Today, Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, announced the introduction of a first wave of Committee Democratic bills to respond to the recent failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, which were the 2nd, 3rd, and 4th largest bank failures in U.S. history. This first wave includes legislation that were offered by Committee Democrats at a recent markup to advance targeted reforms to respond to these bank failures, including measures to strengthen the safety and soundness of the banking system, protect community banks, and enhance bank executive accountability.
At the markup, many Committee Republicans expressed openness to exploring a compromise on several of these measures. Meanwhile, the Senate Committee on Banking, Housing, and Urban Affairs announced plans to markup a bipartisan measure on Wednesday that is similar to the Failed Bank Executives Accountability and Consequences Act offered by Ranking Member Waters.
“The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank make clear that it is past time for legislation aimed at strengthening the safety and soundness of our banking system and enhancing bank executive accountability,” said Ranking Member Waters. “Congress must not sit idly by. I'm proud of the hard work of Committee Democrats to address these issues with our first round of legislation responding to these bank failures. I also commend Senate Banking Committee Chair Brown and his colleagues in the Senate for moving bipartisan legislation forward. With several areas of agreement, the House should act on bipartisan legislation too, so I urge Chair McHenry and my Republican colleagues to work with Committee Democrats to quickly advance these much needed reforms in order to protect our banking system, economy, and our nation’s consumers from any future harm.”
H.R. 4208, Failed Bank Executives Accountability and Consequences Act is a bill offered by Ranking Member Waters (D-CA). As President Biden called for, this bill would expand bank regulatory authority with respect to clawing back compensation, imposing fines, and banning future work in the industry for bank executives that negligently contribute to their bank’s failure. These authorities would help ensure executives of failed banks are held accountable. The bill also includes a Sense of Congress that urges regulators and law enforcement to use all available tools to hold culpable executives of recently failed banks accountable for any misdeeds, and it urges regulators to quickly finalize incentive-based compensation requirements pursuant to Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act with strong clawback provisions. Cosponsors: Representatives Velazquez, Sherman, Scott, Green, Cleaver, Beatty, Vargas, Horsford, Tlaib, and S. Garcia.
H.R. 4209, Incentivizing Safe and Sound Banking Act is a bill offered by Ranking Member Waters (D-CA). This bill would expand bank regulator authority to prohibit stock sales of bank executives, when appropriate, when issuing a cease-and-desist order to a bank for not complying with the law, and automatically restricting such stock sales by senior executives of large banks if it receives poor exam ratings or does not resolve supervisory citations, such as a matter requiring immediate attention, in a timely manner. This would have prevented SVB bank executives from cashing out when they were repeatedly warned by regulators that their bank was not operating in a safe and sound manner. Cosponsors: Representatives Velazquez, Sherman, Green, Cleaver, Beatty, Horsford, Tlaib, and S. Garcia.
H.R. 4210, Closing the Enhanced Prudential Standards Loophole Act is a bill offered by Ranking Member Waters (D-CA). This bill will close a loophole that allowed large banks like Signature Bank and First Republic Bank to escape Dodd-Frank’s enhanced prudential standards simply because they did not have a bank holding company. This would ensure large banks of equal size, complexity, and risk compared to large banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning, and other related requirements. Cosponsors: Representatives Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Tlaib, and S. Garcia.
H.R. 3992, Effective Bank Regulation Act is a bill offered by Representative Brad Sherman (D-CA). This bill would require the bank regulators to expand their stress testing requirements. Specifically, rather than doing two stress test scenarios, the bill would require five, and ensure that the Federal reserve does stress tests for situations when interest rates are rising or falling.
H.R. 4206, Bank Safety Act is a bill offered by Representative Brad Sherman (D-CA). This bill would prevent large banks from opting out of the requirement to recognize Accumulated Other Comprehensive Income (AOCI) in regulatory capital, which primarily reflects the kind of unrealized losses Silicon Valley Bank had with its securities portfolio. This would address a problem with SVB’s common equity Tier 1 capital ratio artificially appearing 2% better capitalized than it ended up being.
H.R. 3914, Failing Bank Acquisition Fairness Act is a bill offered by Representative Stephen Lynch (D-MA). This bill would ensure smaller banks can purchase failed banks by directing the FDIC to only consider the bids of a megabank with more than 10% of total deposits if no other institutions meet the least cost test to the FDIC.
H.R. 4116, Systemic Risk Authority Transparency Act is a bill offered by Representative Al Green (D-TX). For any use of the systemic risk exception of FDIC’s least cost resolution test, this bill would require banking regulators and the Government Accountability Office (GAO) to produce the same kind of post-failure lessons learned reports that the Federal Reserve, FDIC, and GAO did in the aftermath of Silicon Valley Bank’s and Signature Bank’s failure. Initial reports would be due within 60 days after the systemic risk exception is triggered, with more comprehensive reports due within 180 days.
H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act is a bill offered by Representative Al Green (D-TX). This bill would permanently exempt banks with less than $5 billion in total assets from special assessments the FDIC must collect when a systemic risk exception is triggered, as was done to protect depositors of Silicon Valley Bank and Signature Bank. The bill would allow FDIC to set a higher threshold if warranted while requiring a minimal impact on banks with between $5 billion and $50 billion in total assets.
H.R. 4062, Chief Risk Officer Enforcement and Accountability Act is a bill offered by Sean Casten (D-IL). This bill would codify regulatory requirements that large banks have a Chief Risk Officer (CRO). The bill also requires within 24 hours of a large bank’s CRO position being vacant, the bank must notify their federal and, if applicable, state prudential regulator of such vacancy. Within 7 days, they must submit a plan to their regulator on how they would search for and promptly hire a well-qualified CRO when there is a vacancy. After 60 days, if the CRO position remains vacant, the bank must notify the public and be subject to an automatic cap on their asset growth until such vacancy is cured. Cosponsors: Representatives Sherman, Green, Gottheimer, Torres, and Nickel.
H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023, or FAIR Fund Act is a bill offered by Representative Rashida Tlaib (D-MA). This bill would require large financial institutions to have a portion of senior executive compensation placed into a deferred compensation pool that would get paid out between 2 years and 8 years depending on the size of the large financial institution. In the case of a company’s failure and/or executive misconduct, the fund would be used to cover the costs of paying any fines or resolving the firm. This would supplement incentive-based compensation rules required under Section 956 of Dodd-Frank.
H.R. 4207, Stopping Bonuses for Unsafe and Unsound Banking Act is a bill offered by Representative Brittany Pettersen (D-CO). This bill would restrict discretionary bonus payments to executives of any large bank does not resolve a Matter Requiring Immediate Attention or a similar supervisory citation from bank supervisors in a timely manner. Specifically, a bonus freeze would kick in if they do not submit an acceptable remediation plan by a submission deadline set by the regulators, and furthermore, a bonus freeze would take effect if they do not implement the remediation plan by the implementation deadline set by the regulators.