US president calls on Congress to impose tougher penalties on senior officials of banks that fail due to mismanagement.
In a statement on Friday, Biden said leaders of banks that collapse “due to mismanagement and excessive risk taking” should face fines and bans from working in the industry.
He made the comments after two US financial institutions — Silicon Valley Bank (SVB) and Signature Bank — went bust, raising fears of a broader economic fallout similar to the 2008 financial crisis.
The Biden administration moved quickly to respond to the crisis, seizing the two banks and guaranteeing the money of all depositors at both banks, even those who were uninsured.
On Friday, Biden reiterated his assurances that the US banking system is “resilient and stable”, adding that he is “committed to accountability for those responsible for this mess”.
“When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties and to ban executives from working in the banking industry again,” Biden said in a statement.
“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” he said.
When Silicon Valley and Signature Banks collapsed, we took steps to stabilize the banking system at no cost to the taxpayer, protecting jobs and small businesses.
Now, Congress must do more to hold senior bank executives accountable. pic.twitter.com/BupUZbQ5ul
— President Biden (@POTUS) March 17, 2023
The White House called on legislators to lower the bar required for banning executives from the banking industry.
“The president believes that if you’re responsible for the failure of one bank, you shouldn’t be able to just turn around and lead another,” a White House fact sheet said.
Congress has the authority to impose regulations on the banking industry. Two years after the 2008 meltdown, US lawmakers passed a sweeping Wall Street reform law. But some of its regulations were rolled back in 2018 with bipartisan support.
SVB was the 16th largest bank in the US when it collapsed at the end of last week. Specialised in lending to technology start-ups and the venture capitalists who finance them, it had invested much of its money in US government bonds, whose value fell as interest rates rose.
Senator Elizabeth Warren, a progressive Democrat who has been outspoken against deregulations in the banking sector, backed Biden’s call for accountability.
“President Biden is rightfully fighting to hold bank executives accountable for their failures,” Warren wrote on Twitter.
“We need to claw back every penny of their unjust pay and bonuses, impose real penalties, and ensure these executives never work in the banking industry again,” she said. “Congress must step up.”
Some Republicans have suggested that SVB’s failure was due to what they portray as the bank’s emphasis on liberal cultural issues, including diversity.
“No bailouts for SVB (Silicon Valley Bank),” Republican Congressman Andy Biggs wrote on Twitter.
“Its resources should have not been blown on woke/DEI [diversity, equity and inclusion] initiatives instead of actual financial management,” he posted. “It also doesn’t help that Biden’s excessive spending is creating interest rate chaos.”