxpayers”) which would create a 90 percent tax rate for bonuses paid to the executives of failed banks; and

finalizing Dodd-Frank Act Section 956 (“Enhanced compensation structure reporting”) which would require banking regulators to prohibit incentive-based compensation arrangements at financial institutions with $1 billion or more in assets that “encourage[d] inappropriate risks” and could lead to material losses.

CRS Reviews Legislative Options to Hold SVB Bank Executives Accountable | Find Know Do

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