The Senate Banking Committee passed the Recovering Executive Compensation Obtained from Unaccountable Practices (RECOUP) Act on Wednesday.
Spearheaded by Senators Sherrod Brown, D-Ohio, and Tim Scott, R-S.C., the bill would “hold senior executives of failed banks accountable by clawing back their compensation, penalizing them for their misconduct, and directing banks to strengthen corporate governance standards.”
It could also act as a vehicle for a “fix” that would allow 403(b)s to offer collective investment trusts (CIT) in their investment menus, according to Andrew Remo, Director of Federal and State Legislative Affairs for the American Retirement Association (ARA).
“The 403(b)/CIT issue would not advance on its own and needs to be part of a larger omnibus bill with a securities law section, which this is, and it’s a banking bill, so it makes sense,” Remo said.
On May 24, legislation supported by the ARA that would allow such an option passed the House Financial Services Committee by a vote of 35 to 12.
The bill, sponsored by Rep. Frank Lucas, R-Okla., would complete changes needed to the SECURE 2.0 Act by amending federal securities laws to enhance 403(b) plans in part by adding a CIT option.
Bank Bust
Brown and Scott’s latest bill came after several large banks failed earlier this year, with Silicon Vally Bank’s historic collapse second only to Washington Mutual's in 2008.
“The Committee members agreed that these executives failed at the basics of bank management, they pushed an unsustainable business model because it increased short-term profits and their own compensation, they ignored directives and warnings from regulators, they took risky bets at the expense of their customers, and they paid themselves bonuses right up until the moment the FDIC was forced to step in,” Brown said in a statement. ’Our bill with Sen. Scott ensures that bank executives will face real accountability for gambling with customers’ money.”
According to its text, the bill does several things:
- 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.
“The recent bank failures didn’t happen in a vacuum,” Scott added. “The banks’ executives failed to manage their risk, regulators failed to exercise their supervisory responsibilities, and the Biden administration failed to stop spending, which led to rising interest rates.”
In March, Brown and Scott sent a formal request to the executives of Silicon Valley Bank and Signature Bank to appear before the committee. In May, the committee held a hearing with the executives, where the latter were pressed on what led to the collapse.
