Ban executives from failed banks from the industry

President Biden wants Congress to pass tougher penalties for executives who oversee failed banks.

Why it’s important: Silicon Valley Bank and Signature Bank were both taken over by the FDIC last week — events that threatened to escalate into a larger banking crisis.

  • The downfall of the banks had to do with how they managed the risk that sat on their balance sheets – risks that sat in their eyes.

What he says: “I am firmly committed to holding accountable those responsible for this mess,” Biden said.

  • “No one is above the law – and strengthening accountability is an important deterrent to prevent future mismanagement.”
  • “When banks fail due to mismanagement and excessive risk-taking, it should be easier for regulators to recover compensation from directors, to impose civil penalties and to ban directors from working in the banking industry again.”

Back story: Silicon Valley Bank experienced a record bank run last week following a crisis of confidence among investors and depositors.

  • At issue: Losses in its portfolio of long-term bold holdings, which fell in value as interest rates rose rapidly.
  • The bank faced the prospect of selling these assets for less than what they paid for them to fund withdrawals. It announced a $1.8 billion loss on such sales last week.
  • Critics point out that interest rate risk was a well-known market risk in the past few years and believe the bank should have hedged its portfolio appropriately.

Worth nothing: SVB CEO Greg Becker sold $3.6 million of his own stock in the company in late February — an action the Justice Department may scrutinize.

The bottom line: Becker saw tens of millions of dollars in the value of his equity disappear over the past year—plus, he lost his job.

  • While that may be something of a deterrent to other bank executives, the law itself limits the federal government’s ability to hold bank executives accountable, as Biden noted in his remarks.
  • “Congress must act to impose tougher penalties on senior bank executives whose mismanagement has contributed to the failure of their institutions,” Biden said.

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